Projects aimed at strengthening the mechanisms of collective pursuit of claims in the EU

Deliberations on the collective pursuit of claims mechanisms (collective redress), particularly in cross border cases and in cases of the violation of rights granted by virtue of EU law, especially in the area of competition and consumers protection at the European level, have been conducted for almost 20 years. The year 2018 was especially crucial for the development of this field and the New Deal for Consumers was also announced.

Actions taken over the years by the European Commission and the rest of European Union’s bodies are presented below.

In the scope of competition law, in 2005 the European Commission adopted the Green Paper entitled Damages actions for breach of the EC antitrust rules while in 2008 it adopted the White Paper on damages actions for breach of the EC antitrust rules that proposed a set of concrete solutions for implementing the collective pursuit of claims as another instrument for the enforcement of EU regulations on competition. Solutions proposed in the White Paper included two complementary mechanisms for the collective pursuit of claims, and namely: opt-in collective actions with the possibility of joining the group (the opt-in model, in which individual injured parties expressly decide to combine their individual claims arising from the damage that they suffered into one single action) and representative actions brought by qualified entities on behalf of groups of identified (and in certain rare cases identifiable) injured parties. What’s important, according to the Commission’s concept, the proposed solutions would not deprive the injured party of the right to bring an individual action for damages. The White Paper also included a proposal on establishing common evidentiary standards to be complied with in a civil action in order to demonstrate an infringement of the antitrust law and the damage suffered.

Consumer law constitutes another area of law where the implementation of mechanisms of the collective pursuit of claims has been debated. The strategy of consumer policy for the years 2007-2013 assumed the introduction of the possibility for the collective pursuit of claims. It was therefore emphasized that the lack of regulations in this area results in consumers’ mistrust of cross-border purchases. In relation therewith, the Commission published the Green Paper on Consumer Collective Redress of 27th November 2008. The paper addresses the manner of facilitating effective redress in situations where large numbers of consumers have suffered damages in connection with the practices of one and the same entrepreneur infringing on consumer law. The Green Paper submitted several solutions of further conduct regarding the discussed issue for consideration which subsequently found their reflection in the extent of social consultations led by the Commission.

Social consultations and analysis of the national solutions

In the years 2010-2012, the European Commission continued further works and in-depth research to provide an answer to, among others, the question how the European mechanism of collective redress can be reconciled with the requirement of Article 67.1 TFEU under which the EU shall constitute an area of freedom, security and justice with respect to the different legal systems and traditions of the Member States, in particular in the areas well established on the national level (such as procedural law), but constituting a novelty on the EU level.

In the course of the Commission’s activities aimed at strengthening cross-border collective redress mechanisms, the Member States raised the issue of inconsistencies between the Commission’s various initiatives on the collective pursuit of claims (limited to competition and consumers protection) and initiatives on the other areas of law which may create rights eligible to be protected pursuant to the collective redress. Group proceedings are, in substance, a procedural instrument of potential significance for European policies in areas other than competition or consumer protection (such as financial services, environmental protection, personal data protection or non-discrimination).

As a retort to those remarks, the European Commission recognized that in creating future legal solutions (in a form of a directive) in terms of collective redress, after the social consultations, a horizontal approach (i.e. universal, cross-sectional to a scope of the prospective measure) should be adopted.

In 2011, the Commission conducted social consultations “Towards a Coherent European Approach to Collective Redress”. They aimed, among others, at identifying common legal principles regarding collective redress and researching in what way such common principles may be, on one hand, introduced within the EU legal system while, on the other, within the legal order of each EU Member State. The consultations also extended to the identification of those legal areas in which mechanisms of the collective pursuit of claims could support the better enforcement of EU legislation or the protection of the rights of citizens and economic entities in the European Union.

The results of conducted social consultations were summarised by the Commission in the Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “Towards a European Horizontal Framework for Collective Redress” of 11th June 2013. In the conclusions of this document the Commission noted the advantages of the adoption of, in the scope of the prospective regulation, a cross-sectional (horizontal) approach, in order to avoid the risk of mutual non-adjustment of the rules on group proceedings in a separate areas of law and in order for the undisturbed operation of this mechanism be assured in parallel to the Member States’ procedural provisions.

