The European Commission (the “Commission”) has published a proposed Directive on representative actions for the protection of the collective interests of consumers [2009/22/EC], which follows the recommendation in 2013/396/EU. This will introduce in Ireland, and many of the EU member states a legal framework for representative action which to date was either non-existent or done at a national level. This writing will evaluate the policy work as well as the communications by the commission to assess the European style of representative action and summaries concerns and issues with the proposed Directive.

Introduction

As it stands, there is no formal unified legal framework for collective redress in the EU, rather member states have patch-worked different legal systems to create their own versions which have resulted in a justice gap. Consumers and Businesses have different rights depending on where they are located which becomes problematic when considering that one of the EU pillars is the single market and a right for access to justice. Following a report by the commission in 2008 – highlighting same – the EU started looking at harmonising collective redress which resulted in this proposal.

Current EU legislation allows consumers to bring representative action to block infringement of rights and is read under [2009/22/EC] aptly titled the Injunctive Directive. The currently proposed directive (the “Proposal”) will transpose this to – if passed – give EU consumers the ability to bring collective redress cases before national courts and relevant authorities.

Current Collective Redress in the EU

To date, collective redress exists at National level; however, the incongruous way it has been implemented across member states has been subjected to criticism by the commission. Considering Ireland and the United Kingdom who tend to echo each other, in this case, vary. While in Ireland there is no formal legal framework for collective redress, multi-party litigation is possible when a court case is picked to serve as a pathfinder for similar cases. Alternatively, England and Wales have a Group Litigation Order which allows plaintiffs to bring a collective action against companies, one such use of this was in the PIP breast implant scandal and the Royal Bank of Scotland who faced a class action from its investors on misrepresenting its financial health. The UK also reformed The Consumer Rights Act 201512 and introduced an opt-out system; this is dissimilar to the way the rest of Europe currently does class action, however, is in line with the proposed directive.

A European Class Action

The proposal aims to strike a balance between safeguarding consumers’ right for access to justice on the one hand and ensuring adequate safeguards for the prevention of frivolous and abusive actions on the other. As it stands the proposal follows the recommendations by the commission in 2013/396/EU to achieve this balance.

The proposal covers infringements that; harm or may harm the collective interest of the consumer as listed in Article 2 of the proposal. Which refers to Annex I to provide a list of provisions that may open a trader to litigation if they infringe or break one of these provisions, and applies to traders of telecommunications, financial services, health and environment, energy, travel and tourism.

Harmonisation

On prima face this proposal is a minimum harmonisation Directive, which would allow countries that currently have redress mechanisms in place to keep their frameworks. However, Article 1(2) and the accompanying Recital 24 complicate things by saying that all member states must comply with the modalities of the proposal, which if passed would mean that member states that have robust consumer redress mechanisms, might be required to weaken their laws to comply with this directive. As such, well-established and tested legal systems would be impacted by an untested harmonisation directive, which on preliminary analysis has issues as identified in this writing and supporting sources.

Qualified Entities

In its current form, the proposal requires that an action can only be brought by qualified entities who have been designated in advance by the Member States. These entities must meet the qualifying criteria set out in the proposal; mainly to be non-profit and show full transparency in their funding to quash any conflict of interest. When comparing this to a US-style Class Action it is clear the EU is trying to avoid creating a compensation culture, historically Europe has opted for regulation rather than litigation to control market and business behaviors. This perception stems from the fear that such a system would see the odds stacked heavily on the consumer side and lawyers reaping most of the rewards.

Qualified Entities can bring a case in a Member State different to their origin; given that they show they are registered as an Entity in their home state.15 Additionally, when infringements are cross border, multiple Qualified Entities can collaborate to bring an action against a trader in one of the Member States.

Another artifact of this proposal is that Member States must make sure that Qualified Entities can withstand the financial cost associated with the collective action, and if not, provide for measures to relieve this burden by giving access to legal aid, and limiting court and administrative fees.

A concern that has been expressed by FENCA in their feedback report on the commissions proposed directive is that Article 4 (1) which outlines the criteria from designating a qualified entity is too broad and will result in “considerable differences” in the implementation by member states. This report further expressed that such broadness of scope becomes relevant when considering cross border litigation, and what happens when a qualified entity from one state does not meet the criteria of “Qualified Entity” in the foreign jurisdiction; to which they express that it would serve better if a qualified entity in a multi-jurisdictional case should also meet the qualifying criteria in the member state in which the business resides.

