I INTRODUCTION TO THE EUROPEAN UNION CLASS ACTIONs FRAMEWORK
Each Member State has the ability to create legislation on a national level for collective redress for damage resulting from consumer law infringements. There is also legislation in place to promote the effective protection of consumers against such infringements at European Union (EU) level.
Directive 2009/22/EC2 (the Injunctions Directive) is currently in force and gives qualified entities the option to bring an injunctive action on behalf of EU consumers.3 The EU has, in the past couple of years, started multiple initiatives concerning the development and expansion of protection of European consumers and the possibility of collective redress.
In 2013, the European Commission (the Commission) issued a recommendation on the common principles for injunctive and compensatory collective redress mechanisms in the Member States, proposing a horizontal framework for collective redress.4 On 23 May 2017, a regulatory fitness and performance fitness check of the EU's consumer and marketing law was published. It covered an overview of the use of the Injunctions Directive and the Commission's recommendations for improvement. On 25 January 2018, a report was published concluding that there had been a rather limited follow-up to the 2013 recommendation.
As a result of the initiatives mentioned above, the EU is currently working on a new directive on representative actions for the protection of the collective interests of consumers. The new initiative seeks to create a mechanism for class action-style proceedings across Europe. The current Injunctions Directive and the envisaged changes to it are discussed in more detail below.
II THE YEAR IN REVIEW
In the past decade, there have been multiple efforts at the EU level to facilitate a general collective action mechanism for the Member States.5 These efforts have been focused on the facilitation of collective actions for consumers only. The current result of these endeavours, the Injunctions Directive, has proven not to be effective: requests for injunctions based on the Injunctions Directive by collective groups of consumers in cases of a breach of EU consumer law are rare. The main reason for this is that the Injunctions Directive does not provide for collective redress. Another reason is that at the level of the individual Member States there are significant differences in the manner in which collective actions are initiated, leading to inequality in the manner in which consumer interests can be protected. The emergence of cross-border infringements of EU consumer law has led to the realisation that the level of protection for consumers against such infringements differs from one Member State to another. Illustrative in that sense is the 'Dieselgate' scandal, in which consumers in the EU were at a significant disadvantage in comparison to their counterparts in the United States, as a result of a lack of efficient pan-European legislation.6 As there is no legislative framework of this kind in place, cross-border collective redress actions in the EU have not taken off yet.
To address this issue, a proposed directive is being developed, which will repeal the Injunctions Directive and will have a broader scope to ensure actual redress, on both the national and cross-border level (the Proposed Directive).7 The Proposed Directive forms part of a combined proposal to amend four current EU directives that aim to protect the economic interests of consumers. These combined proposals are referred to as the 'New Deal for Consumers', which 'aims at strengthening the enforcement of EU consumer law amid a growing risk of EU-wide infringements'.8
On 11 April 2018, the Proposed Directive was published. On 26 March 2019, the European Parliament approved an amended version of the Proposed Directive.9 On 28 November 2019, the Competitiveness Council adopted a general approach.10 The general approach, inter alia, proposes to make a distinction between domestic and cross-border representative actions. While the criteria for cross-border actions would be common to the whole of the EU, those for domestic actions can be decided upon by the Member States individually. It also proposes additional criteria for the designation of qualified entities in cases of cross-border actions and makes requirements for Member States to assist qualified entities less stringent. In the general approach, it was also decided that the application of the directive would be delayed by a year and a half. The next stage in the procedure is the inter-institutional trilogue negotiations. Upon agreement between the Council and the European Parliament on the text of the Proposed Directive, it will become effective. Given the timing, it seems unlikely that this will take place in 2020.
