Diego Agulló Agulló – Assistant Professor of Private International Law – Universidad Pontificia Comillas (Madrid, Spain)
Consumer protection is a pillar of the regulatory strategy of the European Union legislator. In this context, one of the issues that has been debated for many years is the possibility of introducing representative actions for consumer protection, a European version of American class actions, in the different Member States. The goal of this legal transplant is, on the one hand, to favor access to justice for consumers in scenarios of mass damages and, on the other hand, to deter future wrongdoings harmful to consumers by companies operating in the European Union.
Since the publication in 2008 of the White Paper on damages actions for breach of the EC antitrust rules, many legislative instruments of different types have been published within the European Union in the field of consumer collective protection. Also in 2008, the Green Paper on consumer collective redress and, a year later, Directive 2009/22/EC — the latter marking a turning point in the European regulatory framework for collective redress– stand out. Directive 2009/22/EC urges Member States to ensure the implementation in their respective legal systems of actions for injunctions for acts of non-compliance with EU law that harm consumers. Mention should also be made of the Commission’s important Recommendation on Common Principles applicable to collective injunctions or redress mechanisms in the Member States in the event of infringement of rights recognized by European Union law.
The latest legislative impetus for representative actions at EU level is “Directive (EU) 2020/1828 of the Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC” (henceforth “Directive 2020/1828” or the “Directive”). It entered into force on 24 December 2020, and introduces, for the first time, representative actions for injunctions and redress in all Member States of the European Union.
Until the enactment of Directive 2020/1828, some Member States did not contemplate the possibility of representative actions, either for injunctions or for redress, while others did regulate some type of collective remedy, but the diversity of regulations in this regard is still notable.
The entry into force of Directive 2020/1828 binds all Member States to introduce in their national legislation some form of representative action for injunctions and damages, without regard to the fact that they may already have other means of consumer protection. The Directive is committed to introducing consumer collective protection of a representative nature. And this representation must be exercised by qualified entities for which financial transparency and adequate controls by the public administration are required.
The European Union legislator avoids the American class action model in which it is a leading lawyer or leading injured party who brings the action and is in charge of forming a class of affected individuals. The Directive also rejects punitive damages and even rejects the use of the American nomenclature i.e., class action, referring at all times to “representative action”. The explanation behind this approach is to avoid the creation of a litigation industry that seeks more the financial benefit of the litigator than that of the consumer.
In this essay, we will briefly look at the relevant elements of Directive 2020/1828 such as the aspects of legal standing in national and “cross-border” representative actions, the subjective scope of protection, the opt-in and opt-out mechanisms, the nature of the claim, the relationship between the representative action and other subsequent actions, the supervision of the financing of representative actions by third parties, the possibility of settlement agreements and the information and publicity of representative actions.
2. Standing in national and “cross-border” representative actions
Directive 2020/1828 grants legal standing to “qualified entities”, which it defines as “any organization or public body representing consumers’ interests which has been designated by a Member State as qualified to bring representative actions “. Articles 4 and 5 of the Directive are devoted to the design and operation of the qualified entities, focusing on the need that the latter seek consumer protection and be nonprofit, as well as mentioning other important criteria of supervision and transparency.
Article 5 also requires each Member State to inform the European Commission on which entities have standing to bring what the Directive itself calls “cross-border” representative actions, i.e., representative actions brought by an entity in a Member State other than its Member State of origin. The Directive distinguishes them from purely national representative actions, in which the entity designated by a Member State acts in that Member State only. The inclusion in this list is relevant in the case of cross-border actions because, in accordance with Article 6 of the Directive, the instance of another Member State hearing the representative action can determine that the entity bringing the action has standing to sue.
It is important to emphasize that, although Directive 2020/1828 refers to national and cross-border representative actions, these are notions specific to the Directive that in principle do not affect existing private international law instruments. In particular, in terms of international jurisdiction, it should be noted that the CJEU has interpreted that a consumer association cannot make use of the forum of protection of Arts. 17-18 of Regulation 1215/2012 (forum of the domicile of the consumer). Instead, the association can make use of the special non-contractual forum of Article 7.2 and the general forum of Article 4.1 of Regulation 1215/2012 (see, for example, CJEU of 1 October 2002 C-167/00).
Article 79 of Regulation 1215/2012 states that “by 11 January 2022 the Commission shall present a report to the European Parliament, to the Council and to the European Economic and Social Committee on the application of this Regulation” and adds that “where appropriate, the report shall be accompanied by a proposal for amendment of this Regulation”. Perhaps, with the enactment of Directive 2020/1215, it would be a good time to consider the introduction within Regulation 1215/2012 of a new forum for representative actions, which could give international jurisdiction to the courts of the domicile of the qualified entity entitled to bring the action.
