ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED
1. PURPOSE OF THE DIRECTIVE
Collective redress has been a very important issue for the EU since the 1980s and has been in policy debates for at least the past 20 years. Its scope is wide and it is not difficult to envisage situations where collective redress of consumers is not only mandatory as a matter of policy, but it is also necessary as a matter of logic as it allows consumers’ access to courts to low value claims: one doesn’t have to look further than the Diesel gate scandal to see the reasons that such redress is welcome. The idea of collective redress for consumers is simple: it prominently addresses situations where there is minor harm to many consumers thereby making it worthwhile to pursue the harm in a collective form rather than individually.
The Injunctions Directive (Directive 2009/22/EC on injunctions for the protection of consumer interests), enabled consumer organisations and public authorities to seek injunctions against traders when the latter were breaching EU Consumer law. Its scope was limited in the sense that only 12 consumer law directives were covered by its ambit and because only injunctive relief could be sought by it.
The New Deal for Consumers envisaged higher protection for consumers including collective redress mechanisms for compensation. This led to the implementation of Directive 2020/1828 which includes mechanisms for collective redress including “compensation, repair, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under Union or national law”
Directive (EU) 2020/1828 OF THE EUROPEAN Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (“The Directive”) sets out rules to ensure that a representative action mechanism for the protection of the collective interests of consumers is available in all Member States (“MS”), while providing appropriate safeguards to avoid abusive litigation. The purpose of the Directive is twofold. Firstly, through the achievement of a high level of consumer protection, to contribute to the proper functioning of the internal market by approximating certain aspects of the laws, regulations and administrative provisions of the Member States concerning representative actions and secondly it aims to improve consumers’ access to justice.
The Directive covers representative actions that are brought on or after 25 June 2023. For representative actions filed before 25 June 2023, it is Directive 2009/22/EC that applies.
LEVEL OF HARMONISATION: The Directive is a full harmonisation directive and Member States (“MS”) may not derogate from its provisions except to the extent that they adopt procedural rules for the registration of representative actions. In this light, Article 1(2) of the Directive states that Member States may adopt or retain in force procedural means for the protection of the collective interests of consumers at national level.
The Directive covers actions on behalf of consumers but MSs are free if they wish to include additional areas of law as well as persons benefiting from it (such as small businesses). Under it, consumers may not bring proceedings alone for collective redress but only through a “qualified entity”.
The procedural law used for registration of representative actions is that provided under EU or national law.
SCOPE: According to Article 2(1) the Directive applies:
“…to representative actions brought against infringements by traders of the provisions of Union law referred to in Annex I, including such provisions as transposed into national law, that harm or may harm the collective interests of consumers. This Directive is without prejudice to the provisions of Union law referred to in Annex I. It applies to domestic and cross-border infringements, including where those infringements ceased before the representative action was brought or where those infringements ceased before the representative action was concluded.”
ANNEX: The Annex contains 66 directives and regulations and articles of such directives and regulations for which a representative action may be registered. The Annex includes financial services, data protection, health, cosmetics, food, energy, product liability, provision of services and sale of goods. It is important to note at this stage that the use of the Directive can be extended to the registration of representative actions in relation to the General Data Protection Regulation (EU) 2016/679 regardless of the fact that there is a separate provision in the Regulation itself for consumer representation under Article 80(1) of that Regulation.
DEFINITION OF CONSUMER AND TRADER: The definitions of consumer and trader as used in the Directive are similar as those used in other Directives. In particular, consumer “means any natural person who acts for purposes which are outside that person’s trade, business, craft or profession” while “trader” “means any natural person, or any legal person irrespective of whether privately or publicly owned, that acts, including through another person acting in that person’s name or on that person’s behalf, for purposes relating to that person’s trade, business, craft or profession”.
REPRESENTATIVE ACTION: A “representative action” is defined as an action for the protection of the collective interests of consumers that is brought by a qualified entity on behalf of consumers to seek an injunctive measure, a redress measure, or both.
There are two types of representative actions. Domestic and cross-border.
Domestic representative action means a representative action brought by a qualified entity in the Member State in which the qualified entity was designated. Cross-border representative action means a representative action brought by a qualified entity in a Member State other than that in which the qualified entity was designated.
COLLECTIVE INTERESTS OF CONSUMERS: Collective interests of consumers means the general interest of consumers and, in particular for the purposes of redress measures, the interests of a group of consumers.
REDRESS MEASURE: “Redress measures” are defined in the Directive as measures that require a trader to provide consumers concerned with remedies such as compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under Union or national law.
