Introduction

While class actions are well established and widely used in some jurisdictions, such as the United States, they are a relatively new phenomenon in many countries in the European Union (EU). Up until very recently, only half of the member states’ legal systems provided for some form of class action and collective redress instrument, and those that did had very varying requirements and procedures in place (all of which bear little to no resemblance to US class actions).

EU regulators considered that the variety and fragmentation of collective redress procedures and major liability scandals posed challenges for access to justice, cross-border litigation and enforcement of EU law in areas such as consumer protection, environment, data protection and financial services. This has resulted in the introduction of Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (the Directive).

The Directive aims to supplement, not replace, any existing national collective action mechanisms for minimum harmonisation between member states. In doing so, it seeks to balance access to justice on the one hand, with procedural safeguards against abusive litigation, on the other hand. This is reflected in the common rules and safeguards it introduces for representative actions, such as (among others) the admissibility of claims, evidence gathering and redress measures.

Who can start representative actions under the Directive?

Under the Directive, each member state must enable ‘qualified entities’ to bring representative actions on behalf of consumers with respect to infringements of various Union laws. The Directive makes a distinction between cross-border and domestic representative actions.

The requirements for a qualified entity to conduct cross-border representative actions (ie, actions brought by an entity in a member state other than its member state of designation) have been listed expressly in the Directive. The qualified entity must meet the following criteria:

  1. it must be constituted in accordance with the member state law and can demonstrate 12 months of actual public activity in the protection of consumer interests prior to its request for designation;
  2. its statutory purpose must demonstrate that it has a legitimate interest in protecting consumer interests as provided for in the provisions of Union law (referred to in Annex I to the Directive);
  3. it has a non-profit-making character;
  4. it is not the subject of insolvency proceedings and is not declared insolvent;
  5. it is independent and not influenced by persons other than consumers (eg, by traders or third parties providing funding) and has established procedures to prevent such influence and conflicts of interest; and
  6. it makes publicly available that it complies with the criteria listed in points (1) to (5) and publishes information about the sources of its funding in general, its organisational, management and membership structure, its statutory purpose, and its activities.

Member states may also decide that the above criteria apply to designated entities for domestic class actions. If member states set additional criteria for such domestic actions, they must ensure that such requirements are consistent with the objectives of the Directive and make the functioning of such representative actions effective and efficient. Member states can also designate a qualified entity on an ad hoc basis for a particular domestic representative action.

The Directive also introduces various information and monitoring obligations. Member states must establish and maintain a list of these entities and notify the Commission thereof. Qualified entities must provide information on the representative actions they brought, their status and outcome on their website.

While the focus of the Directive is on representative action procedures for consumers, member states are free to (continue to) allow these procedures for businesses too. For instance, in Germany, the Netherlands and Poland, class actions can be brought for the benefit of consumers and businesses alike, while in Belgium, the scope of the national law on class actions was already extended to small and medium enterprises in 2018. Similarly, under the last French draft bill to transpose the Directive, associations acting on behalf of at least five legal entities of private law, or five local authorities may bring class action under specific conditions. In Italy, while class actions provided for by the Italian Code of Civil Procedure apply to individuals and legal entities (both consumers and professionals), the new rules transposing the Directive have been included in the Italian Consumer Code and are therefore only applicable to consumers.

What types of infringements can be redressed?

Under the Directive, qualified entities must be entitled to seek injunctive and redress measures against infringements by traders of the provisions of a large amount of Union law legislation referred to in Annex I of the Directive, which goes beyond general consumer protection (unfair terms, distance marketing), but also includes data protection, public health, antitrust and environment (ie, energy-related products, EU ecolabel, energy efficiency).

In addition, any new directive or regulation can provide that the Directive is applicable to the representative actions brought against infringements of its provisions. This is the case, for example, of the Digital Markets Act adopted in September 2022: major gatekeepers in the digital market who violate its provisions may not only be subject to sanctions by the European Commission, but also to a potential representative action brought in one of the member states by one or more qualified entities in order to obtain, on behalf of European consumers, measures to cease or remedy the said violation.

Moreover, member states are free to submit other types of claims to the Directive, so that the introduction of collective claims in jurisdictions where class action regimes have not been introduced yet could be easier. For instance, the collective redress regime in the Netherlands (WAMCA) extends to claims about any subject matter suitable for a civil claim. Similarly, class action rules included in the Italian Code of Civil Procedure extend to any type of civil claim.

Opt-in or opt-out system?

The Directive allows each member state to decide whether consumers must actively join (opt in) or can passively benefit from (opt out) representative actions. Member states can also provide for a combination of the two.

There is one exception to this: the recitals of the Directive state that an opt-in mechanism should be required regarding representative actions for redress measures where the consumers affected by the infringement do not habitually reside in the member state where the representative action is brought. Consequently, consumers who want to participate in a representative action in a different jurisdiction from where they live should always opt in if the representative action aims at obtaining redress measures, but cross-border class actions for injunctions to stop infringements should be possible on an opt-out basis.

As opt-out procedures can result in very large claims (even if each consumer’s claim is small), most member states have adopted an opt-in mechanism (eg, Italy and Greece, and according to the last draft national bills discussed to transpose the Directive, Czech Republic, France, Germany and Poland). There are, however, a few member states that combine opt-in and opt-out mechanisms (eg, Belgium and the Netherlands).

