Information for Luxembourg last updated in September 2023.
The current mass actions landscape
Although there is currently no comprehensive procedure for mass actions in Luxembourg, the courts have allowed parties to bring a type of “mass action” through the use of “test cases” – a mechanism also used in the Republic of Ireland, for example. Such a mechanism has been used in Luxembourg, for example, for the Madoff case.
The General Data Protection Regulation (GDPR), directly applicable into Luxembourgish law, also allows not-for-profit organisations which:
- have statutory objectives in the public interest,
- mention their active mission in the field of the protection of personal data of data subjects, and
- have a clear mandate from data subject(s), to take legal action for the cessation of a breach of the GDPR and/or damages.
There have been a number of recommendations in recent years from third-party groups, public authorities and the courts that a formal mass action procedure and third-party litigation funding be introduced into Luxembourgish law. In August 2020, the minister of consumer protection tabled a Bill to introduce a collective action procedure into Luxembourg consumer law. Following the adoption of the RAD, government amendments to the Bill were tabled in January 2022. These have faithfully transposed the RAD, though the Bill as a whole goes further than the RAD in a number of respects.
The Bill is still at a preliminary stage and will need to be debated. Several opinions have been delivered, including a first opinion of the Council of the Luxembourg Bar Association, dated 14 September 2022. New government amendments were tabled on 16 September 2022 to make some shape and substantive adjustments. It is therefore the second amended text of Bill No. 7650 that is currently being discussed before the committee of the Luxembourg parliament, the Chamber of Deputies.
On 20 June, the Conseil d’État delivered a 73-page opinion on the Bill. The Conseil d’État was very critical of the Bill under review and marked its formal opposition on many points: for legal uncertainty; incoherence; violation of article 6 of the ECHR; and even incorrect transposition of the RAD.
The two main points of opposition concern the procedure initiated by an individual consumer and the ad-hoc out-of-court settlement mechanism derogating from common law.
The impact of the RAD
The Bill is still under discussion. Its provisions may therefore develop in the coming weeks and months. However, the latest government amendments provide useful clarification on various aspects. Some key aspects of collective actions under the Bill are as follows.
Financing collective actions
The costs, potentially including lawyers’ fees, will be borne by the unsuccessful party, applying the "loser pays" principle. It is possible to use financing by a third party, for example an investment fund, an asset management company or a private individual or legal person. The amended Bill contains the necessary measures to prevent and punish possible situations of conflict of interest. Indeed, the absence of conflict of interest is a condition for the admissibility of the collective action and a review can take place throughout the procedure, as well as the taking of necessary measures by the judge.
Finally, it should be recalled that parties in Luxembourg have free recourse to the out-of-court settlement of a collective dispute, since these costs are covered by the State budget. As a result, consumers who have suffered harm have an effective alternative to litigation, by using a mediator in order to be compensated free of charge and in a faster manner.
In its opinion on the Bill, the Conseil d’État considers that the financing of class actions is far from being settled.
A representative action will be capable of being brought before the courts where several consumers in a similar or identical situation suffer damage caused by the same business. The damage will need either to have had, as a common cause, a breach of the business’s legal or contractual obligations; or to result from one or more breaches found in an action for an injunction or for a prohibition.
The legal or contractual obligations of the business referred to above include those originating in the provisions of EU consumer law listed in Annex 1 to the RAD; the policy areas covered by these laws are wide-ranging, including data protection, financial services, travel and tourism, energy and telecommunications, as well as general consumer law such as rules on unfair contract terms and misleading advertising.
In addition to the cases provided for in Annex 1, collective redress shall also be applied to disputes between consumers and professionals supervised by the Commission de surveillance du secteur financier (CSSF), the European Central Bank or the Commissariat aux assurances (CAA).
Persons who can bring a collective action
Actions will be capable of being brought by a consumer who is part of the group, authorised association, designated ad hoc association, qualified entity designated in an EU or EEA Member State, or sectoral regulatory entities established (CSSF, CAA, CNPD, ILR, ALIA, ILNAS, Direction de l’Aviation civile, Direction de la Santé). The Luxembourg law will therefore go beyond the RAD, by allowing individual consumers to pursue collective actions; the RAD regime only envisages representative actions being pursued by qualified entities.