2. SUBSTANTIVE PROVISIONS
2.1. REPRESENTATIVE ACTIONS
2.1.1. Qualified criteria
QUALIFIED ENTITIES: Qualified entity under the Directive means any organisation or public body representing consumer interests which has been designated by a Member State as qualified to bring representative actions in accordance with this Directive.
In accordance with article 4(1) of the Directive, Member States must ensure that representative actions are brought only by qualified entities . Such entities may be consumer organisations that represent members from more than one Member State.
QUALIFIED CRITERIA FOR CROSS-BORDER REPRESENTATIVE ACTIONS: Under the Directive there are specific criteria that apply to cross-border representative actions. In particular, according to Article 4(3), in order for such an entity to be able to bring cross-border representative actions, it must fulfil the following criteria:
«a) it is a legal person that is constituted in accordance with the national law of the Member State of its designation and can demonstrate 12 months of actual public activity in the protection of consumer interests prior to its request for designation.
b) its statutory purpose demonstrates that it has a legitimate interest in protecting consumer interests as provided for in the provisions of Union law referred to in Annex I.
c) it has a non-profit-making character.
d) it is not the subject of insolvency proceedings and is not declared insolvent.
e) it is independent and not influenced by persons other than consumers, in particular by traders, who have an economic interest in the bringing of any representative action, including in the event of funding by third parties, and, to that end, has established procedures to prevent such influence as well as to prevent conflicts of interest between itself, its funding providers and the interests of consumers.
f) it makes publicly available in plain and intelligible language by any appropriate means, in particular on its website, information that demonstrates that the entity complies with the criteria listed in points (a) to (e) and information about the sources of its funding in general, its organisational, management and membership structure, its statutory purpose and its activities.”
QUALIFIED CRITERIA FOR DOMESTIC REPRESENTATIVE ACTIONS: With regard to the criteria applicable to domestic representative actions, there are no specific criteria that should be set, but generally, MSs have to ensure that the criteria they use to designate an entity as a qualified entity, are consistent with the objectives of this Directive in order to make the functioning of such representative actions effective and efficient and, if they so wish, they may set the same criteria as those applicable to cross-border representative actions.
It should be noted that, notwithstanding Articles 4(3) and 4(4), MSs may also designate public bodies as legal entities for the purpose of pursuing representative actions.
Foreign and Domestic qualified entities may join forces and bypass the stricter requirements set by the Directive relating to approving a foreign entity (vis-a-vis a domestic entity). In this way, the domestic entity will act as the anchor claimant and “bypass the stricter requirements for foreign qualified entities”
The criteria for designation as a cross-border qualified entity are considered as minimum harmonization.
AD HOC APPOINMENT: Article 4(6) provides for the case where someone may make an application for qualification to register, on an ad hoc basis, a specific domestic representative action. This article states that this is possible given that it meets the criteria for designation as a qualified entity under national law.
EXISTING QUALIFIED ENTITIES: According to Article 4(7), Member States may provide that public bodies already designated as qualified entities based on Directive 2009/22/EC are to remain designated as qualified entities for the purposes of the Directive.
2.1.2. EXERCISE OF REPRESENTATIVE ACTIONS
According to Article 7(1), Member States ensure that representative actions as provided for by the Directive can be brought before their courts or administrative authorities by qualified entities since such cases are not manifestly unfounded. In the latter case, Member States must ensure that courts or administrative authorities are able to dismiss such cases at the earliest possible stage of the proceedings in accordance with national law.
Where a qualified entity will bring a representative action, they need to provide the court or administrative authority with sufficient information about the consumers concerned by the representative action.
The Directive states that Member States must ensure that qualified entities are entitled to seek at least (a) injunctive measures or (b) redress measures and this can be done in the context of a single representative action.
INJUCTIVE MEASURES: In relation to injuctive measures, Article 8(1) states that they are available in the form of:
“a) a provisional measure to cease a practice or, where appropriate, to prohibit a practice, where that practice has been deemed to constitute an infringement …·
b) a definitive measure to cease a practice or, where appropriate, to prohibit a practice, where that practice has been found to constitute an infringement …”
With regard to definitive measures for ceasing/prohibiting a practice, it is stated that such a measure may include, if provided for in national law:
“a) a measure establishing that the practice constitutes an infringement …· and b) an obligation to publish the decision on the measure in full or in part, in such form as the court or administrative authority considers appropriate, or an obligation to publish a corrective statement..”
Also, MSs may foresee that a qualified entity is only allowed to seek the injunctive measure applying for a definitive measure for ceasing/prohibiting a practice after it has entered into consultations with the trader concerned with the aim of having that trader cease the infringement. Where such provision is made, if the trader does not cease the infringement within two weeks of receiving a request for consultation, the qualified entity may immediately bring a representative action for an injunctive measure.