3. Subjective scope of protection, opt-in and opt-out mechanisms and nature of the claim
The representative actions referred to in the Directive only protect consumers, defined as “any natural person who is acting for purposes which are outside his own trade, business, craft or profession” (Article 3.1). The problem with this subjective restriction is that it is sometimes complicated for the instance hearing the representative action to determine whether each of the affected individuals is a consumer or not, and this can complicate the exercise of some representative actions.
Directive 2020/1828 differentiates between representative actions that are brought for mere injunction, and representative actions that seek redress for damages. For the former, Article 8 does not require notice to be given to those consumers affected by the exercise of the action, establishing a sort of opt-out mechanism in which, given that all those affected will be deemed to benefit from the representative action. Nevertheless, we can assume that the individual consumer retains intact their right to individual action and, in the event that the representative action is unsuccessful, the right to claim individual injunctive relief.
With regard to representative actions seeking redress, Article 9 of Directive 2020/1828 requires that the affected consumers be notified that the representative action is going to be brought so that they can express their willingness to participate or not in the process and be represented by the qualified entity with legal standing. In this case, an opt-in mechanism is introduced in which the injured parties who have been notified and who have expressed their willingness to be represented by the qualified entity will be bound by the outcome of the action. Those affected consumers who have not made their decision will keep their right to action intact.
4. Relationship between the representative action and other subsequent actions
One of the relevant aspects that we must take into account and on which the Directive does not pronounce itself is how the relationship between a representative action and other subsequent individual actions that may be brought by affected consumers is regulated. Specifically, we refer to the institutions of lis pendens, related actions and the effect of res judicata, all of them elements that, at different procedural moments, seek the same objective: the avoidance of parallel proceedings that give rise to contradictory or irreconcilable court decisions.
Each Member State will have to address these aspects by adapting its domestic procedural law. However, Directive 2020/1828 states, in Article 15, that “Member States shall ensure that the final decision of a court or administrative authority of any Member State concerning the existence of an infringement harming collective interests of consumers can be used by all parties as evidence in the context of any other action before their national courts or administrative authorities to seek redress measures against the same trader for the same practice, in accordance with national law on evaluation of evidence”. This is a novel issue as it obliges all Member States to recognize as evidence in subsequent proceedings judicial or administrative rulings proving the existence of an infringement against consumer rights.
5. Control of the financing of representative actions by third parties
Another aspect introduced by Directive 2020/1828 that is not only new in the area of representative actions, but also an innovation at a general level in European Union law, is the regulation of “third-party funding” (TPF). TPF is a mechanism for financing by a third-party funder of the legal action. The third-party funder invests in the lawsuit and, if the funded party is successful, the funder will receive a portion of the compensation. If the funded party is unsuccessful, the third-party funder will lose their investment.
TPF may be invaluable for the funded party if it lacks the resources to litigate or, even though it has the resources, prefers to devote them to its core business and not to litigation. Article 10 of Directive 2020/1828 allows TPF in representative actions but introduces measures to avoid potential conflicts of interests and ensure that the funded qualified entity acts in the interest of consumers and not in any other particular interest.
6. Possibility of settlement agreements
Directive 2020/1828 also provides for the possibility of terminating the representative action through a settlement agreement between the qualified entity and the defendant (Article 11). The Directive provides that the parties may propose the settlement to the judge or that the judge may urge the parties to reach such a settlement. The settlement shall be subject to the scrutiny of the judge, who will be able to approve it or refuse it if it is considered contrary to national law or if it contains conditions that cannot be enforced, taking into account the interest of the parties and, particularly, the interests of the protected consumers. If the settlement is refused, the judge shall continue to hear the representative action.
Article 11.4 of Directive 2020/1828 states that «approved settlements shall be binding upon the qualified entity, the trader and the individual consumers concerned» but specifies that «Member States may lay down rules that give the individual consumers concerned by a representative action and by the subsequent settlement the possibility of accepting or refusing to be bound by settlements». Again, the individual action of the consumer is still protected in any case.
7. Information and publicity of representative actions
Directive 2020/1828 also refers to the need for adequate information on the representative actions being carried out in each Member State of the European Union. Therefore, some requirements are included for qualified entities regarding their duty to communicate which representative actions they are going to exercise (Article 13), as well as the establishment by the European Commission of a database that collects relevant information regarding different aspects mentioned in article 14 of the Directive.
Directive 2020/1828 is a great impulse of the European legislator to harmonize, to a certain extent, the processes of collective protection of consumers through representative actions exercised by qualified entities, which to a certain extent avoids the American class action model and introduces, for the first time in the whole European Union, representative actions for redress. Relevant aspects such as lis pendens, related actions, res judicata or questions of private international law, among others, remain unresolved. Nevertheless, this Directive is crucial both for those Member States lacking any system of representative action for consumer protection and for those Member States who wish to modernize their existing legislation.
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