News Update
20 July 2018
In the first half of 2018, we saw some important developments concerning mass claims legislation. While in the Netherlands adjustments were made to a draft bill introducing collective claims for damages, the European Commission launched several initiatives relating to the potential for collective redress in Europe. The Commission is aiming to create a set of rules in which representative action is reserved for qualified entities and certain public bodies. It is hoped that this will prevent abusive litigation and develop a different system in the EU than in the US. These developments may lead to a growth in collective redress actions in Europe, and particularly in the Netherlands and, as such, to an increased litigation risk for companies.
The furthest reaching Commission proposal is the New Deal for Consumers, which was announced on 11 April 2018. Later in April, a draft regulation for promoting fairness and transparency in Platform-to-Business (P2B) relations followed. Both are briefly discussed below.
New Deal for consumers
The Commission's 'New Deal for Consumers' contains a package of consumer protection measures. Part of this package is a draft directive on representative actions for the protection of the collective interests of consumers (COM(2018) 184 final). The draft directive is part of a follow-up of the EU Collective redress Recommendation (2013/396/EU). The recommendation created a benchmark for the principles of an EU model of collective redress, but has not led to many legislative developments in Member States, according to the outcome of an assessment published in the Commission Report of 25 January 2018 (COM(2018) 40 final). The draft directive will force Member States that don't have any system of representative actions to introduce them.
The draft directive repeals the Injunctions Directive (2009/22/EC) and introduces further reaching possibilities for consumers to start redress actions against traders that have breached EU consumer protection law. As under the injunctions directive, Member States have to make a list of qualified entities (in particular consumer organisations and independent public bodies) that can bring representative actions. The draft directive innovates by providing that a qualified entity can also be designated on an ad hoc basis for a particular representative action. It also provides that a qualified entity can bring a representative action not only for an injunction but also for money claims and scattered damages claims. In addition, representative actions can seek measures to eliminate the continuing effects of the infringement, such as repair, price reduction or contract termination. However, a representative action is only possible in the case of an infringement of EU consumer protection legislation included in Annex 1 to the directive. It concerns sectors such as financial services, energy, telecommunication, health, environment, data and transport.
To prevent abuse of the litigation process, the draft directive contains several requirements regarding the financial resources of the qualified entity, which has to be a non-profit organisation. The qualified entity has to disclose to the court the origin of its funds and its financial capacity. It is in principle allowed to be funded by a third party, although the court will have the possibility to assess the funding arrangements. The third party is not allowed to influence decisions of the qualified entity on the proceedings, including settlements, nor to finance a representative action against one of its competitors or a defendant on whom the fund provider is dependent.
The adoption of the draft directive would, after implementation, create a national legal basis for collective redress within the EU. The question is how these EU rules will relate to Dutch national legislation. This topic is currently being discussed in the Dutch Parliament. Dutch law already provides for different possibilities regarding mass claims. Legislation that makes collective damages claims possible is on its way. The draft directive and Dutch legislation differ on several points. According to the European Commission, the directive does not aim to harmonise national mechanisms of collective redress, but establishes certain minimum requirements. The Commission has confirmed the Netherlands that if there are any discrepancies between the directive and national legislation, EU representative actions could be set up as complementary proceedings (letter of the Minister for Legal Protection to the Dutch Parliament of 20 June 2018). If and when the directive will be implemented remains to be seen. The European negotiations on this matter have just started. The Dutch government has expressed its intention to try to align the minimum EU requirements to Dutch legislation in the above mentioned letter.
Transparency and effective redress in Platform-to-Business (P2B) relations
On 26 April 2018, the European Commission announced a proposal for a regulation on promoting fairness and transparency for business users of online intermediation services (COM(2018) 238 final). The Commission observed a power imbalance between the market strength of a small number of online platforms and search engines and their numerous business users. This could lead to harmful trading practices for which European redress mechanisms do not exist. Therefore, the Commission has proposed a set of mandatory rules that aim at transparency (e.g. the way providers of online intermediation services determine the ranking of business users) and effective redress.
In addition to an internal complaint-handling system and mediation, the Commission proposes the possibility of collective redress by organisations or associations that have a legitimate interest in representing business users (or corporate website users) in Art. 12. They will have the right to take action before national courts to stop or prohibit any infringement of this regulation when they meet three requirements: (a) they are properly constituted according to the laws of a Member State; (b) they pursue objectives that are in the collective interest of the group of business users that they represent; (c) they are of a non-profit making character. Certain public bodies in Member States will have the same right to start collective redress proceedings.
Collective redress has several advantages over an individual judicial action in P2B relations. Besides the financial aspect, anonymity is an important plus: the Commission noticed a fear of retaliation amongst business users in relation to their platform providers. Also, the representative body is not bound to law and forum clauses in the contract between business users and providers of online intermediation services.
The proposal is accompanied by an Impact Assessment (SWD(2018) 138 final) in which in Annex 1, par. 8.7, an illustration of how representative organisations have legal standing can be found.