“Towards a Coherent European Approach to Collective Redress” – resolution of the European Parliament

In the meantime, the European Parliament resolved to join the debate on the collective redress mechanisms and adopted – based on a complex report on collective redress – Resolution of 2nd February 2012 “Towards a Coherent European Approach to Collective Redress”.

The European Parliament confirmed that the rules governing collective redress should be of a cross-sectional nature (see point 15 of the Resolution). The European Parliament also drew attention to several issues connected with the specific characteristics of collective redress – it endorsed the opt-in principle and indicated that only those representative organisations which were verified by means of a qualification procedure should be entitled to bring forth an action.

According to the discussed European Parliament Resolution, one of the ways of counteracting abuse of collective redress mechanisms should consist in the exclusion of certain solutions, in particular such as punitive damages, third party financing of collective redress and payment of the attorney’s fee dependent only on the outcome of the case. It was also indicated in the Resolution that in the cases covering collective redress “the loser pays” rule should apply, as a rule taking priority in civil disputes as one of the main means of protection against abuse of recourse to court.

Moreover, the Parliament acknowledged that applying rules that prevent the choice of a domestic court venue due to the possibility of obtaining a more advantageous resolution of the case (forum shopping) on the EU level, is necessary.

The Recommendation of the European Commission of 11th June 2013

On 11th June 2013, the European Commission issued a Recommendation on common principles for collective redress in the case of claims for ceasing and desisting from tortious practices and for compensatory claims in the Member States regarding the infringement of the rights granted by virtue of the EU law (OJ of EU L 201/60). The recommendation called upon the Member States to introduce national mechanisms for the collective pursuit of claims and presented common European principles that should be taken into consideration in such mechanisms. According to the Commission’s Recommendation:

  1. The Member States should have a collective redress mechanism enabling citizens and enterprises to obtain court judgements preventing the infringement of their rights guaranteed by the law of the European Union (the so-called injunctive relief) and bringing actions for compensation of damages suffered as a result of the infringement of such a right (the so-called compensatory or redress action) in a situation where many people suffer damages as a result of the same illegal action.
  2. The Member States should guarantee that the collective redress procedures are fair, just, conducted without undue delay, and not excessively expensive.
  3. The collective redress mechanisms should be based on the rule of consent for taking part in the proceedings; the composition of the group should be based on an opt-in model; any departures from this rule by virtue of an administrative decision or court judgement should be duly substantiated in regard to the principle of fairness in the exercise of the administration of justice. The prospective group members should have an opportunity to join to the claimant in any moment until the legally-valid judgement or decision is issued unless it poses a threat to the administration of justice. For the need of the functioning of the opt-in mechanism, all prospective group members should be granted access to information on ongoing collective redress actions.
  4. A member of the group initiating group proceedings should be free to leave the group at any time before the final judgement is given or the case is otherwise validly settled, without being deprived of the possibility to pursue its claims in another form, if this does not undermine the sound administration of justice.
  5. The claimant should have a duty to inform the court on the source of its funds which they are going to use for the purposes of handling the proceedings.
  6. The possibility of financing the proceedings by a third party is not excluded, however it is recommended that the premises of preventing prospective conflicts of interests should be determined.
  7. The Commission also recommended relevant procedural guarantees to be introduced in order to avoid the abuse of the collective redress mechanism; in the Commission’s assessment, the Member States should not, for example, permit the payment of attorneys’ remuneration only in the case of a win since this may encourage an abuse of the system; moreover, only non-profit entities should be able to represent the claimant to guarantee that in the cases of mass damages they will be guided by the interests of injured parties’. According to the Commission, another way of preventing the abuse of recourse to court in the scope of group proceedings is a ban on awarding punitive damages as this could lead to initiating actions for profit. Group members should receive full damages when validity of their statement of claims is asserted in court.
  8. The most important role in collective redress cases should be exercised by the judge who should enjoy the possibility to effectively prosecute the case and prevent abuse. Courts should be allowed to verify the legitimacy of a group settlement’s result. The recommendation also promotes methods of alternative dispute resolution – parties should have the possibility to take advantage of such methods on the principles of consensus both before the commencement of the proceedings before the court and while the proceedings are pending.
  9. The Member States should create a national register of collective redress actions.

