The proposed Collective Redress Directive1 promises to introduce "class action" style litigation for consumers across the EU. It has been the subject of a focused review and re-write by Council officials in recent months. The European Council adopted a revised approach on 27 November 2019 (see text here) that attempts to reconcile the conflicting views between member states (as well as entities representing consumer and business interests) on how such reforms should best be approached and the risks that they engender.
The revised text presents substantial changes to the first draft proposed by the European Commission back in April 2018 and will no doubt provoke much debate on how it might be implemented at member state level if adopted in this form by the European Commission.
The finish line for implementing the Directive is now in sight. The revised text will now head for approval at Commission and European Parliament level. And, while a consensus has been agreed at national level, it has not been secured without challenge. A Joint Declaration signed by the Czech, Slovak, Latvian, Cypriot, and Luxembourgish governments was issued this week criticising the overly proscriptive criteria now put forward and suggest that this will result in making class actions too costly and timely for consumers to pursue.
Despite the re-write of the text, the overall aim of the Directive has not changed. It seeks to strengthen enforcement of EU consumer law by giving consumers across the bloc the ability to sue companies that violate their rights. A link to our August 2018 Client Alert summarising the potential impact of this Directive can be viewed here and our full submission on the European Commission's public Consultation of the original text can be accessed here.
The key elements of the revised Directive include:
the ability for qualified non-profit entities designated by Member States (so-called 'qualified entities') to launch representative actions on behalf of consumers;
detailed requirements of what constitutes a "qualified entity" to ensure that a representative has the appropriate level of skill, knowledge and independence and that consumer protection, rather than litigation funding, is the focus of the claim;
an ability for the qualified entities to prohibit an infringement and to seek redress, such as compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid;
a rebuttable presumption of liability in litigation before the courts of all Member States where liability has already been determined by a court in another member state in respect of that matter; and
increased collaboration and consistency of outcomes between Member States with regards to consumer protection.
A level playing field across the EU?
The revised text permits Member States a high degree of control over how to implement a class action mechanism. Each national government has the power to set down rules on admissibility, evidence or means of appeal applicable to representative actions. For example,
- It is for each Member State to decide on the required degree of similarity of individual claims or the minimum number of consumers concerned by an action for redress for the purpose of a case being admitted to litigate as a representative action.
- Member States can also set their own criteria to decide how to classify a "qualified entity".
- Each Member State can set out rules to limit the right of a qualified entity to bring a cross-border representative action to the area of activity of that entity.
- Member States can provide for an opt-in OR an opt-out mechanism, or a combination of both, where a consumer concerned in a representative action wishes to enter or exit an existing action. Member States also have discretion to decide at which stage of the representative action the individual consumer could exercise their right to opt-in or opt-out from the proceedings.
Class actions may well become more prevalent in certain Member States where admissibility requirements and funding restrictions are less stringent. However, that approach means that concerns raised in response to the first draft of the Directive shall remain as to the possibility that unmeritorious claims will be pursued for profit at the burden of business and the economy overall.
Class Action Funding
The market for litigation funding is slowly expanding across the EU. The revised text of the Directive maintains the position that third party vexatious funding should be prohibited. A qualified entity is not permitted to allow a third party funder to influence their decision or fund a representative action against a competitor.
Nonetheless, concerns remain that funding requirements are not sufficiently transparent or rigorous to avoid all risks and potential for vexatious or abusive litigation.
The revised text now makes its way to the European Parliament and Commission - and so there remains some way to go before this Directive becomes law. Class actions, in whatever form they take, will not need to have regard to the provisions of this Directive until at least 2021.
It will be important for interested parties to engage at a national level so as to ensure that all perspectives are considered on implementation of the Directive following its adoption. If the Council's revised text is approved, it seems unlikely that a unified European class action mechanism will take hold. It is more than likely that each jurisdiction will adopt its own form of class action and a high degree of variation between Member States will make for costly and unattractive litigations in at least a number of them. Consumers and qualified entities may be put off by the fact that they will need to grapple with the different rules of each jurisdiction if they wish to bring a cross-border claim.
This view is underscored by the fact that some Member States have already moved to implement some form of collective action - with the UK, Netherlands and Italy all adopting opt out class actions that can be led with individual claim representatives and supported by third party funding.
Whether or not these developments translate to US volumes of class action activity and recovery is yet to be seen. However, the landscape of litigation and civil recovery no doubt will change in future. Effective management of this litigation risk will require a strategic approach coordinated across jurisdictions that accounts for the possibility of claims being made while regulatory investigations remain ongoing.
1 "Directive on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC."