After more than a decade of hesitation by the European Union in relation to collective redress, 2019 could be the year of significant change. If the Commission’s draft Directive on representative consumer actions successfully passes through the remaining stages of the legislative process, it looks set to be an important tool in consumers’ armoury, to the benefit of would-be claimants and the private enforcement regime alike.
The journey towards collective redress in Europe has, to date, been one of only incremental progress. The Commission’s Consumer Policy Strategy, published in 2007, highlighted the importance of collective redress, stating that the Commission would consider taking action to allow for collective redress for breaches of consumer and competition law.
The subsequent 2008 Green Paper on Consumer Collective Redress proposed a range of options for action but resulted in none. Two consultations followed, in 2009 and 2011, the output of which was the Commission’s Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law (the “Recommendation”).
Whilst the Recommendation set out a common core of principles which the Commission indicated ought to apply across the European Union within two years, the legal status of the Recommendation (being non-binding on Member States) was such that meaningful progress on collective redress was limited. The Commission’s own report on the effectiveness of its Recommendation, published in January 2018 (the “Report”), demonstrated not only that the impact of the Recommendation had been limited, but also that the risk of infringements of EU law affecting the collective interests of consumers is firmly on the increase.
When publishing the Report, the responsible Commissioner, Věra Jourová, made clear the Commission’s new impetus for meaningful change, stating that the recent Volkswagen emissions scandal had highlighted the challenges EU consumers face in seeking redress. The result of this new political will was the Commission’s ‘New Deal for Consumers’, published on 11 April 2018.
As part of the New Deal package, the Commission proposed to repeal the existing Injunctions Directive and replace it with a new Directive on representative actions for the protection of the collective interests of consumers (the “Draft Directive”).
The Draft Directive
The Directive was immediately welcomed by consumer groups, such as the Bureau Européen des Unions de Consommateurs (“BEUC”), as a step in the right direction, albeit not a “quantum leap forward”. In broad terms, the proposal enables so-called “qualified representative entities” (“QREs”) to bring actions, on behalf of a group of wronged consumers, for compensatory redress or other relief.
The Draft Directive contains a number of positive features. For example, as well as providing for QREs to seek injunctions to stop a trader’s infringing conduct, they will also be able to require the trader to reimburse or compensate the consumers on whose behalf the QRE is bringing the claim. Member States will each have to designate at least one qualified entity, and such entities will have to meet various criteria, including that they must be not-for-profit.
Importantly, the Draft Directive proposes only ‘minimum harmonisation’ of the law to which it relates, meaning that it will not preclude Member States from maintaining or developing systems of collective redress which go further than the standard in the Draft Directive. Member States would have to ‘level up’, rather than ‘level down’. So, for example, whereas the Netherlands’ recent domestic proposal to introduce opt-out, collective actions would not be invalidated once the Draft Directive comes into force, a higher standard of redress would be required in Germany where the newly-established representative action (“Musterfeststellungsklage”) only currently allows for a declaratory action to be brought.
The role of litigation funding in collective actions is expressly recognise. Whereas in Germany, for example, the funding of consumer protection organisations is still viewed sceptically, the Draft Directive acknowledges that, whilst transparency and an absence of any conflict of interest between the funder and the potential claim are required, the need for funding is a real one and, without it, harms will go unrecompensed. This is a very welcome approach in terms of securing greater access to justice for victims of wrongful conduct.
The Draft Directive also aims to facilitate more cross-border actions as QREs designated in one Member State will be able to apply to bring actions before the courts or administrative authorities of all other Member States. QREs from different Member States will also be able to band together to bring a single action before the courts of a single Member State where consumers from a number of Member States have been affected by harm stemming from the same infringement. In addition, an infringement decision in one Member State will constitute a rebuttable presumption of the same infringement before the courts of other Member States.
The suspension of limitation periods once a representative action has been submitted is also positive and, it is hoped, will encourage defendants to settle cases at an earlier stage. As the Volkswagen case in Germany shows, without a broad suspension of applicable limitation periods, defendants might attempt to drag out litigation for as long as possible with the aim of ensuring that claims become time-barred. The Report from the Parliament’s Legal Affairs Committee (“JURI” and the “JURI Report”) improved this provision by extending the suspension to all individuals and not only to consumers.
The above said, it is certainly true that Draft Directive could go further in a number of key respects. For example, the proposal allows Member States to implement either opt-in or opt-out systems of redress. In addition, the Commission had proposed that it ought to be possible to approve QREs on an ad hoc basis for the purposes of a single action, provided that the QRE in question met the relevant criteria. However, this possibility has now been removed from the draft legislation. Limiting the entities that can bring actions to permanent (as opposed to ad-hoc) QREs will inevitably curb the availability of redress in situations where no pre-existing representative entity can be found.
Further, the fact of the procedural mechanisms being available to consumers only, not individuals in their capacity as citizens, or SMEs, appears to be borne of inadequate recognition of the harm which can be caused by unlawful conduct.
A Uniquely European Approach to Collective Redress
Whilst perhaps to be expected, it has been evident throughout the Draft Directive’s progress through Parliament that the scale of the lobbying by corporate interests determined to block or severely restrict the scope of the proposal has been intense. The arguments of those campaigning against the Draft Directive have featured heavily warnings as to the dangers of the US approach to class actions and of the attempted creation of a similar regime in Europe.
Indeed, comparisons with the US were made repeatedly in the committee stages of the proposal, and a number of aspects of the Draft Directive appear to stem from the desire amongst European lawmakers to avoid what are perceived to be the excesses of the US class action mechanism. For example, law firms are expressly prohibited from creating QREs and having a level of financial cooperation with QRE that goes “beyond a normal service contract”. It is also recommended that Member States see that contingency fees are avoided.
However, fears of a “culture of litigation” may be misplaced. The Draft Directive expressly avoids concepts such as punitive damages, and it must of course be implemented individually in the Member States, the legal traditions and cultures of which (many conservative) will serve as a firm bulwark against unmeritorious litigation. Indeed, fortunately, lawmakers on the JURI Committee saw fit to (unanimously) reject amendments which would have severely limited the Directive’s scope and effectiveness, including as to third-party funding and the types of actions which should be able to be brought.
Despite the limitations referred to above, the Draft Directive is a strong and positive indicator that European lawmakers appreciate the benefits which collective redress can bring in terms of more effective enforcement of the laws protecting consumers by providing for greater access to justice.
Having passed through the committee stages, the Draft Directive now awaits its first reading in the European Parliament, which is predicted to be on or around 26 March 2019. However, it appears unlikely that the Draft Directive will become law prior to the European elections in May 2019, but rather will be addressed by the new Parliament later this year.
Once the Draft Directive does become law, Member States will have 18 months to pass domestic legislation which implements the Directive, and there will then be a further six months following the transposition deadline within which domestic legislation must come into force. It is therefore possible that consumers will have the benefit of the legislation, in the form implemented by Member States, at some point in 2021.