EU takes step closer to harmonising mass action legislation

Out-Law News | 25 Nov 2020 | 4:28 pm | 3 min. read

The European Parliament has formally endorsed the EU Directive on Representative Actions, bringing the EU closer to a harmonised regime for the pursuit of consumer mass actions.

The directive was provisionally agreed in June 2020 between the European Council and EU ministers, and will now be published in the EU Official Journal. It will come into force 20 days after that, with EU member states having two years to transpose it into national laws and an additional six months after that to apply it, meaning mass action procedures will be in place across the EU by 2023.

The directive will enable mass claims (76 page / 617KB PDF) to be brought for breaches of EU legislation in a range of policy areas, including data protection, financial services, product liability, energy, telecoms and tourism.

EU member states will identify which bodies are entitled to bring mass actions against businesses on behalf of consumers, both domestically and cross-border.

Member states will have flexibility as to whether their national mass actions procedures operate on an ‘opt-in’ basis, where potentially affected consumers actively decide to participate in a mass claim and register in an action register; or an ‘opt-out’ basis, similar to the US class action system. Cross-border mass actions will operate on an opt-in basis.

The rules also introduce safeguards against abusive lawsuits by using the “loser pays principle”, which ensures that the defeated party pays the costs of the proceedings of the successful party.

The directive says punitive damages should be avoided to avoid representative actions from being abused, and qualified entities should also establish procedures to avoid conflict of interest and external influence, particularly if they are funded by a third party.

The law will also cover infringements that have stopped before the representative action is brought or concluded, since the practice might still need to be banned to prevent it from recurring.

Some member states have expressed reservations about the legislation and a number, including Belgium and Germany, abstained from voting when the directive went to a vote earlier this month.

Dispute resolution expert Johanna Weißbach of Pinsent Masons, the law firm behind Out-Law, said the directive was likely to drive an uptake in mass actions across the EU.

However, Weißbach said significant change would be required in some jurisdictions to comply. The European Consumer Organisation has said only six countries – Belgium, France, Italy, Portugal, Spain and Sweden – offer what it considers to be efficient collective redress systems, with other jurisdictions, including Germany and the UK, having partial regimes and some jurisdictions having no means for launching a collective procedure at all.

“The German legislator, for example, will need to decide whether to amend the existing rules on the declaratory model action introduced in late 2018, which partly but not fully comply with the directive, or whether to set up an entirely new system. Even where procedures already exist, shifting responsibility for pursuing mass actions onto designated entities may well encourage more consumers to engage with such actions,” Weißbach said.

Dispute resolution expert Jason Collins of Pinsent Masons said effective dispute resolution procedures were welcome not only for consumers but also for businesses, making mass actions more predictable and manageable, and should be part of a well-functioning economy.

“Increased harmonisation of procedures internationally can have benefits for businesses which operate on a cross-border basis, who can find themselves facing a multiplicity of proceedings in different jurisdictions, making case management complex, driving up costs and increasing the risk of inconsistent outcomes,” Collins said.

“It will, however, be important to ensure that adequate safeguards are in place to protect against vexatious claims and an excessive litigation culture. The directive provides some mechanisms for this, such as by applying the ‘loser pays’ principle on costs and allowing courts to dismiss manifestly unfounded cases at an early stage, in accordance with national law.

“However, how these protections are implemented at national level will be important. We may also see a continued increase in businesses looking to use redress schemes as a method of managing the mass litigation, public relations and other risks arising from systemic problems,” Collins said.

David Barker of Pinsent Masons said: “It is unclear whether the UK will adapt its procedures to reflect the principles of the directive. In light of Brexit, it will not be obliged to do so, but the Directive may drive appetite for increased routes of collective redress, which are already under focus in some areas.”

Barker said the UK Department for Digital, Culture, Media and Sport was expected to report soon to parliament on its recent consultation on whether to allow non-profit organisations to make data protection regulatory complaints and bring court claims on behalf of individuals without their mandate.