On 1 and 2 July 2021, the ERA Institute organised a conference on Collective Redress in the European Union, primarily focused on the recently introduced Directive (EU) 2020/1828 on representative consumers actions (RAD). A variegated panel of experts, including professionals from academia, practitioners, representatives of consumers associations and the European Commission, discussed the issues raised by this directive. In this blogpost, Sofia Caruso selected a few interesting topics: ad hoc entities, opt-in v. opt-out and funding rules.
After 30 years of discussion, the European Union finally adopted a tool for harmonising collective redress as part of the “New Deal for Consumer” package: the Directive (EU) 2020/1828 on representative consumers actions (RAD).
The RAD will finally address the issue of the effectiveness of consumer law, which so far has been “hindered by lack of awareness and by insufficient enforcement and consumer redress opportunities”. Collective redress mechanisms are less costly for individual claimants, thus improving access to justice (Rec 9 RAD ) when similar interests are at stake, while rationalising judicial proceedings in mass harm situations. Furthermore, they may lead to settlements among the parties (Art 11 RAD), which could be convenient for both claimants and defendants.
The RAD assumes a principle-based approach, providing a general framework to complement with national rules and thus apt to include pre-existing procedures from most Member States. However, more stringent requirements are imposed to ensure uniform application in cross-border cases (Rec 23 RAD).
In the eyes of practitioners, the underwhelming achievements of the repealed Directive 2009/22/EC in cross-border injunctions cast a shadow on its successor, the RAD, which follows the same scheme. As a matter of fact, only about 1.2% of the reported actions filed under the Directive on injunctions concerned cross-border cases: the more complex and expensive procedure, as well as language barriers, constituted a deterrent for qualified entities to bring claims in a Member State other than that in which they were designated (Art 3(7) RAD). Nevertheless, as Blanca Rodriguez-Galindo (EC Directorate-General for Justice and Consumers) highlighted, the RAD is supposed to be a stepping stone for further improvements.
Qualifying as an ad hoc entity
The collective interests of consumers are represented by “qualified entities” designated by the Member States, of which there should be at least one in each Member State. Yet, in order to ensure appropriate safeguards against abusive litigation (Rec 10 RAD) and to favour mutual trust within the Union, the RAD sets qualitative standards for representative entities to have standing in cross-border actions. Such criteria concern – among others – a certain degree of permanence and past public activity, as well as guarantees of independence from persons other than the represented consumers (Art 4(3) RAD). In such a way, the RAD seems to discourage ad hoc entities, which are less likely to meet the requirement of demonstrating 12 months of actual public activity in the protection of consumer interests prior to the entities’ request for designation as a qualified entity. Therefore, these entities would only be allowed to bring cross-border cases in jurisdictions recognising their standing as ad hoc qualified entities under national law.
Although most Member States have been reluctant to allow such ad hoc vehicles, the Dutch experience reports encouraging results. They are found to empower the claimants with better control over the case – when the claimants themselves do not start the association – and to increase market diversification, preventing “collective actions monopolies”. Nevertheless, ad hoc entities require substantial third party funding, which is strictly regulated at the EU level. Hence, it is unlikely that countries lacking a longstanding tradition in collective redress would favour the proliferation of such entities.
Ioana Patrascu, legal officer at the European Commission, speculates that Article 6 RAD (on cross-border representative actions) could be interpreted as allowing any “qualified entit[y] designated in advance” to bring cross-border claims, assuming they would satisfy the criteria laid down for cross-border actions in national law. Nevertheless, the Directive does not seem to be neutral on this point since it limits the designation of ad hoc entities as qualified entities purely to domestic litigation (Rec 28; Art 4(6) RAD), pursuant to the agreed general approach to the subject.
Opt-in or opt-out?
The RAD adopts a modern approach to access criteria for individual claimants.
Firstly, pursuing merely injunctive relief does not require any form of expression of consent, which lifts the representative entities from the burden of proving actual losses or damages to individuals (Art 8(3) RAD).
Secondly, the RAD leaves it up to the Member States to determine access criteria in domestic redress cases: opt-in, opt-out or even a combination of the two. The latter is the case in Belgium, where the judge certifying the action decides on the mechanism according to the circumstances of the case, although a mandatory opt-in procedure is provided in case of physical or moral harm (Art. XVII.43, §2, 3° Belgian Code of Economic Law). Other countries introduced opt-out mechanisms, specifically in the fields of consumer law (e.g. France) and competition law (e.g. UK). However, there are cases where opt-out adhesion mechanisms seem to be more suitable for the claimants’ interests, namely low-value claims. For such demands, representative actions are clearly more appealing than burdensome individual claims. The opt-out rule can remove several access barriers, as it can reduce organisational costs, ease the burden of proof of (at the time of the incident) unimportant facts and ensure the participation of passive class members. The latter is especially relevant as “[w]here very low-value claims are at stake, opt-in group actions do not appear to be used”, even though claimants would not face any financial risk.