The Commission called upon the Member States to implement adequate, according to the Recommendation, legal measures within two years at the latest from the date of the publication of the Recommendation in the Office Journal of the European Union, i.e. till 26th July 2015. The Commission announced that within three years at the latest from the date of this publication, i.e. till 16th July 2018, an evaluation of the factual status (on the basis of annual reports submitted by the Member States) should be conducted in order to check whether further measures aimed to facilitate the strengthening of the collective redress mechanisms are necessary.

On 24th October 2017 the European Commission announced a programme of the Commission’s works for 2018 within which it was prospected that an initiative of creating “a new deal for consumers” concerning, among others, collective redress matters, would be developed.

On 25th January 2018 the European Commission published a Report on the implementation of the Recommendation in the EU Member States. The Report included an assessment of the amendments in the Member States’ regulations associated with the Recommendation of 2013 and an analysis whether those possible legal developments allowed the use of the rules prescribed in the Recommendation to become more common and more coherent. The results of the Report were mainly based on: 1) the information delivered to the Commission by the Member States, 2) a study supporting the assessment of the implementation of the Recommendation covering all Member States, 3) a call for remarks (to which the Commission received 61 replies) and 4) a study supporting the Fitness Check of the EU consumer and marketing law.

On the grounds of the specific analysis made within the framework of the Report, the European Commission made several important conclusions. Firstly, according to the European Commission, legislative activities affected by the Recommendation remained somewhat limited in the Member States. The Commission noted that access to collective redress mechanisms and the implementation of restraints from the potential abuse of such mechanisms is still patchy on the EU territory. A significant impact of the Recommendation is visible in two Member States (in Belgium and Lithuania) where new provisions were introduced shortly after the Recommendation had been adopted and in Slovenia where, on the other hand, the new regulations of law had been waiting to enter into force. The impact of the Recommendation may be seen in those Member States which amended their legislation after 2013 (in France and Great Britain).

It was emphasized in the Report that nine Member States currently still have no compensatory collective redress mechanisms in place. Moreover, in some Member States which formally provide for collective redress mechanisms, in practice, the injured parties are not able to make use of them because of the strict conditions prescribed in the national legislation, the excessive length of the procedures and the relatively low prospective financial advantages compared to the exaggerated costs of such claims.

“New Deal for Customers”

On 11th April 2018 the Commission presented the “New Deal for Customers” (New Deal), the aim of which is to guarantee that all European consumers are able to fully exercise their rights granted them by virtue of the European legislation.

One of the elements of the Deal is the European Commission’s legislative initiative – the Proposal for a Directive of the European Parliament and of the Council on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC COM/2018/0184 final – 2018/089 (COD) (hereinafter: Proposal for a Directiveor Directive on representative actions; text of the Proposal for a Directive is available here. The aim of the Directive is to enable authorized parties to pursue their claims by means of representative actions, so that the protection of collective interests of consumers is guaranteed whilst the possibility of abuse of recourse to court can be excluded at the same time.

Legislative procedure no. 2018/0089 (COD) on the Proposal for a Directive on representative actions remains pending (see here for the current status). The European Parliament, after many amendments were implemented, adopted the text in the first reading. The project of the Directive on representative actions is awaiting the EU Council’s stance.

The Proposal for a Directive provides for a procedural mechanism, which does not affect the rules establishing the substantive rights of consumers to contractual and non-contractual remedies in case their interests have been harmed by an infringement, such as the right to compensation for damages, contract termination, reimbursement, replacement, removal, repair or price reduction. A representative action seeking redress under this Directive can only be brought where EU or national law provides for such substantive rights.

The Proposal for a Directive is based on a principle of minimum harmonization and does not replace existing national collective redress mechanisms. Taking their legal traditions into account, it leaves it to the discretion of the Member States whether to design the representative action set out by this Directive as a part of an existing or future collective redress mechanism or as an alternative to these mechanisms, insofar as the national mechanism complies with the modalities set by this Directive. This neither affects the Member States’ possibility of remaining the existing frameworks nor obliges Member States to amend them. Member States will have an opportunity to implement the regulations prescribed in this Directive to their own collective redress systems or to implement them as a separate procedure.

