Collective Redress in Europe – The Current State of Play

The Directive does not seek to incorporate principles of US class action litigation into EU civil litigation procedure. It has a very different feel. Instead, it asks EU member states to put in place at least one effective procedural mechanism that allows consumer organisations or public bodies to bring lawsuits to court for the purpose of either seeking an injunction to cease or prohibit an action, or to recover financial compensation for a breach (or for both). However, there is significant discretion in key areas left to each country.

In this article we examine the systems of collective redress EU member states currently have in place and assess the changes the Directive will make in those jurisdictions. In early 2022 we will publish a tracker allowing you to view at a glance how the Directive is being implemented in member states and whether a member state is having to make significant changes to its collective redress mechanisms in order to incorporate the Directive.

Current protections for consumers and ways in which a group can bring a claim

At present there is very little harmonisation and the various collective action regimes across Europe take many different forms; some Member States such as Austria, the Netherlands, France and Italy already incorporate mechanisms for collective actions in their statutory or civil procedure framework, whilst others such as Slovakia and Finland have far less in place for collective redress. It is apparent in the jurisdictions that do operate a mechanism of collective action that most such actions are brought by groups of consumers.

For instance, consumer actions are the most common type of collective action in the Netherlands where there is already a sophisticated collective action system. This system permits a collective action to be brought by several representatives with one lead representative eventually being appointed by the court to act in the interests of the whole group. In Austria, a procedure similar to the Dutch one is frequently used by groups of consumers; however Austrian consumers can also use what’s known as a “model lawsuit” where they assign their claim to a consumer protection association who brings it on their behalf. In addition, there are also specific consumer protection bodies which are entitled to file representative actions in the public interest, with no consumer mandate required.

Jurisdictions such as France, Italy and Spain already operate consumer redress mechanisms as well, and therefore the Directive is unlikely to require a significant overhaul of the current legal framework in these countries.

In contrast Denmark, the Czech Republic, Germany and Finland, have sparse collective action mechanisms in place so collective actions in these jurisdictions are less common. In Finland, only the Consumer Ombudsman can bring a collective action on behalf of consumers, private collective actions by consumers are not permitted. Prior to the enactment of the German Model Declaratory action (in the German Code of Civil Proceedings in 2018), mechanisms for collective redress for consumers under German Law were very limited and the Model Declaratory action stops short of the enhanced consumer protection envisaged by the Directive (not being a mechanism by which consumers can recover monetary damages directly). It is therefore likely that the Directive will be a significant change to the legal framework within these jurisdictions as the Directive requires that Member State puts in place at least one effective compensatory collective redress mechanism.

If collective actions are permitted, are these opt-in or opt-out actions?

The Directive provides that each Member State should decide whether it wants to implement an “opt-in” mechanism, where consumers would need to express their wish to join the group action, or an “opt-out” mechanism, where everyone who falls within a particular class of claimant is automatically included in the claim unless they choose not to be (an approach more akin to US mass action processes). The Directive states that Member States may introduce a combination of these mechanisms.

Although opt-out mechanisms are permitted in the US, Canada and Australia, the majority of the current collective redress regimes in EU member states are purely opt-in mechanisms. Regimes with opt-out style mechanisms include Belgium, Denmark, Poland, Portugal and the Netherlands, however, these regimes also include an opt-in mechanism. In the Netherlands, for instance, non-Dutch claimants are only permitted to join a collective action if they actively opt-in, unless the court orders that an opt-out system applies. The only jurisdiction with a purely opt-out mechanism is Sweden, however, collective actions in Sweden are rare, with approximately 30 estimated collective actions initiated since 2003. The absence of opt-out mechanisms may suggest a sense of trepidation amongst Member States to incorporate such mechanisms in their respective courts. Even the UK courts, where class actions are becoming increasingly regular fare, have been clear about the strict parameters in which an opt-out claim may be pursued: see the recent decision by the UK Supreme Court in Lloyd v Google[1]). However, the Directive does give the green light for opt-out mechanisms, even where currently a jurisdiction may not have any collective action mechanism, even on an opt-in basis, as the Directive recognises that Member States have different legal traditions which should be respected. Member States are able to decide at which stage of the proceedings individual consumers are able to exercise their right to opt in to or out of a representative action.