The RAD overcomes the traditional European reticence for “representation without authorization”, significantly phrased in Article 21 of the Recommendation 2013/396/EU, and it provides the Member States with a more versatile tool.
Thirdly, it is interesting to remark that prior consent does not necessarily bind individual consumers to the outcome of approved settlements reached among the trader and the representative entities. At the time of drafting the Model European Rules of Civil Procedure (ERCP), the authors excluded a (second) opt-out based on the publication of the proposed settlement agreement, on the basis that such an option would have undermined legal certainty during the negotiations (Rules 225 and 226 ERCP). Conversely, the RAD ensures the protection of consumers’ interest both by subjecting the settlement to court’s approval (Art 11(2) RAD) and allowing the Member States to provide group members with a second chance to opt-out. It can be assumed that the RAD promotes agreements most adherent to individual claimants’ wishes, while being less concerned with the allegedly disrupting effects envisaged by the ERCP authors. However, it can be considered that settlement notices in consumer cases have generally resulted in “apathetic response(s)”, with only a minimum percentage of consumers opting out given the lack of appeal of individual actions.
Notwithstanding the wide range of possibilities left to the Member States by the RAD, non-habitual residents must explicitly opt-in (Art 9(3) RAD) to prevent irreconcilable judgments among different jurisdictions.
Money is key
Collective actions are inherently expensive. The plaintiffs have to instruct complex cases against deep-pocketed defendants, and the costs levitate in cross-border cases that necessitate coordination across different jurisdictions. Therefore, establishing funding rules to improve consumers’ access to justice is regarded as crucial.
Paulien van der Grinten recalls from her experience as the Dutch delegate for the RAD negotiations how Article 10 on third party funding (TPF) has been one of the most debated. The majority of Member States do not regulate TPF, even when it is made available. In contrast, others expressively forbid it to avoid lobbied actions. Such a lack of uniformity risks encouraging the proliferation of ‘unregulated and uncontrolled third-party financing’.
The RAD leaves the final word on TPF to the Member States. However, Member States allowing private litigation funding should make it subject to procedures ensuring transparency, independence, and the absence of conflicts of interests, verified by the court (Rec 52 RAD). The RAD does not deal with disclosure to the defendant party, which would be highly detrimental if pushed to the extreme of a duty to share confidential information with the counterpart. Indeed, national legislators should consider that defendants could dispute non-substantive arguments until the plaintiff’s funds are exhausted, with the risk of settling cases at suboptimal results. For the same reason, Member States should explicitly indicate a restrictive interpretation of the conflict of interest provisions.
TPF supporters are concerned that too stringent conditions will leave representative entities with few options. According to Augusta Maciuleviciute (BEUC), the widespread concerns regarding frivolous claims are not evidence-based. Nowadays, representative associations have to select the cases to litigate with their scarce resources, as is expected to be the case in countries lacking a well-established consumer association system.
If not through TPF, Member States should envisage different ways to “ensure that the costs of the proceedings related to representative actions do not prevent qualified entities from effectively exercising their right” (Art 20 RAD). These can consist of structural public fundings, access to legal aid, or other rules to amend procedural costs, such as capping court fees.
As outlined by Ursula Pachl (BEUC), the success of the RAD will depend not only on the number and quality of the designated qualified entities, but also on the rules on costs and financing of representative actions and the supportive measures implemented by the Member States.
The RAD has been welcomed as a milestone on the road to enforce citizens’ rights. Both the Commission and consumer associations expressed their satisfaction with this long-awaited agreement. However, it is now up to the Member States to effectively transpose the Directive in their national legal systems. As of 2028, the Commission will evaluate the first results of the implementation of the Directive (Art 23 RAD), with the aim of further improving the current provisions and adequately addressing the interests at stake, with special regard to cross-border actions (Art 23(3) RAD).
Sofia Caruso is a Master of Law student at the University of Trento (Italy) and an Erasmus student at KU Leuven. She attended the ERA Conference as part of her thesis research on collective redress from a comparative perspective.
Sofia CARUSO, "A RAD moment for European consumers", Leuven Blog for Public Law, 27 August 2021, https://www.leuvenpubliclaw.com/a-rad-moment-for-european-consumers (geraadpleegd op 19 May 2022)
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