Note that the consumers concerned by a representative action must be entitled to benefit from the above measures but without being required to express their wish to be represented by that qualified entity. In fact, prior to the issuance of the injunctive measure, the qualified entity must not be required to prove:
«a) actual loss or damage on the part of the individual consumers affected by the infringement; or
b) intent or negligence on the part of the trader. »
It is noted that in relation to representative actions concerning injunctions, it is provided that the MSs:
“…ensure that they are suspending or interrupting applicable limitation periods in respect of the consumers concerned by that representative action, so that those consumers are not prevented from subsequently bringing an action for redress measures concerning the alleged infringement … because the applicable limitation periods expired during the representative action for those injunctive measures.”
PROCEDURAL EXPEDIENCY: Regarding the speed of issuing injunctions, the Directive states that MSs must ensure that representative actions are dealt with speedily whereas, representative actions seeking an injunction to cease or, where appropriate, to prohibit a practice considered to constitute an infringement must, where appropriate, be dealt with by a summary procedure.
REDRESS MEASURES: A redress measure must require a trader to provide consumers concerned with remedies such as compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under Union or national law.
INCLUSION OF CONSUMERS IN REPRESENTATIVE ACTIONS: According to Article 9(2), MSs must lay down rules on how and at which stage of a representative action for redress measures the individual consumers concerned by that representative action are to be represented by the qualified entity in that representative action and whether they will be bound or not by the outcome of the representative action. The choice may be explicit or tacit and it may be made within an appropriate time limit after that representative action has been brought. Where a representative action concerning remedies and/or redress is pending, MSs must adopt rules to ensure that consumers are informed of the representative action in good time and by appropriate means so that they are given the opportunity to express or imply their wish to be represented in the representative action.
Where a redress measure does not specify individual consumers entitled to benefit from remedies provided by the redress measure, it must at least describe the group of consumers entitled to benefit from those remedies. Indeed, MSs must ensure that a redress measure enables consumers to benefit from the remedies provided by that redress measure without the need to bring a separate action.
DOUBLE COMPENSATION: In cases where consumers have expressly or implicitly expressed their wish to be represented in a representative action, MSs must ensure that such consumers cannot be represented (1) in other representative actions on the same subject matter and against the same trader, or (2) in individual actions on the same subject matter and against the same trader. MSs must also establish rules to ensure that consumers do not receive compensation in more than one action on the same subject matter against the same trader.
Where consumers do not have their habitual residence in the MS of the court or administrative authority before which a representative action is brought, they are obliged to express their wish to be represented in that representative action so that those consumers are bound by the outcome of that representative action.
ADDITIONAL MEASURES OF PROTECTION: It should be noted that the remedies provided by redress measures within a representative action are without prejudice to any additional remedies available to consumers under Union or national law which were not the subject of that representative action.
Article 9(7) of the Directive states that Member States must lay down or retain rules on time limits for individual consumers to benefit from redress measures. MSs may lay down rules on the destination of any outstanding redress funds that are not recovered within the established time limits.
Finally, it should be said that qualified entities are able to bring representative actions for a redress measure without it being necessary for a court or administrative authority to have previously established an infringement.
In relation to limitation periods, where there is an ongoing representative action requesting a redress measure and/or representative action, MSs must ensure that the applicable limitation periods are suspended or interrupted in respect of the consumers concerned by the representative action.
SPECIAL PROVISIONS FOR CROSS-BORDER ACTIONS: In accordance with Article 6(1), MSs must ensure that legal entities designated by another MS for the purpose of bringing cross-border representative actions may bring such actions before their courts or administrative authorities. In this sense, the Directive forces MSs to allow consumers to benefit from a representative action without the need to bring a separate individual action.
Also, MSs must ensure that where the alleged infringement of Union law affects or is likely to affect consumers in different MSs, the representative action can be brought before the court or administrative authority of a MS by several qualified entities from different MSs in order to protect the collective interests of consumers in different MSs.
INFORMATION FROM QUALIFIED ENTITIES: Regarding information to the public, Article 13(1) states that MSs must lay down rules ensuring that qualified entities provide information, in particular on their website, about:
“a) the representative actions they have decided to bring before a court or administrative authority.
b) the status of the representative actions they have brought before a court or administrative authority; and
c) the outcomes of the representative actions referred to in points (a) and (b).”
Similarly, Article 13(4) states that legitimate operators should inform consumers about final decisions to reject, as inadmissible or unfounded, representative claims for remedies and/or redress.
