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EU-wide collective redress rules draw near adoption: potential impact in Bulgaria and for EU cross-border business

July 2020 – On 22 June 2020 the European Parliament and the Council of the EU reached an agreement on the ‘Representative Actions Directive’, which proposes the first EU-wide rules on collective redress. The directive requires each Member State to implement a mechanism for an EU-style class-action scheme and to allow qualified entities to claim injunctive relief and damages for infringements of consumer protection laws before national courts or administrative authorities. Currently 17 out of 28 pre-Brexit Member States permit collective actions, and the remaining states must establish at least one representative action procedure. The directive enhances cross-border collective action across the EU by empowering qualified entities (consumer protection organisations or public bodies) to launch actions on behalf of groups of consumers outside their home state.

Who is affected?

The Representative Actions Directive has the potential to affect all consumer-facing industries. Some of the most obvious areas are violations related to data protection, financial services, travel and tourism (e.g., air and train passenger rights), energy, telecommunications, the environment and health, but the Member State class-action schemes should cover all issues of general consumer law and thus apply to a variety of sectors. Other legal domains where clear uniform rules on class action would have been welcomed, such as competition law violations or environmental damage, remain unaffected.

Naturally, the importance of potential class action rises proportionately with the number of consumer transactions and the volume of data processed. Fast-scaling companies would be especially exposed to dangers where their operating procedures lag behind and do not ensure adequate compliance with consumer protection rules. The express inclusion of data protection violations in the scope of application will provide data breach victims with additional leverage when seeking compensation, which further reinforces the need for strict GDPR compliance.

What is the actual impact on cross-border litigation?

The directive contains many provisions that aim to reinforce cross-border litigation. For instance, a qualified representative entity designated in one Member State will be able to apply to the courts or administrative authorities throughout the EU.

Certain provisions will have two-way effect depending on the specific circumstances. A decision establishing the existence or non-existence of an infringement will have the effect of a rebuttable presumption with respect to the relevant facts in another Member State. Due to the cross-border lis pendends rule, the decision in a pilot case would either facilitate chain litigation in other Member States or effectively close the door to all EU consumers in the relevant class.

Finally, several provisions would probably undermine the efficiency of cross-border litigation. Because of the express prohibition of opt-out schemes for consumers resident in other Member States, plaintiffs will be required to provide a consolidated list of all non-domestic consumers who have chosen to opt-in at the beginning of an action.

Class action in Bulgaria

Similar to most national collective action mechanisms that exist across the EU, Bulgaria’s scheme already complies with the main elements of the latest draft of the Representative Actions Directive. Class action had a difficult start in Bulgaria, partly because of the higher hurdles for admissibility of class claims and the constitution and representation of a ‘class’, but also because of the high initial funding requirements. The class-action procedure set in the Code of Civil Procedure of 2008 (Chapter 33, Art. 379-388) is formally based on the opt-out principle (Art. 383), but as courts apply high requirements on class formation and representation, in practice it is applied as an opt-in system. Standing is primarily given to ‘qualified entities’, which is exactly what the Representative Actions Directive is aiming at. Thus, the proposed directive will not significantly change access to legal redress in Bulgaria.

However, it will provide new options for consumers and will allow more efficient prosecution of cross-border offences, as a Bulgarian qualified entity (the Commission on Consumer Protection or a representative consumer organisation) will be allowed to bring an action in another Member State. Moreover, the new directive provides consumer organisations with a new funding channel. It remains to be seen what conditions the national government will impose for the selection of ‘qualified entities’ that will have access to support for bringing collective redress cases.

Next steps

The political agreement reached on the text in the conciliation procedure will require the formal confirmation of the European Parliament and Council. Once adopted, Member States will have 24 months to transpose the directive into their national laws and an additional six months to start applying it in practice.

Conclusion

Despite the fact that industry concerns have largely been addressed by limiting the risk of frivolous actions by consumers, the new ‘extraterritorial’ competence should enhance both coordination and competition among consumer organisations across the EU. Cross-border businesses in consumer-facing industry sectors should follow closely the adoption of the directive and its implementation across Member States in the next couple of years, while ensuring that internal compliance policies are in line with data and consumer protection rules. Once the directive is implemented, cross-jurisdictional collective action could become a real concern and therefore steps must be taken to minimise risk and prevent damage from litigation.

For a detailed overview of the background and potential impact of the proposed Representative Actions Directive please click here.

For more information, please contact Anton Petrov, Of Counsel, Sofia, at

e-mail

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