In May 2010, at the request of the president of the European Commission (the “Commission” or EC), Professor Mario Monti presented a report: “A New Strategy for the Single Market: At the Service of Europe’s Economy Strategy” to the EC. In his report Professor Monti highlighted, along with other topics relevant to the single market, the need for Europe to adopt its own legislation on collective redress, saying that “traditional litigation is not practical or cost-efficient for consumers and businesses”.
In February 2011, the Commission published a consultation document called “Towards a Coherent European Approach to Collective Redress” which paved the way for collective redress to be a new area of focus for the European Union.
In June 2013, an EC recommendation was published calling on member states to put collective redress mechanisms in place. The aim was to ensure a coherent approach across the member states.
In 2017, the Commission oversaw a review of its 2013 recommendation to ascertain which member states had implemented a collective redress mechanism in the four years since the recommendation. This culminated in a report which confirmed that:
The EU Directive
In April 2018, a suite of legislation was proposed by the Commission, called “A New Deal for Consumers” which, amid a variety of wide-ranging reforms for consumer laws in the EU, included a Draft EU Directive on representative actions for the protection of the collective interest of consumers (2018/0089).
It took two years for the text of the EU Directive on collective redress to be agreed, due to extensive debate and negotiations between the European Parliament and the Commission. It should be noted that Professor Monti had specifically warned against implementing a US-style class action regime in his report to the Commission in 2010. Some member states were therefore concerned that the proposed EU regime would be too similar to the US system. During the course of negotiations, the European Parliament also pushed to add some regulations to the Annex of the Directive which sets out the scope for the representative actions.
Eventually, the European Parliament endorsed the Directive in November 2020 and it was published in the Official Journal of the EU in December 2020.
The final text of the law, the EU Directive 2020/1828 on representative actions for the protection of the collective interests of consumers, came into force on 24 December 2020 (the “Directive”). Member states were given two years to transpose the Directive into their domestic laws.
The drive behind the Directive was primarily the necessity to ensure consistency across the different member states and better access to justice, and to offer more (systematic) protection to consumers in Europe, by giving them access to a new form of redress.
Although it is no doubt influenced to some limited extent by regimes available in other countries (including the USA), the EU Directive establishes its own unique regime distinct from other jurisdictions. For instance, the Directive includes an opt-in and opt-out system, whereas most US states have chosen an opt-out regime. Overall, the EU’s intention clearly appears to be to implement the most robust regime in the world.
At an EU-level, the EU Directive 2020/1828 on representative actions for the protection of the collective interests of consumers, is the law on collective redress. The legislation came into force on 24 December 2020. Member states were given two years to transpose the Directive into their domestic laws. When such domestic laws are enacted, they will provide the mainstay source of law for collective redress in their respective EU member states.
Representative actions in the EU are limited in scope, as the alleged infringement for which they seek redress covers only certain EU Directives and Regulations as defined in Annex I of the Directive, including:
As can be seen from the above, the scope is quite wide and includes product liability and safety laws, data protection, financial services, telecommunications and travel.
The Directive sets out the following definitions of different types of representative actions available under Article 1:
Member states are, however, responsible for determining the procedural mechanisms in practice, which are ordinarily normal court processes applicable in those countries, and deciding which domestic courts will have jurisdiction to hear such actions.
The actual procedure for commencing collective redress actions is determined by national procedural law, and usually relies on general court processes relevant to the specific member state in question.
Only “qualified entities” are allowed to bring an action according to the Directive. They are defined by the Directive as: “any organisation or public body representing consumers’ interests which has been designated by a member state as qualified to bring representative actions in accordance with this Directive” (Article 1).
It should be noted that member states have been left with some discretion when it comes to setting out the criteria to determine what can qualify as such an entity as far as national actions are concerned. There are, however, set criteria for those entities wishing to bring a cross-border representative action, including being non-profit and having a legitimate interest in consumer protection.
However, at least one “qualified entity” must be designated by each member state. The EU Commission is tasked with keeping a list of all designated “qualified entities” across the EU.