Based on Article 13(5), Member States must ensure that the successful party can recover the costs related to providing information to consumers in the context of the representative action.
INFORMATION FROM TRADERS: According to Article 13(3) of the Directive, unless consumers are informed of the final decision or approved settlement by other means, the court or administrative authority must require the trader to inform the consumers concerned by the representative action, at the trader’s expense, of any final decision or approved settlement, by means appropriate to the circumstances of the case and within specified time limits, where appropriate, informing all consumers concerned individually. MSs may derogate from this obligation by adopting rules under which the trader will be required to provide such information to consumers only at the request of the qualified entity.
FINAL DECISIONS: According to Article 15 of the Directive, Member States shall ensure that the final decision of a court or administrative authority concerning the existence of an infringement harming collective interests of consumers can be used by all parties as evidence:
“…in the context of any other action before their national courts or administrative authorities to seek redress measures against the same trader for the same practice, in accordance with national law on evaluation of evidence.”
2.1.3. Applicable Law
Recital 21 states that Regulation (EC) No 864/2007, Regulation (EC) No 593/2008 and Regulation (EU) No 1215/2012 of the European Parliament and of the Council should apply to the procedural mechanism for representative actions required by this Directive. Important guidance on the law applicable to representative actions is given in the judgment C-191/15 Verein für Konsumenteninformation κατά Amazon EU Sàrl. This case concerned the repealed Directive 2009/22/EC but it is also relevant in the Directive under consideration. It was decided that the applicable law for the assessment of a particular contractual term must always be determined by applying Regulation 593/2008 (Rome I), whether it is an individual action or a collective action. However, where it is a collective action which seeks to protect consumers’ interests against the use of unfair terms in general terms of sale, this is determined on the basis of Regulation 864/2007 (Rome 2).
This retains the system of international jurisdiction established in Regulation 1215/2012. In addition to automatic recognition of the standing of a qualified entity designated in one Member State to bring actions in other Member States, the directive envisages the promotion of cooperation between such entities to facilitate actions with cross-border implications. It also places an obligation on Member States to provide mechanisms to enable consumers habitually resident in one Member State to be represented in compensatory collective redress actions brought in another Member State.
2.1.4. Funding of Representative Actions and Expenses
Α. FINANCING OF REPRESENTATIVE ACTIONS
Article 10 refers to the funding of representative actions for redress measures. As stated by D. Fairgrieve και τον R. Salim:
“Whilst the Directive recognises the importance of consumers being informed, the disparity in the level of guidance provided to Member States on the content of the information obligations on ongoing claims and final decisions/settlements risks consumers being unable to adequately make decisions/take actions with regards to such claims”
Given that collective redress cases “tend to come with a particularly significant price tag” stemming from the complications of such actions, as the name suggests, “third party funding” is the case where third parties fund the collective redress procedure in return for a share of the recovered sums. Third-party funding has a number of advantages. Most importantly, it provides liquidity to pay fees and expenses to fund the litigation and furthermore, it reduces significantly the financial risk of the litigation.
OPTIONS FOR FUNDERS: The options for funders to obtain their return on investment seem to be the following:
- The funder receives a part of the damages award (thereby consumers receive a deducted amount)
- The funder receives a costs order against the defendants – something which is however limited by the Directive given that it “restricts adverse cost orders to costs that were necessary”.
- The funder receives remuneration from funds that were not claimed by consumers under the time limit provided for by article 9(7) of the Directive.
THIRD PARTY FUNDING: In the event that such actions are funded by a third party, to the extent that this is, permitted by national law, the MSs must ensure that conflicts of interests are prevented and that funding by third parties that have an economic interest in the bringing or the outcome of the representative action for redress measures does not divert the representative action away from the protection of the collective interests of consumers. MSs, on the basis of Article 10(2) of the Directive, should also ensure that:
“a) the decisions of qualified entities in the context of a representative action, including decisions on settlement, are not unduly influenced by a third party in a manner that would be detrimental to the collective interests of the consumers concerned by the representative action.
b) the representative action is not brought against a defendant that is a competitor of the funding provider or against a defendant on which the funding provider is dependent. “
In relation to article 10(2)(a), what constitutes “undue influence” is difficult to tell.
Regarding the courts and administrative authorities having jurisdiction in representative actions for redress measures, the following is derived from the Directive:
- That they will assess compliance in the event that justified doubts may arise as to such compliance. To this end, qualified entities must disclose to the court or administrative authority a financial overview that lists sources of funds used to support the representative action.
