European risk managers warned to prepare for EU Collective Redress Directive

Collective redress suits can take place across Europe from next June under the EU’s Collective Redress Directive, and risk managers are being advised to look at how defendants in the US have managed class action and mass tort litigations, as they face up to rising legal risk. Teresa Griffin and Patrick Reilly, partners at US law firm Faegre Drinker, have warned that the directive may expand class action practice in the EU across the board. They predict more activity in member states where such actions are brand new and those that already permit some form of collective redress, such as France, Belgium and the Netherlands. Collective redress has been discussed for decades in the EU but the Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers was finally published in the EU Official in December 2020. Lawyers agree the directive could have a significant impact on the balance of power in consumer redress and is likely to accelerate the increased commercialisation of consumer rights and actions in Europe. The directive will require member states to put in place procedures to allow “qualified entities” to bring representative actions to seek injunctions, damages and other redress on behalf of consumers. The EU was mindful of avoiding a wave of US-style class actions in Europe, so the representative action envisaged under the directive has limited scope. Any infringement must relate to a limited set of European directives and regulations on consumer protection, along with their national implementing measures. There are actually 66 EU directives and regulations on this list, including general consumer protection rules, such as those on unfair terms in consumer contracts, unfair B2C practices and misleading advertising, as well as special and sector-specific consumer rules. In addition, a representative action can only be brought by a “qualified entity”, which must be designated by a member state. Member states enjoy wide discretion about the criteria qualified entities must meet to bring domestic representative actions. These entities must comply with criteria on independence and transparency, be non-profit-making and have a legitimate interest in consumer protection. Each member state will be obliged to designate at least one qualified local entity. Actions may only be brought against traders, natural or legal persons acting in relation to their trade, business, craft or profession. This includes both consumer-facing and non-consumer-facing corporates. The actual definition of a trader is open to discussion and legal interpretation, which brings more uncertainty. All 27 EU member states are required to translate the directive into national law by 25 December 2022. Its enforcement must commence by 25 June the following year. The EU may have attempted to limit the impact of the directive and prevent a flurry of class actions funded by third parties, but the experts at Faegre Drinker advised European risk managers and their legal department colleagues to prepare for action. “The directive’s specific requirements for qualified entities and traders, and the 66 laws pursuant to which collective redress actions may be filed, may expand class action practice in the EU across the board, both in EU member states where such actions are brand new and in those nations which already permit some form of collective redress. The parameters of such collective redress actions will become clearer as EU member states translate the Collective Redress Directive into national law,” they said. “It is possible that the collective redress actions permitted by the directive may encourage qualified entity litigants to explore the breadth and reach of various EU laws, and perhaps even seek to apply them in ways previously unseen,” continued the Faegre Drinker team. “Although collective redress models are known in some EU member states already, the novelty and publicity around the directive may inspire novel legal theories,” they warned. “As collective redress suits commence after June 2023, traders facing such suits may be well advised to look to how defendants in the US have managed class action and mass tort litigations – common procedural paradigms of the American legal system – when analysing how to achieve efficiencies and smart strategies in these new, broader-reaching lawsuits,” concluded the lawyers.

European risk managers warned to prepare for EU Collective Redress Directive

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