EU “Class-Action” Rules FAQs

Introduction

The EU recently issued rules concerning consumer class-actions, which in EU terms are called “representative actions”, to be brought by designated entities against organisations which have infringed EU law.

It is for the (27) EU Member States to implement these new rules (“Directive (EU) 2020/1828 of the European Parliament and of the Council on representative actions for the protection of the collective interests of consumers”) into their national law, with room for discretion in a number of aspects.

These FAQs highlights key aspects of these new rules and also consider data breach compensation claims as these claims are on the increase.

What’s this about?

“Class-action” law suits are well established in the US and have been growing in European jurisdictions including France, Germany, Holland and the UK. Typically they involve one or more claimants suing others on behalf of a group or class, i.e. the claimants collectively represent the group or class in a single proceeding – in doing so they use resources more efficiently and reduce costs through aggregation in matters involving many individuals which an individual might not have otherwise brought on their own.

There are a number of aspects to both the procedure and substance of a class-action claim. A key feature concerning the functioning of a claim is whether it operates on a so-called “opt-in” or “opt-out” basis. An opt-in system allows claimants to choose on a proactive basis in order to be able to participate whilst in an opt-out system a claimant is automatically included unless they choose otherwise. In order to be viable claims also need some form of funding mechanism – this may come from a third-party.

Class-action cases have spread to a number of areas and are being increasingly used in matters concerning data breaches.

Why is the EU doing this?

The aim of the new rules is to ensure the availability throughout the EU of representative actions for the protection of the collective interests of consumers – at the same time appropriate safeguards are also provided to avoid abusive litigation against businesses.

It should be noted however that these new rules do not exhaustively cover all aspects of class-action claims.

What does “representative action” mean?

Under the new rules, a “representative action” is a legal action brought to protect the collective interests of consumers (see below) by a so-called “qualified entity” (see Who can bring proceedings and against whom?) as a claimant on behalf of consumers, which is aimed at getting:

An injunctive measure; or,

A redress measure (much of the focus in the new rules is in this area);

The “collective interests of consumers” means that it is in their general interest and, for the purpose of redress measures, in the interests of a group of consumers.

Claims cannot therefore be brought on behalf of legal persons, only consumers.

Who can bring proceedings and against whom?

So-called “qualified entities” can bring representative actions. These are any organisation or public body representing consumers’ interests which has been designated by an EU Member State as qualified to bring representative actions. The new EU class-action rules set out the qualification criteria for qualified entities, for example, they must be non-profit making, solvent and act independently including with regard to third-party funders.

Representative actions may be brought against so-called “traders”, who have infringed EU law (see What areas fall within the scope of representative actions?) – “traders” are broadly-defined as being any natural or legal person (privately or publicly owned) who is acting for purposes relating to that person’s trade, business, craft or profession.

What areas fall within the scope of representative actions?

Representative actions are brought against infringements committed by traders of EU law (that harm or may harm the collective interests of consumers). The new rules list these EU laws (sixty-six set out in an annex), which mainly cover the following areas:

Defective product liability;
Unfair terms in consumer contracts;
The sale of consumer goods and associated guarantees;
General product safety;
Unfair business-to-consumer practices;
Misleading and comparative advertising;
Geo-blocking;
Food safety and information;
Pricing for consumers;
Classification, labelling and packaging;
Ecolabels;
Air and sea carrier liability;
Rail, sea, bus and coach passenger rights;
Time-share contracts;
Medicinal products and devices;
Cosmetic products;
Telecommunications;
E-commerce;
Energy;
Consumer dispute resolution;
Distance marketing of consumer financial services;
Consumer credit agreements;
E-Money;
Payment services;
Collective investment in transferable securities;
Financial instruments;
Packaged retail and insurance-based investment products;
Long-term investment funds;
Securities prospectuses;
Insurance redistribution; and, last but not least,
Data protection and E-Privacy.

Do the rules cover cross-border actions?

Yes. Where an alleged infringement of EU law affects or is likely to affect consumers in different EU Member States the representative action can be brought before the court or administrative authority of a Member State by several qualified entities from different Member States (in order to protect the collective interests of consumers in different Member States).

The new rules are also aimed at covering infringements that have ceased before a representative action is brought or concluded (it might still be necessary to prevent the repetition of the practice by prohibiting it) to establish that a given practice constituted an infringement or to facilitate consumer redress.

