Update - The European Commission published the agreed text of the directive on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC here.
We will publish an analysis of the text in due course and hold a webinar on the implications of this reform later in the year. Please do let us know if you would like to brainstorm the opportunities and implications for your business.
Recap: What's happened so far?
On 22 June 2020, the European Parliament and Council negotiators agreed a revised text for the preposed Collective Redress Directive.1 The proposed text is yet to be published; it will now be put before the European Parliament and the Council of Ministers of the EU for formal approval before going to Member State governments for a vote.
This draft Directive has been subject to much debate and re-write over the last two years. A first draft was issued in April 2018; it was then substantially re-written in November 20192 with a distinction between domestic and cross-border representative actions being introduced for the first time. In January 2020 the European Parliament, Commission and Council commenced tripartite negotiations and some headway was made in March 2020.3 You can read Baker McKenzie's own submissions as to the issues with that draft here: what we said in November 2019.
Unsurprisingly, negotiations to settle the draft were delayed after the outbreak of COVID-19. In June 2020, business and industry associations issues a Joint Statement warning that the Directive should not be rushed through during the pandemic.
It is safe to say that agreeing the text for this Directive has not been a straightforward process, and debate has focused on how to implement representative action model that works both domestically and on a cross border basis. Yet, despite the disagreements and delay, a revised text has now been agreed and a process of finalisation is (potentially) under way.
Whilst the revised text is yet to be published in full, the European Parliament has issued a Press Release confirming (at a high level) the mechanisms and scope being put forward this time around. It appears from this that the mechanisms under consideration have once again taken a (slightly) new direction (as detailed further below).
By way of background, this Directive aims to increase consumer protection. It is part of the "New Deal for Consumers" which was launched in 2018. The Directive has always been pitched on the basis that it will allow "qualified entities" to bring a claim on behalf of consumers. While some EU member states already provide for this type of group claim, the Directive will significantly increase the options available for EU citizens, particularly where a class will cross EU borders. As set out below, it aims to provide consumer protection more akin to what we currently see in the US, but without going so far as to encourage or allow mass opt out litigation backed by litigation funders and with flexibility on individuals acting as representatives of the class.
What is being proposed (this time around)?
The European Parliament's Press Release confirms the main elements that will be introduced under the revised text. This can be summarised as follows:
- At least one representative action procedure for injunction and redress measures should be available to consumers in every member state, allowing representative action at national and EU level;
- Qualified entities (organisations or a public bodies) will be empowered and financially supported to launch actions for injunction and redress on behalf of groups of consumers and will guarantee consumers’ access to justice;
- On designation criteria for qualified entities, the rules distinguish between cross-border cases and domestic ones:
- For cross border, entities must comply with a set of harmonised criteria. They have to demonstrate 12 months of activity in protecting consumers’ interest prior to their request to be appointed as a qualified entity, have a non-profit character and ensure they are independent from third parties whose economic interests oppose the consumer interest;
- For domestic actions, member states will set out proper criteria consistent with the objectives of the directive, which could be the same as those set out for cross-border actions;
- The rules strike a balance between access to justice and protecting businesses from abusive lawsuits through the Parliament’s introduction of the “loser pays principle”, which ensures that the defeated party pays the costs of the proceedings of the successful party;
- To further avoid abusive lawsuits, Parliament negotiators also insisted that courts or administrative authorities may decide to dismiss manifestly unfounded cases at the earliest possible stage of the proceedings in accordance with national law;
- Negotiators agreed that the Commission should assess whether to establish a European Ombudsman for collective redress to deal with cross-border representative actions at Union level;
- The scope of collective action is broad and would include trader violations in most areas including data protection, financial services, travel and tourism, energy, telecommunications, environment and health, as well as air and train passenger rights, in addition to general consumer law.
What has changed?
It is difficult to say how much has changed since November 2019. However, based on the January 2020 trilogue proposal [see here] and this week's announcement, we do not expect the full text to be a radical re-write of the previous proposals.