Opt-In/Opt-out System

Article 6 reads that the proposed Directive will use an opt-out system, where consumers affected are automatically enrolled in the class action unless they expressly ask to be removed. This system is in direct contradiction to the commissions’ own recommendation in 2013/396/EU which expressed that an Opt-in system will better balance the right for access to justice vis-à-vis the prevention of abusive litigation. This concern is further echoed by FENCA in their feedback report on the proposed Directive, who say that while they welcome the proposed Directive, they believe that an Opt-out system will be more prone to abuse, and also refer to the commission’s recommendation in 2013/396/EU to support their statement.

From Injunctions to Redress

Article 5 of the proposed Directive creates a link between injunctions and redress mechanisms, which stems from recommendations by the commission in the 2013 report. On the one hand, the injunctions action is preventive and aims to stop infringements that harm the collective consumer, both physically and in abstract. On the other hand, the collective redress article aims to agglomerate individual harm to seek repair/damages for harm done.

However, the precondition written in Article 5(3) introduces a hurdle that can become problematic. This Article says that to seek redress, one must have exhausted all injunctive procedures, and have a final decision, which incentivises defendants to drag out litigation at this stage in the hopes that any future redress action becomes invalid due to; lost evidence, increased costs, and parties losing interest in the redress altogether. Furthermore, this process becomes an unnecessary step when the harm has been stopped or is no longer present, which will be interesting to see how the courts would deal with such instances.

It must also be noted that this precondition is unique to the proposal and does not exist in any of the legal frameworks at work on a national level in the EU, such as Italy, France, Spain, Portugal et al. or overseas in the US. The BEUC therefore called for the separation of the Injunction and Redress procedures and ask for a separate system which also allows both redress and injunction to be brought together, without having to wait for all injunctive appeal processes to be exhausted.

Representative Actions – Redress

Article 6 of the proposed Directive lays down the redress measures that qualified entities can bring before the courts and leaves it to member states to define the procedures by which this is done. This shows that the commission foresees that some member states have legal frameworks in place and tried to avoid interfering with their current systems, however, a case can be made that the provisions of this article can be tighter to provide for better clarification and harmonisation across the EU.

Article 6 (2) enables the courts to derogate Article 6 (1) in cases where redress is too complex to quantify. To this effect, if used it creates the possibility of undermining the proposal and limits the usefulness of the procedures.

The BEUC report explains that this arises from the ambiguous wording; “complexity”, and what it entails. The report goes on to explain that “complexity”, is a regular feature in litigation when calculating damages, and if this article and subsection exclude such cases where; “it is too complicated”, a wide range of valid cases would fall within this clause; such as the Volkswagen Diesel Fraud, the miss representation of Financial Services health, as well as product liability cases.

The report further highlights that Recital 19 lays out two requirements that go with this subsection, which brings about further questions. One of these features is that this derogation applies if its inefficient to bring a representative action vis-à-vis individual cases, to this point there is no clarification as to how single actions can be more efficient opposed to a collective action, which somewhat undermines the proposal. Furthermore, one breach of law can affect millions of customers, and if it falls within the wording of this Recital, than each individual must bring a case to the court, and prove damages, and the link between the infringing act and these damages, which would result in a barrier to access justice.

Cross Border Action

Historically, in the EU, entities have shied away from cross border litigation for various reasons, but mainly due to; cost, and the application of national foreign law. With this in mind, the commission attempts to encourage cross border litigation, by allowing for joint qualified entities to work together.

However, the directive does not deal with who the competent court is. As it stands, Article 2(3) of the proposed Directive emphasises that national, contractual and non-contractual law remains untouched by this Directive, which makes the issue of where the case is tried very important. As such, regulation 1215/201224 should be regarded as it explains that the competent court is the one in which the trader is domiciled in.

By virtue of special Judicial privileges consumer organisations can bring litigation before their home courts, however, the Court of Justice in this regard has shown reluctance to give consumer organisations special privileges as they are not termed Consumers within the definition. Considering, therefore (C-89/91 Shearson Lehman Hutton) which established that a consumer organisation could bring proceedings as an assignee of a private individual, can, therefore, overturn the Court of Justice reluctance and allow consumer organisations Special Judicial privileges to bring a collective action before their home court.

