EU Reaches Agreement on Collective Redress

Introduction

Some two years after the European Commission published its final draft proposal to introduce collective redress actions for consumers, and after much negotiation and lobbying, the European Parliament and Council negotiators agreed on 22 June 2020 to a reworked proposal allowing consumers to defend their rights collectively. 

The draft Collective Redress Directive (the Directive) introduces a harmonised 'collective action' regime. The Directive is a part of the New Deal for Consumers whose aim is to guarantee enhanced consumer protection in the EU. The draft text is still contingent on the EU Parliament and Council formally adopting the Directive but presuming it is adopted, Member States will have 24 months to transpose the Directive with a further six months to apply it. 

In essence, the Directive should enable groups of individuals to make collective claims, both on a national and cross-border stage, in relation to areas such as general consumer law, financial services, travel, health, tourism, data protection and the environment. Measures will also be implemented to protect businesses from frivolous lawsuits.

Core Principles

  • Qualified Entities: Consumers must bring their collective action via a "qualified entity" such as a consumer rights group or a charity. Each Member State will need to designate a qualified entity that satisfies certain characteristics. For a cross border claim (i.e. on behalf of citizens from other Member States), the qualified entity must:
    • be a non-profit body protecting consumer rights for at least 12 months prior to its designation as a qualified entity, and
    • be independent from third parties with competing interests.

For domestic claims, the Member States will decide what criteria to apply. However, Member States must still set out proper criteria consistent with the objectives of the Directive, which may end up being similar if not identical to those set out for cross-border actions. 

  • Redress: The qualified entity will be able to apply for both injunctive relief and other redress such as compensation, replacement, contract termination, reimbursement and repair. 
  • Third Party Funding: The Directive provides limitations on third party funding to ensure that the qualified entity's duty to the claimants is not unduly influenced by the third party. As an aside, the current prohibition on litigation funding in Ireland may be a significant factor in the success or otherwise of the Directive in Ireland.  
  • Loser Pays Principle: As is the case in many Member States, the unsuccessful party must pay the successful party's costs. This should deter unfounded claims by increasing the costs risk for claimants. The goal is to find a balance between a consumer's right to accessing justice and protecting businesses from excessive lawsuits. 
  • Settlement: A qualified entity and a defendant may, with  court approval, settle a claim and the settlement agreement will be binding on all consumers involved. This may comfort businesses who wish to resolve a dispute quickly, in a cost efficient manner and reduces the risk for any reputational damage.  
  • Filter frivolous claims: National courts will be given the power to dismiss manifestly unfounded cases at an early stage of the proceedings in line with national law to avoid frivolous claims.  

Current Position in Ireland

Despite a recommendation from the Law Reform Commission in 2005 and more recent efforts as part of the Administration of Civil Justice in the Courts of Ireland, there is still no legislative framework or legal procedure to allow collective redress or class actions akin to those found in other jurisdictions. There is a rudimentary form of representative action which is rarely utilised, primarily due to the fact that the representative plaintiff is only entitled to declaratory or injunctive relief. Typically, such cases are usually addressed by way of test or pathfinder cases, where the Court chooses a 'test case' and uses the finding as a guide for other similar cases. Domestic efforts on collective redress for consumers in Ireland is now likely to be overtaken by the Directive, under which Ireland will be mandated to adopt laws to transpose it.  

Cause and Effect

Commentators have noted that the Directive will result in a move towards U.S. style collective actions. On the other hand, the use of qualified entities should also protect businesses from frivolous lawsuits which are often seen clogging up the US court system. 

While there may be delay and resistance in some jurisdictions when implementing the Directive resulting in a lack of harmony across Member States, the Directive should result in a strengthening of consumer rights while still protecting business interests. With the above in mind, business should prepare for the transposition of the Directive in Ireland and throughout Europe due to the likely increased risk of consumer litigation. 

For more information on this topic please contact Sarah Murphy, Partner, Don Collins, Associate or Kevin Purcell, Solicitor or any member of A&L Goodbody's Disputes team.

Date published: 14 July 2020