What measures are available?

Under the new rules qualified entities may seek:

Injunctive measures – these are to consist of: either, a provisional measure to cease or, where appropriate, to prohibit a practice deemed to constitute an infringement (of EU law); or, a definitive measure to cease or, where appropriate, to prohibit a practice that constitutes an infringement (of EU law); and,
Redress measures – these must oblige traders to provide consumers with remedies such as: compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under EU or national law.

When seeking an injunctive measure a qualified entity will not have to prove:

Actual loss or damage on the part of the individual consumers affected by the (EU law) infringement; or,
Intent or negligence on the part of the trader.

The new rules make it clear that in order to avoid abusive litigation punitive damages should not be imposed.

What about opt-in and opt-out?

Under the new rules:

EU Member States have discretion as to whether to use an opt-in or an opt-out system, including at which stage of the proceedings individual consumers are able to exercise their right to opt in to or out of a representative action;
In an opt-in mechanism, consumers should be required to explicitly express their wish to be represented by the qualified entity in the representative action for redress measures;
In an opt-out mechanism, consumers should be required to explicitly express their wish not to be represented by the qualified entity in the representative action for redress measures;
Member States that provide for an opt-in mechanism should be able to require that some consumers opt in to the representative action for redress measures before the representative action is brought, provided that other consumers also have an opportunity to opt in after the representative action has been brought;
An opt-in mechanism should be required regarding representative actions for redress measures where the consumers affected by the infringement do not habitually reside in the EU Member State of the court or administrative authority before which the representative action is brought. Here, consumers should have to explicitly express their wish to be represented in that representative action in order to be bound by the outcome of the representative action; and,
Where consumers explicitly or tacitly express their wish to be represented by a qualified entity within a representative action for redress measures, regardless of whether that representative action is brought in the context of an opt-in or an opt-out mechanism, they should no longer be able to be represented in other representative actions with the same cause of action against the same trader or to bring individual actions with the same cause of action against the same trader. However, this should not apply if a consumer, having explicitly or tacitly expressed his or her wish to be represented within a representative action for redress measures, later opts out from that representative action in accordance with national law, for example, where a consumer later refuses to be bound by a settlement.

What about unmeritorious cases?

A court or an administrative authority can dismiss manifestly unfounded cases at the earliest possible stage of proceedings (in accordance with national law) – making unfoundedness “manifest” will likely be a high standard to have to meet.

So-called “certification” which is found in certain jurisdictions (where a court can dismiss a case that falls short of a required certification standard) does not seem to be provided for under the new rules in dealing with unmeritorious cases.

Are there any limits on third party funding?

Where a representative action for redress is funded by a third party (in accordance with national law):

There must be no conflicts of interest; and,
The funding by a third party that has an economic interest in either bringing the representative action for redress or its outcome must “not divert the action from the protection of the collective interests of consumers”.

To this end:

The decisions of qualified entities in the context of a representative action, including on settlements, must not be unduly influenced by a third party in a way that would be detrimental to the collective interests of consumers concerned by the action; and,
A representative action is not to be brought against a defendant who is a competitor of the fund provider or against a defendant on whom the fund provider is dependent.

Is it possible to agree settlements?

Yes. EU Member States must ensure that within a representative action for redress measures:

The qualified entity and the trader may jointly propose to a court or administrative authority a settlement regarding redress for consumers; or,
A court or administrative authority may invite the qualified entity and the trader, after having consulted with them, to reach a settlement regarding redress, within a reasonable set time-limit.

Who bears the costs?

The unsuccessful party in a representative action for redress will have to pay the costs of the proceedings of the successful party, in accordance with the conditions and exceptions provided for in national law applicable to court proceedings in general. The new rules emphasise that individual consumers concerned by a representative action for redress will not pay the costs of the proceedings.

Notwithstanding this loser pays requirement, “in exceptional circumstances, an individual consumer concerned by a representative action for redress measures may be ordered to pay the costs of proceedings that were incurred as a result of the individual consumer’s intentional or negligent conduct”, for example for prolonging proceedings due to unlawful conduct.

Although this is not addressed in the rules, the loser pays requirement might be offset by the availability of insurance.

What about publicity about cases?

Qualified entities will have to provide (in particular on their website) information about:

The representative actions which they have decided to bring to a court or administrative authority;
The state of play of the representative actions that they have already brought to a court or administrative authority; and,
The outcomes of the actions.

