On 4 November 2020, the Council of the European Union (the Council) adopted its position at first reading of the draft directive on representative actions for the protection of the collective interests of consumers in the European Union (the Directive). This follows an agreement reached with the European Parliament in June 2020.
As part of the EU's New Deal for Consumers package, the Directive aims to modernise and replace the Injunctions Directive (2009/22/EC) by providing redress and injunctive measures for groups of consumers that have been affected by specific infringements of EU law.
The European Parliament and the Council consider that such measures are necessary to counter increasing risks to consumers due to widespread digitalisation and globalisation.
It's important to note that the UK won't be directly affected by the Directive, as it will only come into force after the end of the transition period (31 December 2020). This means that the UK will not be required to implement it as law.
Nevertheless, if Member States start to see increasing representative actions in national courts, the appetite for representative actions in the UK using existing procedures – for example, collective actions and group litigation orders – may increase in tandem.
We look at the changes and consider what the implications are for EU consumers and businesses below.
What changes are introduced in the Directive?
The purpose of the Directive is to enable "qualified entities" (ie consumer bodies that represent the collective interest of a group of consumers) to seek redress through representative actions in national courts of respective Member States against infringements of specific, consumer-related provisions of EU law.
What EU law is covered under the Directive?
The list of EU laws to which a representative action can be brought is wide-ranging and set out in full in Annex 1 of the Directive.
The list includes legislation relating to, for example:
- liability for defective products (eg the Product Liability Directive)
- the sale of consumer goods, digital content and digital services
- the rights of passengers (travel by air, sea, rail etc)
- data protection (eg GDPR)
- the supply of electricity and gas to consumers
- the provision of food information (eg allergen rules etc).
What is a "qualified entity"?
Under the Directive, a group will be designated as a "qualified entity" if it meets the criteria set out in Article 4, namely:
- it's a legal person properly constituted under the law of the Member State and can demonstrate 12 months of actual public activity in the protection of consumer interests prior to its designation request
- it can demonstrate it has a legitimate interest in ensuring the provisions of the EU law covered by the Directive are complied with
- it has a non-profit making character
- it's not subject to an insolvency procedure or declared insolvent
- it's independent and not influenced by other persons (other than by consumers) who have an economic interest in bringing any action, and
- it publicly discloses its sources of funding.
What remedies can qualified entities seek for consumers under the Directive?
Under the Directive, Member States must ensure that qualified entities can bring representative actions to seek one or both of the following (at the very least):
Injunction measures
This includes a provisional or definitive measure to cease or prohibit an infringing practice (ie the sale of a defective product or an infringement of passenger rights).
Importantly, in order to seek an injunction measure, the qualified entity does not need to prove the actual loss or damage on the part of individual consumers affected by the relevant infringement, nor the intention or negligence on the part of the infringing trader.
Redress measures
This includes measures which obligates the infringing trader to provide for compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate.
Member States must ensure that if a redress measure is awarded, consumers affected by the infringement can seek recovery without the need to bring separate actions. However, such recovery by consumers may have time limits, and Member States have the power to lay down such rules.
It's important to note that remedies obtained under such redress measures must be without prejudice to any additional remedies available under national law.
What about the cost of representative actions?
There are strict rules on the funding of representative actions in the Directive. Any third parties who fund a particular representative action must not have an economic interest in the outcome that would divert the action from the protection of the collective interests of consumers. This would effectively defeat the purpose of the Directive.
Under the Directive, Member States must ensure that the defeated party in a representative action for redress pays the cost of the proceedings borne by the successful party, in accordance with national laws (ie the "loser pays" principle).
However, it's important to note that individual consumers affected by a representative action for redress should not pay the cost of the proceedings (if unsuccessful), except where they are ordered to do so if the proceedings were deliberately or negligently caused by an individual consumer and that consumer's conduct.
What impact will the Directive have on consumers?
The Directive has received widespread approval from consumer groups across the EU. Monique Goyens, Director General of The European Consumer Organisation, described the Directive as a "huge landmark to make justice available to all consumers."
Provided the Directive is implemented effectively in the national law of Member States – they are given considerable flexibility as to implementation – we expect to see a significant increase in consumer groups looking to bring representative actions, particularly in fields such as consumer products, data privacy, consumer rights and competition.
As a result of the Directive, access to remedies for infringements in these fields will become much more accessible to consumers across the EU. This is particularly the case given that individual consumers are unlikely to be burdened with the cost of such proceedings.
What impact will it have on businesses?
Consumer-facing businesses will face an increased risk of litigation in the EU as a result of the new regime introduced by the Directive. Essentially, it empowers consumers to bring actions and seek recovery where previously they may not have had the means or the appetite.
By shifting the financial and practical responsibility onto the shoulders of qualified entities and allowing them to take up the mantle of consumer protection, consumers are much more likely to engage and seek recovery for a range of different infringements.
If you're a product manufacturer or retailer, the Directive further emboldens consumer groups to seek repairs, replacements and refunds for products, or to seek injunctions to stop existing infringing practices (including the sale of defective products).
It's therefore more important than ever that you ensure your products are put through rigorous quality control and testing processes before they reach the market and consumers. Failure to do so may lead to a heightened risk of litigation and reputational damage for you as a business.
So, while collective actions were possible before, the Directive ensures that such actions are much more viable (and potentially much more efficient and straightforward) for consumer groups. We expect uptake to be significant when the Directive comes into force.
What happens next?
The Directive will now make its way back to the European Parliament, who should approve the Council's position before the end of this year, at which point the Directive will be formally adopted. It will enter into force on the 20th day following its publication in the Official Journal of the European Union.
Member States will then have two years in which to implement the Directive into national law (plus an additional six months in which the Member States have to start applying the provisions).
Consequently, we don't expect the Directive to come into substantial effect until the middle of 2023. We suggest that if your business is affected by the Directive – and most consumer-facing business will be – you regularly monitor the progress of implementation, especially if your business sells or markets products across several Member States.
Will the UK be affected by the Directive?
No, not directly. As the Directive will only come into force after the end of the transition period (ending 31 December 2020), it will not be implemented as law in the UK.
However, the UK already has an established regime for collective redress (for example, collective actions over competition law claims and the use of group litigation orders in High Court litigation).
If the Directive becomes widely used across Europe we might expect to see collective actions used more frequently in the UK, especially if consumer groups start to have success. This might further encourage actions in the UK, employing existing procedures which, to date, are rarely used.
How we can help
We regularly advise international and European businesses on the provisions of EU law that are captured by the Directive. As a result, we're uniquely placed to advise on the implications of the Directive for your business. If you need advice relating to the new representative actions regime and how your business or products may be affected, please get in touch.
