On 24 November 2020, the European Parliament adopted the Directive on representative actions for the protection of collective interests of consumers (Directive),1 which became a decisive step of the European Union (EU) towards building collective redress mechanism in all 27 EU Member States. First proposed by the European Commission in April 2018 as part of its New Deal for Consumers package,2 the Directive provides the possibility for consumers throughout the EU to be represented in domestic as well as cross-border class actions by qualified entities. Member States have to transpose the Directive until 25 December 2022 and have a further 6 months to apply it. With the deadline for transposition approaching steadily, the Austrian legislator is expected to release a draft law on the Directive's implementation in 2022. It is therefore of relevance to revisit the Directive by outlining its major points and analyzing its impact on the current legal framework of representative actions in Austria.
Scope of application
The Directive protects the interests of consumers that are harmed by infringements of general consumer law, data protection, financial services, travel and tourism, energy, telecommunications, environment, health, air, and rail travel (Article 2(1) in conjunction with Annex I). Member States remain free to extend the scope of the Directive to other areas they deem necessary (Recital 18).
Representative actions may be brought by qualified entities designated by Member States. In the context of cross-border actions, qualified entities will have to satisfy the following requirements (Article 4(3)):
- Demonstrate 12 months of prior activity in the field of consumer protection;
- Have a legitimate interest in protecting consumers;
- Have non-profit-making character;
- Not be subject to insolvency proceedings;
- Have no relation to the parties that have an economic interest in bringing the representative action.
Member States remain free to determine applicable requirements that must be met by qualified entities for domestic actions provided that they align with the objectives of the Directive. The Directive allows designation of ad hoc qualified entities.
Member states are required to provide information about qualified entities on publicly accessible national electronic databases (Article 14(1)) and assess them every 5 years for compliance with relevant requirements (Article 5(3)).
Qualified entities shall be able to claim the following types of measures in a representative action:
- Injunctive measures involving provisional and definitive measures to cease or prohibit an infringement (Article 8);
- Redress measures involving compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid (Article 9(1)).
In order to obtain injunctive measures, qualified entities do not have to prove that individual consumers suffered any actual loss or damage or any intent or negligence on the part of the trader. Notably, Article 17 provides that representative actions for injunctive measures should be conducted in an accelerated manner.
As regards redress measures, the Directive requires that the chosen form of redress must enable consumers to benefit from the remedies provided by that redress measure without the need to bring a separate action (Article 9(6)).
Member States are free to choose either one of or a combination of the below mechanisms to determine the participation of affected consumers in representative actions for redress measures (Article 9 (2)):
- Under the opt-in mechanism, consumers should be required to explicitly express their wish to be represented by the qualified entity in the representative action for redress measures;
- Under the opt-out mechanism, consumers should be required to explicitly express their wish not to be represented by the qualified entity in the representative action for redress measures.
However, an opt-in mechanism is mandatory for consumers who do not reside in the Member State where the representative action is brought (Article 9 (3)).
Consumer consent is not necessary for actions for injunctive measures, meaning that qualified entities may pursue claims for an injunction without tacit or express consent of consumers (Article 8 (3)).
For the avoidance of contradictory judgments and forum shopping, consumers involved in a representative action for redress measures cannot participate in other representative actions with the same cause of action and benefit from them (Recitals No. 4, 46). However, consumers can pursue separate individual actions against the same trader for the same cause of action after the representative action for injunctive measures and use the relevant decision of the court as evidence (Article 15). It is worth noting that applicable limitation periods for affected consumers will be suspended or interrupted pending a representative action for injunctive measures (Article 16).
In order to support the conclusion of settlement agreements in redress actions, Article 11(1) provides for the possibility of redress settlements:
- either by the proposal of the qualified entity and the trader; or
- invitation of the court and administrative authority after consultation with the qualified entity and the trader.
However, any settlement reached is subject to court approval. Also, Members States will allow courts to refuse a settlement that is deemed unfair, in which case the court shall continue to hear the representative action (Article 11(3)).
In principle, settlements will be binding upon the trader, the qualified entity, and all consumers concerned. However, consumers may choose to opt out of the settlement (Article 11(4)).
For avoidance of questionable and speculative claims, the Directive puts a high threshold on transparency of the source of funding of representative actions. Mainly, qualified entities will be required to disclose the source of their funding in general on their websites (Article (4(3(f))). Besides, when bringing a representative action, they have to provide the court or administrative body with a financial overview that lists sources of funds used to support the representative action which demonstrates that (Article 10 (2)):
- Their decisions are not unduly influenced by the funder;
- Action is not funded by a competitor of the defendant.