Consumers concerned by an ongoing representative action for redress measures will also have to be provided with information about the representative action in a timely manner and by appropriate means so that the consumers can explicitly or tacitly express their wish to be represented in that representative action.

The court or administrative authority must also require the traders in question to inform (at their own expense) the consumers concerned by the representative action about the final decisions about measures or approved settlements, unless the consumers concerned are informed of the final decision or approved settlement in another manner.

Can final decisions be used in other similar proceedings?

Yes. EU Member States must ensure that the final decision of a court or an administrative authority of any Member State about an infringement harming the collective interests of consumers can be used by both parties as evidence in the context of any other actions seeking redress before their national courts or administrative authorities against the same trader for the same infringement (in accordance with national rules on evidence).

What about limitation periods?

Under the new rules (in accordance with national law) a pending representative action for an injunction measure must have the effect of suspending or interrupting applicable limitation periods in respect of consumers concerned by the action so that those consumers are not prevented from subsequently bringing a redress action concerning the alleged infringement due to the expiry of limitation periods during the representative actions for those injunction measures.

A pending representative action for a redress measure must also have the effect of suspending or interrupting applicable limitation periods in respect of consumers concerned by that action.

What about disclosure of evidence?

Under the new rules:

At the request of a qualified entity which has presented reasonably available evidence sufficient to support the representative action and has also indicated further evidence which lies in the control of the defendant or a third party, a court or administrative authority may order (in accordance with national procedural rules) that this evidence is presented by the defendant or the third party, subject to EU and national rules on confidentiality and proportionality; and,
Where requested by a defendant, a court or an administrative authority can order the qualified entity or a third party to disclose relevant evidence (in accordance with national procedural rules).

What about sanctions?

EU Member States have to set out sanctions for failure or refusal to comply with an injunctive measure, and disclosure and trader information rules. Penalties must be effective, proportionate and dissuasive, and may consist of fines. Given such wide discretion there will therefore inevitably be divergence amongst the EU Member States’ sanctions.

What about financial assistance?

Under the new rules EU Member States are not required to finance representative actions.

It is possible for an EU Member State to adopt rules allowing qualified entities to require modest entry fees or similar participation charges from those consumers who have expressed their will to be represented by a qualified entity within a particular representative action for redress measures.

Procedural costs related to representative actions must not however prevent qualified entities from effectively exercising their right to seek injunctive or redress measures, for example, public funding, the limitation of applicable court or administrative fees, or access to legal aid.

When do the rules come in force?

The (27) EU Member States have to implement these rules into their national law by 25 December 2022 and apply them from 25 June 2023; there are also some transitional provisions concerning representative actions brought before, on or after 25 June 2023 along with transitional provisions for limitation periods.

What about the UK & Brexit?

Because the UK has left the EU under Brexit these new EU rules do not apply to the UK. In the future however it may be that the EU and the UK have a legal agreement of some sort allowing for certain things, for example, which enables a UK individual to take part in a representative action in an EU Member State.

The UK however already has in place rules to deal with class-action claims, of which there are two types, in sum as follows:

Group Litigation Order (Opt-In) – This is an order made by a court before or after the start of legal proceedings for the management and trial of a number of claims together where a number of claims give rise to common or related issues of fact or law. Each claimant must opt in to a group, which means that each claimant must make their own claim individually. Once the order has been made and all the relevant claims have been entered on a so-called Group Register any judgment on an issue subject to the order will be binding on all other claimants, unless the court orders otherwise. A proposed claim is usually advertised in order to alert potential claimants; the court will usually set a cut-off date after which claimants can’t be entered on the Group Register without obtaining the permission of the court to do so. A number of potential remedies, including damages, may be claimed. There are no specific ways to allocate damages between claims registered in the Group Register; where loss and damage incurred by the claimants is similar or identical they are likely to receive equivalent awards and where there is loss and damage variance the court can rule on the amount of damages for the differing levels of severity. Generally-speaking, a claimant will be liable for their own individual costs and severally liable for an equal share of the common costs of the group; where the claims are unsuccessful the claimants will be severally liable for equal shares of any adverse costs awarded; and,
Representative Actions (Opt-Out) – Here a claim may be started or a court may order that a claim be started or continued by or against one or more claimant with the same interest in that claim as representatives of any other claimants who have that interest; the claimants must have a common grievance and the remedy/remedies they seek must be the same for all claimants – establishing the same interest is a fundamental requirement. Whilst a representative has the right to bring a (collective) claim a court may order that the representative element be discontinued or that another representative be appointed. There is no limit to the number of those who can be claimants (or defendants) to an action. Any judgment or order in a representative claim is binding on all claimants represented in the claim but may only be enforced by or against a claimant who is not a party to the claim with the permission of the court, unless the court directs otherwise. A representative action is opt-out, which means that all those who fall within a represented class are part of the claim unless they specifically remove themselves from it. Generally-speaking, the general costs rules apply, i.e. the usual starting-point is that the unsuccessful party pays the successful party’s costs, but a court has wide discretion and may make a different order (or no order) as to costs depending on the circumstances of a given matter.