Another aspect that comes up when considering this case is the fact that it undermines the Qualified Entity clause, as it can be bypassed by considering this jurisprudence, which would allow consumer organisations to bring class actions on behalf of private individuals. With this in mind, the proposed Directive is unclear how it will interact with this Jurisprudence and would require clarification by the courts on how it applies.

Furthermore, this proposal is unclear how it will deal with cases where there is a discrepancy of lawfulness between Jurisdictions. The appended Annex I is a list of Directives and Regulations to be made illegal to infringe, however, most of these are transposed with subtle differences at national level, while also considering minimum harmonisation Directives, as such an act can be presented as unlawful in one State but is lawful in the country the company is domiciled in. To this complexity, the Directive needs to clarify how it will behave given such discrepancies.

Evidence

With regards to evidence, this analysis should draw parallels with Article 5 of the 2014/104/EU27 Directive, which goes further than the proposed Directive when requiring defendants to disclose evidence. First, it must be explained that this is a procedural norm, and courts can ask defendants to provide evidence of harm or damage. This is due to the inherent imbalance that exists between the two parties in litigation. As a private individual who suffered harm it can be hard to prove negligence, and further link personal damage to said negligence, as companies typically hold all the evidence required to prove the above.

As it stands, Article 13 of the proposed Directive deals with Evidence, and simply says that courts under national procedural rule can order defendants to relinquish evidence in compliance with union confidentiality law. However, considering the in-depth writing in 2014/104/EU with regards to disclosure of evidence, this analysis sees a gap in Article 13 of the proposal and suggests it be strengthened both in terms of; conditions of disclosure, and enforceability of disclosure. One such gap lies in who can make the request; with regards to the 2014/104/EU Directive, Claimants can issue a request for evidence. While Article 13 says that qualified entities must make the request, considering therefore that using (C-89/91 Shearson Lehman Hutton)30 can result in non-Qualified Entities representing clients, then they should be allowed to make requests for evidence.

De-Facto European Barriers to Class Actions

The EU legal system creates a secondary barrier to class actions. Firstly, in civil litigation, the losing party is responsible for part or all of the legal costs of the prevailing party, which becomes a deterring factor when considering class actions have a substantially higher legal cost associated with them. Secondly, damages awarded are typically lower than that in the US and follow a codified process, which does not promote the use of litigation for small infringements. Finally, third-party litigation funding is heavily regulated in the EU; this makes it harder to bring collective redress without access to adequate funds.

GDPR vs Proposed Directive

As a final aside, this section will note the interplay of the proposed Directive with Article 80 of the GDPR Directive and Section 117 of the Irish DPA. GDPR Article 80 allows; for non-profit bodies to lodge complaints on behalf of individuals, non-profit bodies to receive compensation on behalf of the data subject, and for a non-profit body to lodge a complaint on behalf of the data subject but independent of the Data Subject. With regards to these three points, it must first be noted that the proposed Directive goes notably beyond this and establishes an elaborate system for class action, however, to provide for a holistic analysis these should be considered. When establishing GDPR into law, the DPA gave effect to the first two points, and made the first point compulsory, while the Justice Minister said that to establish the third into law would result in an “Extraordinary” change in the Irish legal system. Therefore, considering the comment made by the Justice Minister it becomes questionable to what extent Member States will transpose this Directive if passed, and further make an interesting point in that legal systems without collective redress have developed in such a way that would require a re-evaluation of most of the current legal frameworks at play to make sure that it works well with these frameworks.

Conclusion

Given the current European system for collective redress, the need for a harmonisation Directive is well needed, but before the final text of this proposed Directive is given, and ultimately transposed it is unclear what the effects of this Directive would be. Moreover, this analysis has identified areas that still need to be addressed within the current wording, and not doing so would result in an unbalanced system for collective redress.

Finally, this Directive is an interesting legal artifact that does its best to introduce Representative Action in Europe; however, it is nowhere close to how comprehensive and liberal the US system of class action is. In this regard, it should be reiterated that the EU is trying to avoid a compensation culture, so while the limitations imposed in the Directive are with reason, it should be questioned how effective and usable it will be given all the restrictions.

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