Filenews 23 April 2023 - by Angelos Nicolaou
In the wake of the Dieselgate scandal and the mass cancellation of flights by Ryanair in September 2017, the European Commission had considered that a new legislative framework for representative actions was needed that genuinely safeguarded consumer rights. Hence Directive 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC became necessary when it emerged that the legislation currently in force did not effectively and effectively address the chronic problems of consumers seeking individual redress.
Asked by "F", Konstantinos Karagiorgis, Director of the Consumer Protection Service, said that the Directive in question, which will be transposed into our national law with the proposed bill entitled "The Issuance of Court Decrees and Registration of Representative Actions for the Protection of the Collective Interests of Consumers Law of 2023", authorizes qualified entities specifically designated for this purpose to register injunction actions and/or to seek redress (including compensation) from a group of consumers who has suffered damage from a trader who is alleged to have infringed one of the European laws as set out in the Annex to the Directive. This Annex, which includes 66 European Directives and Regulations, covers areas such as, among others, consumer protection, telecommunications, environment, investment, protection of personal data, finance, health, travel, transport, etc.
According to Mr. Karagiorgis, the proposed legislation introduces an innovative element regarding the exercise of representative actions. Representative actions are a court procedure that allows a qualified entity to file a lawsuit, on behalf of a group of consumers, who have suffered harm from a trader (so-called collective redress or class action (US)). Essentially, under the proposed legislation, the court also has the power, under specific conditions, to order specific measures aimed at remedying adverse situations to the detriment of consumers, such as the payment of financial compensation, repair or replacement of products, price reduction, termination of the contract, whereas under existing legislation the court has the exclusive power to issue prohibitory injunctions e.g. on cessation of use of unfair terms in housing contracts, but this decree does not directly and personally benefit the consumer.
With the new Directive, however, two regulatory options arise regarding the issue of consumer participation in the process and the issue of financing court proceedings.
Specifically, as pointed out by the Consumer Protection Service, regarding the system of consent of individual consumers to their representation by the qualified organization there are the following options:
(a) Explicit consent (opt in) with each affected consumer declaring his participation in the process, possibly paying a sum of money, or (b) tacit (opt out) consent, i.e. all affected consumers participate without exception, unless they declare that they do not want to participate in the process.
As Cyprus, evaluating the two options, we chose opt-in mainly because it is procedurally simpler for the court to implement (given the lack of previous experience in Cyprus in handling such cases) e.g. estimation of total amount of compensation, taking into account the exact number of consumers wishing to participate.
In relation to the issue of financing of lawsuits, the Directive provides that Member States shall provide support to notified bodies, such as public funding, limitation of court fees or access to legal aid, without, however, the State being obliged to finance such actions. Cyprus opted for non-funding, as the aim of the legislator is not necessarily to finance the lawsuits by the state, but to obtain funds from the private qualified entities themselves. It should be noted that both the Consumer Protection Service and all other competent public authorities, which are designated as qualified entities, may, through the Legal Service, file lawsuits on behalf of a group of consumers.
Directive (EU) 2020/1828 is a decisive step towards establishing an appropriate legal framework governing representative actions for the protection of the collective interests of consumers in the national legal orders of the Member States. The proposed bill has already received the approval of the Council of Ministers and is expected to be submitted to the House of Representatives for discussion before the competent Parliamentary Committee with a view to its immediate adoption to safeguard primarily consumer rights.
It is noted that Member States until 25/12/2022 had the obligation to adopt and publish the measures necessary to comply with the EU Directive and to implement the measures by 26/6/2023.
It should be noted that the previous Directive 2009/22 provided qualified entities with the possibility to bring representative actions, which had as their main objective the cessation or prohibition of infringements of EU law harming the collective interests of consumers. However, it emerged that this Directive did not sufficiently address the challenges related to the enforcement of consumer protection laws. With a view to improving the deterrence of illegal practices and reducing consumer detriment in a market increasingly characterised by globalisation and digital transformation, it was considered necessary to strengthen procedural mechanisms for the protection of consumers' collective interests to cover prohibitory injunctions as well as redress and/or redress measures.
It is noted that the Consumer Protection Service (CPS), in the context of the public consultation of the bill in question, was asked by organized groups and government agencies to submit their views on the bill, which were evaluated and taken into account.
Interests are being harmed rather than protected, say consumers
Negative for consumers are the provisions contained in the bill on representative actions approved by the Council of Ministers on April 12, 2023, as stated in "F", the president of the Cyprus Consumers Association, Marios Droussiotis. Provisions that could be avoided, he points out, stressing that the current legislation is better than the bill as it has been formed. Mr. Droussiotis calls on the Consumer Protection Service to take seriously into account the suggestions of the Cyprus Consumers Association, since, as he notes, "unfortunately, the Service did not accept any of the substantive suggestions of the Association".
He complains that the bill, as drafted, favors the business world rather than consumers. "For the Cyprus Consumers Association, the impression given is that the inclusion in the bill of negative provisions against consumers was not for consumer protection, but for other purposes that it cannot understand. It is very regrettable that an agency whose purpose and existence is consumer protection should act in a way that gives the impression that it is beyond the scope of its existence," he adds. Now, the Association needs to step up its efforts at the legislative level.
