25 November 2020

CRE: Companies face heightened legal risk as EU adopts collective redress rules

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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