General assumptions of the regulations set by the Proposal for a Directive, counting amendments introduced by the Parliament, are presented below:

  1. The Directive prescribes regulations facilitating entitled qualified representative entities to seek representative actions aimed at the protection of the collective interests of consumers.
  2. The scope of the Directive was prescribed in Article 2 – the Directive applies for representative claims pursued in order to fight with those infringements of EU law (listed in Annex I – where specific acts of EU law, the infringement of which may implicate filing representative actions are mentioned) which have a significant impact on consumers and are undertaken by entrepreneurs; actions’ aim, by definition, is to protect collective consumers’ interests. The Directive applies for national and cross-border infringements. Acts of law listed in Annex I in general refer to consumers’ rights, liability for damages caused by hazardous products, transport, tourism, energy, personal data, banking.
  3. Article 3 contains the definitions, among others, of “collective interests of the consumers” and “representative action”. “Representative action” in the sense of the Directive means an action for the protection of the collective interests of consumers (interests of some number of consumers or persons, the data of which are relevant in the sense of the general Regulation (EU) 2016/679) which the consumers concerned are not parties to.
  4. The Proposal for a Directive relies on the premise that representative actions will be filed solely by qualified representative entities– Article 4 sets out the criteria that such an entity must fulfil: 1) it is of a non-profit making nature, 2) it has a legitimate interest in ensuring that the provisions of EU law are complied with / its bylaws or other relevant document on management and its continuous activity for consumers’ rights defence and protection prove it has a legitimate interest in ensuring that the provisions of EU law covered by this Directive are complied with and 3) it is properly constituted according to the laws of a Member State. Moreover, the abovementioned entities have to be confirmed by the Member States and their data – be taken into account in the public register.
  5. Article 5 of the Proposal for a Directive sets out the measures (forms of legal protection) that may be sought under the Directive, i.e. an injunction order for stopping the harmful practice and compensation in the shape of damages, repair, replacement, price reduction, contract termination or reimbursement. However financial compensation could not be paid to harmed consumers in any case. Since in the event of Article 6.3.b, if consumers suffered a small amount of loss and it would be disproportionate to distribute the redress to them, the redress shall be directed to a public purpose serving the collective interests of consumers.
  6. Article 6 of the Proposal for a Directive provides for the possibility of issuing a declaratory decision regarding the liability of the entrepreneur; on the basis of this decision consumers may seek the payment in individual actions.
  7. Article 7 of the Proposal for a Directive requires that entitled qualified entities should be fully transparent about the source of funding of their activity both in general and specifically regarding the funds supporting a specific representative action for redress.
  8. Article 8 of the Proposal for a Directive establishes the rules on collective settlements. According to the text of the Proposal for a Directive, in the case of an ongoing representative action, the court or administrative authority overseeing the action should always be able to invite parties to settle on redress.
  9. In Article 9 of the Proposal for a Directive the entrepreneur who infringed appropriate rules of consumers’ rights protection is required to inform the consumers concerned about the final decision in the proceedings. This provision ensures the consumers’ awareness about the breach of law and their future redress opportunities.
  10. Article 10 of the Proposal for a Directive establishes what the effect of the final decisions will be, by the virtue of the Directive, equivalent in the future redress actions and if a decision establishing an infringement has become final, it should be irrefutable evidence in any subsequent redress action in the same Member State. Moreover, in cross-border cases, final decisions (except declaratory decisions) will provide for a rebuttable presumption that an infringement of EU law has occurred. This will avoid legal uncertainty and unnecessary costs for all parties involved.
  11. Article 11 provides for the suspension effects of a representative action in relation to limitation periods for redress actions.
  12. Article 12 of the Proposal for a Directive ensures a mandatory accelerated procedure in order to ensure that any further harm may be prevented quickly.
  13. Article 13 is a crucial provision of the Proposal for a Directive. It sets out the possibility to order the defending trader to provide evidence relevant for the case, which lies in its sole possession and control. This provision will ensure that there is a minimum level of effective access to the information needed by qualified entities to prove their claim.
  14. Article 14 of the Proposal for a Directive provides for penalties in the form of fines in case the defendant trader does not comply with a final decision. This sanction should be effective, proportionate and dissuasive.
  15. Article 15 of the Proposal for a Directive sets out the rules on the assistance for the entitled qualified entities, the aim of which is to assure that the entities are not prevented from bringing representative actions because of the costs involved with the procedures.
  16. Article 16 of the Proposal for a Directive sets out the rules relevant for cross-border representative actions. On the one hand, if the infringement has or may have an impact on consumers from different Member States, an action may be brought before the court or another entitled organ by several qualified entities from different Member States. On the other hand, a qualified entity earlier enabled to act in one of the Member States may act before the courts and bodies of the other Member States on the basis of the abovementioned publicly accessible register.