If collective actions are permitted, what forms of relief are available? And can punitive damages be claimed?

The Directive is clear that consumers and organisations representing consumers’ interests should be entitled to compensatory remedies (such as damages) as well as injunctive measures. In relation to punitive damages, the Directive states that Members States should avoid awarding punitive damages to prohibit abusive litigation, in what has been held up asa clear sign that the Directive is not seeking to impose a US style class action system on EU jurisdictions.

The current systems (where they exist) across Member States appear to already reflect these principles, with most Member States having both compensatory and injunctive relief available to successful claimants. In addition, most Member States expressly prohibit the claiming of punitive damages, apart from Ireland, which is the only Member State that does allow punitive damages to be awarded in collective actions, although this is rare. Ireland may therefore have to consider removing the availability of punitive damages, although the wording of the Directive seems to suggest that this prohibition is discretionary.

Is third-party or litigation funding permitted for collective actions?

The availability of third-party or litigation funding to cover the legal costs of a party can be crucial to facilitate a group action when it would otherwise be economically impossible for the group to do so. The Directive allows third-party funding but sets certain parameters to ensure that conflicts of interests are prevented and that funding by third parties does not divert the representative action away from the protection of the collective interests of the consumer (a concern that has often been raised in funded consumer actions to date). The Directive also makes it clear that a representative action should not be brought against a defendant that is a competitor of the funding provider or against a defendant on which the funding provider is dependent. Therefore, third-party funders must be transparent regarding their interest in any claims they seek to back.

Whilst many Member States permit third party funding of litigation (in class actions or litigation generally), the market is still developing in many jurisdictions and therefore this type of funding is little used at present. Italy seems to most closely reflect the principles in the Directive as class actions are often struck out where there is a conflict of interest with the third-party funder; whereas in Hungary and Ireland third party funding is currently prohibited and in Sweden third party funding has only recently been allowed, so the market is not yet well established. Litigation funders have shown a far closer interest in active mass action markets, such as The Netherlands, in the last couple of years. It will be interesting to see how Member States apply the Directive in this area and the impact this has on the litigation funding market.

If a trader loses a consumer group action does the law require the trader to publicise this?

The Directive gives Member States the option to oblige the infringing trader to publish the decision taken by the court or administrative authority in full or in part. At present, very few Member States require an infringing trader to publish a decision taken by the court, however, Portugal, the Netherlands, Austria and Germany are the exceptions. In Portugal, the judge is required to order the infringing trader to publish the decision at its own cost in most collective actions. The Netherlands takes a similar route requiring the trader to ensure that the decision by the court is made known to the relevant section of the public. This can be by way of letter or announcement in a newspaper. Further, in Austria the court will require an infringing trader to publish a decision if the consumer group has requested this and in Germany the judgment against the trader will be published in the Complaints Registry by order of the court.

Is there a penalty for non-compliance with a final decision issued in respect of a consumer group action?

Under the Directive, infringing traders should face penalties (fines) for the failure or refusal to comply with an injunctive measure. Many Member States currently do not impose penalties for non-compliance with a consumer group action judgment. Under regimes such as that in the Czech Republic, consumers have to bring a separate enforcement action against the infringing trader. Portugal appears to reflect the Directive’s principles in relation to non-compliance, as the courts are already able to issue sanctions for non-compliance with final decisions, but these depend on the kind of measures sought by the consumer organisation.

Tracking progress

Member States have to transpose the Directive into their national laws by 25 December 2022 and apply those measures from 25 June 2023. It is anticipated that new “hotspots” for consumer class actions may begin to emerge thereafter and knowing where these are will be useful to consumer-facing businesses so that they can handle any threatened claims appropriately.

We will be tracking the progress of Member States as they transpose the Directive into their national laws and comparing this with collective action regimes in non-EU jurisdictions, (including the UK, where other legislative and judicial developments are also encouraging a growth in class actions). Please look out for the launch of our Collective Redress tracker in early 2022.

With thanks to our friends at Dorda, ([email protected]), McCann FitzGerald ([email protected] and [email protected]) and Sérvulo & Associados (João Carmona Dias ([email protected]) and Francisco Marques de Azevedo ([email protected])).

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[1]Positive news for data controllers in the much-anticipated Lloyd v Google Supreme Court judgment (twobirds.com)