Class actions in the European Union
The European Union has embarked on an ambitious journey to strengthen collective redress action with the introduction of Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers ( the Directive).
Before the advent of the Directive, various EU member states operated their domestic mechanisms to address consumer redress, which, in some member states, included collective or group action. However, the availability, efficacy, and uniformity of these mechanisms varied widely across the EU. Recognizing the need for a harmonized approach, the Directive was designed to make representative actions for the collective interests of consumers compulsory for all member states.
The State of Play
Although member states were obliged to adopt and publish the laws and regulations necessary to comply with the Directive by 25 December 2023 and to apply those measures as of 25 June 2023, it is important to note that not all member states have fully implemented the requisite laws and regulations yet. There are variations in the speed and procedures of implementation, with some countries progressing faster than others. Furthermore, the Directive provides member states with the flexibility to incorporate their own procedures, resulting in non-uniform mechanisms.
EU Representative action model
The Directive introduced a model for representative actions, competing with existing domestic class groups or collective actions. This concept of "dualism" signifies that some EU member states may have multiple coexisting collective action models. However, the Directive establishes a minimum standard for representative actions, ensuring a consistent approach across the EU. The Directive's scope extends beyond collective actions solely for redress; it also encompasses provisions for injunctive actions.
One of the core principles of the Directive is that only qualified entities are authorized to initiate and pursue representative actions for the protection of the collective interests of consumers. These qualified entities, such as consumer associations, play a pivotal role in advocating for consumer interests and are the driving force behind representative actions.
Additionally, consumer participation can occur through either an opt-in or opt-out mechanism, depending on the choice of the member state. In the case of cross-border consumer participation, an opt-in system is mandatory, ensuring that consumers are fully aware of and consent to their involvement. This model caters to domestic, cross-border, and EU-wide classes of consumers, enhancing enforcement of consumer laws on multiple levels.
France
Since 2014, France has introduced a series of distinct class action regimes, tailored to specific subject matters, including consumer-related issues, data privacy, and healthcare matters, among others. These pre-existing mechanisms were often complex and riddled with limitations that hindered their effectiveness.
France has now strategically combined the implementation of the Directive with a broader reform of its existing class action regimes. A bill is currently in the final stages of the legislative process before the Parliament before becoming law. The current version may thus still undergo some amendments, even though clear goals have been set for this reform and these goals will remain untouched during final stages until the law is definitely passed.
The primary objective has been to establish a comprehensive and adaptable class action framework. One other notable aspect of this ongoing reform is the significant expansion of defendants' financial exposure in class action cases. The scope of potential damages that may be awarded will be broadened, presenting a stark departure from the limitations imposed by prior regulations. Furthermore, the introduction of civil fines against defendants will serve as an additional deterrent against wrongful conduct. This approach will aim to sanction those defendants who knowingly engaged in harmful behaviors, adding one layer of accountability. In addition, the reform encompasses several features that collectively aim to enhance the attractiveness of class action procedures in France. Notably, it will likely become easier to initiate a class action, as the requirement for prior notice before proceeding to court will no longer apply once the new regime is in force.
Spain
While the Directive is yet to be fully integrated into Spanish Law, the country has taken a proactive step by issuing a Preliminary Draft Law that sheds light on Spain's innovative approach to implementing class actions.
One of the distinguishing features of Spain's approach is its adoption of an opt-out system within the Preliminary Draft Law. In essence, this implies that class actions initiated by consumer associations will automatically bind all affected consumers. Those who fall within the scope of the class action are considered participants unless they explicitly opt out. Spain's Preliminary Draft Law, however, incorporates two noteworthy exceptions to the opt-out system:
- If the amount claimed for each consumer exceeds 5,000 euros, or if opting out is deemed necessary for the proper administration of justice, a court may choose an opt in system.
- If the parties are located outside Spain, the system will always be an opt-in system.
Additionally, two key aspects deserve special attention within this evolving legal landscape. Firstly, the Preliminary Draft Law dictates that only the first collective redress claim will be handled. This unique provision opens the door to a race among consumer associations to be the first to file, potentially influencing the quality and scope of the claims filed. Secondly, consumers themselves are unable to directly intervene in class actions. Instead, they are represented solely through consumer associations and public consumer bodies.
Notably, Spain's legal framework also emphasizes the integrity and transparency of consumer associations. These entities must adhere to internal regulations of independence and transparency, and the law allows for challenges to their statutory purpose and the interests they represent. This provision adds a layer of accountability to the system, ensuring that consumer associations act in the best interests of consumers.