- Are empowered to take appropriate measures, such as requiring the qualified entity to refuse or make changes in respect of the relevant funding and, if necessary, rejecting the legal standing of the qualified entity in a specific representative action. If the legal standing of the qualified entity is rejected in a specific representative action, that rejection is not to affect the rights of the consumers concerned by that representative action.
In accordance with Article 12(1), MSs must ensure that the unsuccessful party in a representative action for redress measures is required to pay the costs of the proceedings borne by the successful party, in accordance with conditions and exceptions provided for in national law applicable to court proceedings in general. It is noted that individual consumers concerned by a representative action for redress measures must not pay the costs of the proceedings, unless the expenses were caused as a result of their intentional or negligent conduct.
The above article is somewhat limited in favour of the legal entities since the Directive states that Member States shall take measures aiming to ensure that the costs of the proceedings related to representative actions do not prevent qualified entities from effectively exercising their right to seek the measures referred to in Article 7. These measures may take the form of public funding, including structural support for qualified entities, limitation of applicable court or administrative fees, or access to legal aid.
With regard to consumers who are represented by a qualified entity, it is noted that MSs may establish rules under which they may require such consumers to pay a limited registration fee or similar charge in order to participate in a representative action involving redress measures.
According to Article 11(1) of the Directive, for the purpose of approving settlements, MSs must ensure that in a representative actions for redress measures:
“a) the qualified entity and the trader may jointly propose to the court or administrative authority a settlement regarding redress for the consumers concerned; or
b) the court or administrative authority, after having consulted the qualified entity and the trader, may invite the qualified entity and the trader to reach a settlement regarding redress within a reasonable time limit.”
Such settlements are subject to the control of the court or administrative authority which must assess whether to approve or reject such a settlement taking into account whether the settlement: (1) is contrary to provisions of national mandatory law, or (2) contains terms that cannot be enforced and whether (3) the rights and interests of all parties, and in particular those of the consumers concerned, are affected. Also, MSs may lay down rules to allow the court or administrative authority to refuse to approve a settlement on the grounds that the settlement is unfair.
When the settlement is approved, it is binding upon the qualified entity, the trader and the individual consumers concerned. provided that the MSs may lay down rules that give the individual consumers concerned by a representative action and by the subsequent settlement the possibility of accepting or refusing to be bound by settlements.
Redress obtained through an approved settlement, is without prejudice to any additional remedies available to consumers under Union or national law which were not the subject of that settlement.
REJECTION OF THE SETTLEMENT: If a settlement is not approved, the court or administrative authority continues to hear the relevant representative action.
DISCLOSURE OF EVIDENCE: Article 18 of the Directive states that the MSs shall:
“…ensure that, where a qualified entity has provided reasonably available evidence sufficient to support a representative action, and has indicated that additional evidence lies in the control of the defendant or a third party, if requested by that qualified entity, the court or administrative authority is able to order that such evidence be disclosed by the defendant or the third party in accordance with national procedural law, subject to the applicable Union and national rules on confidentiality and proportionality. Member States shall ensure that, if requested by the defendant, the court or administrative authority is also able to equally order the qualified entity or a third party to disclose relevant evidence, in accordance with national procedural law.”
3. INFORMATION AND OTHER OBLIGATIONS
ELECTRONIC DATABASES: According to Article 14(1), MSs may set up national electronic databases that are publicly accessible through websites and which provide information on qualified entities designated in advance for the purpose of bringing domestic and cross-border representative actions and general information on ongoing and concluded representative actions. Such electronic databases must be notified to the Commission. The Commission must in turn maintain an electronic database which is accessible from:
“a) the national contact points
b) courts and administrative authorities, if necessary under national law;
c) qualified entities designated by the Member States for the purpose of bringing domestic representative actions and cross-border representative actions; and
d) the Commission.”
PENALTIES: According to article 19(1), MSs must lay down the rules on penalties applicable to the failure or refusal to comply with an injunctive measure, measures for the notification of evidence, and cases falling under Article 13(3). The penalties must be effective, proportionate, and dissuasive and shall, inter alia, take the form of fines.
COOPORATION BETWEEN QUALIFIED ENTITIES: According to Article 20(4), MSs and the Commission must support and facilitate cooperation between qualified entities and the exchange and dissemination of their best practices and experience as regards dealing with domestic infringements and cross-border infringements.
MONITORING AND EVALUATION: According to Article 23(1), the Commission must carry out an evaluation of the Directive and submit a report. The MSs have a corresponding obligation to provide the Commission with information on the number and type of representative actions completed, the type of infringements and the results of these representative actions.
REPEAL: Directive 2009/22/EC is repealed with effect from 25 June 2023.