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No later than 26 December 2023, each EU member state had to provide the European Commission with a roster of designated qualified entities empowered to start cross-border, consumer representative action. It is a result of Directive 2020/1828 on representative actions for the protection of the collective interests of consumers (the ‘EU Directive’), which harmonizes collective consumer redress mechanisms across the EU from June 2023.
Interestingly, the Netherlands is the EU leader in handling mass damages litigations and the first EU member state to transpose EU Directive into national legislation. The Dutch Act on the Settlement of Mass Damages Claims in Collective Actions (Wet afwikkeling massaschade in collectieve actie, ‘WAMCA’), adopted in 2020, stole EU Directive’s thunder and already included most of the requirements laid down there. We expect that the introduction of a common EU framework on representative actions will substantially bolster the Netherlands as a preferred country of jurisdiction for mass claims. Below we explain our point.
Why did representative litigators lose their heart to the Netherlands?
According to the central Dutch register of representative action proceedings, in which all representative cases brought after 2020 are registered, the number of such disputes in the Netherlands is climbing year on and now stands at 92. In comparison to other EU member states, this is a high number, especially because most of those actions are targeted solely at claiming large amounts of damages as compensation. These encompass for instance the representative action against Fortis/Ageas, resulting in private investors receiving approximately EUR 1.3 billion in compensation, and the ongoing ‘Dieselgate’ dispute against Volkswagen Group companies, where more than 8.5 million European consumers are involved. Why is it that particularly Dutch courts handle these cases?
From its inception, WAMCA contributed to many plaintiff-friendly conditions, such as an opt-out participation model (consumers are automatically included in the legal action unless they expressly object) and a vast network of international litigation funders. Moreover, the accessibility of the Dutch courts, manifesting itself primarily by the option to carry out proceedings in English, coupled with more lenient admissibility criteria for representative actions aimed at achieving an idealistic goal without seeking financial compensation, further explains why collective claimants had preferred the Dutch jurisdiction long time before the EU Directive came into force.
Outlooks for the future of representative actions in the Netherlands alarming for non-compliant businesses
As we describe in more detail below, the EU Directive provides consumer advocacy associations with clear and fully harmonized rules on (a) eligibility for cross-border mass legal actions and (b) access to third-party funding. That way, significant legal burdens linked to abroad litigation have been stripped out. Providing that a plaintiff is eligible to obtain third-party financing and to file for mass damages of European consumers in its domestic EU jurisdiction, it can litigate in front of the Dutch court as well, benefiting from the well-established collective actions environment. Therefore, we believe that even more dynamic expansion in representative actions taken in the Netherlands can be expected in the coming years.
This, in turn, will amplify the representative action usage overall, since Dutch courts present a liberal approach to defining which business conduct is capable of infringing consumer legitimate interest. As a result, consumer advocacy associations are incentivized to claim damages incurred not only from breaches of consumer law, but also competition, environmental or data protection law. An illustration of this is the recent collective action initiated by the Dutch App Stores Claim Foundation against Google. The foundation has further declared its intention to pursue a comparable claim against Apple, alleging that both Apple and Google have exploited a highly dominant position with their operating systems and affiliated app stores. The claims argue that the companies compel users to make payments for apps and in-app purchases exclusively through their payment systems, which typically impose a substantial commission. Therefore, both claims seek to redress the consumers’ damage incurred as a result of the abuse of the companies’ dominant position by compensating these commissions.
Main EU Directive developments in detail
- Qualified Entities
The EU Directive separates cases into two types: 1. cross-border representative actions and 2. domestic representative actions. Depending on the type of action (1 or 2), there is a difference in the rules regarding who is allowed to start a representative action (called qualified entities).
For (1) cross-border representative actions, qualified entities can pursue legal action only if they meet certain, fully harmonized criteria. To be eligible to bring cross-border claims, an organization has:
- to be of a non-profit nature;
- not to pursue a profit-making purpose;
- to be independent of third parties, i.e. to not operate under the influence of persons who have a financial interest in a representative action; and
- to have been demonstrably active for 12 months in protecting the interests of consumers. In practice, this requirement acts as a threshold against ad hoc entities.
In contrast, for (2) domestic proceedings, the Netherlands has permitted ad hoc designations, allowing associations to be formed specifically and exclusively for a particular mass claim and solely for its settlement.
To be classified as a qualified entity, application to the Dutch Minister for Legal Protection (Minister van Rechtsbescherming) is a mandatory step to take. According to the Minister’s Decree outlining the application procedure, the request must be submitted in writing and the Minister has six weeks to issue a decision.
Each EU member state provides the European Commission with a list of designated qualified entities. Those lists and the consolidated compilation curated by the European Commission are shared with the public here.
- Litigation Funding
Given the complexity and extensive scope of representative actions, they can be expensive and they can involve significant risks. In long legal battles, plaintiffs may easily accumulate costs reaching into the millions euro’s. To help manage this financial risk and make it easier for consumers to get justice, the EU Directive permits qualified entities to get funding from third parties under specific conditions, which shall aim at avoiding conflicts of interest and preventing financiers from exerting influence over the proceedings. Therefore, it is not allowed that such funding comes from a competitor of the defendant or from a funder that is dependent on the defendant. Moreover, qualified entities are required to publish on their web pages details about their sources of funding.
Business perspective: why is the current expansion of representative actions so important?
Representative action allows one person or group, often a consumer advocacy association, to represent a larger consumer base by bringing a case to court and claiming damages on behalf of them. Such a collective tool is particularly significant for several reasons. Firstly, it streamlines the legal process, providing an efficient means to respond to non-compliant businesses affecting numerous consumers. This is crucial in most consumer law cases, where the cost and complexity of lawsuits are usually deemed disproportionate to the interest of an individual consumer. Secondly, representative actions give a voice to consumers who may not have enough money to take legal action of their own. Ultimately, representative actions contribute to deterrence, sending a clear message to businesses that violating consumer rights might lead to much wider consequences than just a few persons suing them. Having that in mind, representative action trends should be carefully monitored by the businesses operating in the B2C setting.
Should you have any questions on this topic, or require any assistance with the application for qualified entity status or consumer law compliance procedure, we would be happy to help. Do not hesitate to contact us either by e-mail or phone.