Actions can only be brought on behalf of consumers and against.
The Directive includes both an opt-in and an opt-out system for participants in the collective action and leaves it to member states to choose which option they prefer (or a combination of both). The choice has been left to member states as the Directive recognises the need to “respond to their legal traditions”.
In an opt-in system, consumers are required to express their wish to be represented by the qualified entity, whereas consumers in an opt-out system are automatically represented by the qualified entity until they expressly state that they do not wish to be. It is up to member states to decide at which stage of the proceedings consumers need to exercise their right to either opt in or opt out.
The Directive makes it clear that in an opt-in system, member states need to ensure that consumers still have an opportunity to join the action after it has been brought.
The specific court procedures applicable to joining further parties to collective redress/class actions are determined by member state laws.
The Directive does not include any provision about the power of member states’ courts in terms of case management. Member states therefore retain discretion on this issue which will vary depending on their national procedural laws. It may be that some member states wish to have mechanisms in place, such as test cases or lead cases.
This will vary from one member state to another depending on procedural laws and practice.
It should, however, be noted that the Directive provides that: “Member states shall ensure that representative actions for injunctive measures referred to in Article 8 are dealt with due expediency.”
These mechanisms vary from one member state to another, depending on the locally applicable laws in place.
It is noteworthy that although the Directive does not prohibit third-party funding, it does restrict its use and promote transparency. In particular, it is up to member states to ensure that:
Article 10 of the Directive provides that: “Member states shall ensure that courts or administrative authorities in representative actions for redress measures are empowered to assess compliance” and “to take appropriate measures” in relation to the above.
The rules around disclosure and privilege will vary from one member state to another, depending on locally applicable laws.
However, it should be noted that Article 18 of the Directive provides that, to a certain extent, disclosure of evidence may be ordered by the domestic courts against the defendant (and a “qualified entity” or any third party, as applicable). This is subject to domestic procedural rules and EU and domestic rules about confidentiality and proportionality.
There are several forms of redress listed as being available under the EU Directive:
It should be noted that, unlike in the USA, punitive damages are not available.
These will vary from one member state to another, depending on locally applicable laws.
However, it should be noted that Recital 53 of the EU Directive provides that: “Collective settlements aimed at providing redress to consumers that have suffered harm should be encouraged in representative actions for redress measures”. This is a clear message that collective settlements should be preferred, which will no doubt be attractive for businesses, as such settlements end actions more quickly and cost less.
Judgments and enforcement of judgments will vary from one member state to another, depending on local laws.
It is now up to member states to implement the Directive into their domestic laws and they have until December 2022 to do so. The country’s litigation climate, practices and policy will no doubt strongly influence the manner, time and extent to which EU-wide mechanisms are implemented or exceeded.
As mentioned previously, it is now up to member states to implement the Directive into their domestic laws and they have until December 2022 to do so. The manner in which the countries implement their laws is a topic of great interest and debate among social and legal commentators. Amendments to regimes regarding third-party funding may be more prevalent in member states now, given the express introduction of this topic within the EU Directive and the novelty of this for some member states.
As the Directive is fairly recent and has not yet been implemented by all member states, it is difficult to see what impact Brexit has had, save to say that the Directive will not be implemented in the United Kingdom. The UK’s lack of participation in the EU-wide mechanism may give rise to additional forum shopping, which is likely to already arise between member states, given that discretionary aspects of the Directive are likely to be implemented differently across the EU. However, the UK has historically been a jurisdiction favoured by those bringing collective redress actions and will no doubt continue to be so post-Brexit.
As the Directive is fairly recent and has not yet been implemented by all member states, it is difficult to see what impact COVID-19 has had, apart from potentially delaying the Directive’s transposition into national laws, with governments having to deal with more pressing issues.
Challenges and Complications – EU Directive (2020/1828)
The EU’s Directive (2020/1828) on representative actions for the protection of the collective interests of consumers (the “Directive”) was published in the EU Official Journal on 4 December 2020 and came into force on 24 December 2020. Member states now have until December 2022 to implement it into their domestic law.
