Opt-in representative actions and litigation funding on the horizon for Irish Consumers?

The Government has published the General Scheme of the Representative Actions for the Protection of the Collective Interest of Consumers Bill 2022 (the Scheme). This aims to transpose into Irish law the EU Directive that provides for collective actions by consumers (see our previous update here).  

Once enacted, the Bill will mark one of the most significant reforms in the area of consumer protection and redress since the State was founded. It will allow groups of consumers who have suffered material loss or adverse consequence due to a breach of EU consumer protection law to come together in a type of class action (a 'representative action') to seek redress. Whilst the legislative process is still underway and the deadline for implementation is not until June 2023, it is clear that the changes will be significant and the Scheme gives a flavour of what can be expected. 

It is important for consumer-facing businesses to note that the system proposed is likely to be partially retrospective – so breaches of consumer law that occur even before the system is implemented in June 2023 may form the basis for claims under the new system, subject only to the time limits imposed by the Statute of Limitations.

In developing the legislation, policymakers have looked to other class action regimes around the world, and built in safeguards in an effort to ensure that the benefits of collective redress flow to consumers, rather than to specialist plaintiff lawyers. Unlike the US class action system, for example, there is no provision for punitive damages and actions can only be brought by designated 'qualified entities'. 

The underlying Directive requires that the regime must provide for a 'loser pays' principle, and also limits the extent to which participating consumers may be asked to contribute to the costs of a representative action. These requirements taken together add up to a potential contradiction in circumstances where the third party funding of litigation remains largely unlawful in Ireland. 

The Scheme includes some interesting indications that reform of the ban on litigation funding may be under active consideration by the Government.

General 

The Scheme has largely matched expectations – it contemplates that representative actions may only be brought by qualified entities, as designated by the Minister for Enterprise, Trade and Employment, and that the actions will come before the High Court. Representative actions could be brought by multiple qualified entities that are designated in accordance with the Directive in a different Member State for the purpose of cross-border representative actions. These entities will be able to seek injunctive and other redress measures. 

To be designated as a qualified entity for both domestic and cross-border actions, an organisation will have to satisfy a number of criteria, including:

• it must be able to demonstrate 12 months actual public activity in protecting consumer interests before it applies to become a qualified entity;
• it  must show that it has a legitimate interest in the protection of consumer interests; 
• it must have a non-profit-making character; and 
• it must be independent and must be influenced solely by consumers

Key features of the Scheme

Costs

The Scheme includes a provision that qualified entities are to bear the costs of an action save for the payment of an 'entry fee' charged to consumers to join the representative action, and the amount of that fee will be limited by regulation. The Scheme also provides that orders for costs will be determined in a way that retains the 'loser pays' principle set out in the Legal Services Regulation Act 2015. As we have seen, to be designated as a qualified entity, a body must have a 'non-profit making character' – therefore a central question remains as to how such a non-profit entity - with limited recourse to the members of a representative claimant group will be in a position to discharge either its own ongoing costs, or those of a successful defendant to an action.

A ban on almost all forms of third party litigation funding persists in this jurisdiction, despite judicial calls for reform over the course of several years. There are clear indications within the Scheme that some change on that issue is under serious consideration at least in the limited area of consumer protection – for example the Scheme provides that: 

"Where a representative action for redress is funded by a third party, insofar as permitted under Irish law, the Court shall ensure that any 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 does not divert the representative action away from the protection of the collective interests of consumers. " 

It appears that reform in these two key areas may go hand-in-hand, and we will monitor developments on both fronts over the coming months.

Remedies

As expected, the Scheme provides for both injunctive relief and monetary redress, but rather than treating each as standalone remedies that may be sought in tandem, it appears to provide for a two-stage process, where a qualified entity seeks an injunction to bring an end to an infringing activity, and may subsequently seek redress in separate proceedings. The Scheme provides for the suspension of limitation periods during the injunctive stage, until a determination is made by the High Court. We anticipate that this may result in larger numbers of consumers joining a representative action at a stage where liability has effectively already been determined. 

Safeguards

Along with the requirement that a qualified entity institute proceedings, several other safeguards are built into the Scheme. 

The High Court will enjoy a discretion to dismiss an action at any stage of the proceedings where it is satisfied that it is 'manifestly unfounded'. 
Further, the scope of the representative action system is currently limited to the 66 pieces of EU consumer protection legislation included in the schedule to the Directive. The government has not yet opted to expand on that schedule to include causes of action based in tort or contract (albeit that the scope of those 66 pieces of legislation, including GDPR and Unfair Terms legislation might be considered sufficiently broad to capture most potential consumer litigation). The government has also provided that both domestic and cross-border actions will be 'opt-in', and have made no provision for the kind of 'opt-out' actions that we have recently seen in the realm of competition law in the UK.

Conclusion

The publication of the Scheme of the Bill is to be welcomed insofar as it begins to bring clarity to this sea change in the Irish legal system. ALG will continue to monitor developments as it proceeds through the legislative process and in particular in the area of third party litigation funding. 

For more information, please contact Disputes and Investigations partners Joe Kelly, Ciarán O'Conluain, Sarah Murphy or Sinead Hayes associate and Helen O'Connor, Knowledge lawyer.

Date published: 6 April 2022