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Consumer representative actions take shape – but who will pay?

Consumer-facing businesses, particularly those operating in sectors which are subject to EU regulation, are bracing themselves for a potential increase in consumer litigation following the publication of the General Scheme of Representative Actions for the Protection of the Collective Interests of Consumers Bill 2022 (the "Scheme").

Background

Ireland has been moving closer to the introduction of a form of consumer class action since the draft Representative Actions Directive1 (the "Directive") was published in 2018 and we have been carefully monitoring its progress since then. See our previous updates here and here for further commentary. 

The implementation of the Directive will fundamentally alter the commercial litigation landscape in Ireland, and across Europe, by enabling consumers to act collectively and harmoniously in claims concerning a wide range of consumer-facing industries, including financial services, technology and health.  The new mechanisms will also allow a wider application of class actions to data privacy breaches than is currently provided by Article 80 of the EU General Data Protection Regulation and section 117 of the Data Protection Act 2018.

In this article we will look at some key elements of the Scheme, including the incongruity it would appear to create in terms of how actions of this potential magnitude might be funded in Ireland. 

Recent Progress

The Directive came into force on 24 December 2020 with a deadline of 24 months for Member States to transpose it into their domestic law. 

Prior to the publication of the Scheme, it was unclear to what extent Ireland would choose to implement the Directive, which allowed a considerable amount of discretion to individual Member States. However, we now have a clearer picture of what the act is likely to look like, subject to any amendments which might be made as it proceeds through the legislative process. 

Pre-legislative scrutiny of the Scheme was commenced by the Joint Committee on Enterprise, Trade and Employment on 29 June 2022 and resumed on 14 September 2022. When that process is complete, the Bill will be formally drafted and we will have more clarity on its precise provisions. It will then pass through the Dáil and the Seanad before being signed into law by the President. The Directive requires the new law to be operational in each Member State by 25 June 2023 at the latest.

Key Elements

  • Types of Actions: The new law will apply to actions taken under a wide-ranging list of EU consumer protection legislation against any business that deals with consumers. The list of legislation has not been amended or expanded from what was set out in the Directive but that was already quite expansive and covered most areas of consumer law, including financial services, technology and health.
  • Retrospection: The Directive provides that the new regime will only apply to actions brought on or after 25 June 2023, but it appears possible that those actions could be based on alleged infringements of EU law which took place before 25 June 20232. Businesses need to be mindful of this element of retrospection as we move closer to the implementation date.
  • Qualified entities: Actions can only be brought by a “qualified entity” as designated by the Minister for Enterprise, Trace and Employment and cannot be initiated by private law firms. Ministerial regulations will be enacted to deal more specifically with the designation process but broadly speaking, qualified entities must be independent; properly constituted and solvent; operating for at least 12 months in the consumer protection area; and be non-profit – a key criterion we will be looking at in more detail. Designation will be reviewed every 5 years.
  • Cross-border: Several qualified entities can come together to bring cross-border actions and the European Commission will maintain a list of qualified entities from each Member State for that purpose.
  • Redress: In Ireland, actions can be taken in the High Court for injunctive relief and/or financial redress. Consumers do not have to opt-in to representative actions for injunctive relief but they must expressly opt-in to representative actions for monetary redress. In reality, this could mean that consumers might wait for the outcome of the injunction hearing before ultimately electing to join the redress action and a successful injunction could therefore have the potential to precipitate a significant increase in the number of consumers participating. Limitation periods are suspended while the injunction is being determined to ensure that consumers’ rights to proceed to redress are preserved.
  • Consultation: The Scheme requires traders to engage in pre-litigation consultation to resolve the alleged breach and the court will only authorise a representative action to proceed if that process fails to yield an agreement. Alternative dispute resolution is encouraged but not required for that purpose.
  • Costs: Other than charging a “modest” entry fee to consumers to join an action (which will be designated by further regulations), qualified entities must bear the costs of any actions brought under the Scheme and costs will be awarded by the courts in accordance with the "loser-pays” principle. Again, this is a key criterion we will discuss further below. There is provision for partial costs orders to be made against individual consumers if their intentional or negligent conduct results in a party incurring costs.
  • Publication: Once an action proceeds to redress after the injunction stage, any settlement reached between the parties must be approved by the court. The Scheme requires traders to inform the consumers concerned of any approved settlement, though it does not specify what level of detail might be required to be given. A qualified entity is also required to publish information in its website on the outcomes of the representative actions it has brought. The Directive refers specifically here to the importance of the reputational risks associated with such publication in acting as a deterrent for traders infringing consumer rights and businesses should be aware that it will be difficult to resolve disputes which have proceeded to redress stage in a discrete manner.

