The long way round
As infringement proceedings against Austria were already underway and an Austrian Regional Court had ruled in favour of its direct applicability, the Representative Actions Directive (RAD) has now been finally transformed into national law. It will take effect still in July 2024.
The RAD forms a crucial part of the EU’s New Deal for Consumers, designed to modernise and strengthen the enforcement of EU consumer law. Central to its reform is the enhancement of class actions, aiming to facilitate easier access to justice for consumers. A key provision of the new law allows for actions seeking redress, such as compensation or repairs, at no cost to consumers. The new law introduces several innovations, including deviations from the Austrian statute of limitations system and a legal framework for established practices such as litigation financing.
Around 25 years ago, in the absence of a specialised legal framework, the so-called ”Austrian-style class action“ emerged: Consumers assigned their claims to Consumer Protection Organisations (CPOs), which pursued these claims in their own names on behalf of individual consumers. However, this approach posed several disadvantages for consumers, including substantial financial risks and limitations on their ability to participate in cross-border disputes. While the new law addresses many of these issues, considerable doubts remain as to whether it will render the Austrian-style class action obsolete.
Area of application
The new law applies exclusively to B2C relationships. Unlike in Germany, small and mid-sized businesses are not eligible to participate as claimants in these new actions. However, unlike the proposed RAD, the new representative action is not restricted to claims arising from specific areas of law.
Qualified entities
A representative action can only be initiated in court by specific entities. Certain CPOs and governmental bodies have an inherent right to initiate such actions. Moreover, the new law establishes criteria for recognizing certain organisations as so called “Qualified Entities” (Qualifizierte Einrichtungen), enabling them to pursue legal action. Similarly, Qualified Entities in other EU member states also have the right to initiate legal proceedings.
Class Actions with limitations
Austria decided to introduce an opt-in system, which differs significantly from the "Class Action" model used in the US. An action for redress can only proceed to court if at least 50 consumers are affected by a company’s unlawful conduct under essentially similar circumstances. Consumers are also permitted to join the lawsuit at a later stage.
The Austrian legislator has chosen not to adopt ‘discovery’ proceedings, meaning there is no enforceable obligation to submit evidence to the court. The burden of proof remains with the Qualified Entity/CPO. Additionally, punitive damages are not part of the agenda.
Procedural updates
The process of claiming redress is structured into three stages:
- The Commercial Court of Vienna, with exclusive jurisdiction, determines whether the legal prerequisites for a representative action for redress are met.
- If approved, the decision is then published in the national gazette. From that time, consumers have three months to join the permitted lawsuit.
- Finally, the court decides on the individual consumer claims.
If an action for redress is not permitted by the court, the statute of limitation for each consumer is extended by three months.
The Qualified Entity may request in its statement of claim that the court separately decide on specific questions crucial to the claims of all consumers who have joined or will join.
Global settlements will be subject to court approval. If granted, the settlement becomes binding for all consumers who have joined the lawsuit. In contrast to the Austria-style class action, they can no longer opt out and continue as individual plaintiffs, reducing litigation risks for affected companies.
Litigation funding
The action may be financed by third parties, and the new law does not cap the financer’s share of the profit. Both third party funding and the funding provider must be disclosed to the court.
Outlook
The implementation of the RAD creates a basis for a more efficient conduct of proceedings. This is also beneficial for defendants, as they will presumably only face one proceeding at the time, rather than hundreds or even thousands of separate proceedings for potentially small claims. While the limitations of the new law cast some doubt on its ability to completely replace the Austrian-style class action, it is likely that we will continue to see Austrian-style class actions in the future. However, the new law, which recognizes certain bodies as “Qualified Entities” eligible for litigation, is expected to lead to an increase in consumer litigation cases, highlighting a growing trend in consumer legal actions. It’s time to prepare.
