August 30, 2021

The EU’s Collective Redress Directive — A Look at What Constitutes a ‘Qualified Entity’

In this third alert in our series regarding the European Parliament’s formal endorsement of a new collective actions legislation entitled the Directive of the European Parliament and of the Council on Representative Actions for the Protection of the Collective Interests of Consumers, we analyze who may file suit pursuant to the Collective Redress Directive starting in 2023: Who or what constitutes a “qualified entity”?

Qualified Entity Defined

To fully appreciate and understand the Collective Redress Directive, we must understand who or what constitutes a “qualified entity,” because unlike in the United States where individual plaintiffs may commence an action seeking collective redress, only qualified entities may file suit pursuant to the Directive.

The “Directive aims to contribute to the functioning of the internal market and the achievement of a high level of consumer production by enabling qualified entities that represent the collective interests of consumers to bring representative actions for both injunctive measures and redress measures against traders that infringe provisions of Union law.” Member States are required to “ensure that at least one procedural mechanism . . . allows qualified entities to bring representative actions for the purpose of both injunctive measures and redress measures” in compliance with the Directive, and “[q]ualified entities shall be free to choose any procedural means available to them under Union or national law for the protection of the collective interests of consumers.”

The Collective Redress Directive defines a “qualified entity” in Chapter 1, Article 3. Under the Collective Redress Directive, a qualified entity:

means any organisation or public body representing consumers’ interests which has been designated by a Member State as qualified to bring representative actions in accordance with this Directive.

Relatedly, the Collective Redress Directive defines “consumer” as “any natural person who acts for purposes which are outside that person’s trade, business, craft or profession.” Essentially, consumers are defined as the inverse of traders, which we explored in our previous alert.

Required Qualified Entity Characteristics: A Check-List

For purposes of cross-border representative actions, the Directive provides that qualified entities “should be subject to the same criteria for designation across the” EU. According to the Collective Redress Directive, in all Member States, an entity should meet the following criteria in order to constitute a “qualified entity”:

In addition to consumer organizations, which are anticipated to make up a number of the qualified entities come 2023, a Member State may designate a public body as a qualified entity.

“Member States should be able to designate qualified entities in advance for the purpose of bringing representative actions,” and while the possibility of designating qualified entities on an ad hoc basis is generally discouraged, the Directive clarifies that “Member States should also or alternatively be able to designate qualified entities on an ad hoc basis for a specific domestic representative action.” The court or administrative authority should be able to make such a designation. The Collective Redress Directive imposes a continuing obligation on Member States to “assess whether qualified entities continue to comply with the criteria for designation, at least every five years.”

Members States are required to communicate to the Commission a list of the qualified entities it has designated in advance, complete with the names and statutory purposes of the entities, by no later than 26 December 2023. The list must also be publicly available.

Funding of Qualified Entities

Article 10 of the Collective Redress Directive governs funding of representative actions for redress measures. Third party funding is permitted, so long as it is allowed under national law. However, Member States are required to take steps to ensure “conflicts of interests are prevented and that funding by third parties that have an economic interest in the bringing or the outcome of the representative action for redress measures do[] not divert the representative action away from the protection of the collective interests of consumers.”

This means Member States “shall in particular ensure” that:

  • Qualified entities’ decisions, including settlement-related decisions, are not unduly influenced by a third party in a manner that would be detrimental to the collective interests of the consumers concerned by the representative action; and
  • The representative action is not brought against a defendant that is a competitor of the funding provider or against a defendant on which the funding provider is dependent.

With these requirements, the Collective Redress Directive establishes that traders may not fund qualified entities to file suits against their competitors.

Article 20 of the Collective Redress Directive addresses “assistance” for qualified entities. The Directive stated that Member States “shall take measures aiming to ensure that the costs of the proceedings related to representative actions do not prevent qualified entities from effectively exercising their” rights. This assistance may take the form of “public funding, including structural support for qualified entities, limitation of applicable court or administrative fees, or access to legal aid.” The Directive also provides that Member States may “lay down rules” to allow qualified entities to require consumers who have expressed their wish to be represented in an action for redress measures “to pay a modest entry fee or similar charge in order to participate in that represented action.”

Looking Ahead

After the laws adopted by Member States take effect by no later than June 25, 2023, one of the first considerations for traders facing collective action lawsuits will be whether the entity bringing suit actually constitutes a qualified entity. Member States’ publicly available lists of these entities will be a resource for traders. Traders facing suits from entities declared to be qualified on an ad hoc basis will be well advised to research the entity and analyze whether it meets the Collective Redress Directive’s qualifications.

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