Agnieszka Trzaska-ŚmieszekPoland, despite having received in July of this year a so-called reasoned opinion from the European Commission regarding the infringement of Union law in the implementation of Directive (EU) 2020/1828 of the European Parliament and of the Council of 25th November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (hereinafter: “Directive 2020/1828”), remains among the (increasingly small) group of European countries that have not implemented Directive 2020/1828. Although – as we mentioned in a previous post – by the end of summer intensive work was underway at the Government Legislation Centre (Rządowe Centrum Legislacji) on the draft act amending the Act on pursuing claims in group proceedings and certain other acts (RCL, UC 139) – the draft itself will most likely be dealt with by the Parliament (Sejm) of the next term. Hence, in today’s article, we will first take a closer look at the solutions set out in Directive 2020/1828 regarding the funding of proceedings, and then analyse the proposed solutions against this background.
Undoubtedly, the most important point in this regard provided for by Directive 2020/1828 is the explicit acceptance of third-party funding (“litigation finance” or “TPF”) of group proceedings. Such litigation funding mechanisms are very popular in common law systems, but in continental law systems are only developing. Polish procedural regulations currently lack any explicit provisions on this matter.
Directive 2020/1828 provides for the regulations on third-party funding of representative actions for remedial measures. As a rule, under Directive 2020/1828, such funding is permitted, while national law determines to what extent and must ensure that no conflicts of interest arise as a result of such funding and that third-party funding does not cause the representative action to fail to protect the collective interests of consumers (see Article 10(4) of Directive 2020/1828). In particular, it is to be prohibited for third parties to unduly influence decisions of qualified entities related to a representative action, including settlement decisions, by means of funding, in a way that harms the collective interests of consumers concerned by the representative action, or for the representative action to be brought against a defendant who is a competitor of the funding entity or against a defendant on which the funding entity is dependent.
The point is to prevent the use of the mechanisms provided for in Directive 2020/1828 for purposes other than consumer protection (e.g., to harm a competitor by funding proceedings brought against them).
The funding prohibited by Directive 2020/1828 may ultimately result in the qualified entity being deprived of legal standing (i.e., the right to bring a representative action).
In summary, Directive 2020/1828 permits the third-party funding of proceedings, provided that the funding complies with the requirements of transparency, independence, and absence of conflicts of interest.
The current draft bill (UC 139) provides that the court hearing the group proceedings is obliged to ensure that the financing of the group proceedings in cases involving claims related to practices infringing the general interests of consumers does not affect the requirements of transparency, independence, and absence of conflicts of interest. If the court determine the infringement of the rules of third-party funding, it will be entitled to reject the statement of claims, regardless of the stage of the proceedings.
The draft bill (Article 10aaa) provides that when determining whether third-party funding of the actions of the qualified entity does not affect the proper protection of consumer interests, the court will examine in particular whether the third party: is funding the action brought and is influencing the decisions of the qualified entity related to the action, including settlement decisions, in a way that harms the interests of consumers concerned by the representative action, and additionally, whether the defendant is an enterpreneur who is a competitor of another entity funding the qualified entity or an enterpreneur on which the funding entity is dependent.
For the time being, the Polish draft provides for rejection of the statement of claims as the only instrument available to the court if it finds that the third-party funding affects the protection of consumers. However, as pointed out during the legislative process, the provision of Directive 2020/1828 implies that the court should be entitled not only to reject the qualified entity legal standing but also to take less severe actions, such as ordering the qualified entity to refuse specific funding or to modify it.
Undoubtedly, third-party funding of proceedings, including group proceedings, will become increasingly common, and in fact, is also becoming more popular and accessible in Poland. It is therefore worth making use of the legislative work on the implementation of Directive 2020/1828 to develop a good framework for this area of activity.
