knowledge 26 November 2020 |

Collective Redress on the way for Consumers under EU Law

Background

The new Directive aims to improve consumers’ access to justice.  It sets out rules to ensure that a representative action mechanism for the protection of the collective interests of consumers is available in all EU Member States, while providing appropriate safeguards to avoid abusive litigation. 

The Directive is part of the New Deal for Consumers which aims to ensure that all European consumers fully benefit from their rights under EU law.  That initiative came about in response to a succession of scandals involving breaches of consumer rights.

Scope of Directive

The Directive applies to representative actions brought in relation to infringements by traders of specified provisions of EU law that harm or may harm the collective interests of consumers. 

The Directive applies to domestic and cross-border infringements, including where those infringements ceased before the representative action was brought or concluded.  This recognises that although a practice may have ended, it may be necessary to prevent its reoccurrence.

Who may bring an action?

Member States must ensure that they have at least one procedural mechanism in place that allows “qualified entities” to bring representative actions for the purpose of seeking both injunctive relief as well as redress measures under the Directive. 

A “qualified entity” is an organisation or public body representing consumers’ interests which has been designated by a Member State as qualified to bring representative actions under the Directive.  That entity will have to satisfy certain criteria which may vary depending on whether it is designated to bring cross-border or domestic proceedings.  It will be possible for a number of qualified entities designated in different Member States to bring a joint representative action where the alleged infringement of EU law affects or is likely to affect consumers in different Member States.

Injunctive measures

A qualified entity may seek an injunctive measure against a trader.  This may be a provisional or final measure directing the cessation or prohibition of a practice which infringes the relevant provisions of EU law.  When seeking an injunctive measure, the qualified entity will not need the consent of individual consumers to act and will not need to prove actual loss or damage to individual consumers affected by an infringement or intent or negligence by the trader.  Member States can require the qualifying entity, before seeking an injunctive measure, to consult with the trader with a view to bringing the infringement promptly to an end.

Redress measures

A qualified entity may also seek redress measure against a trader.  These measures may require a trader to provide the consumers concerned with remedies such as compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under EU or national law.  Redress measures will either specify the individual consumers or describe the group of consumers entitled to benefit from them.  There should be no need for a consumer to bring a separate action in this regard though there will be time limits for individual consumers to avail of the redress measures.  The redress measures will be without prejudice to any additional remedies available to consumers under EU or national law which were not the subject of the representative action.

Member States will lay down rules on opt-in or opt-out for individual consumers in respect of any particular action for redress measures and whether they will be bound by its outcome.  If an individual consumer is habitually resident in another Member State, that person will have to opt-in to the action in the foreign court in order to be bound. 

The Directive also provides for redress settlements subject to approval of the court or other responsible national authority. 

Limitation periods

Limitation periods are also affected by the Directive.  Member States must ensure that a pending representative action for an injunctive measure suspends applicable limitation periods for the consumers concerned.  Those consumers should not be prevented from subsequently bringing an action for redress measures in respect of the alleged infringement simply because the applicable limitation period expired during the representative action for the injunctive measure.  There should be a similar arrangement on limitation periods in respect of a pending representative action for redress measures.

Third party funding

If allowed under national law, certain third party funding is permitted subject to safeguards.  Member States must ensure that conflicts of interests are prevented.  Funding by third parties that have an economic interest in the bringing or the outcome of a representative action for redress measures should not divert that action away from the protection of the collective interests of consumers.  For example, the decisions of qualified entities in the context of the action should not be unduly influenced by a third party in a manner that would be detrimental to the consumers concerned.  The funding provider should not be a competitor of the defendant or dependent on that defendant.  The court can enquire into funding and take appropriate action if concerns arise here.  This can include rejecting the standing of the qualified entity to bring the action.

Costs

The unsuccessful party in a representative action for redress measures will pay the costs of the successful party in accordance with the national law applicable to court proceedings in general.  Individual consumers to a representative action for redress measures will not pay litigation costs except those incurred as a result of the individual consumer’s intentional or negligent conduct.  However, Member States can permit qualified entities to require consumers to pay a modest entry fee to participate in such an action.

Member States will be obliged to take measures to ensure that the costs of proceedings related to representative actions do not prevent qualified entities from taking appropriate action and can choose to put financial supports in place here.

Entry into force

The Directive will enter into force 20 days following the day of its publication in the Official Journal of the EU.  National implementing measures must be applied within 30 months of that date.