The European Parliament as adopted rules that will allow consumers to seek collective redress across the bloc against companies that breach consumer rights, raising the risk of litigation for companies operating in the region.
This is the final step in the
legislative process that has run for two years.
The European Commission said
safeguards have been put in place to ensure the new rules are not abused or
drive a litigation culture to US levels.
The legislation specifies that
only consumer organisations or other qualified entities, rather than law firms,
can launch class actions under the Representative Actions Directive. It also
includes the ‘loser pays’ principles. Punitive damages should also be avoided,
the EC said.
Member states must designate at
least one qualified entity to bring redress lawsuits when companies are accused
of breaching EU law. Qualified entities must be non-profit and have at least 12
months’ practise in consumer rights.
The Representative Actions
Directive is expected to enter into force in December 2020 and member states
will have until January 2023 to transpose the directive into national law.
The European Parliament said
the new rules will level the playing field between consumers and companies
across Europe. “One single EU citizen taking a huge company to court – this
used to be a very unfair battle. With the new directive, things will improve:
consumers from all over the European Union can team up and seek justice and
redress together,” said Věra Jourová, vice-president for values and transparency.
The EC said the need for better
consumer rights was further highlighted by the outbreak of Covid-19. “This year
we have seen massive cancellations of flights and travel packages, which have
left consumers fighting for their reimbursement. Thanks to this new tool, EU
consumers will be able to collectively seek redress when their rights have been
breached,” said Didier Reynders, commissioner for justice.
The directive brings new risks
for European companies and commercial insurance policyholders that could be a
target for collective redress actions.
Back in the summer, Dr Henning
Schaloske of law firm Clyde & Co said: “The risk of being confronted with
defending or indemnifying mass claims is increasing, particularly in financial
lines.”
“We shall have to see how the new European
collective action will be implemented and developed,” Dr Schaloske continued,
adding that initial fears of US-style class actions “may well be unfounded”.
CRE
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