What the EU Commission’s proposed directive on collective redress could mean for airlines

Following the Commission’s previous recommendation on collective redress measures which had limited impact, the Commission proposed a package for a “New Deal for Consumers” (the Proposal) intended to improve mechanisms available at national level for compensatory relief in “mass harm” situations. While many Member States have introduced collective redress mechanisms, as each Member State adopts a slightly different model, the desired goal of harmonisation in the Commission’s previous recommendation has been ill achieved.

Whilst the Proposal appears to be suitable for victims of scenarios such as the Volkswagen emissions scandal, it also professes to cover areas such as travel and tourism, and specifically refers to Regulation (EC) No 261/2004, which provides the rules for compensation if flights are delayed or cancelled. The Proposal, therefore, will have ramifications for airlines.

How will it work?

In terms of what the Proposal hopes to achieve, redress may come in the form of compensation, repair, replacement or reimbursement.

The Proposal will empower “qualified entities” to bring representative actions on behalf of consumers to protect their collective interests, allowing consumer organisations and independent public bodies designated by a Member State to form qualified entities and receive third party funding.

Whilst the courts and administrative authorities will be empowered to assess arrangements for third party funding, the Proposal does not go so far as to state how litigation investors will be prevented from benefiting from claims through qualified entities. Further, the Proposal contends that a qualified entity must be non-profit and be monitored on a regular basis but the Proposal, rather unhelpfully, does not define how such monitoring will be carried out or how often a “regular basis” is to be.

As to costs, the rule is that the unsuccessful party pays the necessary legal costs of the winning party subject to the relevant national law. The Proposal does not however give guidance on what “necessary” legal costs are and allows each Member State flexibility to militate the cost consequences. Such flexibility belies any intention of creating a uniform approach and creates yet more uncertainty for defendant airlines in an already overwhelmingly litigious environment. This will also tie up the courts in further unnecessary decision making on costs, departing from the certainty of fixed costs regimes.

The concern for airlines therefore will be that claims farmers will jump on this bandwagon and use the Proposal as an opportunity to inflate costs by circumventing the fixed costs regime under CPR.

Airlines are already facing claimants who are evading fixed costs in the UK courts by abusing the European Small Claims Procedure. Now, the Proposal raises concerns that some claimants will be inclined to once again forum shop to get the best deal on costs as a qualified entity may seek redress and bring proceedings in the courts or tribunals of any Member State.

Whilst the Proposal optimistically proclaims it will be a “strong safeguard against frivolous actions”, the reality is that airlines will be dealt with yet another arena for more abusive litigation.

Comment

The Commission considers that consumers do not already have a robust enforcement system in place which ensures that Member States fully apply, implement and enforce EU law and which allows for adequate redress. However, it is questionable as to why consumers need another conduit in which to bring claims or what void the Proposal is filling, when our courts are already providing such support to consumers.

Despite the Commissioner for Justice, Consumers and Gender Equality averring that the Proposal “will bring more fairness to consumers, not more business for law firms”, it is sincerely doubted that claims farmers will be prevented from acting for their own commercial interests; the Proposal could simply be another vehicle through which abusive litigation, inflated costs and forum shopping will be rife.

One must also consider whether the Proposal will be applicable in the wake of Brexit. Given that the terms of our departure are mired in uncertainty, this question remains unanswered. What is certain however is that the “new” Proposal for collective redress may very well strengthen the position for consumers in the short term, but that it will pose a threat to the entire travel market, which, unless it wishes to suffer, should strongly consider calling for its withdrawal.

If approved, the implementation of the Proposal will be, in part, subject to the discretion of each Member State. Therefore, as the implementation will differ depending on the Member State, surely the dream of homogenous application will remain nothing more than a dream.

Changing the terminology, branding the Proposal as “new” is not enough to resolve the issues extant from the Commission’s previous recommendation; one must look to the substance and not the form. Instead of being blinded by terminology, the merits of the Proposal must be carefully assessed.

This article was co-authored by Alexandra Miller, Trainee Solicitor, London.

Read other items in the London Market Brief - October 2018