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What the EU can learn from Spain's experience in representative actions regulations?

Alejandro Ferreres Comella, partner at Uría Menéndez Abogados, shares his experience of Spain's representative actions regulations to show the limits of the conceptual approach taken in the EU Directive on Representative Actions, risking to make litigation in the EU more complex and less effective.

 

On 11 April 2018, the European Commission published a proposal for a new directive on representative actions for the protection of the collective interests of consumers. The proposal essentially provides for compensation or damage claims to be aggregated to the injunction actions that consumer associations are entitled to file under consumer protection regulations. The proposal is based on the assumption that it will increase consumer protection by guaranteeing that their right to be compensated can be exercised in a more expeditious and efficient way.

This assumption is flawed and the European Commission has so far provided no proof of any empirical data supporting it. As explained here, the experience gained in Spain from taking this approach tells us that allowing the aggregation of collective compensation claims to injunction actions is a bad idea, as it does not provide better redress mechanisms for consumers and even puts injunction redress at risk.

 

Careful assessment of specific circumstances needed

Following a legislative change in 2000[1] , allowing for the aggregation of compensation claims to an injunction action, consumer associations – filing legal actions in connection with unfair standard contract terms – began to aggregate collective actions for the reimbursement of the amounts paid by represented consumers under the unfair contract terms to injunction actions.  

The Spanish courts realised that reimbursement or compensation relief can only be awarded after careful assessment of the specific circumstances of the negotiation of the contract by each individual. Unlike injunction relief, which can be rendered in the abstract. As such, the Spanish courts have held that in those cases in which a contract term is found not to be acceptable because it lacks transparency (pursuant to the incorporation test or the material transparency test), the seller or supplier can still defend the validity of the term in an individual contract because the party specifically negotiated it. In this context, deciding whether or not an individual affected by a given unfair standard term is entitled to reimbursement and/or compensation cannot be done collectively (or in the abstract).

As a result, Spanish courts have sometimes allowed for the aggregation of individual claims to injunction actions. In those cases, the court has decided on the one hand whether or not the challenged standard term or terms are acceptable, and on the other whether or not the individual claimants who were allowed to aggregate their individual claims to the injunction action are entitled to reimbursement or compensation on the basis of the specific circumstances of their cases.

 

Collective claims jeopardize the efficiency of injunction relief

However, the system has proven to be very inefficient in those cases in which a significant number of individuals are allowed to aggregate their individual claims to the injunction action. For example, in 2010, the consumer association ADICAE started an injunction action against 40 Spanish banks to challenge the validity of a standard clause that set an interest-rate floor in consumer loan and credit contracts. On the basis of article 12 of the Unfair Standard Contract Terms Act, ADICAE encouraged consumers who had entered into loan and credit contracts to join the litigation by aggregating their individual claims for reimbursement of the excess amounts they had paid because of the interest-rate floor clauses. Reportedly, almost 9,000 individual claimants joined the litigation.

As a result, the proceedings became complex and difficult to manage for the judge, and it took six years to get a decision at first instance on both the injunction action and the individual reimbursement claims. Even then, the judge only issued a declaratory decision on the individual cases, which forced each consumer to file a separate claim to get actual redress.

Academics and judges themselves realised that permitting the aggregation of individual claims to injunction actions puts the efficiency of injunction relief at serious risk. For that reason, this formula has been discouraged and consumer associations tend to no longer encourage the aggregation of individual actions to their injunction actions.

The delays in judicial proceedings in Spain have resulted in the Governing Council of the Spanish Judiciary to recently publish a proposal on measures to guarantee judicial efficiency in order to cope with the lawsuits resulting from the COVID-19 pandemic. Notably, after referring to the possibility of aggregating compensation actions to injunction actions[2] as the result of “an ambiguous legal design” which results in “a lack of precision in many lawsuits filed as collective claims” and “many delays in judicial proceedings, which have meant that injunction actions on unfair standard terms have lasted more than what would be expected”, the Council did not include collective redress mechanisms among the proposed measures. As an alternative, the Council encouraged the Government to consider, among other options, alternative dispute resolution mechanisms to resolve compensation claims.

To conclude, the experience gained in Spain from applying article 12 of the Unfair Standard Contract Terms Act and the possibility of aggregating compensation actions to injunction actions shows that the conceptual approach of the Representative Actions Directive will not prove to be efficient in providing monetary redress and, if anything, will most probably make litigation in the EU even more complex and less effective. Moreover, there is a concern that the Directive will also put at risk the success achieved at an EU level in the expeditious abstract control of unfair standard terms by means of injunction actions (as the sole action filed).

 

[1] Back in 2000, a provision was added to article 12 of the Spanish Unfair Standard Contract Terms Act (Law 7/1998) to allow for the aggregation of compensation claims to an injunction action. Pursuant to the new regulation, “plaintiff will be allowed to aggregate to the injunction action an action for the reimbursement of the amounts which have been paid pursuant to the unfair terms and an action for compensation for the damage that the application of the unfair terms have caused to consumers”. A similar provision was added in article 53 of Royal Legislative Decree 1/2007 approving the consolidated text of the Consumer Protection Act, which allowed for the aggregation of compensation claims to injunction actions filed in connection with other consumer protection regulations covered by Directive 98/27/EC on injunctions for the protection of consumers’ interests.

[2] Pursuant to Article 12 of the Unfair Standard Contract Terms Act