Implementation of the Directive into domestic law
Across Europe, there has been some controversy around the Directive – some fearing a flood of claims under these laws, others arguing that the law to some extent contradicts legal precedent established by the case law of some of the member states.
These controversies are now being borne out in the approach of individual member states to the implementation of the EU regime during this two-year period when member states are required to transpose the Directive into local law. Therefore, there may be a disparity of implementation between those jurisdictions which already allowed for collective redress (either in all areas of law or only in certain sectors) and those which did not have collective redress. Some countries may require a considerable amount of time to implement the Directive, in particular, if it is dissimilar to or somewhat contradictory to existing domestic legislation or cases. For instance, the existing German regime will need to be amended extensively as the Directive goes beyond what is currently in place. It may therefore be that it will take a significant amount of time and a lot of negotiations at national level for the Directive to be transposed. Other countries that already have in place a regime which is fairly close to that set out by the Directive may therefore be able to implement it sooner, eg, Portugal and Denmark.
Overall, although the Directive provides some ground rules, some discretion has been left to member states. This is because the Directive recognises the need to leave it to member states to “best respond to their legal traditions”. The mainstay discretionary aspects of the law left to member states to implement include, for instance, the ability to determine the criteria for qualified entities to launch a domestic representative action. Similarly, the Directive offers both an opt-in and opt-out system (or even a combination of both) and leaves it to member states to choose which option they prefer. It will therefore be interesting to see what choices are made by each member state within the confines of the Directive’s overarching framework.
Member states are also likely to deploy different mechanisms to implement the Directive into their own law. For example, some countries wishing to go for consensus may organise domestic consultations. The Irish Department of Enterprise, Trade and Employment, for instance, launched a public consultation in March 2021, calling for views on the implementation of the Directive in Ireland.
Based on the aforementioned discretionary aspects of the Directive, and the likely disparity of approaches between member states, there will probably be different litigation profiles across different EU countries for collective redress/class actions brought under this so-called uniform scheme. This may lead to forum shopping across the European Union. There could, for instance, be a choice between bringing an action before the courts of the member state in which the qualified entity is domiciled or before the courts of the member state in which the defendant is domiciled.
The Directive distinguishes between domestic and cross-border representative actions. In a cross-border action, a qualified entity brings an action in a member state other than that in which it has been designated. There are separate criteria for qualified entities to meet for cross-border actions – in particular, they must be financially sound and stable and non-profit making, in addition to having a legitimate interest in protecting consumers’ interests.
Through this mechanism of cross-border actions, the Directive significantly extends the formerly limited scope of collective redress in the EU, by allowing actions to be brought which are not confined to a particular member state. Given the interconnectivity of the EU market, it is likely that such unprecedented cross-border collective redress actions will be brought in the future. It is also likely that qualified entities from different member states will compete with each other, given their unfettered ability to do so under the regime’s cross-border mechanisms.
Proliferation of actions
During the drafting process of these regulations, the EU Parliament pushed for a wide scope for the Directive. In particular, it added a large number of regulations (in the Directive’s Annex) to which the regime gives effect. These include the General Product Safety Directive and chemical regulations. The variety of claims which can be brought is therefore extensive.
Some member states may see an increase in collective actions brought before their courts because their domestic regime is particularly attractive for litigants. Over the past few years, the Netherlands has, for instance, seen several high-profile cross-border class actions brought before its courts, because the regime is seen as more easily accessible than others. This is likely to continue, and other member states may attract similar interest depending on the specific mechanism they put in place.
Commercialisation of collective actions
The Directive only restricts the use of third-party funding and does not forbid it. In this respect, it sets out safeguards, such as the requirement for member states to ensure that there are no conflicts of interest between the funders and claimants. This position is fairly new for some countries which do not currently allow third-party funding, and it has attracted criticism on that basis. It has been argued that this may have a detrimental impact and lead to increased uptake of previously unused third-party funding mechanisms and/or increased risk of commercialisation of litigation of this nature in the relevant countries.