Article Post on 16 September 2020

Consumer Class Action Law: Draft Legislation Gathering Pace in Luxembourg

This article also exists in French.

_On 14 August 2020, the Luxembourg Minister for Consumer Protection presented Parliament with bill n°7650 concerning the introduction of consumer class action law suits. The stated objective of the draft legislation is to facilitate more effective access to justice in the specific instance of professional misfeasance leading to mass prejudice, in other words one suffered by a large number of consumers. This draft legislation had been expected, particularly within the Union luxembourgeoise des consommateurs, and is proving to be useful, necessary and as balanced as possible.

1. Long-Awaited Draft Legislation

The legal instrument, which has existed in France since 2014 and is familiar to legal practitioners in Belgium and Germany, has been on the radar of the Luxembourg government for some time. In future, it will pave the way for legal action by a single representative on behalf of a group of consumers (a consumer being part of a group or qualified entity) for the same act of misfeasance on the part of the same professional. This would serve as an alternative to a multitude of assorted, time-consuming and costly individual law suits. Coincidentally, this draft legislation comes just weeks after the adoption of the European directive on representative actions where the protection of the collective interests of consumers in concerned, on 22nd June 2020. This directive clarifies the role of parties bringing class action law suits as well as the allocation of legal expenses through the “loser pays” principle. The new European legal framework strikes a balance between the lawful protection of consumer interests and the need among companies for legal peace of mind, while each Member state will have to introduce safeguards to prevent abusive claims. As a minimum, the European directive will leave national legislators to specify operational rules, particularly where compensation is concerned. This is the backdrop to the Luxembourg draft legislation.

2. Useful and Necessary Draft Legislation

A surge in activities, the rise of consumerism and technical advances explain the potential growth in mass or serial damages claims. The introduction of class action law suits to the Luxembourg legal landscape is a necessary step in order to guarantee the breadth of consumer rights and to ensure compliance with European law. This mechanism will provide Luxembourg’s arsenal of legal measures with useful reinforcements when individual proceedings, extrajudicial dispute resolution or injunctions are not suitable. As explained in the government press release, “The introduction of class action law suits will mean that an equal and coherent response can be provided to each dispute (on the basis of the consumers and levels of prejudice in question)”. More often than not, an individual consumer lacks the necessary power to take on a large company alone, for instance in the mobile telephony or automobile sectors. Large groups can leverage any such situations to exert ever greater economic dominance. Under the proposed doctrine, class action law suits would ensure improved legal administration in the event of mass prejudice. In fact, they allow for the pooling of financial and human resources, the facilitation of evidence (testimonies, documents), the reduction of administrative costs, a lighter court workload and the avoidance of contradictory rulings.

It should be emphasised that the proposed class action law suits would not create new rights in respect to the individual legal action of a consumer. Therefore, consumers compensation will continue according to the remedies set out under common or consumer law, such as the payment of civil liability damages or the application of the legal guarantee of conformity (the return of an item and price refund, price discount or item repair or replacement). As for the field of application, this remains that of consumer law, as currently defined under law and jurisprudence. Certain exemptions to civil procedures under ordinary law have nevertheless become necessary in order to adapt the “class action” nature of the suits.

Class action law suits as proposed in the current version of the draft legislation involve three phases. First of all is the consideration of the admissibility of the class action law suit, in order to prevent fanciful or abusive claims. If the court finds the suit to be admissible, it proceeds for consideration and ruling according to the object of the claim, be it concerning professional liability (for the compensation of damages), an injunction or prohibition regarding the misfeasance or both. Any ruling on defendant liability will serve as a “test case” which can be applied to all other similar cases, in other words for all individuals in an identical or similar situation suffering a form of prejudice the shared cause of which is an act of misfeasance caused by the same party. In its second phase, the draft legislation would then set out the application of the ruling on the liability which is now within the remit of a liquidator. In the third and final phase, the liquidator would provide his or her report to the judge appointed to implement the ruling concerning the liability. If all consumers have been compensated, the case is then closed. If not, the case returns to the Luxembourg district court so that it may decide on the compensation claims of the consumers left unsatisfied by the professional.  

3. Balanced Draft Legislation 

The draft legislation aims to create an effective and efficient procedure which is suitable for group disputes and offers the necessary safeguards against abusive claims. In order to do so, class action law suits are subject to specific conditions and the procedural guarantees of common law, particularly those set out by the NCPC. Is also worth noting two other elements which give rise to many abuses of the class-action system in the United States and which have been discarded: firstly, our legal system does not enable punitive damages and secondly, the quota litis pact is not permitted in Luxembourg, as the remuneration received by a lawyer cannot depend exclusively on the result. If the procedure set out by the draft legislation guarantees both the rights of consumers and those of professionals, it also affords the judge a sufficient margin for manoeuvre to tailor this mechanism to the disputes brought before the court. Lastly, the extrajudicial resolution of class action disputes is also encouraged under this draft legislation, by means of a mandatory information meeting when the class action claim is declared to be admissible, in order for the parties to find an amicable solution where possible. To guarantee that party rights are respected, the resulting agreement must be approved by the court (future articles L. 522-1 to L. 522-17 of the Consumer code). The class action draft legislation thereby places great importance on amicable resolutions of consumer disputes.

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