While globalization and digitalization have increased the risk of violations that affect thousands of consumers, several EU member states — including Austria — do not yet offer class action lawsuits. The EU Commission has therefore proposed a draft directive to allow representative actions for the protection of collective interests of consumers as part of its “New Deal for Consumers.”
According to the draft directive, a “qualified entity” can bring an action against a company that breached specific EU legislation (currently a list of 59 consumer protection laws) and thereby damaged or may damage the collective interests of consumers. Consumers are not entitled to file such a claim, nor be involved in the proceedings. This corresponds with the rules for representative actions already existing in Austria, which can only be brought by a few organizations (e.g. the Chamber of Labor and the Austrian Consumers Association). The number of such authorized entities will likely increase: in addition to consumer protection groups and independent public bodies, other organizations – including ad hoc bodies specially organized for specific actions – may request designation and registration as a “qualified entity” by a member state. The directive lays out certain minimum criteria: the organization must be properly established, not be for profit, and have a legitimate interest in ensuring compliance with the relevant EU law.
If the qualified entity files for damages, it has to prove adequate financial capacity and disclose the origin of its funding to the court or administrative authority. Third-party funders must neither influence decisions regarding the representative action nor use the action to move against competitors. If it cannot be guaranteed that the funding complies with the regulations, the qualified entity may be ordered to refuse the funds, or its right to institute proceedings may be denied. This requires member states to determine which court or administrative authority should register and control the qualified entities and to institute procedures to authorize and supervise the qualified entities, bearing in mind that these tasks (especially the monitoring of the funding and the independence of these entities) are complex and will require significant human and technical resources. So far, third-party funding is not regulated in Austria, so introducing basic safeguards as foreseen in the draft directive would be a first good step.
Although up to now organizations have only been able to file for injunctive relief, in the future they would be able to seek redress for consumers, such as compensation, price reduction, contract termination, or repayment of the purchase price, which would eliminate the need for consumers to first transfer their claims to the organization. In addition, a special form of punitive damages would be introduced: if the losses suffered by consumers are so small that it is disproportionate or not practicable to identify and compensate each individual, the compensation to be paid by the convicted trader should be directed to a public purpose with a consumer protection service. To prevent abuse, it will be necessary to regulate precisely the “public purpose” and how the proper use of the redress is verified.
In redress proceedings, the court would have the right to “invite” the qualified entity and the trader to reach a settlement, which would then be scrutinized with regard to legality and fairness by the court. This institutionalized settlement procedure would be another novelty for Austria.
Traders may be required to submit evidence, which would not have to be specified by the qualified entity: it would be sufficient to indicate that the evidence lies within the trader’s control. The introduction of such disclosure/discovery orders into Austrian law will require careful balancing of interests, clear principles for ascertaining whether a request for disclosure is justified or excessive, and care to ensure that sensitive information is appropriately protected (e.g. trade secrets and consumer data, the use of which should be limited to the purposes of the respective collective action).
Regulating the provision of information to consumers to ensure that they are aware of the action and its outcome would be extremely important. Consumers may then either claim the compensation they are due, or sue the traders themselves, especially if Austria decides to implement an “opt-in”: Member States can choose whether all customers or only those who give a mandate should be covered by redress orders. In any case, a new Austrian law will have to provide that an action brought by a qualified entity interrupts the statute of limitations for affected consumers, who can thus wait for the result without losing their claims.
Implementing the directive would therefore result in many innovations, especially in procedural law. Despite all the criticism, the draft directive has many advantages – especially regarding legal certainty – over the current handling of mass claims in Austria. Therefore, it is to be hoped that Austria would take the opportunity to introduce collective actions and collective settlements, and to regulate third-party funding – not just with respect to infringements of certain EU provisions, but in general.
By Daniela Karollus-Bruner, Partner, CMS Austria
This Article was originally published in Issue 5.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.