Emerging threat: The Representative Actions Directive and the growing risk of mass claims
The implementation of the Representative Actions Directive in Finland brings forth new opportunities for consumer protection and an increased risk of mass claims for businesses.
The Class Action Act (444/2007), in effect in Finland since 2007, was amended earlier this year to address the broader scope of the Representative Actions Directive. Additionally, the Cross-border Injunctive Measures Act was repealed, and a new Representative Actions for Injunctive Measures Act was introduced. The main amendments, effective 25 June 2023, are set out in the following table.
The Representative Actions Directive grants qualified entities, e.g., consumer organizations and public authorities, the power to bring legal actions on behalf of a definable group of consumers who have similar claims against the same defendant, provided that it makes sense to handle the matter as a class action. This means that when a significant number of consumers have been affected by e.g. unfair business practices in respect of a defective product, qualified entities can act as representatives and seek redress collectively, providing for a more efficient and accessible mechanism for addressing mass claims. Individuals can opt to join the class.
The new Act stipulates that the Market Court will have jurisdiction over representative actions for injunctive measures. As for redress measures under the Class Action Act, the Helsinki District Court will be the competent court with jurisdiction over all class actions in Finland.
Third-party Funding: Growing Risk of Mass Claims
For businesses, the implementation of the Directive means an increased risk of mass claims. As representative actions allow for a collective approach to seeking redress, the potential number of claimants can be substantial, especially as the regime now provides for the possibility of litigation funding.
Litigation funding can play a crucial role in enabling representative actions, since individual claimants or consumer organizations may find the financial burden too overwhelming to handle the case alone. Mass claims are also appealing to many litigation funders.
The Directive stipulates that Member States must ensure that, if a third-party funds a representative action for redress measures, conflicts of interest must be prevented to the extent permitted by national law. Furthermore, it ensures that funding from third parties with a financial stake in the initiation or outcome of the representative action does not divert the focus of the action from safeguarding the collective interests of consumers.
In Finland, funding for class actions is allowed, but there are restrictions in place. Specifically, a third-party funder of a class action cannot be a competitor of or reliant on the defendant.
Moreover, the funder is prohibited from exerting influence over the claimant’s class action proceedings in a way that harms the collective interests of consumers. This includes influencing decisions made by the class during the course of the class action.
Forum Shopping: Navigating Jurisdictional Differences
One significant concern arising from the Representative Action Directive is the potential for forum shopping. Member States have significant leeway in implementing the Directive, creating legislative differences between Member States. This is turn allows claimants to initiate proceedings in the Member State deemed most favorable for claimants insofar as is permitted by the Brussels I Regulation or the otherwise applicable national rules on jurisdiction.
One of the most notable legislative distinctions that can make a Member State favorable for mass claims is whether it has adopted an opt-in or an opt-out mechanism. In an opt-in system, claimants need to actively join the lawsuit, while in an opt-out system, individuals are automatically included unless they choose to opt out, making it easier to form a group. This opt-out mechanism is adopted currently in the Netherlands and Portugal, making them likely candidates for more class actions.
In contrast, Finland’s legislative choices, which include an opt-in approach, may render it less favorable for mass claims under the Representative Action Directive, where the choice of forum is available.
Expanding the Scope of Mass Claims
The Representative Action Directive expands the possible scope of mass claims. It allows for the possibility of bringing an action in cases where a business has caused or possibly caused harm to the collective interests of consumers by violating one of the many EU legislative instruments listed in the Directive.
The expanded scope covers areas such as data protection, financial services, transport, electronic communications, and ESG matters. Given the increasing prominence of these considerations, the Representative Action Directive paves the way for additional litigation related to these issues.
This could lead to claims against businesses that are accused of failing to meet various standards and failing to comply with EU regulations, e.g., by violating the GDPR. As consumers and advocacy groups become more aware of these matters, including ESG concerns, businesses are well advised to ensure robust compliance so as to mitigate the risk of mass claims in these areas.
Managing Reputational Impacts
Mass claims also run a greater risk of negative publicity and reputational damage. Proactive engagement with consumers, transparency, and the swift resolution of issues will be key to mitigating the reputational impacts of mass claims.
Adapting to the New Landscape
Businesses must adapt their strategies and operations to effectively navigate the challenges posed by the Representative Action Directive and to understand the differences between the regimes. Additionally, businesses are well advised to assess the financial implications of mass claims and review their insurance policies to ascertain whether they provide coverage for such claims.
Strengthening compliance and implementing robust risk management processes are crucial to safeguard against mass claims. This includes reviewing practices, policies, and contractual terms to identify areas of concern that may lead to consumer harm or representative actions.
Furthermore, comprehensive public relations strategies that prioritize open communication, prompt resolution of consumer grievances, and transparency can prove vital in addressing the reputational risks arising from mass claims.
By demonstrating a commitment to consumer protection and effective redress mechanisms, businesses can mitigate the negative impact of mass claims and preserve their reputation.
The new legislation implementing the Representative Actions Directive in Finland entered into force on 25 June 2023. Roschier has contributed to a Europe-wide study by Lex Mundi on the implementation of the Directive in different EU countries.
We regularly advise Nordic companies in relation to updated legislation and regulatory compliance, most notably in the form of preparing and reviewing internal compliance policies. Additionally, we have extensive experience in handling major litigations, including product liability and similar consumer matters.