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The EU Class Action Mechanism

Directive (EU) 2020/1828

 on representative actions for consumers (“the Directive”) aims to establish one effective procedural mechanism to allow for representative consumer actions  (class actions) that allow injunctive measures and, notably, redress measures for both domestic and cross-border actions.

Each Member State must adopt implementing legislation by 25 December 2022 that will enter into force on 25 June 2023. Although many jurisdictions appear not to have met this deadline, transition steps are underway.

Essentially, the Directive mirrors the Dutch class action law that has been in force in the Netherlands as of 1 January 2020 (Wet afwikkeling massaschade in collective actie, also abbreviated to ‘WAMCA’).

Key takeaways from the Directive

  • The Directive’s scope of application covers infringements of EU consumer law embodied in EU directives and regulations listed as Annex 1 to the Directive.
  • Only qualified entities (“QE”) can initiate representative actions, which are organisations or public bodies representing consumers’ interest that have been designated by a Member State as qualified to bring representative actions in accordance with the Directive.
  • For domestic representative actions (i.e. actions in the Member State that designated the QE), Member States are free to set QE admissibility requirements. For cross-border representative actions (i.e.: actions outside the Member State that designated the QE), however, the Directive contains six mandatory QE admissibility requirements, of which three stand out:
    • the QE must have 12 months of actual public activity in the protection of consumer interests prior to its designation request;
    • the QE must be non-profit;
    • the QE must act independent and uninfluenced by, in particular, its third party funder (provided national law allows third party funding) and it must have established procedures to prevent such influence.
  • A QE does not have to specify which individual consumers it represents, a description of the consumer group suffices.
  • Each Member State must publish a list of designated cross-border QEs. The list serves as proof of the QEs legal standing to bring cross-border representative actions, although the seized court remains free to examine whether national admissibility requirements as to the claims are met, if any (provided those national requirements do not hamper the effective functioning of the Directive).
  • In both domestic and cross-border representative actions, QEs may represent the interest from consumers domiciled in and outside the Member State of the seized court.
  • Member States can choose between an opt-in or opt-out mechanism (or a combination of both) for redress claims, although an opt-in is mandatory if consumers are represented that are domiciled outside the Member State of the seized court. If an injunction is sought, an opt-in or opt-out mechanism is not required.
  • Member States must ensure that if the representative action seeks an injunction, time limitation of individual redress claims is suspended or interrupted. The same must be ensured if the representative action seeks redress.

The Directive also introduces a representative settlement procedure. Pending the representative action, parties can jointly request the court to approve their settlement. The seized court must refuse to approve if the settlement is contrary to mandatory provisions of its national law, or if the settlement contains conditions which cannot be enforced. If approved, the settlement is binding upon the QE, the trader and the consumers concerned. As to the binding effect of the settlement, Member States may choose for an opt-in or opt-out mechanism.