Client Alert

One for All! Collective Redress Is Coming to the EU

15 Jul 2020

The EU may soon introduce and adopt a collective redress directive that will make it possible for consumers across the EU to bring forward class action cases on various legal matters. The European collective redress system, which has been under debate for more than 30 years, made a step forward on June 22, 2020, when negotiators of the European Parliament and the Council of the European Union reached an agreement on the key aspects of making EU-wide collective consumer claims possible.

The Collective Redress Proposal

The new directive has not been published yet, but the EU press statement offers some insights into the provisional consensus and the procedural specifics of the new type of suit (link). As can be seen, the directive will enable class actions led by certain organizations, rather than the consumers themselves. It is expected that the plaintiffs may seek monetary redress directly by means of the collective consumer suit, which would increase the litigation exposure for companies running B2C businesses within the EU.

In particular, the key aspects of the directive (as per the available press statement) are as follows:

  • The new directive will make it possible to bring collective claims on various legal matters, such as general consumer law, data protection, financial services, travel and tourism, energy, telecommunications, environment, and health, as well as air and train passenger rights. The redress mechanism could be broadened out even further in the future, e.g., by covering environmental harms such as pollution, according to the Commissioner for Justice and Consumers, Didier Reynders.
  • Each Member State must designate at least one qualified body (an organization or a public body) that is empowered and financially supported to bring injunctions and redress actions on behalf of consumer groups and to ensure consumer access to justice. To be designated, bodies must meet a number of criteria, which are either harmonized (for cross-border cases) or can be set by each Member State (for domestic cases).
  • To strike a balance between access to justice and the protection of businesses against abusive claims, the agreement introduces a “loser pays principle,” meaning that the losing party bears the costs of the successful party’s proceedings. This may have wide-ranging consequences for companies. For example, in the privacy context, this means that where a company has violated the GDPR, that company faces financial scrutiny in three possible ways:

(i) a regulatory fine from a data protection authority,
(ii) civil damages awarded to plaintiffs, and
(iii) reimbursement of plaintiffs’ legal costs.

  • The agreement also states that manifestly unfounded cases can be dismissed at the earliest possible stage of the proceedings in accordance with national law.
  • The EU Commission should assess whether it makes sense to establish a European Ombudsman for collective redress, tasked with dealing with cross-border actions at EU level.
  • According to news coverage, the new directive will make it possible for consumers to also take legal action on events that occurred before the directive takes effect. This potentially opens up claims with respect to past data breaches or other past GDPR violations. It is not yet clear how far back such claims should be able to go.

The agreement marks another step towards class-action type litigation within the EU.

Are Collective Actions Already Undertaken in the EU?

Despite the absence of an EU-wide mechanism to facilitate collective redress, more and more Member States have in fact already made it possible in recent years to initiate collective claims. For example:

In the Netherlands, the “The Collective Damages Act” (Wet Afwikkeling Massaschade in Collectieve Acties, WAMCA) entered into force on January 1, 2020. Under the Act, a representative class is able to bring a claim against Dutch and foreign companies in the Netherlands where a collective action has a sufficiently close connection to the Dutch jurisdiction (“scope-rule”). This may generally be the case if either the class or the defendant resides in the Netherlands, or if the circumstance(s) on which the collective action is based took place in the Netherlands. The Act makes it possible to file a claim for monetary damages in a Dutch collective action procedure for claims that relate to events having occurred on or after November 15, 2016 (so predating to when the Act took effect). As the first collective actions in the Netherlands are now emerging, the contours of the Dutch Collective Damages Act will be further shaped through case law in the years to come.

In Germany, a new type of collective consumer suit—the so-called Musterfeststellungsklage—was introduced in 2018 (see our analysis for further background). There have been several such suits to date. Recently, in June 2020, Volkswagen AG settled the biggest consumer class action so far for roughly 750 million euro. The Musterfeststellungsklage resembles the upcoming EU collective consumer suit in its prerequisites and procedure. So the EU collective consumer suit will feel somewhat familiar for companies doing business in Germany. A relevant difference in the planned EU directive will be the option of cross-border collective actions, which may well lead to a competition between jurisdictions and “forum shopping” by consumer organizations.

Also, in the UK, group litigation orders (GLOs) (an “opt-in” mechanism) and representative actions (an “opt-out” mechanism) have made it possible for a number of individuals to file claims in court as a class. Unlike the planned EU directive, neither type of claim is required to be brought by a representative body. While these mechanisms have not been commonly used since their introduction in 2000, they have started to be used more widely, particularly in the context of data breaches. And while the EU redress directive will likely come after the Brexit Transition Period has ended, and therefore may not be implemented in the UK, it seems that we may nevertheless see more class action lawsuits unfold in the UK as well.

Conclusion

As of today, many Member States already provide for the possibility of collective redress. In order to have a truly harmonizing effect on these current and yet-to-come redress mechanisms across Member States and ultimately enable consumers across multiple jurisdictions to join in one action, the new directive must provide sufficiently specific rules to govern the areas of differences (e.g., the requirement for a representative body, how far back claims can go, and whether an opt-in or an opt-out approach should be applied).

The agreement reached by negotiators from the European Parliament and the Council of the European Union, which represents the 27 national governments, is still subject to formal approval by the European Parliament and Council. However, given the recent agreement, observers predict this to be not more than a mere formality. The directive’s text will then be published in the EU Official Journal and enter into force 20 days thereafter. Member States will have 24 months after the directive’s adoption to transpose the rules into their national laws. Going forward, the directive will also require the European Commission to assess within three years if a European ombudsman for collective redress should be established.

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