Spain's evolving class action system has several characteristics that make it an attractive forum for consumer protection. The opt-out system simplifies participation, specialized judges in Spain offer expertise in class actions, and the country's cost-effective legal environment benefits both claimants and defendants. Moreover, Spain's track record of delivering relatively swift legal decisions is indicative of its commitment to efficiency.
Germany
Germany stands at the threshold of a transformative period in its legal framework, poised to enact significant changes with the implementation of the Directive. The new law represents a paradigm shift in the realm of enforcement of consumer laws, with three fundamental trends that warrant exploration.
Compensation: Revolutionizing Consumer Redress
Historically, Germany's approach to collective actions aimed to secure declaratory rulings. However, the new law opens up new horizons, allowing for the awarding of compensation in collective actions. This transformative shift presents a game-changing scenario for consumer redress. Qualified entities can now seek redress on behalf of consumers through collective actions, potentially expediting the process of obtaining compensation.
Streamlined Standing Requirements
By aligning its domestic standards with the requirements of the Directive, Germany is lowering the barriers to access to representation. This adaptation paves the way for a broader array of qualified entities having standing to bring actions on behalf of consumers. Additionally, the timeframe for consumer opt-in has been extended to three weeks after the trial hearing. This extension offers consumers the flexibility to assess the development of collective actions and make informed decisions about their participation, be it in the collective action or the pursuit of individual claims.
Expanded Scope of German Law
Germany goes beyond the scope of the Directive. Qualified entities now have the ability to pursue civil law claims of consumers and small enterprises that extend beyond the specific consumer laws and regulations listed in the Directive and claim redress. This expansion underscores the need for qualified entities to specialize in a range of new legal areas, offering consumers access to a wider array of expertise.
Netherlands
The Netherlands has emerged as a trailblazer in promptly adopting and seamlessly integrating the Directive. The implementation of the Directive was straightforward, requiring only minor adjustments to the existing domestic collective action framework, with the reasoning that the Netherlands already had a long-established tradition of collective redress, which was expanded with a mechanism to encompass collective claims for damages in January 2020.
This expansion sparked a surge in the initiation of collective actions, with an increasing number of claimant firms and litigation funders becoming active in the Netherlands. What sets the Dutch regime apart is its broad scope. While the Directive primarily focuses on consumer claims, the Dutch system accommodates a broader spectrum of claims, spanning beyond consumer issues and encompassing all types of claimants.
One pivotal feature of the Dutch collective redress mechanism is its "opt-out" model for injured parties residing in the Netherlands. Under this model, individuals falling within the defined scope are automatically included in the collective claim unless they explicitly opt-out. In contrast, for injured parties located outside the Netherlands, the "opt-in" model is applicable, requiring their active consent for participation.
An equally significant aspect of the Dutch system is the heightened financial exposure for defendants. In cases subject to the collective action regime, the court holds the authority to order defendants to cover the actual - reasonable and proportionate - litigation costs, (including lawyer fees) of the claim vehicle. This financial consequence creates a compelling incentive for claimants to use the collective action framework, enhancing its overall appeal.
Italy
Also, in Italy, the Directive has already been implemented and the new rules have been included in the Consumer Code. As a result of the implementation of the Directive and of the entrance into force of a national reform in 2021 (to which the Consumer Code makes numerous referrals), the new Italian class action regime now has a broader scope and lowers the burden of proof for claimants significantly. For example, the court may ground its decision regarding the defendant’s alleged liability on statistical data and simple presumptions.
Furthermore, the new rules (included both in the national reform of 2021 and in the Consumer Code) incorporate substantial incentive mechanisms, offering monetary rewards for lead plaintiff lawyers and "common representatives" if the action proves successful. In fact, under the new provisions in the Italian Consumer Code, consumers will only be required to reimburse the defendant's legal costs in cases of willful misconduct or gross negligence, and defendants must anticipate the costs associated with court expertise and the remuneration of court-appointed experts.
As a result, the financial exposure for defendants has significantly increased.
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The European Union's pursuit of collective redress has taken a significant leap forward with the introduction of the Directive. Even though the Directive’s effective date of 25 June 2023, has passed, it's evident that member states are at various stages of implementation. With varying nuances and distinctive features in each country's transposition, the Directive's implementation is poised to impact consumer matters and the legal landscape across the European Union in profound ways. It remains a space to watch as member states fine tune their collective redress procedures. Remember, the Directive does not bar member states from keeping existing domestic class or group actions or introducing new ones.
Authored by Ana Jimenez-Tuset Bernat and Noor Hogerzeil.