It is possible in the UK for a third-party to fund a class-action claim (subject to certain restrictions – they cannot influence the course of the litigation) and receive a share of the proceeds received by a successful claimant.

What about data breach claims?

As indicated, data protection rules fall in scope of the new EU rules. Data breach compensation claims, including class-action claims, have in any event been on the rise. General issues for consideration for organisations include the following:

What can I get? – Compensation for damage suffered can be claimed by anyone who has suffered material or non-material damage as a result of an infringement of the EU General Data Protection Regulation (“GDPR”);
What does “damage” mean? – This is to be interpreted broadly, and individuals should receive full and effective compensation for the damage that they’ve suffered including (in the UK), financial loss, inconvenience or distress;
Is there any exemption for liability? – Yes, if it can be proved that there is no responsibility for the event giving rise to the damage in question;
Can liability be shared? – Yes, where there is more than one party involved in the same processing and where they are (as set out in GDPR) responsible for any damage caused by the processing. Where a party has paid full compensation for the damage suffered, that party can claim back from the other party/parties involved in the same processing the part of the compensation corresponding to their part of responsibility for the damage;
Can a representative body bring a claim on my behalf? – Yes, under GDPR and in accordance with national law, a representative body can bring court proceedings for compensation on behalf of an individual;
Where can I bring a claim? – Under GDPR, court proceedings for compensation are to be brought before the competent courts under national law. Proceedings against the party concerned are to be brought before the courts of the EU Member State where the party concerned is established – in the alternative, proceedings may be brought before the courts of the Member State of the habitual residence of the individual concerned;
Are there any time bars to bringing a claim? – Yes, compensation claims may be time-barred, in accordance with rules under national law; and,
Can insurance cover a claim? – Cyber insurance may cover compensation claims brought – this very much depends on the terms of the policy.

What are the takeaways?

Although the new EU rules are limited to consumer rights types of organisations bringing claims and focus on infringements of EU law, their effect will heighten the general trend towards class-action claims (which the Covid-19 pandemic may also whet people’s appetite for), and business’ exposure to class-action claims will be increased, including for data breach claims and E-Privacy claims (i.e. relating to cookies).

Organisations should consider the preparations to make in case they are faced with a class-action claim, including the following:

Make staff and the Board aware of class-action claim risks, including in specific areas such as for data breaches;
Set up and undertake regular compliance audits or reviews in order to identify, rectify and prevent issues that could involve a class-action claim;
Check the liability provisions in vendor agreements and revise them where appropriate; and,
Look into insurance cover issues.

We have written a general article about data protection compensation claims considerations here https://www.corderycompliance.com/data-protection-breaches-and-compensation-litigation-issues-for-consideration/.

We have also written about specific data breach compensation claims including the Aven v Orbis case here https://www.corderycompliance.com/aven-v-orbis-compensation-awards/, the Morrisons case here https://www.corderycompliance.com/uk-court-of-appeal-ruling-in-morrisons-vicarious-liability-case/, and the Lloyd v Google case here https://www.corderycompliance.com/doors-open-for-class-action-appeal-as-court-allows-google-claim-to-proceed/.

We report about compliance issues here https://www.corderycompliance.com/news/.

The EU rules can be found here https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2020.409.01.0001.01.ENG

For more information please contact André Bywater or Jonathan Armstrong who are lawyers with Cordery in London where their focus is on compliance issues.

Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH		André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH
Office: +44 (0)207 075 1784		Office: +44 (0)207 075 1785
Jonathan.armstrong@corderycompliance.com		Andre.bywater@corderycompliance.com