I. European CommissionThe Commission’s Collective Actions Report and Proposal.
On 22 May 2017, the European Commission launched the “Call for evidence on the operation of collective redress arrangements in the Member States of the European Union” (the “CFE”). The CFE came on the back of the Commission’s Recommendation, of 11 June 2013, (the “Recommendation”) which set out a number of common principles regarding collective actions which the Commission recommended Member States to implement by 26 July 2015.
In a speech last 28 September 2017, EU Justice Commissioner Ms. Vera Jourova announced that the CFE will result in a report “On the Practical Implementation of the Principles of the Recommendation”, to be published this autumn, in which the Commission will assess the status quo and potential legislative proposals at EU level (the “Report”). A parallel study for the Commission is being conducted by an independent contractor (“the Study”). At a conference on 18 October 2017, Ms. Jourova further explained that the European Commission will be putting forward new measures in this field in March 2018 (“the Proposal”)
II. The Recommendation.
The scope of the Recommendation was collective actions arising out of violations of EU rights of natural and legal persons. Its main principles were
i) public enforcement should take priority over follow-on collective actions: which should only commence when administrative decisions become final;
ii) only certain entities should be allowed to bring them: standing should only be recognized to: (i) representative entities designated by Member States; (ii) ad hoc entities certified by national authorities or courts; and (iii) public authorities;
iii) should be available in cross-border cases
iv) should not be brought on a contingency-fee basis: unless allowed and regulated under national law
v) should only be funded on a transparent, independent and reasonable manner: entities should disclose the origin of their funds. A third party private funder should not: (i) seek to influence procedural decisions, including settlements; (ii) fund claims against competitors; (iii) be remunerated based on the compensation awarded; or (iv) charge excessive interest rates. A court should stay its proceedings if: (i) there is a conflict of interest between the funder and the claimant members; or (ii) the funds are insufficient to fund the claim or potential adverse cost rulings;
vi) should only be composed of those who expressly want to join it: following an opt-in approach as a general rule but allowing opt-out collective actions if justified by the sound administration of justice;
vii) should be subject to early and strict procedural scrutiny: as early as possible;
viii) should not allow punitive damages awards: only simple damages;
ix) should face adverse cost risks; and
x) should bind those represented: upon judicial verification.
III. Spanish law and its consistency with the Recommendation.
Although the Spanish Civil Procedure Rules (“CPR”) have been subject to several amendments during the last years, including recently as a result of the implementation of Directive 2014/104/EU on competition law damages actions, they have not been amended to follow the Recommendation. The features of the CPR which could be considered not to be in line with the Recommendation are the lack of:
i) priority of public enforcement over collective actions;
ii) availability of collective redress mechanisms for legal persons;
iii) possibility that ad hoc entities may bring representative actions: only ex ante designated consumer associations may bring them when damages are diffuse;
iv) specific regulation on contingency fees and funding of collective actions: currently contingency fees and funding are unregulated and, in principle, permitted; and a
v) formal certification process.
An important feature of Spanish collective actions which deserves particular attention is its general “opt-out but in” approach. As a general rule, the outcome of a collective action will bind all individuals affected by the same harmful conduct. However, if individuals do not want to be represented by the designated entity, they may “opt-out” but only to intervene individually “in” the same civil proceeding. The system has been designed to prevent Defendants from litigating numerous claims, avoiding contradictory judgments and ensuring procedural economy by having all claims arising out of the same harmful event adjudicated in a single proceeding before the same judge.
- Recent Spanish case law.
The “opt-out but in” approach has been recently called into question by a trilogy of consumer law cases heard before the Spanish Supreme Court, Judgment No. 375/2010, 17 June 2010, Court of Justice of the EU, C-381/14 and C-385/14 Sales Sinués, of 14 January 2016, and the Spanish Constitutional Court Judgment No. 148/2016, of 19 September (the “Trilogy”). All three judgments reached the same conclusion under their different legal prism (Spanish ordinary law, EU law and Spanish Constitutional law, respectively): cease and desist collective actions in the context of on unfair terms in consumer contracts (article 7.2 Directive 83/13/EEC) cannot stay or impede individual actions.
The Courts reasoned that while the scope of cease and desist collective actions was to control and preclude unfair terms from being used in consumer contracts in abstacto, the scope of individuals actions was, in concreto, to determine whether in a particular case the clause could be considered abusive and generate a right to compensation. As a result, the outcome of the collective proceedings could not formally bind (res judicata) the individual actions. The Supreme Court and the Constitutional Court also found that individuals could not actually intervene in the collective proceedings because only consumer associations had standing to bring these types of actions. The CJEU also gave weight to the fact that consumers were forced to waive their home jurisdiction and that the collective proceedings did not allow them to “opt-out” from the proceedings so that they could have their personal circumstances individually taken into account or should they have wanted to continue being subject to the allegedly abusive clauses.
Interestingly, the Constitutional Court judgment confirmed that the “opt-out but in” approach would be justified in collective damages actions because, unlike cease and desist collective actions, it: i) allows individuals to intervene; ii) regulates notice for absentees; and iii) extends res judicata effects to absentees who can rely on collective proceedings judgments to seek direct enforcement of their rights in execution proceedings. The recent Supreme Court Judgment No. 123/2017, of 24 February (upheld by Judgment (Grand Chamber) 334/2017, of 25 May), seems however to differ as it has held that, in collective damages actions generally, the res judicata effect will not be extended to absentees unless the ruling, in accordance with consumer law, determines that an activity or conduct is unlawful and that such effects should be extended to all consumers who find themselves in a similar situation.
While the Constitutional Court approach favours consolidation of all claims in a single forum, thus avoiding contradictory rulings, it may compromise the procedural efficiency and effectiveness of the proceedings (indeed, the collective action which triggered the Trilogy lasted approximately 6 years at first instance). The Supreme Court’s approach, on the other hand, may promote efficiency by favouring individual proceedings but risk compromising the effectiveness of collective proceedings by encouraging “wait and see” strategies which can lead to re-litigation and, eventually, to contradictory judgments.
Which is going to be the interpretation followed by lower courts remains to be seen. However, it is possible that the legislator will decide to intervene to avoid further satellite litigation and similar floodgates of claims which lead to the Trilogy. No doubt, the publication of the Study, the Report and the Proposal will create momentum for such legislative developments.