The EU Parliament has approved the EU Council’s position on representative actions. By doing so, it has paved the way for consumers in Europe to be able to sue companies collectively.
As reported previously, the new rules are intended to harmonise the model for representative actions across the European bloc and reduce the financial burden on individuals seeking to bring a claim against businesses in instances of mass harm.
Under the rules, representative bodies will be able to seek redress on behalf of a group of consumers in relation to infringements of consumer-related provisions of EU law. For example, redress can be sought in the national courts of an EU member state on the basis of claims for product liability, data protection, passengers’ right (air, sea, rail, etc.) or the provision of food information.
It is anticipated that shifting the financial and practical burdens of bringing a claim from the individual consumer to the representative body should empower consumers to enforce their rights where previously they would not have had the appetite (or the means) to do so.
While this development necessarily increases the risk of litigation for consumer-facing businesses in the European Union, the rules also include a number of safeguards aimed at protecting companies against the risk of vexatious claims. These include:
(i) restricting the bodies that can bring a representative action to certain “qualified entities” – such as consumer organisations and independent public bodies – that are designated according to strict criteria, including being non-profit-making;
(ii) implementing a loser-pays cost system (although it is not anticipated that a defendant’s costs would be borne by the individual consumers unless the court considers that the unsuccessful proceedings were deliberately or negligently caused by a consumer); and
(iii) allowing the courts or administrative authorities to dismiss manifestly unfounded cases at an early stage in the proceedings.
Member states will have 24 months to transpose the directive into their respective national laws once it has come into force, which is 20 days after it is published in the Official Journal of the EU. They will then have a further six months to apply them.
The United Kingdom will have left the European Union by the time of the implementation deadline and will not be required to implement the directive. However, the interplay between the more developed regime in the United Kingdom, other countries remaining in the European Union with more developed collective redress systems – such as France, Germany, and the Netherlands – and those EU countries with less developed regimes will provide interesting questions for consumers and businesses. Some anticipate that an increase in the use of such actions across the European Union may increase the appetite for similar actions in the United Kingdom using existing procedures such as representative actions and group litigation orders.
These new rules have the potential to change fundamentally the legal relationship between consumers and companies across the European Union, particularly where a large number of consumers suffer harm such as when a company breaches data protection laws, in situations akin to the Volkswagen emissions scandal, or where an event like the COVID-19 pandemic results in a company breaching passenger’s rights.
Consumer groups and companies across the European Union will be closely watching to see the first examples of claims initiated under these new rules (and any successes or failures). In the meantime we will give further consideration to the issues that arise for international organisations under the new regime and publish further articles in due course analysing the new rules and detailing steps that organisations may wish to take to minimise the risks that arise.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
London
Chris Warren-Smith
Robert Bolgar-Smith
Paris
Alexandre Bailly