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 EU.
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 until 25 December 2022 to transpose the Directive into their domestic laws. The Directive took effect on 25 June 2023.
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 the option of having either an opt-in or opt-out system, whereas most US states have chosen an opt-out regime. Overall, the EU’s intention appears to be to implement the most robust regime in the world.
By 25 June 2023, only seven member states had implemented the Directive into national law. These were Croatia, Hungary, Italy, Denmark, Slovakia, Lithuania and the Netherlands. However, many other member states were advanced in drafting implementing legislation and in September 2023, the Directive was also implemented in Germany, Greece, Ireland, Italy and Latvia.
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, with it taking effect on 25 June 2023. When such domestic laws are enacted, they provide the mainstay source of law for collective redress in their respective EU member states (see 1.3 Implementation of the EU Collective Redress Regime).
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.
There are currently 66 EU Directives and Regulations listed in Annex I. However, many new EU legislative proposals, such as the AI Act, the AI Liability Directive and the Green Claims Directive, are intended to interact with the Directive, and will therefore be added to Annex I once they are approved.
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).
Member states have discretion when it comes to setting out the criteria to determine what can qualify as such an entity as far as domestic actions are concerned. There are, however, set criteria for those entities wishing to bring a cross-border representative action. These include being an established entity, being independent, having a non-profit status and a legitimate interest in consumer protection. Some jurisdictions, such as Ireland, have elected to apply some of these more stringent criteria to domestic representative actions.
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.
The Directive includes the option for the member state to have an opt-in or an opt-out system, or a combination of both, for participants in the collective action. The choice of option has been left to the 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. Consumers who reside in a different member state to where the representative action is being brought will be required to opt in to the action.
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 with due expediency.”
These mechanisms vary from one member state to another, depending on the locally applicable laws in place.
The Directive permits third-party litigation funding (TPLF) in so far as it is permitted by the laws of each member state. Although the Directive does not prohibit TPLF, 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.
As the TPLF market in Europe continues to grow at a pace, some member states, such as Bulgaria, have introduced new rules permitting the use of TPLF, albeit with some safeguards. TPLF remains largely unregulated across Europe although a proposal for a directive on its regulation was first published in June 2021. This remains under parliamentary review (see 5. Legislative Reform).
The rules around disclosure and privilege 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 regarding 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 vary from one member state to another, depending on locally applicable laws.
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 vary from one member state to another, depending on local laws.
There are no reported policy developments.
The manner in which the member states implement their laws continues to be a topic of interest and debate among social and legal commentators. Amendments to regimes regarding third-party funding are becoming more prevalent in member states now, given the express introduction of this topic within the Directive and the novelty of this for some member states.
The draft proposal for a directive governing the regulation of TPLF, first published in June 2021, is on hold while the EC conducts a study to collate information on the current regulations and practices on TPLF in member states. It is unlikely that any firm proposals for TPLF regulation will be made until the Directive on representative actions has been implemented by all member states.
As a result of Brexit, the Directive has not been 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 arise between member states as it is, 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 group litigation and this remains the case post-Brexit. For further information, see the UK Law and Practice and Trends and Development chapters.
Increased focus on achieving net zero targets and reducing carbon emissions, coupled with companies and their shareholders coming under scrutiny in respect of their corporate governance obligations and disclosures, is giving rise to an increased risk of ESG-related class actions across Europe.
This risk has already manifested in jurisdictions such as the Netherlands, which has an established class action regime which was already broadly in line with the provisions of the Directive. The Netherlands has already entertained a number of high-profile class actions brought against the Dutch government as well as Dutch corporations such as KLM Royal Dutch Airlines (KLM). For example, in 2022, the NGO Fossil Free filed a class action lawsuit against KLM involving allegations of greenwashing. In September 2023, a class action lawsuit was filed against a US chemical company in respect of environmental damage caused by per- and polyfluoroalkyl substances (PFAS).
This trend for ESG-related class action litigation is expected to increase as the Directive is implemented into the domestic laws of all member states.
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 had until December 2022 to implement it into their domestic law. Several member states missed this deadline, although many have since prepared draft legislation and transposition arrangements are underway. The Directive took effect on 25 June 2023.
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 Directive. There is already 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 existing collective redress mechanisms. Some countries are already requiring more 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 is being amended extensively, as the Directive goes beyond what is currently in place. By contrast, the Directive is expected to have a significant impact in Ireland because there was previously no existing legislative framework or legal procedure in Ireland that provided for collective redress, or any form of group action akin to that available in other jurisdictions.
Overall, although the Directive provides core ground rules, discretion has been left to member states as to its implementation. 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 the member states to choose which option they prefer. Several member states have elected to adopt an opt-out mechanism, including the Netherlands, Norway and Belgium. Notably, these jurisdictions had existing class action mechanisms, prior to the implementation of the Directive, which permitted opt-out class actions. Some member states, including France and Italy, have also deployed a “late opt-in” mechanism which permits consumers to opt in to an existing collective action.
Based on the aforementioned discretionary aspects of the Directive, and the likely disparity of approaches between member states, there will be different litigation profiles across different EU countries for collective redress/class actions brought under this so-called uniform scheme. This issue has been the subject of extensive debate given the concern that this may lead to forum shopping across the EU. 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 commencement of proceedings in certain jurisdictions is governed by the Recast Brussels Regulation. The basic principle provided for by this regulation is that a defendant must be sued in the state in which they are domiciled. However, there are special rules governing different types of civil disputes. For example, for consumer disputes, consumers can choose to commence proceedings in the member state in which they are domiciled or where the supplier of the product is domiciled.
Accordingly, there is concern that the consumer will select to litigate in a jurisdiction that has favourable features, such as the availability of third-party funding, or where the damages and costs awards are high. For example, there are distinct features in the Irish legal system that are likely to make it an attractive jurisdiction for collective redress actions. These include its very wide rules governing discovery and the fact that it is the only remaining common law system in the EU.
The Directive distinguishes between domestic and cross-border representative actions. A domestic representative action is one where a qualified entity brings a representative action against a “trader” – defined as any natural person, or any legal person doing a trade, business, craft or profession – in the member state where it is designated. In a cross-border action, a qualified entity brings an action against a trader in a member state other than that in which it has been designated. There are separate criteria that qualified entities need 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. It is likely that such unprecedented cross-border collective redress actions will be brought in the future owing to the interconnectivity of the EU market, the availability of third-party funding, and the increasing scrutiny of corporate entities by consumers and activists across member states. 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
The EU Parliament pushed for a wide scope for the Directive during the drafting process. In particular, it added a large number of laws and regulations, as listed in Annex I, to which the regime gives effect. These include the General Product Safety Directive, the Product Liability Directive, the General Data Protection Regulation and chemical regulations. The variety of claims which can be brought is therefore extensive.
Since the Directive came into force on 24 December 2020, the EU has introduced a raft of new laws and regulations, as well as proposals to reform existing legislation. These include, for example:
Most of the EU’s new laws and regulations, including those set out above, contain a provision which states that they will be added to the list of laws and regulations set out in Annex I to the Directive.
Some member states are likely to 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 liberal and more easily accessible than others. The Dutch regime continues to be favoured, given that its existing class action regime and the regime provided for under its Class Action Mass Claims Settlement Act, which came into effect on 1 January 2022, are very similar to the minimum standards provided for under the Directive.
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.