A New (Sort of) Class Action in Protection of European Consumers

by K&L Gates LLP
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Background
The European Commission (“Commission”) presented this initiative in the context of a proposed revision of the EU framework on consumer protection. The “Package” (as the name goes when several independent legal texts are intended to be negotiated together)  called “New Deal for Consumers,” builds on the Commission review of consumer law rules that was conducted as part of the so called Regulatory Fitness and Performance Program (REFIT). This is a policy program intended to keep EU law simple, removing unnecessary burdens and adapting existing legislation without compromising on policy objectives.

The new set of measures is summarized in a Commission’s Communication and consists of:

  • A draft Directive on better enforcement and modernization of EU consumer protection rules;
  • A draft Directive on representative actions for the protection of the collective interests of consumers.

This Alert focuses on the proposed Directive on representative actions (the “Directive”).

The Directive’s main novelties
The Directive, which will repeal existing Directive 2009/22/EC on injunctions for the protection of consumers' interests, defines its subject matter most clearly in its Article 1: it sets out rules enabling qualified entities to seek representative actions aimed at the protection of the collective interests of consumers, while ensuring appropriate safeguards to avoid abusive litigation. This effort to balance a new harmonized EU collective redress while preventing abuse is at the essence of the new text. To prevent the misuse of representative actions, elements such as punitive damages and the absence of limitations as regards the entitlement to bring an action on behalf of the harmed consumers have been avoided. Member States will also be requested to establish clear rules on various procedural aspects, such as the designation of those to be considered as qualified entities, the origin of their funds, and the nature of the information required to support the representative action.

In an interesting exercise, the draft Directive comes with an Annex including a long list of EU law instruments covering a broad and diverse range of matters range where potential infringements by traders may harm collective interests of consumers. This goes beyond “traditional” consumer protection rules, to include essential regulation in sectors as diverse as financial services, transport and tourism, energy, media and telecommunications, pharmaceutical products, or data protection.

Under the proposal, only nonprofit “qualified entities” to be designated by Member States at their request will be enabled to bring actions before courts or administrative authorities. These will include consumer associations and independent public bodies. They can also be created “ad hoc” for a particular representative action.

And what can those qualified entities ask for from courts or administrative authorities? Member States shall ensure that qualified entities are enabled to;

  1. Apply for a provisional or a definitive injunction order for stopping an existing harmful practice or prohibiting it if it has not taken place yet;
  2. Seek a redress order that can obligate the trader to provide for compensation, repair, replacement, price reduction, contract termination, or reimbursement. Redress cannot have punitive effect and will be limited to the actual loss or damage suffered by the consumers.

In some cases, Member States will be allowed to replace the redress order by a declaratory decision establishing the liability of the trader, which may be directly relied upon by consumers in subsequent redress actions.

The Directive also provides rules on other necessary aspects once the principle of representative action has been established: funding transparency for qualified entities, the form and conditions for settlements, allocation of costs, access to evidence, or penalties. It also deals with the effect of a final decision on an infringement of collective interests of consumers on any other action against the same trader for the same infringement. And it is important that in this matter, Member States are requested to ensure that a final decision taken by a court or administrative in a Member State is to be considered as a (rebuttable) presumption that an infringement has occurred.

A change for many
The Directive will now start its ordinary legislative process. While there is general political consensus to guarantee that it will get the necessary final approval by the two co-legislators, the European Parliament and Council of the EU, there is still room for many amendments that can better define many aspects and that could reduce or enlarge the freedom for Member States to develop the details of the new scheme in their national legal systems. According to sources from the legal Commission, there are seven EU countries for which these rules will represent an evolution and a reinforcement of already existing rules on collective court representation in defense of consumers. For the other twenty, these rules are completely new and will introduce in their legal systems a redress mechanism completely strange to their legal tradition and practice.

Once approved and in force, Member States will have 18 months to adapt their national procedural and substantive laws to transpose these rules.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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