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The European Union puts a new weapon in the hands of community consumers: it introduces collective redress. The European Commission (Commission), the European Council (Council) and the European Parliament (EP) have agreed to introduce a representation procedure to protect the collective interests of consumers. After the Commission presented its proposal in 2018, the EP presented its own concept in 2019. The two contained significant differences. After two years, an agreement was reached.
New legal institution
According to the draft directive, in the future each Member State should provide a special procedure for consumers, in which specialized non-governmental organizations on their behalf can bring actions against service providers in the event of infringement of consumer protection legislation. consumer. In the process, they may demand the verification of the fact of the infringement and the assessment of the compensation – you can read it on the Adó.hu portal.
Collective consumer protection procedures may be instituted against companies that provide financial, tourism, energy, health and telecommunications services, as well as against companies that provide services in any field related to data protection.
The EP has already voted on the directive. Council approval is still pending. If this is the case, Member States will have six months to transpose the directive into national law.
Domain compensation
The special procedure, as is often the case in consumer protection legislation, seeks to compensate for the imbalance of power between consumers and service providers. Consumers are at a disadvantage compared to the seller or service provider. Businesses are generally forced to agree to predetermined terms that consumers cannot influence.
In the event of a dispute, money, experience, and legal representation are required to enforce interests, particularly for litigation. Because of this, most consumers give up the claims application. The unbalanced situation is also described in the judgments of the Court of Justice of the European Union (CJEU).
The situation is not necessarily satisfactory even if a consumer asserts his rights against the service provider. The judicial decision only has effect between parts. It does not help other consumers who have suffered damages as a result of the same violation by other providers of the same service. Public interest actions, such as the representation procedure for the protection of the collective interests of consumers that will now be brought before individual lawsuits, allow all of them to establish the infringement with effect for all consumers and award damages to all of them.
Compensation is also available
The EU collective redress rules are based on the German court procedure (Musterfeststellungklage). However, there are differences between the German legal institution that has existed since 2018 and the European legal institution, which is expected to apply from the first half of 2021.
The German procedure, which is a model for the European legislator, only seeks to establish the existence of an infringement. If a consumer also wants compensation, they must go to court individually after the class action lawsuit. However, this process is already easier and faster because the court considers the fact of the offense specific in view of the judicial procedure. It only examines the circumstances of the specific case to determine the extent of appropriate compensation. An assessment of individual compensation can also be requested for all consumers who have suffered damages in a pending European collective redress procedure. Action, on the other hand, can only be directed at actual pecuniary damage.
There will still be no legal basis to judge known and infamous criminal damages under US law – the EU has ruled it out from the start. He wanted to prevent the investors and attorneys who funded the proceedings from receiving a significant amount of success fees through the award of criminal damages.
Almost any NGO can act
Another difference between a German legal institution and a European one is that it defines the organizations with the right to initiate proceedings differently. German law sets a number of conditions. EU rules are much more flexible. The draft directive establishes differently for cases involving only consumers or service providers established in the same Member State and those involving persons related to more than one Member State.
In the case of the first, it does not establish conditions. In the latter case, the organization must operate non-profit and provide credible evidence that it has been involved in consumer protection for at least the previous 12 months and is capable and willing to guarantee the independence of any third party acting in against the interests of the consumer it represents. it would be provided by the NGO. However, the EU directive does not specify a minimum number of members for a non-governmental organization in this case, nor does it impose a pre-registration obligation on non-governmental organizations that plan to use a legal institution.
The directive allows for-profit funding of the initiating NGO and the procedure itself. However, the funder should not have a “decisive influence” on the development and implementation of the implementation strategy, nor should it compromise the independence of the NGO. Therefore, a law firm acting as a representative in the proceeding cannot provide specific financial support to an NGO with a consumer protection class action to fund the proceeding.
Contrary to the original plans, the Directive does not prohibit a successful attorney from paying a success fee.
Lean comfort for service providers
The new legal institution will significantly worsen the legal and economic situation of service providers. Therefore, there is little comfort in the directive’s few warranty standards to protect them. Most importantly, the European legislator is trying to avoid selfish actions on the basis of “trial and error”. It states that the Directive will be transposed into national law in such a way that it is clear at the earliest possible stage of the procedure whether an appeal is manifestly unfounded.
Other characteristics and national room for maneuver
It is also different from German law that both parties, and even legal and natural persons not involved in the process, will be obliged to provide evidence relevant to the court’s decision at the request of the court of first instance.
The “loser pays” principle is applied in collective consumer protection procedures. The non-winning party must also bear the costs of winning the lawsuit. The Directive allows for any exceptions in national law that reinforce the legal position of consumers and their representative organizations.
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