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Proposed EU Law Focuses on Collective Representative Actions on Behalf of Wronged Consumers

On 11 April 2018, the European Commission published a new proposed Directive on representative actions for the protection of the collective interests of consumers. Hong Kong sellers will appreciate that, in light of increasing cross-border trade and EU-wide commercial strategies, there is felt a need to facilitate redress for consumers, especially if there are widespread infringements of their rights in more than one EU Member State. The proposed Directive aims to fill this gap in the current body of consumer law. The proposed Directive is part of the European Commission’s “New Deal for Consumers”.  

Under already-existing Directive 2009/22/EC (the “Injunctions Directive”), it was possible for qualified entities designated by EU Member States, such as consumer organisations or independent public bodies, to bring representative actions with the aim of stopping both domestic and cross-border infringements of EU consumer law.

However, the aim of the new proposed Directive is to extend this possibility in order to allow consumers to actually obtain redress. The redress envisaged may be compensation, repair, replacement, price reduction, contract termination, or reimbursement of the price paid, without any cost having to be borne by consumers. Hong Kong sellers operating throughout the EU market may note that that this is already the case in some Member States, but the “New Deal” introduces these rights across the EU. This will, stresses the European Commission, help individual consumers all over the EU to secure their rights, especially those who cannot afford to pursue redress or who shy away from individual litigation.

According to the European Commission, its proposed model for pan-European representative actions incorporates numerous safeguards in order to prevent it from being misused.

  • First, representative actions may only be taken by qualified entities. These qualified entities will have to satisfy minimum reputational criteria: they must be properly established; not for profit; and have a legitimate interest in ensuring compliance with the relevant EU law.
  • Second, EU Member States will be required to monitor on a regular basis whether a designated qualified entity continues to comply with the criteria and failure to do so will lead to the loss of the status of qualified entity.
  • Third, representative actions for redress will only be possible if they are based on a final decision of a national court or authority which establishes that the trader has breached the law. This prevents frivolous and vexatious claims.
  • Fourth, no punitive damages should be awarded and compensation for consumers will be limited to actual harm suffered.
  • Finally, qualified entities must be transparent about their sources of funding. This rule is felt to be a strong safeguard as it enables the court or authority to assess whether there may be a conflict of interest between any third party funder and the qualified entity. Such a conflict of interest could lead to abusive litigation for example between competitors as one company could use a qualified entity to launch a frivolous action against another company.

The proposed Directive further provides that the infringing trader is, at his own expense, required to inform affected consumers about any final decision (injunction, redress or settlement), its legal consequences and, if relevant, the subsequent steps to be taken by the consumers concerned.

In relation to cross-border representative actions, the proposed EU law establishes that the representative action may be brought to the competent court or administrative authority of a EU Member State by several qualified entities from different EU Member States, acting jointly or represented by a single qualified entity, for the protection of the collective interest of consumers from different EU Member States.

By contrast, the proposal appears to remain silent on rules governing jurisdiction and parallel litigation in cases where entities bring different representative actions before the courts of different Member States.

Finally, the interaction between the proposal and Commission Recommendation 2013/396/EU of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms remains unclear. According to the Explanatory Memorandum provided for in the proposal, the "[P]roposal takes into account [Recommendation 2013/396/EU]". However, the Explanatory Memorandum also indicates that not all the procedural elements from Recommendation 2013/396/EU have been reproduced in the proposed new Directive. According to the Explanatory Memorandum, Recommendation 2013/396/EU lays down a set of common principles for collective redress mechanisms that apply to all breaches of Union law across all policy fields, while the Proposal is “limited to infringements that may affect the collective interests of consumers, and the pre-existing features of the representative action model in the current Injunctions Directives”.

Apart from the replacement of the current Injunctions Directive as described above, the New Deal for Consumers will also update the following four existing Directives (see Issue 9/2018 for more background):

Content provided by Picture: HKTDC Research
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