Interestingly, the Press Release does not refer to previously considered "rebuttable presumption of liability" whereby liability is presumed in all Member States if it has already been determined by a Court in one Member State. Based on the trilogue proposal dated January 2020, this was clearly an issue of disagreement amongst the parties.4
A further significant difference, seems to be the step back from granting a large degree of autonomy to Member States. Clearly, Europe does not want to pass a collective redress scheme which results in too much variation between the Member States. The new text proposes continues to propose two approaches - one for a cross border claim (where the process will be aligned across each Member State) and a separate route for domestic damages claims (where the local government can decide what criteria to set for the class action). This could potentially be a nice solution to the calls for more and less control and decision power at a local level. In essence:
- a qualified entity wishing to bring a cross border class action will need to consider a single set of criteria. For example, the qualified entity must be not be profit-making in nature or linked to a third party that might have other motives for suing.
- a qualified entity wishing to only pursue a domestic claim on behalf of consumers in that country will need to consider the relevant requirements implemented in that territory. For the domestic regime, it seems that Member States will be able to decide how to implement the EU law. For example, it may require the qualified entity to meet additional qualifying criteria, or insist that they evidence a higher degree of similarity between the consumers within the "class" that they represent. Member States are also able to implement an “opt-out” procedure, where everyone who suffered damages is included by default unless they decide to withdraw from the court action, the standard procedure.
The press release confirms that the scope of the Directive remains broad - including "data breaches" and "health". This will mean that representative action litigation risk will touch the majority of businesses in all industries where one or more of a variety or laws are breached.
Keep class actions on your radar:
The new directive is likely to be applauded by consumers and groups looking to protect consumer interests. Law makers have welcomed the arrival of a compromised text. Geoffrey Didier (who led negotiations on the European Parliament's side) stated: "We have sought to strike a balance between the legitimate protection of consumer interests and the need for legal certainty for businesses. Each member state has at least one entity qualified to exercise a remedy, while at the same time putting in place safeguards against abusive recourse". Monique Goyens, Director General of The European Consumer Organisation also praised the Directive, describing it as a 'huge landmark to make justice available to all consumers.' However, she voiced caution that governments must not transpose it into domestic law in a way that is 'unnecessarily complicated,' and hoped Member States would legislate to allow consumer groups to act as class representatives.
Business should expect to see an expansion in class actions outside the US irrespective of when this legislation comes into force. We expect data privacy, consumer rights and competition lThe UK, Italy and the Netherlands have all introduced opt out class action mechanisms for some types of claim and are seeing increased uptake in opt in mechanisms that already were available. For example, in the UK, the recent Court of Appeal case of Lloyd v Google5 established that a representative action claiming compensation for consumers can proceed without the need to claim financial harm or distress. This case concerns the loss of control of data under the Data Protection Act 1998. The claim is potentially worth up to £3 billion and includes a class of around 4.4 million Apple iPhone users. Similarly, EasyJet is facing a UK class action for breach of the DPA. This action, taking the form of a Global Litigation Order, involves the personal details of nine million EasyJet customers being allegedly stolen, with 2,208 customers allegedly having their credit card details accessed. The action demands compensation payment of £2,000 per affected customer, giving a total of £18 billion.
The final text of the Directive still needs to receive political agreement, which will come from the European Parliament and the Council. National Governments will also vote on the final text. Following formal approval, the Directive will be published in the Official Journal of the EU. Twenty days later, the Directive will enter into force.
As with all Directives, this must be transposed into the laws of each Member State. This means each Member State will have to apply the Directive either by primary or secondary legislation. The Member States must implement the Directive within a 24 month period, although there will be an additional six months to apply this.
Whilst we have a new text to grapple with, the underlying message to our clients is the same. The landscape of litigation and civil recovery is no doubt going to change once this Directive becomes law. 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.
You can continue to monitor developments in this space via our Global Class Actions blog.
1. Directive on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC."
2. See here.
3. This document sets out the position of the three parties in March 2020.
4. See here. See Article 10(2) and 10(2a). It seems that the Commission and Parliament broadly agree on the presumption but the Council disagree and wish to have it removed.
5.  EWCA Civ 1599