Our views on the impact of the General Scheme of the Representative Actions for the Protection of the Collective Interest of Consumers Bill 2022 are also published in The Irish Legal News and Insurance Day, July 2022.
The EU Representative Actions Directive (EU) 2020/1828 (the “Directive”) is to be transposed into Irish law by 25 December 2022, with effect from June 2023. The Directive aims to improve consumers’ access to justice by introducing a standardised EU wide legal mechanism by which consumers, who are affected by the same alleged infringements of EU law, can bring a representative action – also commonly referred to as a collective or group action - for injunctive relief and/or redress.
Pursuant to this, the Irish Government recently published its draft General Scheme of the Representative Actions for the Protection of the Collective Interests of Consumers Bill 2022 (the Draft Bill) (the Scheme). Whilst the final legislation is likely to look somewhat different to the Draft Bill, it will nevertheless be novel, because there is no existing legislative framework or legal procedure in Ireland which provides for collective redress, or any form of group action akin to those available in other jurisdictions. Against a growing trend of mass consumer led litigation across the globe, the Scheme will inevitably have a pronounced impact on the Irish litigation landscape in the coming years.
In line with the Directive, which provides that consumer groups bringing a representative action are to be represented by qualified entities (QEs) designated by EU Member States, the Draft Bill provides that domestic and cross-border representative actions may only be brought by QEs designated by the Minister for Enterprise Trade and Employment (the Minister). Under the Draft Bill, the Scheme will operate as an ‘opt-in’ system for consumers seeking redress measures (as opposed to seeking stand-alone injunctive relief, where the QE can bring an action without consumers opting in), requiring consumers expressly to confirm their interest in being represented by the designated QE.
A domestic representative action is one in which a QE, the named claimant, brings a representative action in the courts of the Member State where it is designated against a ‘trader’, the defendant. A ‘trader’ is defined as any natural person, or any legal person doing a trade, business, craft or profession. By contrast, a cross-border representative action is a representative action brought by a QE in a Member State other than that in which the QE is designated.
The Draft Bill does not contemplate the Competition and Consumer Protection Commission (CCPC) taking on the role of designator (rather than the Minister) or of a designated QE, notwithstanding that the CCPC is an established, independent and statutory body with a mandate to enforce competition and consumer protection law in Ireland on behalf of consumers. Whilst the CCPC would appear suitably qualified to perform both roles, the potential costs exposures to the CCPC and, in turn the State, may have been too unpalatable for the draftsmen of the Draft Bill to contemplate. It is unclear to what extent consideration was given to the ‘Quebec Model’, where class litigation is funded by a central justice fund, fueled by contributions from each and every collective action that takes place in Quebec province. Adopting this type of model would not only equip the QE to fund an action, but could also help assure a trader who successfully defends the action that at least some of their costs could be met where a costs order is made in their favour.
Instead, the Draft Bill provides that the body seeking to advance a domestic or cross-border representative action is one designated a QE by the Minister provided that it:
- Is properly constituted in accordance with Irish law and can demonstrate 12 months of actual public activity in the protection of consumer interests.
- Has a constitution demonstrating that it has a legitimate interest in protecting consumer interests prior to designation.
- Is non-profit making.
- Is solvent.
- Is independent and not influenced by persons other than consumers, particularly by traders, who have an economic interest in the bringing of any representative action.
- Publishes information on its website in plain and intelligible language that it complies with the criteria and provides information on its source of funding, organisational, management and membership structure and its statutory purpose and activities.
The Draft Bill does not specify if designation is to be assessed by the Minister or by means of self-declaration. Traders are likely to prefer an actual assessment process, so as to avoid the costs of contesting the designation of a QE in the early admissibility stages of any litigation. It remains to be seen whether the Irish Government produces any guidance or regulations on what the designation procedure will entail, however, the Minister will need to ensure that the applying QE has measures in place to prevent persons from unduly influencing the QE, and that conflicts of interest between the QE, its funders, and the consumers are avoided.
The Draft Bill anticipates that a representative action will be funded by a third party “insofar as permitted under Irish law…”, but provides that such party must not influence the course of the action. Third party litigation funding is currently prohibited in Ireland. It can be inferred from the Draft Bill that the longstanding torts of ‘maintenance and champerty’ need to be restricted to exclusively allow for funding of representative actions under the Directive. The Irish Courts have made it clear that the abolition of these torts is a matter for the Irish Parliament. Currently, the Draft Bill does not allow for this.
Nevertheless, should such third party funding be permitted, it will be necessary for the Minister to introduce a series of measures to protect the interests of traders and consumers, such as placing restrictions on the QE and/or the litigation funder to avoid conflicts of interest arising, and implementing appropriate and adequate safeguards to ensure traders are not the subject of litigation prompted by competitors.
A fertile ground for forum shopping?
There are distinctive features in the Irish legal system that make it an attractive jurisdiction for collective redress litigation. As well as being the only remaining common law system in the EU, its civil procedural rules, particularly those concerning the discovery and production of documents relevant to the issues in dispute, may be attractive to a QE bringing a representative action, in the hope that it will help them find ‘a smoking gun’. QEs are also likely to be encouraged by the often generous damages awards made by the Irish Courts and the potential for it to recover legal costs on the ‘loser pays’ principle.
These features may encourage QEs established in other EU Member States to issue legal proceedings in Ireland even though most consumers harmed by the conduct or product of a trader reside in other jurisdictions. At the admissibility stage of a representative action, an Irish Court could determine with reference to the Brussels I (Recast) Regulation if it is the appropriate forum in which to hear such an action or whether the more appropriate forum is the jurisdiction where a greater number of the consumers were harmed.
Class actions and insurance in Ireland
The transposition of the Directive into Irish law inevitably will lead to class actions before the Irish Courts. Traders will look to their liability insurers to cover their defence costs (which are likely to be substantial) and any damages and/or costs awards. This increased exposure to insurers will undoubtedly lead to increased insurance premiums and possibly higher self-insured retentions, as insurers try to mitigate to some extent the exposures they face. This, in turn, could have a knock-on effect on the costs of more general liability insurances, and perhaps undo the anticipated reduction to the cost of liability insurance in Ireland, which would be an unwelcome development for many.
Looking ahead and the effect on insurance
The Irish Government will be due to debate the Draft Bill in Dáil Éireann, Ireland’s lower chamber of Parliament, in the coming months. Given the absence of a collective redress scheme to date in Ireland, the Draft Bill adopts a relatively conservative approach to the transposition of the Directive, exemplified by its provision for an ‘opt-in’ regime. Undoubtedly the Act transposing the Directive will look different to the Draft Bill, but it is likely that many of its fundamental elements will remain. Ultimately, the legislation will need to balance and protect the interests of consumers and traders and we anticipate that striking this balance will be of considerable debate as the Draft Bill makes its way through the Oireachtas (the Irish Parliament).
Whatever form the legislation ultimately takes, the transposition of the Directive will bring Ireland into line with other EU jurisdictions which already have established collective action mechanisms in place. More significantly, this new legislation will improve consumers’ access to justice and facilitate redress where collectively they have fallen victim to the same infringement of their rights, but to do that effectively, the torts of maintenance and champerty need to be abolished, and checks and balances need to be put in place, to ensure that the interests of consumers and traders do not become secondary to third parties.
Insurers should consider preparing for the introduction of the Scheme in June 2023. This may include ensuring there are sufficient resources in place to manage group action claims and taking the increased likelihood of such claims into their risk and pricing models.