The Conseil d’État considers that the choice made by the authors of the Bill to allow an individual consumer to become a representative of the group is not without risk for the consumer concerned. Indeed, in particular, that individual must not only advance all the costs of the procedure, but could ultimately be potentially liable to the other consumers of the group for a management fault in the execution of their mandate as representative of the group, notwithstanding their inexperience and the fact that they obviously will not have financial and administrative resources comparable to those of a qualified entity.
Competent court and applicable procedure
An application to bring a collective action will be submitted, investigated and judged in accordance with commercial procedure, before the District Court of Luxembourg, sitting in commercial matters. First, there is a first judicial phase where the court decides on the admissibility of the action. The judgment on admissibility or inadmissibility, once final, will be published on the website of the Ministry responsible for Consumer Protection.
The judgment sets out the terms of membership of the group that will be implemented if the parties decide to start a process of out-of-court settlement of the collective dispute. The procedure for the extra-judicial settlement of collective disputes occupies a very important place in the text of the Bill and begins with a mandatory information meeting. If the parties reach an extra-judicial agreement, it will be homologated and published.
The Conseil d’État formally opposes, as a source of legal uncertainty, the so-called "extrajudicial" mediation mechanism of the Bill and asks for clarification of the relationship between the provisions on mediation of the Bill and those of the New Code of Civil Procedure. The Bill provides for an automatic mandatory information meeting in all class action cases, regardless of their complexity or size, without notice from the judge seized with respect to the mediatable nature of the case in question, likely to infringe the principle of effective judicial protection.
If the parties refuse to take this route, or do not reach an extra-judicial agreement, the judicial procedure continues with a view to obtaining the cessation or prohibition of the breach or a judgment on liability. Where the collective action seeks compensation for the damage suffered, the Court shall rule on the liability of the business in the light of example individual cases. The Court determines the categories of damage that can be compensated for each consumer and defines the modalities of compensation.
A liquidator responsible for the implementation of any judgment on liability is appointed. At the end of the compensation period, the liquidator shall make his report and an order to close the liquidation shall be issued.
Opt-in or opt-out
The court determines the applicable system, which can be by inclusion in (opt-in) or by exclusion from (opt-out) the group. Only an inclusion (opt-in) system is applicable when the collective action concerns either compensation for bodily injury or non-pecuniary damage, or consumers residing outside the Grand Duchy of Luxembourg.
The Court may order, at any time during the proceedings, any measure of inquiry useful for the preservation of evidence and the production of documents, including those held by the business, subject to the rules of confidentiality and proportionality.
Pitfalls regarding mass actions
For now, we are still at the stage of discussions on the Bill, which can always evolve. But there is a real will on the part of the Luxembourg public authorities to implement a collective action regime in Luxembourg fairly quickly.
Nevertheless, the critical position of the Conseil d’État with regard to the Bill imply a rewriting of the Bill which must be simplified, clarified, specified or completed on many points. The legislative process is therefore far from over in Luxembourg and must continue in the coming weeks and months, probably after the current legislature (new legislative elections must take place in October 2023).
A new date of entry into force will have to be set.
At the same time, on 14 July, the European Commission took further infringement action against Luxembourg and certain other member states for non-transposition of the Directive. From this date, Luxembourg has two months to address the shortcomings identified by the Commission. In the absence of a satisfactory response, the Commission may decide to refer Luxembourg to the CJEU.
In the Bill under discussion, the planned judicial procedure is particularly complex to implement at different stages. The path of an extra-judicial agreement seems to be preferred, while the subject of mediation is not addressed in the RAD, and despite the many reservations of the Conseil d’État on the provisions under review.
According to the authors of the Bill, the rights of the plaintiff, the consumers concerned, and those of the defendant business must be protected from abusive and untimely actions. To do this, the collective action is subject to specific conditions and benefits from the procedural guarantees of ordinary law, in particular those provided for by the New Code of Civil Procedure. In addition, punitive damages are contrary to Luxembourg legal tradition, and damages awarded cannot exceed the compensation that would have been awarded in an individual action. Luxembourg law prohibits the quota pact litis, which would allow the lawyer to receive remuneration exclusively based on the result.
These safeguards should be enough to avoid the excesses of a US-style class action regime. However, it is not certain that the procedure currently envisaged is very efficient, and it risks creating many procedural pitfalls: deadlines to be respected, possibilities of recourse, mediators trained in collective actions, risks of conflicts of interest, international jurisdiction issues, forum shopping, and so on.
For queries related to Luxembourg, contact Eric Perru of Pinsent Masons.