In order to ensure that qualified entities are not prevented from pursuing respective proceedings due to funding, the Directive obliges Member States to provide representative actions with necessary means of support such as public financing, a cap on court cost, etc. (Article 20).
As regards the allocation of the costs, subject to conditions and exceptions provided for in national law, representative actions shall be based on the "loser-pays" principle (Article 12 (1)).
Individual consumers generally should not pay the costs of the proceedings except in circumstances where costs were incurred as a result of their intentional or negligent conduct such as the prolonging of proceedings because of unlawful conduct (Article 12 (3) in conjunction with Recital No. 38).
Impact of the Directive on Austrian legislation
The current legal framework in Austria provides the following instruments for collective redress and class actions:
Actions brought by specific associations: Austrian law allows certain legal entities listed under Section 14 of the Unfair Competition Act (Bundesgesetz gegen den unlauteren Wettbewerb, UWG) and Section 29 of the Consumer Protection Act (Konsumentenschutzgesetz, KSchG) (mostly consumer organizations) to bring such actions (Verbandsklage) when there is a collective interest concerned. However, these actions can only be used to obtain injunctive relief.
Sample actions: According to the Section 502 (5(3)) of the Austrian Code of Civil Procedure (Zivilprozessordnung, ZPO), associations entitled to bring actions under Section 29 KSchG can also bring a sample action and appeal decisions before the Austrian Supreme Court (Oberster Gerichtshof, OGH), independent of the amount of the dispute. Associations can bring a sample action only if affected individuals have assigned their claims for the purposes of litigation (Section 227 ZPO). The court can grant damages or other compensation. The idea behind sample actions is that, once the OGH has rendered a decision, other affected consumers will be able to obtain redress based on this decision in a separate proceeding.
Austrian-style class actions: Even though there is no regulatory framework for redress actions in Austria, the surge of mass claims in the last 10 years has led to the development of the "Austrian-style class action" (Sammelklage). This mechanism is based on the combination of several provisions of the Austrian Code of Civil Procedure.3 Under this type of action, individual claims are assigned to one claimant (often associations) which then asserts these combined claims in its own name. All claims must have a similar cause of action and the same issues of fact or law. Austrian-style class actions are frequently financed by third-party funders. With this mechanism, it is possible to obtain monetary damages.
While providing various methods, Austria therefore still lacks a clear instrument for collective redress that the Directive mandates. The government is obliged to implement a functioning collective redress framework by the end of 2022. Even if it is not yet clear how Austria will use the freedom the Directive grants to Member States, some predictions can be made based on the points raised above.
After the transposition of the Directive in Austria, the list of entities currently eligible to seek injunctive relief in representative actions will likely be included in the list of qualified entities for redress measures as well.
Moreover, Austrian procedural law is highly likely to experience considerable changes as regards the financing of redress actions by third parties. Even though commercial litigation financing is not regulated at the statutory level, it has become popular in the sphere of mass redress actions. Notably, the legality of third-party funding in redress actions has been confirmed and endorsed by the Austrian Supreme Court.4 The introduction of relevant safeguards provided in the Directive against external financing will likely help to prevent frivolous claims.
Lastly, the potential implementation of the procedure of assessment and approval of redress settlements by courts and administrative authorities, as well as the interruption of statutes of limitation for affected consumers in a representative action, will be novelties in Austrian legislation.
The Directive marks a substantial step forward in the enforcement of the European collective redress mechanism. Although some skepticism exists regarding the capability of states to provide the necessary funding for representative actions, the Directive sets out a harmonized framework on the application of consumer protection laws in large-scale damage claims while providing sufficient safeguards against abusive lawsuits.
It is clear that the Directive gives considerable leeway to Member States for transposition into national legal frameworks. In this regard, the effective implementation of the Directive will largely depend on the procedural choices of Member States. Particularly, depending on how the Austrian government transposes the Directive into the national legal system, such representative actions may represent a new challenge for parties who have not yet been exposed to actions of such nature. In this regard, businesses and authorized bodies should be ready to deal with the likely increase in consumer litigation.
1 Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (OJ L 409, 4.12.2020, pp. 1-27). https://eur-lex.europa.eu/legal-content/en/LSU/?uri=CELEX%3A32020L1828
2 European Commission (11 Apr 2018) Press Release A New Deal for Consumers: Commission strengthens EU consumer rights and enforcement. https://ec.europa.eu/commission/presscorner/detail/en/IP_18_3041
3 See Sections 11, 187 and 227 ZPO.
4 OGH, 27 February 2013, 6 Ob 224/12b.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.