Competition Litigation

News Update Class Actions

EU Directive on representative actions adopted
24 November 2020
24 November 2020

Today, the Directive on representative actions for the protection of the collective interests of consumers was adopted. This Directive is part of the 'New Deal for Consumers' – an initiative to strengthen EU consumer law enforcement and to modernise EU consumer protection rules. The Directive's text has changed substantially since the Commission published its proposal on 11 April 2018.

Each Member State will have to provide for at least one representative action procedure for consumers in its national laws, whether judicial or administrative, that is compatible with the Directive.

The Directive includes several requirements that differ from the Dutch class action law requirements. The key differences are:
  • the Directive's limited scope for representative actions in the interests of consumers;
  • representative actions can only be brought by 'qualified entities' designated as such by a Member State;
  • the distinction in standing criteria between qualified entities that bring 'cross-border' and 'domestic' representative actions; and
  • the absence of numerosity and commonality requirements since these are left to the discretion of the individual Member State.

It remains to be seen how the Dutch legislature will transpose the Directive into national law, as Member States can decide whether they incorporate the Directive into already existing or future national representative action mechanisms or create a new mechanism.

The Directive will enter into force 20 days from the day of its publication in the Official Journal of the EU. The implementing provisions must be applied within 30 months after the Directive has come into force.

We will discuss the key provisions of the Directive below.

Scope

The scope of the Directive is limited to protecting specific consumer interests. It applies to representative actions brought against infringements by "traders" of specific provisions of EU consumer law listed in Annex I of the Directive (Article 2(1)). A trader is any natural or legal person that is acting – directly or through another person – for purposes relating to that person's trade, business, craft or profession (Article 3(2)). Only organisations or public bodies representing consumers' interests that Member States have designated as "qualified entities" can bring a representative action (Article 4(1, 2, 7)).

The Directive aims at a minimum harmonisation, as was laid down in Recital 24 approved by the European Parliament at first reading. This explicit reference is not repeated in the final recitals, but there is no indication that this implies a different approach.

Domestic and cross-border actions

The Directive distinguishes between "domestic" and "cross-border" representative actions. Whether an action is considered to be a domestic or a cross-border action depends on where the qualified entity is designated and where it brings its claim. The domicile of the consumer and trader does not matter.

If a qualified entity brings an action in the Member State in which it is designated, the action is considered a domestic representative action (Article 3(6)). If it brings an action in another Member State, it is considered a cross-border representative action (Article 3(7)). If several qualified entities designated in different Member States jointly bring a representative action, this action also qualifies as a 'cross-border representative action' (Article 6).

Standing

An organisation must fulfil six requirements to be eligible to be designated as a qualified entity that can bring cross-border representative actions. Pursuant to Article 4(3) it must:
  • be a legal person, properly constituted according to the law of the Member State of its designation, which has been engaged in actual activities on consumer protection during the previous 12 months;
  • have a legitimate interest in consumer protection according to its articles;
  • be a non-profit;
  • not be insolvent or the subject of insolvency procedures;
  • be independent and have procedures preventing it from (i) being influenced by third parties with an economic interest in bringing representative actions and (ii) conflicts of interest between itself, its funding providers and consumers;
  • publicly disclose certain information, such as compliance with these criteria.

Qualified entities that can bring cross-border representative actions are entered on a list published by the Commission (Article 5(1)). Being listed proves standing, but the court may examine if the action brought falls within the scope of the objects of the qualified entity according to its articles (Article 6(3)). Members States must assess whether the qualified entities continue to comply with the Article 4(3) criteria. The national rules should enable the defendant to challenge compliance with these criteria in court (Article 5(4)).

The criteria set out in Article 4(3) can also be applied to organisations that plan to bring domestic representative actions, but Member States can decide to apply other criteria as long as they are consistent with the Directive's objectives (Article 4(4, 5)). Organisations that bring domestic representative actions can also be designated as qualified entities on an ad hoc basis.

Admissibility

The court must examine the admissibility of a representative action in accordance with the provisions laid down in the Directive and in national law (Article 7(3)). If it finds that the case is manifestly unfounded, the court must be able to dismiss it at the earliest possible stage of the proceedings in accordance with national law (Article 7(7)).

Member States can choose if they require a minimum number of consumers represented in the action, or to which degree the interests of the consumers represented in the action must be sufficiently similar, so that they can be bundled (Recital 12).

Types of relief

Member States must ensure that qualified entities can claim at least "injunctive measures" and "redress measures" (Article 7(4)).

Injunctive relief can be provisional or definitive. It may include measures to cease or prohibit an infringing practice (Article 8(1)), or an order to publish a decision that certain practices constitute an infringement of consumer law or a corrective statement (Article 8(2b)). According to Article 8(2a), injunctive relief may also include "a measure to establish that the practice constitutes an infringement" of EU consumer law. Under Dutch law, this is considered as declaratory relief. Recital 11 ensures that, although the Directive does not provide for an action to claim declaratory relief, it does not exclude such an action.

