Spain: Overview of Collective Redress Reforms

The Draft Bill for the Protection of the Collective Interests of Consumers is designed to repeal Directive 2009/22 and transpose the EU Directive on Representative Actions for Collective Interests (2020/1828) into Spanish law. The new bill marks a significant shift in Spain's support for collective redress and underscores its commitment to consumer protection.

The draft bill was initially presented by Spain's Ministry of Justice on 20 December 2022 and subsequently, between 9th and 18th January 2023, was made available for public consultation. The bill is currently subject to review by most notably, the Judiciary and State Council. Within the coming weeks however, it is expected that the bill shall be sent to the Spanish Parliament to undergo a final round of discussions prior to legislative enactment, which is expected to occur before the end of June 2023.

Whilst it may be assumed that some final and somewhat minor amendments shall be made, considering the advanced stages within the legislative process which the bill currently finds itself in, it is still possible to highlight some of the bills’ principal features. As it stands, Spain’s current mechanisms for collective redress will be the subject of extensive reforms that will dramatically transform the country’s consumer protection landscape. Whilst the Spanish legal system does currently provide consumers with the possibility to bring collective actions, the new bill aims to create a specific and far more coherent system for consumer protection and thereby, resolve regulatory dispersions which underpinned the failure of collective redress mechanisms introduced in the country during 2000.

Although the bill is consistent with the EU Directive, the material scope of the regulation proposed by the bill is far more wide-ranging. An overview of the key elements concerning the draft bill are as follows:

Summary of Key Elements

Legal Standing

In accordance with the EU Directive, the bill will confer legal standing on qualified entities to bring collective actions on behalf of consumers. Qualified entity designation shall now be given to the following groups:

• Consumer Organisations: Legal standing shall be given to entities created for the purpose of bringing domestic or cross-border collective actions. These organisations must request designation and meet certain requirements, such as being able to demonstrate 12 months of prior public activity relating to consumer protection.

• Qualified Entities from Other Member States: The draft bill extends legal standing to European consumer associations which file national collective actions. These are supplemented with additional transparency requirements which apply under local consumer protection regulations.

• Public Bodies: Legal standing to bring collective actions shall also be given to the National Consumer Institute, the Directorate General of Consumer Affairs and consumer protection agencies from Spain’s regional governments and local councils.

As a result of these amendments, individual consumers or groups of individual consumers without qualified entity status will no longer be given legal standing to bring collective actions, nor shall they be permitted to intervene as a party in collective consumer proceedings.

Damages and Injunctive Relief

The bill shall provide for redress measures seeking monetary damages for the first time, as only injunctive measures were previously available for collective consumer actions. Both monetary and injunctive relief may now be sought in the same proceedings, however, the judiciary shall retain the authority to order that the actions be brought separately if the matter is highly complex and likely to delay proceedings. Furthermore, claims which include injunctive measures shall only be admissible if the claimant had requested that the defendant cease the infringement with a minimum of 15 days' notice.

Although not specified within the bill itself, it is worth reminding that the Spanish legal system does not provide for punitive damages. The civil liability system is based on proportional compensation, whereby the damages award should match the impairment or loss suffered as a result of a given act, which may include purely economic damages or damages caused as a result of pain and suffering.

Jurisdiction

Regardless of the area of law or subject matter, the bill provides for proceedings to be heard at the court of first-instance located within the autonomous community in which the defendant has its registered office or, in the alternative, where it has commercial premises. First-instance decisions are appealable at the Court of Appeal and subsequently, the Spanish Supreme Court, with decisions subject to appeal remaining unenforceable during the interim.

Certification

A certification hearing shall take place following admittance of the claim and any issues surrounding certification that are raised by the defendant must be resolved during this initial procedure. In order for a certification court order to be issued, the court must at a minimum approve the following:

• The Statement of Claim: Certain information must be included by the claimants within their statement of claim, including the infringing conduct giving rise to the damage for which redress is sought and the claimant group definition outlining sufficient commonality amongst the consumers concerned.

• Adequacy of Representation and Funding: The court must assess any issues surrounding the adequacy of representation, such as the qualified entity’s suitability to bring the collective action, including any litigation funding arrangements they have with third-parties to finance the claim. On this particular point, qualified entities must now allow the courts to assess whether the litigation funder or any agreement with them gives rise to a potential conflict of interest. There will be conflict when the funder has an economic interest in the outcome of the collective action that differs from that of the consumers.

