EU Parliament and Council Agree to Allow Consumers to Pursue EU-Wide Collective Actions

Morgan Lewis
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Morgan Lewis

Negotiators from the EU Parliament and Council reached an agreement on 22 June on the Collective Redress Directive (Directive), which will allow groups of individuals to seek compensation through collective actions against companies. The Directive is the result of the New Deal for Consumers initiative that the European Commission launched in April 2018 to strengthen enforcement of EU consumer law.

The new rules are intended to harmonise the model for representative actions across the European bloc and reduce the financial burden on individuals seeking to bring a claim against businesses in instances of mass harm. Each member state will be required to:

(i)  designate at least one qualified entity – such as a consumer organisation – that will be empowered and financially supported to launch actions for injunction and redress on behalf of groups of consumers. The financial support is particularly important as a number of consumer organisations are significantly underfunded at present. The Commission will also assess whether to establish a European Ombudsman for collective redress to deal with cross-border representative actions at an EU level; and

(ii)  establish at least one representative action procedure for injunction and redress measures, allowing actions at both a national and EU level.

It is anticipated that the scope of the Directive will cover collective actions in relation to general consumer law, data protection, financial services, environment and health, travel and tourism, energy, telecoms, and train and air passenger rights. The Directive should ensure that a framework for collective actions is also introduced in EU countries that do not currently have such a system in place.

The EU has sought to limit the risk of frivolous actions and address some of the concerns of the consumer industry by: (i) restricting the bodies that can bring such actions to designated entities; (ii) implementing a loser-pays costs system; and (iii) allowing courts or administrative authorities to dismiss “manifestly unfounded cases” at the earliest possible stage of proceedings in accordance with the relevant national laws.

EU countries with well-functioning collective redress systems such as France, Germany, and the Netherlands paid attention to protecting national collective redress legislation. Thus, a distinction was made between cross-border and domestic cases, and the directive will grant member countries more freedom to apply their own laws when it comes to defining domestic collective redress cases.

The negotiated agreement will now need to be formally approved by both the EU Parliament and Council. It will then come into force 20 days after its publication in the Official Journal of the EU and member states will have 24 months to transpose the rules, and a further six months to apply them.

It is not clear at this stage to what extent the United Kingdom will implement the Directive given that the Brexit transition period is due to expire before the deadline for transposing and applying the rules. The United Kingdom already has a group litigation concept that shares certain traits with the EU’s proposals, but differs in that it generally requires participants to opt in and share legal costs in order to be covered by any eventual judgment. Nevertheless, businesses based in the United Kingdom would do well to monitor any further developments in this area, particularly where they have European customers.

We anticipate that the Directive will lead to an increase in the number of collective actions in the European Union, including cross-border actions. We will give further consideration to the issues that arise for international organisations and will publish further articles in due course analysing the new rules and detailing steps that organisations may wish to consider taking to minimise damage that may arise for them under the new regime.

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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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