i Types of action available
The Injunctions Directive
The Injunctions Directive is the current European judicial mechanism that allows qualified entities to bring actions before courts or administrative authorities on behalf of consumers, to stop infringements of consumer legislation. Qualified entities, as defined in Article 3 of the Injunctions Directive, are organisations or independent public bodies that protect interests of consumers and meet national criteria. Article 4(3) requires the European Commission to publish a list of qualified entities designated by the Member States. This list includes the name of each entity, contact details and its purpose. Member States may have one qualified entity11 or several.12
The Injunctions Directive provides de minimis requirements for each Member State to have a legislative framework in place that enables qualified entities to seek an injunction to cease or prohibit infringement of EU consumer laws.13 Some Member States have already provided for actions of this kind or even more elaborate actions.14 For those Member States, the Injunctions Directive contributed little of additional value. The pan-European element to the Injunctions Directive is that it provides for the possibility of a qualified representative of one Member State bringing an injunctive action in another Member State, thus adding a cross-border element.15 It is possible for a qualified representative to bring cross-border infringements before foreign courts, to bring cross-border infringements before domestic courts and to make use of domestic injunction proceedings.16
The Proposed Directive
As no final version of the Proposed Directive is available yet, the amended version of 26 March 2019 will be referred to here, with elaborations based on the general approach of the Council when appropriate.
Under the Proposed Directive it will be possible to bring representative actions for collective redress (i.e., not only for injunctions to cease or prohibit infringement behaviour as is currently the case under the Injunctions Directive). The Proposed Directive proceeds from the notion that only qualified representative entities (QREs), which are public bodies that have been designated and placed on a publicly available list in advance, are eligible to represent collectives of consumers in these actions.17
These collective actions can be directed at 'traders', meaning any natural person or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in the trader's name or on the trader's behalf, for purposes relating to the trader's trade, business, craft or profession. To the extent that a trader is subject to EU consumer legislation (be it at the EU level or as implemented in national legislation) and has infringed this legislation, it can be a defendant against a collective action.
Under the current text of the Proposed Directive, QREs can bring actions for injunction orders and for collective redress.18 Article 5 lists the measures concerning injunctive relief, which are not dissimilar to the actions available under the current Injunctions Directive. Article 6 lists the redress measures and provides a QRE with the power to bring representative actions seeking a redress order, which obligates the trader to provide for, inter alia, compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate. The aim of the redress measures is to grant the consumers concerned full compensation for their actual loss.19 Punitive damages are explicitly prohibited.20
The Proposed Directive provides specific rules to promote cross-border representative actions, and these rules are one of the elements of the proposal that could lead to an increase in use of collective redress actions on an EU-wide scale.21 A more detailed explanation of this feature will be discussed below.
The Proposed Directive is expected to be implemented in the second half of 2021, but extensive discussion will be required before a common approach is reached.22
ii Commencing proceedings
The Injunctions Directive
Under the Injunctions Directive, proceedings can be commenced by defined qualified entities.23 A qualified entity must be an organisation that is properly constituted according to the law of a Member State and has a legitimate interest in ensuring that collective interests of consumers are protected and that the smooth functioning of the internal market is ensured.
The proceedings can only concern the obtaining of an injunction to cease or prohibit infringements of EU consumer legislation.24 Reference is made to Annex 1, containing a list of directives protecting the collective interests of consumers, such as consumer rights, consumer credit, package travel, unfair commercial practices and unfair terms in consumer contracts.
The Injunctions Directive merely prescribes that each Member State must ensure that a designated court or administrative body will rule on an injunction to cease or prohibit infringing behaviour, and with due expedience. How the Injunctions Directive is transposed into domestic law has been left to the individual Member States. As a result, the manner in which the proceedings are conducted differs in Member States.
The Proposed Directive
The Proposed Directive enables QREs to bring representative actions aimed at the protection of the collective interests of consumers under consumer legislation.25 In comparison to the Injunctions Directive, a much more elaborate list of directives and regulations concerning consumer interests is added to Annex 1 of the Proposed Directive.26
Member States or their courts have to designate at least one QRE. The prescribed criteria are that QREs must be properly constituted according to the law of a Member State and must demonstrate a legitimate interest in ensuring compliance with the EU legislation listed in Annex 1, which should be apparent from its statutes or another governance document. Furthermore, the QRE must be non-profit-making in character, in accordance with the specified criteria.27
In the general approach, the suggestion is made that QREs that only operate in domestic representative actions are subject to national rules and should be able to receive ad hoc QRE status. For QREs in cross-border actions, however, the Council has proposed more stringent admissibility criteria28 than those listed in the Proposed Directive.29 Member States will also be allowed to apply more detailed criteria for national QREs, but only some of those criteria will also apply to cross-border QREs. Furthermore, the general approach introduces more room for national courts to review whether the QRE meets the admissibility criteria.30
Transparency of QREs plays an important role in the Proposed Directive. QREs must 'disclose publicly, by appropriate means, such as on websites, in plain and intelligible language, how it is financed, its organisational and management structure, its objective and its working methods as well as its activities'.31 Member States must ensure that a funding party does not have decision-making power within the QRE and does not fund redress proceedings directed at its competitor. In an early stage of a representative action, the QRE submits a complete financial overview, listing all sources of funds used for its activity in general and the funds that it uses to support the action, to demonstrate the absence of any conflict of interest. It also has to demonstrate that it has sufficient financial resources to represent the best interests of the consumers concerned and to meet any adverse costs should the action fail.32
As the Proposed Directive will, like the Injunctions Directive, prescribe a set of de minimis rules, the implementation will differ in Member States, inevitably leading to different outcomes.