The certification order shall have important implications on claimants that had previously filed an individual claim. These individuals shall subsequently be offered the possibility of being bound by the collective action within ten days or, should they refuse or fail to respond, they will be bound by the collective action regardless and the court will dismiss their claim.

Opt-out Mechanism

The draft bill establishes a default opt-out mechanism for collective actions, in other words, consumers who reside in Spain will be bound by the outcome of the action unless they explicitly express their desire to not be represented by the qualified entity or to form part of the collective action. Although the draft bill stipulates that the opt-out mechanism is the default system, the courts may decide, depending on the particular circumstances, to admit a collective action on an opt-in basis. Although the courts are not obligated to, they shall retain the right to admit an action on an opt-in basis if each represented claim amounts to at least €5,000 and it is considered a more efficient mechanism for the particular action compared with opt-out proceedings. The draft does not specifically stipulate any criteria for this supposed ‘efficiency’ test, any assessment of efficiency is therefore more likely to be shaped by proceeding case law.

Disclosure

The disclosure provisions within the draft bill replicate those currently governing actions for infringements of competition law. Although claimants shall therefore be permitted to request access to certain sources of evidence, in reality, disclosure requests for anticompetition actions have to date resulted in very limited disclosures.

Settlements

The draft bill provides for settlements resulting from a collective action to be reached. Settlements shall be subject to judicial approval and shall only be granted following confirmation that the interests of consumers and their rights to individual compensation have been adequately protected. This shall include any requested clarification on the total amounts to be paid to each category of claimant, in addition to the procedures for distributing the compensation. Conjunctively, this shall include a disclosure of the litigation funders’ profits as a result of the settlement reached. If a settlement is achieved and approved by the courts, consumers shall be granted sufficient time with which to opt-out of the settlement agreement, in the alternative, they shall bound by the approved settlement.

Enforcement

The draft bill includes specific rules on enforcement, differentiating between injunctive and monetary relief:

• Injunctive judgments: The defendant must comply with all stipulations within the specified period or risk the imposition of severe sanctions.

• Opt-in monetary judgements: The defendant is to pay the compensation directly to every named beneficiary of the decision.

• Opt-out monetary judgements: The courts shall estimate and set the maximum amounts to be paid to all affected consumers. The defendant must then deposit a lump sum with the courts within the period established by the judgement. The claimant entity will then be responsible for arranging compensation payments to all of the beneficiaries. The defendant may be ordered to deposit further funds if these are insufficient. Conversely, once the time limit for enforcement has elapsed, any amounts remaining following the distribution of funds must be returned to the defendant.

Public Register and Communication

To effectively manage collective actions, the draft bill shall introduce a specific electronic tool that shall be managed by the qualified entity submitting the claim. Through the registry, consumers can effectively opt-out of the action and preserve their individual rights. The tool will also assist with effectively communicating all relevant information concerning the collective action to potentially affected consumers, including updates concerning the status of the claim, specific information concerning the class definition, the judgment itself and any deadlines for enforcement. In parallel, the Ministry of Justice shall also establish and manage what is to be known as the Public Register of Collective Actions. The register will hold a record of all pending collective actions, a brief summation of the subject matter, scheduling and judgements.

Conclusions

Should the Draft Bill be approved in its current form, the Spanish Government will not only have complied with the requirements to transpose the EU Directive into national law but also, gone beyond its obligations by establishing a wide-range of effective procedural mechanisms focused on the collective interests of consumers. We are cautiously optimistic that this new regime will establish Spain as one of the leading jurisdictions for consumer-focused collective redress within the European Union. It is worth reminding however, that the significance that these reforms shall have on local consumer protection efforts will be substantially dependant on the stance and role of the judiciary in adequately shaping subsequent case law.

Following legislative enactment, we shall be providing our readers with a comprehensive overview of the Spanish legal system within the context of the new and finalised collective redress reforms, including the implication of domestic consumer protection laws, the validity of certain fee arrangements, the ‘loser pays’ doctrine and insurance policy requirements, among many other points.