Criticism of the proposed Directive

The abovementioned Proposal for a Directive was then triple of the opinion: the European Economic and Social Committee (twice) and the European Committee by the Regions (once).

In the first opinion of the European Economic and Social Committee of 19th September 2018, the EESC criticized the content of the Proposal for a Directive. Firstly, according to the EESC, actions presented in the Directive should be of a universal nature and not limited to consumers. Additionally, the EESC considered that the Commission should further elaborate on the role of the judge; the burden of proof, production of evidence, place of jurisdiction and the applicable law. In terms of compensation, the EESC noted that the proposed legislation did not fully address the need to provide actual compensation to consumers for the damage suffered since there was no clear provision that referred to the compensation of the total amount lost by consumers, regardless of the damage suffered. Moreover, the EESC postulates 1) the introduction of mechanisms confirming the guarantee of confidentiality of information provided, not only at the stage of the proceedings, but also in final decisions in order to protect the rights of entrepreneurs, including the safeguarding of company secrets and 2) incorporation a recommendation for Member States to use technological innovations, in particular with regard to the gathering of participants for a collective action into the Directive. The Committee believes that consumers should be free to decide whether they wish to opt in or opt out from the collective action. In particular, the EESC believes that an opt-in model would be appropriate for cases involving a limited number of victims who have suffered significant damage, while an opt-out model would be more appropriate for cases involving a large number of victims who have suffered little damage.

The European Economic and Social Committee criticized the Proposal for a Directive in the next opinion of 12th December 2018 as well using then these terse words: “the Commission’s proposal on representative actions, included in the proposal for a New Deal for Consumers, is disappointing”.

On the other hand, in the opinion of 10th October 2018, the European Committee of the Regions proposed introducing three following amendments to the Directive: 1) amendment of the Article 5.3 so as to the mandate of the individual consumers should only be required where a redress order is requested by the qualified entity, 2) deleting Article 18.2 and, in the scope of the Annex I, adding point 60 which would widen the scope of the Directive on environmental damages.

On 3rd October 2018, the Board of Citizens Rights and Constitutional matters published the research on collective redress in the EU Member States. The aim of the research was to analyse the trends in the Members States’ legislations and a prospective role of the European Union as it comes to regulations regarding collective actions. The research consists of reports from 12 countries: Austria, Belgium, Estonia, France, Spain, Holland, Luxembourg, Germany, Poland, Romania, Great Britain and Italy and an assessment of the projected Directive together with the alternative to the Directive proposition.

Conclusions of the research are as follows: the pan-European mechanism of collective redress is, on the one hand, welcome and, on the other hand, impossible to accomplish because of the existing differences between the EU Member States’ systems of collective redress. Introducing one European system would therefore coincide with the rules of proportionality and subsidiarity. The proposal of the European Commission of April 2017 is a reply for some of problems regarding collective redress – but still not for all of them. Perhaps it will be necessary to introduce some changes into private international law because of the rising role of the internal market and the necessity of supporting the possibility of acting by consumers organisations outside the native country.

First reading in the European Parliament

Despite the critical opinions on the proposed Directive, the project went to the floor of the European Parliament. The first reading of the motion took place on 26th March 2019 and then the rapporteur Geoffroy Didier presented the report on this in the name of the Legal Commission. The report consisted of 108 amendments. A further 31 amendments were presented by the ENF (Europe of Nations and Freedom) political group. During the voting in the plenary, all amendments proposed in the report (108 amendments) were adopted which means that the text of the Directive contained in the motion significantly differs from the one originally presented by the Commission. The motion incorporating the European Parliament’s amendments is equivalent to the stance of this body.

Further work on the Directive

In EN: On June 30, 2020, the European Commission published the agreed text of the Directive on representative actions to protect the collective interests of consumers and repealing Directive 2009/22, the text is available here.