iii Procedural rules
The Injunctions Directive
The Injunctions Directive does not provide an elaborate set of procedural rules prescribing the manner in which a collective injunction action must be conducted. Rather, Member States must ensure that national legislation is in place that makes provision for an effective collective action on behalf of consumers to stop or prohibit an infringement of EU consumer law. Member States are allowed to implement legislation that makes provision for more than just collective injunction proceedings, but not for less. The procedural rules of an action under the Injunctions Directive are transposed into national legislation and as a result, differ from one Member State to another.
Given the partially voluntary nature of the Injunctions Directive, it is up to Member States whether to implement specific procedural rules provided for by the Injunctions Directive. Member States have been given the option (but not the obligation) to introduce legislation that only allows a collective redress action if the qualified representative has notified and sought from the defendant a voluntary cessation of the infringing behaviour within a period of two weeks. Not many Member States have implemented such a rule.33
The Proposed Directive
Under the Proposed Directive, the approach adopted under the Injunctions Directive has remained the same. Although the approach has been elaborated on, the Proposed Directive in essence prescribes that Member States are obliged to take necessary measures to ensure that representative redress actions are possible and that these are treated with due expediency.34 Member States have to implement penalties in cases of non-compliance with the final decision. These penalties may be in the form of fines.35 To what extent and in what manner these provisions are transposed into national legislation is up to each individual Member State.
Opt-in and opt-out systems
As a result of this variation, the Proposed Directive will not address the divergence in the manner of procedures in the different Member States. A striking example of this is that the Proposed Directive does not prescribe whether a representative redress action or settlement should be established on an opt-in or an opt-out basis. With an opt-in system, an affected consumer must actively make known that he or she wishes to be part of and bound by the collective action. Under an opt-out system, any consumer that falls within the definition of the class of consumers for which the collective action is initiated is bound by the outcome of the action by operation of the law. Following amendments to the Proposed Directive, it currently prescribes an opt-in mechanism, but only for those consumers who do not reside in a Member State.36 As the difference between the opt-in and opt-out systems can materially impact the position of an individual consumer, a common approach within the EU may be preferable.
Assumption of proof of infringement
With regard to the probative effect of infringement decisions in subsequent collective redress actions, the Proposed Directive does provide far-reaching legislation. If a national court or administrative body has rendered a final decision in public enforcement proceedings establishing an infringement of consumer law by a trader, the decision will be irrefutable evidence of that infringement in a collective redress action against that trader in the same Member State. Final decisions in public enforcement proceedings of courts or administrative bodies of other Member States establish a rebuttable presumption of an infringement in collective redress actions in other Member States.37 The Proposed Directive suggests not giving any probative effect to decisions in civil proceedings establishing liability of a trader against consumers, pointing to the fact that national rules on liability may vary between the Member States.
In the general approach, the aforementioned assumption of proof has been materially pared down, by proposing that final decisions of courts or administrative bodies establishing an infringement 'can be used as evidence' and making no distinction between national and foreign court decisions.
Cross-border collective redress
To make cross-border collective redress actions more effective, the Proposed Directive suggests a system of mutual recognition of QREs from other Member States. If a QRE has been recognised in one Member State, the courts and administrative authorities of another Member State will accept that status.38 In the event that an infringement affects consumers in multiple Member States, QREs of different Member States can bring a joint redress action at the competent court or administrative body of a single Member State for consumers of the different Member States. This combined collective redress action may provide an effective step towards a true pan-European class action.
