EU 'class actions': political agreement finally reached

Just over two years ago, the European Commission proposed its final draft proposals for its New Deal for Consumers, including for the introduction of a new type of 'representative action, the European way' – in other words, a US-style class action mechanism that avoided what the Commission considered to be the excesses of US litigation. We posted about this at the time.

Yesterday, political agreement on the proposals was finally reached after many months of wrangling between the European institutions and the member states and some aggressive lobbying from all sides of the debate. 

Although we do not yet have the final text, the press release indicates that the agreed proposal seems a lot more reasonable than the Commission’s original proposal.

Recent negotiations

When we last posted about the legislative process for the EU’s draft directive on representative actions in November 2019, the Council of the EU (which is where national ministers from the EU member states meet to adopt laws and coordinate policies) had adopted its formal position, enabling negotiations to commence with the European Parliament (which had already adopted its formal position (PDF) – see also our post at the time), with the aim of reaching a compromise agreement.

At the beginning of 2020, although negotiations had kicked off strongly, the outlook was not optimistic and a quick compromise agreement considered unlikely, given how far apart the two sides were and how politically contentious the proposal was. 

To maximise the chances of progress, Croatia, which is currently leading the Council’s six-month rotating Presidency, scheduled a series of intense negotiating rounds in March and May. 

The onset of the COVID-19 pandemic, and the impact that this had on face-to-face negotiations in Brussels, seemed to render the chances of a quick agreement impossible and, until a number of weeks ago, it seemed that responsibility for reaching an agreement would fall to Germany, which takes over the Council Presidency on 1 July. 

Those of you who have been following this conversation closely will recall that Germany had been fairly critical of the Council’s position, particularly as they had recently introduced their own means of collective redress for consumers. The European Commission and European Parliament were therefore keen to get an agreement done under the Croatian Presidency.

The deal that was done

Despite previous expectations, and a joint business statement (PDF) cautioning the EU institutions against 'rushing to conclude trilogue discussions on the representative actions proposal', after nine hours of negotiations, a compromise agreement was reached yesterday. 

While the text of the compromise agreement has not yet been finalised, as per the Parliament’s press release, the main elements of the agreement are as follows:

• It is still for 'qualified entities' (‘QEs’, eg public bodies, charities) to bring representative actions on behalf of classes of consumers. Each member state will need to nominate at least one QE.
• QEs which are allowed to bring cross-border representative actions, i.e. on behalf of citizens from other member states as well as their own, must comply with higher standards than those which are entitled to bring domestic cases only. Importantly, they must be not-for-profit.
• The 'loser pays' principle – whereby the unsuccessful party needs to meet the successful party’s costs – has made it into the final proposals. This is likely to act as a significant deterrent to the bringing of unmeritorious claims (although in markets where this is part of existing procedural rules, insurance is often available to offset the risk), but it also increases the potential exposure of companies which are sued.
• One point that we called for from early on in this process – a 'gating' or certification stage, where the court has the opportunity to dismiss unmeritorious claims at an early stage, before costs mount up – has also been included in the final text. How these certification proceedings operate will be left to member states.
• The scope of collective action would include trader violations in areas such as data protection, financial services, travel and tourism, energy, telecommunications, environment and health, as well as air and train passenger rights, in addition to general consumer law.

Next steps

This compromise agreement is still subject to formal approval by the European Parliament and Council. 

Once formally adopted, it will be published in the EU Official Journal and enter into force 20 days thereafter. Member states will have 24 months to transpose the directive and then an additional six months to apply it. From 2022 onwards, it is likely that we will see an influx within the EU in representative actions under the new legal framework.

It remains to be seen whether and how far (if at all) the UK will adapt its own processes, now that it has left the EU.

More to follow, when we see the full version of the text…