As of 25 June 2023, companies doing business in Europe will face a new litigation landscape under the EU Directive on Representative Actions (the Directive) that will bring increased opportunities for consumers to enforce their rights.
As EU Member States adopt the Directive, groups of individuals will be able to seek injunction, redress, and compensation from companies doing business in Europe — including in cross-border cases. Such lawsuits are referred to as mass, class, collective, representative, or group actions.
Implications for Companies
Under the new regime, cross-border collective actions will be easier to bring and more complex to defend. For example, an Austrian company might face claims brought by a French qualified entity representing French, Spanish, and Italian consumers before the German courts. Several Member States will also allow small businesses to bring collective actions.
Increased Complexity and Risks
The Directive gives EU Member States a wide scope for implementation. Some parties have expressed concern that this wide scope could lead to competition between Member States as they decide which requirements of the Directive to implement and the subsequent possibility of forum shopping among plaintiffs.
Procedural rules that qualify entities to bring collective actions, as well as document production and litigation funding regulations, will vary the most between Member States.
Below are three major developments that will increase litigation risks for companies:
- Many Member States will allow plaintiffs to file representative actions beyond the requirements of the Directive. Collective actions will therefore not be limited to consumer protection, such as financial services, data protection, and travel, but will be possible in other areas as well. Collective antitrust actions may even become possible in some countries.
- An opt-out mechanism, like the one seen in the Netherlands’ new law, will produce large groups of claimants by automatically including all group members who do not opt out of an action.
- Many Member States will continue to allow litigation funding under the Directive, incentivizing claimants’ law firms to pursue claims. These funders could invest in representative tort actions and negotiate lucrative bulk settlements, as well as support qualified entities or lawsuits in Member States with low funding constraints.
Latham & Watkins will continue to monitor the Directive’s implementation and impact on international companies.