The bill that was completed and voted on concerns the Issuance of Court Orders and Registration of Representative Actions for the Protection of Consumers Law of 2022. According to Droussiotis, the bill contains very negative provisions that constitute a real obstacle to effective consumer protection through representative lawsuits.
The main points of the bill, which characterizes real obstacles to the exercise of representative action by qualified entities for the protection of the collective interests of consumers are:
1.In the bill there is a provision prohibiting the state from funding qualified entities to protect the collective interests of consumers. It is noted that the legitimate entities currently in Cyprus are only the two consumer associations and the Consumer Protection Service of the Ministry of Energy. As is well known, both consumer associations are voluntary organisations with no substantial financial resources to enable them to bring a representative action involving huge costs. In such a case, Mr. Droussiotis asks: a) Where will the qualified entities find the money to proceed with such a lawsuit? b) What purpose does this legislative prohibition on the state funding representative actions serve? Is it to be an obstacle to the filing of such a Lawsuit? c) In the current legislation currently in force, funding by the state is permitted. Why is the bill now being overturned?
2.The relevant Directive, which requires the legislation on representative actions to be updated, leaves it to Member States to determine the procedure by which such an action may be brought. Basically, two procedures are proposed in the directive. The opt in procedure and the opt out procedure (implicit).
3.In the opt-in procedure, the qualified entity should obtain the consumer's explicit consent that he accepts to participate in the action, ask him to submit all necessary supporting documents and evidence that he has been harmed and thus give him the right to participate in the action and prove that he is a consumer and not a professional.
The qualified entity should form a separate file for each interested party, study all the certificates and evidence submitted in the file, evaluate all the material in the file, decide whether the consumer's participation is legitimate, decide that there is a relevance in his requirements along with the requirements of other interested parties that gives him the right to be included in the group of interested parties, etc.
The question is, how can a qualified entity, without the necessary staff and financial resources, manage hundreds, perhaps even thousands of such files? The workload is huge and almost impossible to process. Essentially, qualified entities are prevented from proceeding with such a lawsuit.
If such an action succeeds in court, i.e. through the opt-in procedure, only those who gave their express consent and were included in the group of interested parties will benefit from the decision, and not all those who have been harmed by a violation of the law.
4.The opt-out procedure shall not require the express consent of the person concerned, but it is implicitly understood that all consumers harmed and entitled to compensation are represented. This procedure, i.e. opt-out, benefits the maximum number of consumers harmed, i.e. almost all injured parties.
In addition, the qualified entity will not need to proceed with the preparation and evaluation of hundreds or even thousands of files.
Letter Synd. Consumers at the Ministry of Consumer Affairs Trade
It is noted that a week before the decision of the Council of Ministers was taken on 12/4/2023, the President of the Cyprus Consumers Association, Marios Droussiotis, sent a letter to the Minister of Energy, essentially stating that the prohibition of funding qualified entities for the protection of the collective interests of consumers provided by the bill for the registration of representative actions for consumer protection puts substantial obstacles to the exercise representative action.
In the letter dated 5/4/2023, Mr. Droussiotis states that the bill contains "very negative provisions that constitute a real obstacle to effective consumer protection through representative lawsuits". The main point raised by Mr. Droussiotis is the provision prohibiting the state from funding qualified entities to protect the collective interests of consumers.
Furthermore, referring to the options given by the EU for the procedure for filing such a lawsuit, the opt in and opt out, Mr. Droussiotis underlines that the opt-out procedure is the most appropriate and serves much better the purpose of the directive on representative actions, whose purpose is to give consumers a powerful tool for the more effective protection of their rights. "Bearing in mind the conditions prevailing in Cyprus concerning qualified entities, this tool that the European Union wants to give us, is essentially rendered useless through the provisions of the bill," he notes.
Modernisation of the institutional framework
The Council of Ministers approved on April 12, 2023 the bill, entitled "The Issuance of Court Orders and Registration of Representative Actions for the Protection of the Collective Interests of Consumers Law of 2023". The purpose of the bill is to harmonize with the European Directive of the European Parliament and of the Council on representative actions for the protection of the collective interests of consumers.
In particular, the draft law modernises the already existing institutional framework for the protection of the collective interests of consumers, which allows national courts to order the cessation of conduct infringing consumer law and its prohibition in the future, and introduces new rules for national courts to take redressive measures.
This second part of the provisions is mostly a novelty for Cypriot law, since it allows national courts, under specific conditions, to order specific measures to remedy adverse situations against consumers that have arisen due to infringements of consumer protection legislation.
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The House also has its say
The two hot issues raised by the Cyprus Consumers Association, both the issue of financing and the issue of opt in and opt out, are expected to be discussed more extensively during the discussion in the competent parliamentary Trade Committee. Even if the Consumer Protection Service does not favor the issue of state funding, as well as the implementation of the opt-out system, as is the strong opinion of the Consumer Association, MPs have the opportunity to listen to all stakeholders and propose amendments to the bill. In fact, if the Ministry agrees and does not change the philosophy, the amended bill, if approved by the Plenary of the Parliament, can be published in the official gazette of the Republic without returning to the Council of Ministers for discussion.