According to the Directive, redress measures include paying compensation, replacing a product, reducing or reimbursing the purchase price paid or terminating a contract, as available under EU or national law (Article 3(10) and 9(1)). Although not explicitly prohibited, punitive damages are not permitted, to prevent misuse of representative actions (Recital 10 and 42). Individual consumers or at least the group of consumers that benefit from the action must be defined in the judgment (Article 9(5)). If a claim for redress such as compensation is awarded, those consumers can obtain compensation without having to start follow-up proceedings (Article 9(6)).

Opt in/opt out

In the case of a claim for redress, the consumers concerned must be enabled to expressly or tacitly express their wish regarding whether they want to be represented in the action brought (Article 9(2)). Therefore, the consumers must be timely and adequately informed about the action. Qualified entities must provide information, in particular on their website, about ongoing and future representative actions (Article 13(1, 2)).

Member States can choose an opt-in mechanism or an opt-out mechanism, or a combination of both (Recital 43). In any case, consumers domiciled in a Member State other than the state in which the representative action is brought can only be represented on an opt-in basis (Article 9(3)).

The consumers that are represented in the action for redress are bound by its outcome, also if the collective action is dismissed. However, they can still claim any relief that was not claimed in the representative action (Article 9(9)).

If an injunction is sought, an opt-in or opt-out mechanism is not required (Article 8(3)).

Limitation periods

Limitation periods must be suspended or interrupted by pending representative actions for injunctive relief, so that the consumers represented in the action can bring subsequent actions (Article 16(1)). The same applies to actions for redress (Article 16(2)).

Settlements

Collective settlements should be encouraged (Recital 53). Settlements that are reached during the representative action for redress must be assessed by the court to be binding on the consumers represented in the action. Approval can be denied if the settlement is contrary to mandatory national law or includes provisions that cannot be executed. Member States may set out rules that allow the court to refuse approval of a settlement if it considers it to be unfair. Approved settlements bind the qualified entity, the trader and the consumers represented in the action. Member States may provide the possibility to opt in or opt out of the settlement (Article 11).

Funding

Third party litigation funding is allowed, if national law allows this. However, Member States must ensure that conflicts of interest are avoided in representative actions for redress. Litigation funding by a third party that has an economic interest in bringing an action or in an action's outcome cannot "divert the representative action away from the protection of the collective interests of consumers" (Article 10(1)). That means in particular that (a) the third party cannot unduly influence the decisions that the qualified entity makes about the representative action, including settlements; and (b) the representative action cannot be brought against a funder's competitor or a defendant on which the funder is dependent (Article 10(2)).

The court can examine whether the funding arrangements of a qualified entity comply with the Directive's provisions if reasonable doubts arise. To that end, the entity must disclose a financial overview of the sources of funding used to the court. The court may take appropriate measures if these sources of funding do not comply, such as requiring the qualified entity to refuse or change the funding or denying the qualified entity standing in the action brought (Article 10(3, 4)).

Public funding is also allowed because Member States must ensure that procedural costs do not prevent qualified entities from effectively bringing representative actions (Article 20(1, 2)).

Costs

Qualified entities may require a modest participation fee or similar charge from consumers that wish to be represented in a specific action for redress (Article 20(3)).

The losing party in a representative action for redress must pay the other party's litigation costs, according to the national law that applies to court proceedings in general. Individual consumers represented in the action shall not pay any procedural costs, except in the case of intentional or negligent conduct (Article 12).

The Netherlands has a moderated 'loser pays' rule. The costs that can be reimbursed by the winning party are usually limited to the court registry fee, the costs of witnesses and experts and a limited fixed amount for lawyers' fees. However, the Act on collective damages claims (WAMCA) allows the court to deviate from this rule. If the court finds that the defectiveness of the collective claim is summarily apparent, it can order the claim organisation to pay a higher amount of lawyers' fees, up to a maximum of five times the fixed amount, unless fairness dictates otherwise. If the court decides to award damages, the court may order, if so requested, that the defendant pay reasonable and proportionate court costs and other costs that the claim organisation has incurred, unless fairness dictates otherwise. The WAMCA applies to collective proceedings that were brought on or after 1 January 2020 for events that took place on or after 15 November 2016.

Isabella Wijnberg was interviewed about the new European class action rules by the Financieele Dagblad, the leading Dutch Financial Newspaper.

For more information, please see our News Update about the Act on collective damages claims and our Class Actions survey.

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Written by:
Albert Knigge

Key Contact

Amsterdam
Advocaat | Managing Partner
+31 20 605 65 62
+31 6 5184 5323
Isabella Wijnberg

Key Contact

Amsterdam
Advocaat | Senior Associate
+31 20 605 65 09
+31 6 5316 8462