In the general approach, the Council advises leaving more room for national courts and administrative bodies to assess whether the QRE meets certain criteria (such as those regarding third-party funding) and to set additional national criteria to review the status of the claimant.39
Under the Proposed Directive, the limitation period for a claim of an individual consumer for redress or injunction as a result of an infringement of consumer law is suspended pending a collective redress action.40 Although heavily redacted, the essence of this provision remains intact in the general approach (Article 11).
iv Damages and costs
The Injunctions Directive
The only recourse available under the Injunctions Directive is an injunction to stop or prevent infringements of consumer law, and as such the Directive does not provide rules for claiming redress for damage. The inability to claim damages has been one of the reasons for the relative unpopularity of the Injunctions Directive. This is further amplified by the fact that the Injunctions Directive does not provide regulations on the division of costs between parties to the proceedings. Most Member States adhere to some form of loser-pays principle, which may result in a high adverse-costs risk for qualified representatives seeking an injunction.41
The Proposed Directive
In contrast to the Injunctions Directive, the most important development in the Proposed Directive is that it allows for collective redress of damage.42 The Proposed Directive enables redress measures to fully compensate consumers for their loss.43 It does not, however, permit an award of punitive damages.44 The introduction of the possibility of seeking monetary relief may serve as a catalyst for proceedings under the eventual collective redress directive. Currently, however, there are already in place in several Member States class action mechanisms that provide redress measures. The collective redress directive will most probably not have a pronounced effect on the national practices of those Member States.
With regard to legal representation and fees, the Proposed Directive prohibits the use of contingency fees. The Proposed Directive proceeds from the loser-pays principle.45 As funding of QREs is specifically provided for, the adverse-costs risk associated with litigation may turn out to be a less prominent factor when deciding whether collective proceedings will be initiated.
The Injunctions Directive
The Injunctions Directive does not regulate collective settlements.
The Proposed Directive
The Proposed Directive refers to three types of settlement of disputes regarding collective redress:46
- First, a joint request for approval of a settlement involving redress between a QRE and a trader regarding a case in which consumers were affected by an allegedly illegal practice of that trader.
- Second, the court or administrative body may at any point while the representative action is pending invite parties to reach a settlement. This will have to be done within a reasonable time limit.
- Third, the court or administrative body that issued the final decision may request the parties to the action to reach a settlement regarding redress based on the final decision.
Each of the types of settlement described above will, when reached, be subject to scrutiny by the court or administrative body. An approved settlement will be binding upon all parties, and therefore on all consumers who fall within the definition of the group that is being represented by the QRE. It will be a matter of the law of the Member State where the settlement is approved whether the consumers will need to opt in to be able to obtain the benefits of the settlement or, alternatively, to opt out not to be bound by it.
IV CROSS-BORDER ISSUES
The Injunctions Directive
The Injunctions Directive model enables a QRE of one Member State to bring an action against a violator of consumer laws in another Member State, if it can demonstrate that it is a recognised QRE in its own Member State.47 As such, the Injunctions Directive already contains one of the most relevant provisions to enable cross-border collective injunction proceedings. Apart from this provision, however, there is little in place in the way of a framework for true cross-border injunction proceedings.
The Proposed Directive
As one of the objectives of the Proposed Directive is to facilitate cross-border collective redress actions and make them more efficient, it naturally introduces several mechanisms to facilitate collective actions for consumers located in multiple Member States. The most relevant mechanisms are (1) the recognition of public infringement decisions of other Member States' courts or administrative bodies, and (2) the option for cross-border collective redress (see Section III.iii).
Furthermore, the Proposed Directive encourages Member States to create a database that contains all final decisions on collective redress actions, which could give Member States the option to share best practice.
V OUTLOOK AND CONCLUSIONS
The Injunctions Directive is the current judicial mechanism for EU consumers to bring a collective injunctive action to protect consumer rights. It does not provide the possibility of seeking compensation. The effectiveness of the Injunctions Directive has been assessed on several occasions, with each leading to the conclusion that to be able to provide effective protection of consumers, structural amendments were required. The Proposed Directive aims to replace the Injunctions Directive and introduces the possibility of claiming for damages as a tool to provide consumers with such protection.