Disclosure: How to gather evidence?

The Directive provides for a broader scope of disclosure than many member states currently allow (except for specific collective redress such as follow-on actions).

Under the Directive, where a qualified entity has provided reasonably available evidence sufficient to support a representative action and has indicated that additional evidence lies in the control of the defendant or a third party, the defendant or the third party may be ordered to disclose such additional evidence, subject to confidentiality and proportionality safeguards. Additionally, if requested by the defendant, the national court should also be able to equally order the qualified entity or a third party to disclose such additional evidence.

However, the wording of the Directive leaves room for interpretation and most civil law jurisdictions are unlikely to adopt a wide-ranging, US-style, disclosure regime, given their legal tradition. While some member states contemplate to enlarge their evidence rules (eg, Spain), most member states have not substantially modified their evidence systems that allow narrow disclosure in specific circumstances (eg, the Czech Republic, France, Italy and Poland).

Remedies, settlements and costs

Remedies and settlements

In a representative action for redress measures, consumers can receive remedies in the form of compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, depending on the nature and extent of the harm they suffered. In a representative action for injunctive measures, consumers should benefit from the cessation or prohibition of a practice that infringes their rights or interests.

However, to prevent misuse of representative actions, the Directive does not make it possible to impose punitive damages on the infringing trader. The recitals of the Directive state that the awarding of punitive damages should be avoided and rules on certain procedural aspects, such as the designation and funding of qualified entities, should be laid down.

Consumers may also benefit from collective settlements. The courts may therefore invite the parties to reach a settlement regarding redress within a reasonable limit and the parties can also jointly propose settlement regarding redress for the consumers with the court’s approval. Approved settlements shall be binding upon the qualified entity, the trader and the individual consumers concerned.

Costs and funding

The Directive sets out the loser pays principle for representative actions and requests member states to ensure that the unsuccessful party in a representative action for redress measures is required to pay the costs of the proceedings borne by the successful party. However, some exceptions to this principle can be provided for in national law.

The EU does not have a uniform approach to third-party funding of litigation, which is allowed in some member states, unregulated or prohibited in others. A third-party funder is a private commercial entity that has no previous link to a dispute and offers to pay some or all the legal costs of one of the parties. If that party wins the case, the funder gets a portion of the damages awarded (or a multiple of the costs it paid, or both) as a return on its investment. Critics have expressed concerns about the lack of transparency of funding arrangements, potential conflicts of interests, and the impact on the cost and duration of representative action proceedings.

The Directive does not impose a common rule on third-party funding, but it does set out some safeguards aiming at preventing undue influence by funders on the conduct and outcome of the representative action. For instance, a funder cannot finance a representative action against a competitor or a defendant that it depends on, and it cannot interfere with the settlement decisions of the qualified entity that brings the action. Courts have the power to check that funders comply with these safeguards.

Other EU initiatives may also affect the landscape of third-party funding of litigation. In September 2022, the European Parliament adopted a resolution, calling for more regulation of third-party funders in the EU. This resolution attached a draft directive on ‘Responsible funding of litigation’ which suggests establishing a minimum standard for third-party funders in the EU that would:

  • create a supervisory authority that would issue permits to funders and oversee their activities;
  • make funders jointly responsible with the funded party for paying the costs of the proceedings that may be awarded;
  • require funders to have sufficient financial resources to meet their obligations under the funding contract;
  • impose a fiduciary duty of care on funders toward the funded party;
  • oblige funders to disclose the existence of a funding contract to the relevant judicial or administrative bodies; and
  • limit the share of funders to 40 per cent of the compensation awarded unless there are exceptional circumstances.

Status of implementation and conclusion

Member states had to implement the Directive in their national law by 25 December 2022 and to apply implementing provisions as of 25 June 2023. While some member states had implementing measures enacted by end of June 2023 (eg, Greece, the Netherlands, Italy, Lithuania, Hungary and Slovenia), some national parliaments were still discussing draft bills (Poland, Luxembourg, France, the Czech Republic and Germany). Estonia, Cyprus, Latvia, Austria and Romania appear not to have taken implementation measures yet and Belgium has not (yet) modified its existing regime introduced in 2014 and amended in 2018.

The expected impact of the Directive is a multiplication of representative actions in the EU and a new risk of large cross-border representative actions initiated by one of several qualified entities representing consumers across the EU.

However, the Directive sets out for minimum harmonisation, and there could thus be still a great amount of variation across member states regarding procedural requirements, opt in/opt out and scope. Therefore, implementing provisions will have significant impact on whether representative actions will gain momentum in member states or not, and one can expect forum shopping effects within the EU as qualified entities could choose the jurisdiction that favours consumers or some specific subjects.

In comparison to other class action systems, member states’ implementing measures should not reach the scale of US class actions - whose success is based on ingredients absent from the Directive (ie, no win, no fee, importance of the jury, punitive damages and discovery). There could also be interaction with the UK class action regimes whose scope is closer although not identical to the one of the Directive; this interaction could result in an increase of parallel proceedings for similar facts between the UK and some EU member states.

It will be interesting to see whether the next decade will change the dynamic of class actions between common law and civil law systems.