Bring the Action! Consumer Class Actions in Ireland – An Update
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The EU Directive on Representative Actions for the Protection of the Collective Interest of Consumers, commonly referred to as the “Representative Actions Directive”, is a significant piece of legislation aimed at strengthening consumer protection across the European Union.
The Representative Actions Directive (the “Directive”) requires EU Member States to have a mechanism for consumers to seek collective redress when multiple consumers are harmed by a trader through breaches of certain EU consumer laws. It gives powers to organisations or public bodies designated by EU Member States to seek injunctive relief or redress measures on behalf of groups of consumers through representative actions (including cross-border representative actions). This includes seeking compensation from traders who infringe consumer rights in areas such as financial services, travel and tourism, energy, health, telecommunications, and data protection.
The Directive came into force on 24 December 2020 and was to be transposed into Irish law by 25 December 2022. Ireland, along with the majority of EU Member States, did not meet that deadline and the European Commission has commenced infringement proceedings. The Directive is to come into effect from 25 June 2023 at the latest.
The Representative Actions for the Protection of the Collective Interests of Consumers Bill 2023 (the “Bill”), which will give effect to the Directive in Ireland once enacted, was published on 13 March 2023 and was referred to the Select Committee stage on 19 April 2023. While the current text of the draft legislation may well be amended as it travels through the Dáil and the Seanad, it is helpful at this juncture to consider key aspects of the Bill and the reforms that are on the horizon in the area of consumer protection and redress.
Qualified Entities
The Bill allows the Minister for Enterprise, Trade and Employment (the “Minister”) to designate organisations as qualified entities to represent consumers seeking collective redress. A claim on behalf of consumers can only be brought by a designated “qualified entity”. The Bill defines a qualified entity as follows:
“a legal person or public body representing consumers’ interests which has been designated by— (a) the Minister under section 8(4)(a), or (b) a Member State (other than the State), as qualified to bring representative actions in accordance with the Directive.”
The Minister can designate an organisation as a qualified entity for both domestic and cross-border actions, if the organisation in question can satisfy a number of criteria to include the following:
- it is a legal person and can demonstrate 12 months of actual public activity in protecting consumer interests prior to the application;
- it must show that it has a legitimate interest in protecting consumer interests;
- it must have a non-profit-making character;
- it is not the subject of insolvency proceedings and has not been declared insolvent; and
- it must be independent and must be influenced solely by consumers.
A qualified entity is also obliged to provide information on its website about representative actions it intends to bring, the fees chargeable to consumers who will be represented in the action, and the status and outcome of any such action before the High Court.
Representative Action brought by a qualified entity
The Bill defines a “representative action” as follows:
“an action for the protection of the collective interests of consumers that is brought by a qualified entity as a plaintiff on behalf of consumers to seek— (a) an injunction in accordance with section 23, or (b) a redress measure in accordance with section 26, or both”.
Representative actions allow groups of consumers to take legal action based on collective interests or collective harm suffered by violations of consumer protection laws. A qualified entity will represent consumers concerned by the same or similar trader’s unlawful practice and will take on the role of plaintiff in a representative action which pursuant to the Bill, will be brought before the High Court. The High Court will have the power to grant injunctive relief (i.e. to stop trader’s unlawful practices) and/or redress measures (such as compensation, repair, replacement, price reduction, contract termination or reimbursement of price paid).
The Bill requires that consumers affected by an alleged infringement of their consumer rights by a trader must opt-in to a representative action for redress against that trader. In contrast, in a representative action for injunctive relief, there is no requirement for consumers to opt-in to the action.
Settlements in representative actions are subject to court approval. Once approved, the settlement is binding on the qualified entity, the trader, and the consumers.
Funding of representative actions for redress measures
Section 27 of the Bill addresses the issue of funding of representative actions and allows for third-party funding of representative actions “insofar as permitted in accordance with law”. Section 27 (3) of the Bill also outlines that a qualified entity must “disclose to the Court a financial overview that specifies the sources of funds used by it to support representative action”. However, third-party funding litigation, for the most part, has long been prohibited in Ireland under the crimes and torts of maintenance[1] and champerty[2]. The Bill provides that the High Court must ensure that any conflicts of interest between the qualified entity, its funders, and the consumers are prevented, and the cost of funding a representative action does not operate as a barrier to the protection of the collective interests of consumers.
It is likely that the limitation on access to funding for civil litigation in Ireland will discourage not-for-profit organisations from stepping forward to seek designation as a qualified entity as it is the qualified entity that must bear the costs of bringing the action as opposed to the consumers, save for a “modest” entry fee charged to consumers by a qualified entity to join a representative action. However, the High Court is given certain discretion in this regard under Section 31 (2) and can order an individual consumer in a representative action to pay the costs of proceedings that were incurred because of the consumers “intentional or negligent conduct”.
It appears therefore that consideration will have to be given to allowing not-for-profit organisations to source third-party funding for representative actions.
The prohibition against third-party litigation funding in Ireland has increasingly been debated and raised before the Irish Courts in recent years, with the judiciary expressing the view that change in this area is more suited to legislative reform.[3] A policy review of third-party litigation funding was recommended by Mr Justice Peter Kelly in his 2020 report on reforms to the civil justice system in Ireland.[4] In autumn 2022, the Minister for Justice announced that a discussion paper on the issue is expected to be published by the Law Reform Commission this year. While it appears that moves are being made to legislate to permit third-party funding of international commercial arbitration proceedings[5], it remains to be seen whether the legislature will take further steps to extend third-party litigation funding to other areas. Given the Directive must come into effect in Ireland within the next 2 months, and the Law Reform Commission’s report on its review of the law governing third-party funding of civil litigation in Ireland is not expected until later this year or possibly 2024, a question arises as to whether the Bill, in its current form, goes far enough to ensure that organisations seeking designation as qualified entities are able to fully avail of the provisions of the legislation.
Conclusion
The implementation of the Directive is a significant development in Irish consumer protection law. When enacted, the Bill will provide consumers with a new and effective avenue for seeking redress in cases of mass harm caused by unfair commercial practices such as misleading advertising, unfair contract terms, or anti-competitive behaviour. Representative actions can empower consumers to hold businesses accountable for their actions and seek compensation for the harm they have suffered.
However, where it is envisaged that qualified entities representing the collective interests of consumers are required to be of a “non-profit-making character”, it will be interesting to see how mass actions on behalf of consumers will be funded.
As Ireland continues to strengthen its consumer protection framework, the Bill plays a crucial role in promoting fairness and accountability in the marketplace, ultimately for the benefit of consumers and promotes a level playing field for businesses.
The Representative Actions for the Protection of the Collective Interests of Consumers Bill 2023 can be accessed here.
Written by: Maria Curran and Rosie Callan
[1] Maintenance occurs where a third party supports litigation without just cause or without having a legitimate interest in the matter.