It was announced this week that the Irish Government has approved the drafting of legislation to transpose an EU Directive on representative actions for the protection of the collective interests of consumers into Irish law.
The Directive itself was published on 4 December 2020. Ireland and the other Member States are required to adopt implementing measures by 25 December 2022, with the measures applying from 25 June 2023.
Once the new law comes into effect, it will harmonise the regime for collective actions to be brought on behalf of EU consumers. It also aims to balance the availability of the mechanism across Member States, while providing safeguards to prevent frivolous claims against traders.
The new mechanism will allow designated qualified entities to take enforcement action in the Irish courts on behalf of a group of consumers who allege that their rights have been breached either in Ireland or in another EU Member State. In addition to protections under general consumer law, the broad reach of the Directive is notable, covering data protection, financial services, energy and telecommunications.
To distinguish the EU regime from the more litigious US class action procedure, the criteria required in the Directive to bring a redress action are relatively strict.
The Directive requires each Member State to designate at least one ‘qualified entity’ to bring actions on behalf of consumers. Qualified entities, such as consumer organisations, will be empowered to bring collective action cases on behalf of consumers for alleged breaches of a wide range of EU Directives and Regulations.
In order to bring a cross-border representative action, the qualified entity will have to meet certain criteria:
- Be a non-profit organisation in the area of consumer protection
- Be independent
- Have a legitimate interest in ensuring that there is compliance with the provisions of the Directive
Injunctions and consumer redress
Qualified entities will also be able to apply for injunctive relief and other redress. In addition, qualified entities may seek redress on behalf of consumers in the form of:
- Price reduction
- Contract termination, or
The redress awarded could vary among consumers in the group or could be the same for all consumers involved in the action.
Member States will be given some flexibility as to how this will operate, and will be able to decide to either opt-in, consumers actively opt-in to being represented, or to opt-out, a consumer must express their desire not to be represented by a qualified entity. For cross-border actions, only the opt-in basis will be available.
One of the important features of the Directive are the safeguards to ensure the system does not encourage frivolous lawsuits. These include:
- Loser pays principle: The costs of the proceedings should be borne by the unsuccessful party
- Dismissal of manifestly unfounded cases: Courts will also be willing to dismiss manifestly unfounded cases at the earliest possible stage of the proceedings
- Settlement: There is also the possibility that a claim can be settled. However, such a settlement requires the approval of the court.
- Third party funding: A qualified entity will be required to publicly disclose information about its sources of funding for the representative actions it brings. It is important to note that at present, third party funding in Ireland is prohibited.
- Multiple claims by individual consumers: Member States will be required to lay down rules preventing consumers from bringing an individual action or being involved in another collective action against the same trader for the same infringement. Furthermore, Member States must ensure that consumers do not receive compensation more than once for the same cause of action against the same trader.
In announcing the Government’s approval to begin drafting the new legislation, the Tánaiste and Minister for Enterprise, Trade and Employment, Leo Varadkar TD, said, “This is different to the US class action regime. Only certain, non-specified, non-profit entities will be able to take a case.”
While the Directive contains a number of safeguards to ensure the new regime does not encourage frivolous lawsuits, nevertheless, the introduction of cross-border collective actions will be of particular concern to businesses with a presence in multiple Member States. This new law will inevitably lead to an increase in domestic and cross border consumer litigation.
For more information, contact a member of our Dispute Resolution team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.