Law firms excluded from EU consumer class actions
The European Commission has published a draft directive that opens the door to class action litigation in Ireland by consumers against corporates.
Experts warn that this brings an increased litigation risk for industry sectors subject to EU regulations, such as data protection, financial services, travel and tourism, energy, telecoms and environment.
The considerably strengthens EU consumer rights and enforcement, already among the toughest in the world.
The move will allow qualified non-profit and properly-constituted entities, such as the , to launch actions on behalf of customers, and introduce stronger sanctions linked to an erring company鈥檚 annual turnover.
However, the move specifically excludes law firms from taking class actions and is distinctly different to US-style counterparts.
鈥淩epresentative actions will not be open to law firms, but only to entities such as consumer organisations that are non-profit and fulfil strict eligibility criteria, monitored by a public authority,鈥 the European Commission says.
It believes that these 鈥榮afeguards鈥 will ensure European consumers can fully benefit from their rights and obtain compensation, while avoiding the risk of abusive or unmerited litigation.
Remedies
Individual remedies can now be claimed by consumers affected by unfair commercial practices, such as aggressive or misleading marketing. This protection currently varies across the EU.
Widespread infringements that affect consumers in several EU Member States will attract a maximum fine of 4 % of the trader's annual turnover. Member states are free to introduce higher maximum fines.
Transparency
The directive also extends consumer online protection, with more transparency and clear flagging of those traders who have paid to appear in search results.
And online marketplaces will have to inform consumers about the main parameters determining the ranking of search results.
The right to cancel a contract within 14 days, without penalty, is now extended to 鈥榝ree鈥 digital services where consumers 鈥榩ay鈥 by providing their personal data.
This, typically, will apply to cloud -storage services, social media and email accounts.
The directive also prohibits 鈥榙ual-quality鈥 practices, whereby products are marketed as identical across several EU countries, even if their composition or characteristics are significantly different. These misleading commercial practices will now be explicitly banned.
Globalised world
Consumer Commissioner V臎ra Jourov谩 said that, in a globalised world, big companies have a huge advantage over consumers, and the odds need to be levelled.
鈥淩epresentative actions, in the European way, will bring more fairness to consumers, not more business for law firms,鈥 she said.
鈥淐onsumer authorities will finally get teeth to punish the cheaters. It cannot be cheap to cheat," she said.
Misleading advertising
Under the new regime, consumers harmed by illegal commercial practices, such as misleading advertising by car companies, can now seek compensation, replacement or repair.
A Matheson briefing points out that, unlike some other European member states, there is currently no legislative framework, or formal procedure, to facilitate class actions or collective redress in Ireland.
鈥淲hile multi-party litigation can take place before the Irish courts, this is usually dealt with by way of either one of the parties or the court itself choosing a test case, which then serves as a pathfinder for other similar cases,鈥 the law firm says.
The absence of a structure for multi-party actions was criticised in 2005 by the Law Reform Commission, but the subject is currently being looked at in the context of a broader review of the administration of civil justice in Ireland.
Ad hoc litigation
Matheson believes that it is possible that ad hoc litigation vehicles or organisations could be created as 鈥榪ualified entities鈥. As such, the proposal does potentially raise a possibility of abusive or vexatious litigation, it says.
鈥楺ualified entities鈥 would require funding from third parties, but in order to minimise the risk of abusive practices, such as the funding of collective actions by competitors, the draft directive proposes that the qualified entity declares at an early stage of the claim the source of its funds, Matheson points out.
If funded by a third party, the draft directive states that the funder may not (a) influence decisions of the qualified entity, or (b) provide financing against a defendant who is a competitor of the fund provider.
'Novel departure'
鈥淚f passed into law, this aspect of the draft directive would also represent a particularly novel departure from the current position under Irish law, which prohibits the funding of litigation by third parties who have no legitimate interest in the dispute,鈥 Matheson points ou