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Collective Redress: avoid abuse and loopholes and don’t overburden SMEs

​​Collective Redress: avoid abuse and loopholes and don’t overburden SMEs ​

​Updated: October 2019


PROPOSED SOLUTIONS AND ACTIONS 

To avoid the abovementioned effects a provision could be inserted that compels qualified entities to collect the mandate of individual consumers (so called ‘mandatory opt in’) or to set a minimum number of consumers to trigger the procedure, so that entities will not be able to trigger an action if they only represent a small part of the consumers involved. 

Another feasible solution is the adoption of provisions asking qualified entities to comply with certain criteria, in order to prove that they are not ‘letter box companies’ (e.g., they can be asked by a court to show that their statutory aim is consumer protection, legitimate interest must be demonstrated and viable, non-profit making character does not protect against abuse, ad hoc entities should not be allowed – i.e. entities established just for that specific proceeding - supervision should be established, no regional entities). 

Other suggestions would be to stipulate that for a procedure to be initiated the effects of an infringement should still be ongoing, and in case of imminent infringements, the procedures should only be allowed when proof of serious harm can be provided. In doing so, there will be no possibility to start a procedure in case of nonmaterial breach, avoiding specious and abusive action. 

ESBG welcomes many of the amendments the EP made to the Commission proposal, which goes in the direction ESBG pointed, and encourages the EP to keep them during trialogues, such as: 

  • Proof of existence in the entity of a legitimate interest to protect consumer (AM 43); 
  • Duty of the court to scrutiny existence and legitimacy of interest of the qualified entity in protecting consumers (AM 52); 
  • Public reporting obligation on qualified entities (AM 47); • Exclusion of the possibility to create ‘ad hoc’ qualified entities (AM 49). 
  • Aim of the Directive not to impair national legislation (AM 34); • Discovery process: it is now provided for both parts (AM 88,89,90); 
  • Probationary value of domestic and cross-border final decisions: the probationary value of final decisions has been downgraded in comparison to what was provided in the Commission proposal, as they will have value of evidence and no longer that of irrefutable/rebuttable presumption (AM 83,84,85); • Punitive damages: they have been prohibited (AM 64 and 67); 
  • Third party’s litigation funding: actions will be declared inadmissible, if the court found out that the funding by the third party would influence decisions of the entity (AM 70, 71).

On another note, ESBG found that some new provisions inserted in the EP Report are promising, but still need further fine-tuning. ESBG therefore supports that Council and EP keep the suggested view during the coming negotiations to ensure that: 

  • Mandatory opt in: this option is finally provided, but it is left at the discretion of MS – ESBG would like to have it compulsory (AM 60, 61); 
  • Providing proof of actual loss or damage in case of injunctions order: the wording is unclear and the fact that such a proof is required or not is still open to interpretation (AM 55). The wording should be rephrased in order to avoid any doubt.

Other issues ESBG cares about have not been addressed by the EP, such as: 

  • Limiting the possibility for the entity to initiate a procedure only if the effect of the infringement are still ongoing anymore; 
  • Granting competence only to Courts; 
  • Setting a minimum number of consumer to start the procedure 
  • Duty for the entities to be legally qualified and proof of stability/seriousness (e.g. sufficient HR and financial resources, years of existence not achieved; 
  • Forbidding regional entities.


IDENTIFIED ISSUES

Even though sympathetic with the initiative, ESBG fears that effective instruments of collective redress, already provided by many Member States’ legal systems can be impaired by the EU rules. 

In addition, ESBG believes that the EU rules set too much of a low threshold for entities to be entitled to trigger a collective redress (and then become ‘qualified entities’, according to the new EU legal definitions), leading to abuse of the right to a collective action or to frauds or even specious actions. 

Moreover, the EU rules also introduce new procedures to be complied by traders, bringing a great risk to overburden SMEs. 

The ESBG insists on the importance of having these provisions in the new EU legislation on collective redress, as they are pivotal in avoiding abuse of right, frauds and specious actions from entities. Therefore, we invite the Council to take the following observations on board both in its General Approach and during the negotiation with the European Parliament. 


WHY POLICYMAKERS SHOULD ACT

ESBG believes that the proposed, new set of EU rules could undermine the effectiveness and the legitimacy of the national judicial systems when it comes to consumers’ protection, by, for instance, granting competence not solely to the courts, but also to administrative authorities, and/or by giving value of presumption to final decisions adopted by a judicial or administrative authority from a different Member State, and it believes that these provisions should be removed. In addition, ESBG members consider that the proposed, new EU rules could diminish the effectiveness of consumer protection and facilitate abuses and frauds if no additional fine-tuning is made. 

Also, ESBG believes that the current proposal on collective redress is unbalanced in favour of plaintiff, putting an excessive burden on companies, especially SMEs. For instance, the Commission proposal provides a discovery process (i.e. the obligation for traders to disclose any evidence pertinent to the action that ‘lies in its control’) only in favour of plaintiff, as well as punitive damages (i.e. an amount of paid damages to the victim that exceeds the loss he/she suffered, having the only aim to ‘punish’ traders’). To enable a fair and well-balanced regulatory framework, such provisions should be removed.


BACKGROUND 

The idea of providing an EU collective redress mechanism stems from the “New Deal for Consumers”, an initiative launched by the Commission in 2018. This initiative provided two legislative proposals, amongst which the proposal for a Directive on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (hereinafter referred to as the ‘proposal on collective redress’). 

The European Parliament responsible Committee (JURI, MEP Rapporteur Didier, EPP, while IMCO was the associated Committee) already adopted its report in December 2018 and its position has been endorsed by the EP plenary in March 2019, which also voted on the negotiation mandate. 

However, as of May 2019, the Council has still to adopt its General Approach, and therefore, trialogues between the institutions will start only after the Council reaches a position.