In a significant new deal between the European Parliament and Council negotiators, new rules will be introduced which will provide greater protection for consumers in “mass harm” situations as part of the EU 2New Deal for Consumers (which we discussed recently here). The Representative Action Directive (the Directive) was originally proposed in 2018 but has taken considerable negotiation to bring to this stage. The Directive will ensure stronger protection for EU consumers by enabling them to bring a collective action within the EU. This means that a group of consumers may bring an action to court where they have suffered the same wrong. The Directive aims to guarantee consumers access to justice in situations where there are often barriers to entry to the courts due to, in particular, monetary constraints. While this is a new move by the EU, such actions have been available in other countries, including the United States, for some time. It is expected the EU counterpart will have necessary built-in safeguards to protect against frivolous and abusive lawsuits.Class-actions are not currently permitted in Ireland and recently both the European Union Bar Association and the Irish Society for European Law recommended that proper provision be made in Ireland for class actions. For a further discussion on the current status of this type of action in Ireland, you can read our recent article, available here.
What Do We Know?
- Scope. The European Parliament press release, available here, has said that such lawsuits could cover trader violations regarding general consumer laws. In particular, the Directive intends to cover the areas of data protection, financial services, travel and tourism, energy, telecommunications, environment and health, and air and train passenger rights.
- Qualified Entities. A group of consumers will have their action represented by “Qualified Entities”, which will be empowered and financially supported to bring both domestic and cross-border actions for injunction and redress. It is expected that designation criteria for Qualified Entities will distinguish between cross-border and domestic cases. In the context of cross-border cases, the Qualified Entity must be a not-for-profit body and so will typically be public bodies or charities. The entity must prove it has protected consumers’ rights for a period of 12 months prior to being appointed as a Qualified Entity. In addition, this entity must be independent from third parties with competing economic interests to the consumers it represents. In the context of domestic cases, member states will ascertain the criteria that will apply. As such criteria must be consistent with the Directive, Ireland may adopt similar designation criteria as applies to cross-border cases.
- “Loser Pays” Principle. It is expected that the “Loser Pays” principle will serve as a significant deterrent to bringing such representative actions. This principle dictates that the unsuccessful party must pay the successful party’s costs. This rule balances the right to access to justice for consumers, while protecting businesses from frivolous and abusive lawsuits.
- Right to Dismiss. In addition to the “Loser Pays” principle, a court or administrative authority can dismiss unmeritorious claims early in the proceedings in accordance with national law. This will deter costs from mounting in cases which are manifestly unfounded.
- European Ombudsman for Collective Redress. The European Commission is to assess whether a European Ombudsman for collective redress should be established to deal with cross-border representative actions.
The influx of such collective actions is not expected until 2022 onwards. This agreement is still subject to formal approval by the European Parliament and the Council. Following this, the Directive will be published in the Official Journal of the EU and come in to force twenty days thereafter. Member States will then have 24 months to transpose the Directive into national laws, with and an additional six months to apply it.
While we do not yet have details as to how this Directive may operate in Ireland, as transposing legislation will be required, it is anticipated that with the UK’s exit from the European Union, Ireland may serve as an attractive venue for taking such collective claims. Depending on the way in which the Irish Government transposes the Directive, such class-actions could represent a significant change in Irish court procedures. They will also represent a new challenge for any parties who have not yet dealt with class actions. The Directive may also have repercussions in relation to how other litigation is conducted, depending on the success of this new mechanism. For example, the absence of litigation funding in Ireland may affect the likelihood that Qualified Entities will take trans-European cases here. As always, we will monitor these developments as they occur.
While the Representative Actions Directive may not be a catch-all for class action style lawsuits, it is a step in the right direction and is complimented by other EU measures recently implemented, such as Article 80 of the GDPR (discussed here).