EU Parliament approves Collective Redress Directive

On 24 November, the European Parliament, which decides upon European Union (EU) legislation, approved the directive on representative actions for the protection of the collective interests of consumers in the EU. This directive was initially proposed in response to transgressions such as the Volkswagen emissions scandal, which saw European car owners unable to sue for the same restitution granted to their US counterparts.

This directive aims to create a standard model for representative action in all EU member states. This means that claims can be brought in individual countries in addition to all across the continent. This will likely facilitate cross-border collective actions and ensure that EU consumers can better defend their rights. As per common practice, the recently approved directive will enter into force 20 days after being published in the EU's Office Journal. Subsequently, EU member states will have 24 months to find a place for the directive in its national law and a further period of 6 months to implement it. Member states retain autonomy on deciding how to transpose this directive into national law and determine its own procedural elements and application mechanisms. These changes can be expected to be in full effect in the EU from mid-2023 onwards. There is a slight speck of controversy as some facets of the directive are new to some member states. The rules set out in the directive will apply to representative actions that are filed starting from its date of application.

The directive will confer upon consumers all over the EU the right to file class-action lawsuits, similar to the kind already permitted in the US. It is set to cover a wide array of areas and address breaches of more than 50 pieces of EU legislation, including product liability, financial services, data protection, and general consumer law issues. Claimants will be able to seek remedies, including compensations, injunctions, and, if applicable, product repairs, refunds, or replacements. This directive provides relief only for actual loss and does not account for punitive damages.

The EU model differs from the US approach to such lawsuits. The EU will allow only qualified entities, such as consumer organisations or public authorities as opposed to law firms, which must be designated as such by EU member states, to represent a group of consumers. Member states can set their own criteria required to be met by prospective qualified entities candidates. There is a distinction made in the directive between qualified entities entitled to bring actions in member states where they have been designated, i.e., domestic action, and those entitled to bring actions in other member states, i.e., cross border action. Regarding domestic actions, qualified entities must fulfil the criteria established in the national law of its member state of designation. For cross border-actions, qualified entities will have to meet the harmonised criteria set out in the directive.

The directive also ensures protection from abusive lawsuits. National courts will be allowed to dismiss manifestly unfounded cases as per their national laws. Moreover, a loser-pays system will oversee the issue of costs. Qualified entities will also need to disclose the source of funds behind each representative action brought forward. Further, representative actions against businesses cannot be funded by parties with a financial interest in the proceedings, such as competitors.

This directive, which attempts to transcend the prohibitive legal costs consumers face while taking corporations with deep pockets to court, marks an important step forward in the domain of consumer rights. Consumers will be put on more equal footing with Goliath-like corporations through this legal conduit.

Consumers from the UK, a country which is set to exit from the European Union shortly, will not benefit from this. However, it will be interesting to keep track of whether this directive inspires the UK to implement better consumer protection legislation.

Due to COVID-19 restrictions, this directive was approved through an online video conference.