Funding 

We have referred in our previous briefings to the fact that the funding of litigation by third parties who have no interest in the dispute is prohibited under Irish law. So, particularly with costs being awarded under the Scheme on a “loser-pays” principle, the question arises as to how a non-profit organisation might be expected to fund litigation of this potential magnitude in Ireland.

The Directive expressly requires Member States to ensure that the costs associated with taking a representative action do not create a financial obstacle and it is suggested that court fees should be limited and access given to legal aid or public funding. However, when you look at how this requirement is being implemented under the Scheme – while it does provide for regulations to be made to remove court fees, there is no scope in its current form for any type of public funding or legal aid. The Scheme does contain a provision for third-party funding of representative actions “insofar as permitted under Irish law”. However, it is difficult to see what the practical purpose of that provision is in circumstances where most forms of third-party funding are not permitted as a matter of Irish law, unless it is to provide for future change.

The judiciary has been calling for legislative intervention to provide for the possibility of third-party litigation funding in Ireland for some time. In January 2020 a joint report by the EU Bar Association and the Irish Society for European Law was published which strongly recommended that proper provision be made for litigation funding as an essential mechanism to access justice. Similar recommendations were made in the Kelly Report in December 20203. On 27 May 2022, the Government published an implementation plan for the Kelly Report which indicates that any further policy change in relation to litigation funding (apart from a limited form of third-party funding for insolvency practitioners4 and for international arbitrations5) will await the publication of a further report and recommendations from the Law Reform Commission. Most recently, on 13 September 2022, a resolution was adopted by the European Parliament6 recommending that after the Directive becomes operational on 25 June 2023, a new directive should be proposed to establish common minimum standards for third-party litigation funding across the EU. So while it seems unlikely that there will be any substantive change in the law before the Scheme comes into effect, the law in this area is continuing to develop and there are signs that the old champerty and maintenance rules in Ireland will at some stage be removed, at least in this area.

Separately, the Kelly Report implementation plan provides for legislation to be drafted in 2023 for the introduction of a comprehensive multi-party action procedure, similar to the Group Litigation Order process in the UK, by 2024. So either way, collective actions will likely be a feature of the very near future of litigation in Ireland.

Conclusion

Businesses should begin to prepare now for the implementation of this new collective redress procedure, particularly given the potential for actions under the Scheme to apply to infringements prior to it coming into force. The key message for businesses operating in Europe is that it has never been more important to re-evaluate, enhance and implement strong governance and compliance systems and ensure operational resilience and effective enterprise risk management processes.  This will be the first and best line of defence against funded class actions aimed at defending consumer interests.

Whilst a lack of availability of third-party funding in Ireland may, for the time being, act as an effective bar to collective redress proceedings being brought here, qualified entities in Ireland are not restricted to bringing proceedings in their own jurisdiction. Furthermore, the resolution adopted by the European Parliament  recommending that a new directive should be proposed to establish common minimum standards for third-party litigation funding across the EU signifies that the old champerty and maintenance rules in Ireland may be subject to reform in the near future.

We will continue to monitor future developments in this area. For further information in relation to how this new law may impact your business in the meantime please contact our Commercial Dispute Resolution Partners, Julie Murphy-O’Connor and Michael Byrne, or your usual Matheson contact.

Co-authored by Professional Support Lawyer, Róisín Peart.

1 Directive on Representative Actions for the Protection of the Collective Interests of consumers, and repealing Directive 2009/22/EC COM/2018/0814.

2 Article 22 of the Directive (Transitional Provisions) states that it will apply to representative actions brought on or after 25 June 2023. Article 22(3) goes on to provide that certain provisions in relation to the suspension of limitation periods for injunctions will only apply to claims based on infringements that occurred on or after 25 June 2023. Given that Article 22(1) does not mention the timing of the infringements that might form the basis of a representative action brought on or after 25 June 2023, it may be inferred that those infringements could occur prior to that date.

3 A Review of the Administration of Civil Justice Report, known as the Kelly Report, was published in December 2020.  This Report makes over 90 recommendations to improve the Civil Justice system in Ireland.  

4 The Kelly Report implementation plan does provide for legislation to be drafted next year to allow for a limited form of third-party funding for liquidators, receivers, administrators under the Insurance (No.2) Act 1983, the Official Assignee and trustees in bankruptcy to fund proceedings that are intended to increase the pool of assets available to creditors.

5 It was reported in the Business Post on 17 September 2022 that proposals will be brought forward to Government to provide for third-party funding of international arbitrations by way of amendment to the Courts and Civil Law (Miscellaneous Provisions) Bill 2022, which is currently before the Dáil

6 See European Parliament resolution of 13 September 2022 with recommendations to the Commission on responsible private funding of litigation