Update on the transposition of the EU Directive on representative actions for consumers into Dutch law
At the beginning of the year, we published an article with regard to the ‘Directive on representative actions for the protection of the collective interests of consumers’. This Directive aims to ensure that Member States put in place at least one effective and efficient collective redress procedure that allows ‘qualified entities’ to bring representative actions to protect the collective interests of consumers.
Qualified entities are representative organizations (in particular consumer organisations) or public bodies which have been designated as a ‘qualified entity’ by a Member State. To be designated as a qualified entity, a representative organization must meet the criteria as laid down in the Directive. The qualified entities are written down on a list held by the European Commission. Inclusion on this list serves as proof that a representative organization is qualified to bring a case before a court in another Member State.
The Netherlands already has an effective system of collective redress with the Act on Redress of Mass Damages in Collective Action (“WAMCA”). As we predicted in our previous article, the preliminary draft of the proposed transposition of the Directive in the Netherlands showed that the WAMCA will only need slight amendments. This draft was presented by the Minister for Legal Protection on May 1, 2021. In this blog we will highlight a few of the proposed amendments from the preliminary draft.
Representative organizations must provide information, in particular on their website, about ongoing representative actions (Article 13(1, 2) Directive). With this information, consumers are able to make a better informed decision about whether they wish to participate in a representative action and to take the necessary steps in a timely manner.
The WAMCA already obliges representative organizations to publish information on their website about the status of pending proceedings (Article 3:305a(2)(d) DCC). The Directive adds the requirement that representative organizations need to publish information about the results of any pending actions (Article 13(1)(c) Directive). The draft incorporates this requirement in Article 3:305a(2)(d) DCC).
Conflict of interest restrictions
A substantial number of collective actions are funded by commercial third parties. Third party litigation funding enables consumers to obtain redress when they do not have the financial means to do so. The good news is that funding by third parties is not excluded by the Directive. The Directive, however, does impose restrictions to avoid conflicts of interest between a funder and the representative organization (Article 10(2)(b) Directive). For example, Member States must ensure that class actions cannot be brought against a defendant that is a competitor of the funder or against a defendant on whom the funder is dependent. This restriction is now included in Article 3:305a(2)(c) DCC.
Cross-border actions before the Dutch Court
If a qualified entity in another Member State brings a case before the Dutch court, the court is not allowed to review all WAMCA requirements of Article 3:305a DCC. The court is only allowed to review the requirements that relate to the claim and the specific procedure (Article 6 Directive). The court can for example still assess whether the statutory purpose of the representative organization allows it to institute a specific collective action (Article 6(3) Directive). The court is also allowed to test whether the qualified entity has sufficient means to bear the costs of initiating a specific collective action (Article 10 Directive). These requirements for a specific collective action cannot be assessed in advance. At the time of the designation of the representative organization as ‘qualified entity’ by another Member State, it may not be clear which specific actions will be initiated. The draft proposes to amend Article 3:305c DCC to reflect the foregoing.
Cross-border actions in another Member State
A Dutch qualified entity can also bring an action in another Member State. For a representative organization to be designated as a qualified entity for the purpose of bringing cross-border representative actions, that entity must comply with the following criteria of the Directive (Article 4(3) Directive):
- it can demonstrate 12 months of actual public activity in the protection of consumer interests prior to its request for designation;
- it is not the subject of insolvency proceedings and is not declared insolvent;
- it makes publicly available certain information, in particular on its website;
- it is a legal person that is constituted in accordance with the national law of its Member State;
- it has a legitimate interest in consumer protections according to its articles;
- it has a non-profit-making character; and
- it is independent and not influenced by persons other than consumers.
The first three requirements were not (all) included in the WAMCA. For this situation Article 3:305e DCC is introduced. Article 3:305e DCC adds these three requirements from the Directive.
Firstly, the representative organization must prove that it has been publicly active in the area of protection of consumer interests for 12 months (Article 4(3)(a) Directive, Article 3:305e(2)(a) DCC). The Minister of Legal Protection explicitly states this requirement is not applicable with regard to domestic actions. This means that representative organizations that have been set up especially for the purpose of a specific action (ad hoc entities) are still permitted in domestic actions in the Netherlands. This is positive news as ad hoc entities make an effective contribution to access the right to collective actions for consumers.
Secondly, an additional requirement is placed on the representative organization to not be the subject of insolvency proceedings and not to be declared insolvent (Article 4(3)(d) Directive, Article 3:305e(2)(b) DCC).
Thirdly, information about the sources of the funding of a representative organization in general must be made publically available (Article 4(3)(e) Directive, Article 3:305e(2)(c) DCC). For example, the standard annual contribution that is paid to a representative organization by its members that is separate from a specific collective action, or a government subsidy. The WAMCA already included other information that needed to be publicly available on the website of the representative organization in line with the Directive (Article 3:305a(2) DCC).
Opt-in for foreign consumers
The Directive stipulates that Member States should provide for an opt-in mechanism, or an opt-out mechanism, or a combination of the two. Consumers domiciled in a Member State other than the Member State in which the collective action is brought, can however only be bound by the outcome of a collective action if they explicitly agree to it (opt-in). The present Article 1018f(5) DCCP formulates an exception to this opt-in rule. The Directive does not allow this exception (Article 9(3) Directive). The Minister of Legal Protection therefore proposed to amend Article 1018f(5) DCCP in line with the Directive.
We foresee some complications with this amendment and the opt-in mechanism. It could for instance be difficult to reach out to foreign consumers as it would take a lot of effort and investments from a representative organization to get into contact with these consumers and help them to join the collective action in a Member State other than the Member State in which they are domiciled. This could lead to the outcome that the group of foreign consumers is smaller than under an opt-out mechanism. With an opt-out model foreign consumers will be included in the procedure, unless they opt-out, so that the defendant is better confronted with the losses he has caused. An opt-out regime also reduces the barriers for consumers to participate in a collective action allowing them to receive compensation.
For questions or comments, please contact Michelle Krekels.