It remains to be seen how effective the Proposed Directive will be at establishing a pan-European framework for collective redress actions in all Member States. For consumers in Member States that currently do not have any legislation that makes provision for collective redress, the Proposed Directive will provide a helpful de minimis level of protection and may encourage local QREs to seek redress. However, for those Member States that already have a legal system for collective redress in place, the Proposed Directive will most probably not bring about much change.
From a cross-border perspective, with the procedural rules being left to the Member States, the Proposed Directive will not prevent divergence in the manner in which collective redress actions are dealt with at a national level. As infringements of consumer law are increasingly of a cross-border nature, pan-EU harmonisation of rules on collective redress become more important. Under the current draft, the only true harmonisation being introduced by the Proposed Directive is that each Member State will have some form of collective redress at the disposal of its consumers. It is not unlikely that the differences between national legal systems will induce QREs (and their funders) to seek out the Member State jurisdiction with the most favourable collective redress system for their claims. Although forum shopping in this context is not surprising, traders should be prepared to find themselves in foreign courts for collective redress matters and, similarly, consumers may find their interests litigated in a collective redress action in a completely different Member State. It remains to be seen how the Proposed Directive will be put into practice once it comes into effect.
1 Anouk Rosielle is an associate partner at Dentons Europe LLP.
2 Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers' interests (Codified version) Text with EEA relevance.
3 Articles 2 and 3 of the Injunctions Directive.
4 Commission Recommendation 2013/396/EU.
5 The Injunctions Directive and Commission Recommendation 2013/396/EU.
7 Proposal for a directive of the European Parliament and of the Council on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC (COM/2018/0184 final – 2018/0089 (COD)).
8 Explanatory memorandum par 1.1. (Brussels, 11.4.2018 COM (2018) 185 final 2018/0090(COD)).
10 Legislative train December 2019 by Rapporteur Geoffroy Didier, 15 December 2019.
11 Such as the Member States Ireland, Latvia, Lithuania, the Netherlands, Romania and Sweden.
12 Member States Greece and Germany have over 70 qualified entities.
13 Article 2 of the Injunctions Directive.
14 The Netherlands, for example, has allowed actions for annulment, rescission and declaratory decisions since 1994 and collective actions for redress since 2020.
15 Article 4 of the Injunctions Directive.
16 The December 2011 study on the application of the Injunctions Directive states that Member States predominantly make use of domestic injunction procedures.
17 Article 4 of the Proposed Directive.
18 Articles 5 and 6 of the Proposed Directive respectively.
19 Article 6(4a) of the Proposed Directive.
20 Article 6(4b) of the Proposed Directive.
21 Article 16 of the Proposed Directive.
22 Legislative train December 2019 by Rapporteur Geoffroy Didier, 15 December 2019.
23 Article 3 of the Injunctions Directive.
24 Article 1 of the Injunctions Directive.
25 Article 4 of the Proposed Directive.
26 The Injunctions Directive lists 13 regulations and directives in its annex while the Proposed Directive lists 59.
27 Article 4a(3)(ca), (cb) and (cc) of the general approach of the Council.
28 Article 4a(3) of the general approach of the Council.
29 Article 4 of the Proposed Directive.
30 Recital 11f of the general approach of the Council.
31 Third subparagraph of Article 4(1); 2018/0089(COD) Committee report tabled for plenary, 1st reading/single reading (07/12/2018).
32 Article 7 of the Proposed Directive.
33 Sweden has, on the basis of Article 5 of the Injunctions Directive, introduced a mandatory consultation procedure between foreign qualified entities and the defendant.
34 Article 12 of the Proposed Directive.
35 Article 14 of the Proposed Directive.
36 Article 6 of the Proposed Directive.
37 Article 10 of the Proposed Directive.
38 Article 16(1) of the Proposed Directive.
39 Article 4b of the general approach of the Council.
40 Article 11 of the Proposed Directive.
41 See the European Commission report of 6 December 2012, p. 11, and the study on the application of Directive 2009/22/EC on injunctions for the protection of consumers' interests, carried out by IBF International Consulting, p. 10.
42 Article 6 of the Proposed Directive.
43 Article 6 of the Proposed Directive.
44 Article 6(4b) of the Proposed Directive.
45 Article 7a of the Proposed Directive.
46 Article 8 of the Proposed Directive.
47 Article 2 of the Injunctions Directive.