​At the end of last year, Romania passed legislation on representation to protect the collective interests of consumers (Law No. 414/2023), transposing the European Union Directive 2020/1828, which has the potential to change the paradigm of litigation between consumers and companies. In essence, the new regulation allows a very large number of consumers (theoretically unlimited) to formulate identical or similar claims against the same company in a single legal process collectively and in a coordinated manner. This type of litigation is inspired by the well-known American class action model, so it may raise concerns about the impact of the new regulation on business-to-consumer (B2C) companies. However, compared to the American model, the EU has chosen a model that balances the promotion of collective management of consumer interests in court with the protection of companies against abuse of judicial procedures.

Collective litigation (introduced by Law 414 under the European name actions in the representative office) differ from volume of disputes, which were previously practiced in Romania, accordingly a large number of similar disputes between the company and its clients. Their impact lies in the scope of similar proceedings, although each individual litigation is primarily concerned with a single consumer’s situation, has limited stake and effect, and the decisions handed down by courts in such “scopes” of similar proceedings are often different.

Instead, the new system targets the situation in which the claims of a very large number of consumers are resolved in a single lawsuit, potentially entire portfolios that in some industries exceed hundreds of thousands of contracts. Thus, the stakes and impact of a single representative action can be extremely high, as it will divide the claims or contractual situation among a potentially unlimited group of consumers.

Even before the adoption of Law 414 in Romania, there were lawsuits jointly initiated by several consumers or even non-governmental organizations defending their rights, but they faced numerous material and technical limitations or related to regulatory gaps. Therefore, in our country there were no practical situations in which it would be possible to ensure the representation of a very large number of consumers in one procedure.

The new law largely takes over the mechanisms proposed by Directive (EU) 2020/1828 and introduces news both from the point of view of the process (e.g. regarding the identity of claimants, the way of expressing their consent, the limits of consumer involvement) in the process and the role of certain organizations specialized in their representation), as well as from the point of view of effective measures to which companies may be obliged (the most notable is the possibility of a court awarding monetary compensation to the entire portfolio of consumers). In addition, for the first time in Romanian law, systems such as third-party dispute funding or mechanisms that ensure the amicable settlement of disputes between companies and a large group of consumers (but without the need to negotiate with each of them) have been regulated in Romanian law. consumer individually).

What subjects can initiate a dispute between consumers and companies

The main innovation of Law 414 is that, through representative actions, the claims of a potentially unlimited number of consumers will be able to be heard through a single legal entity-plaintiff, which will be legally given the prerogative to represent and manage the interests of the relevant consumers.

These bodies were named “qualified persons” and can be both state bodies (if they are authorized by law or state authorities in this sense) and non-state bodies that meet a number of restrictive criteria provided by law (for example, the subject must prove, among other things, for at least 12 months effective public activity in the field of protecting the interests of consumers, that it does not have the purpose of obtaining profit and is independent). Verification of compliance with these conditions rests even with a court authorized by a representative action, and is a protection given to companies against illegitimate actions. These audits may also investigate the manner in which the qualifying organization received funding for the representative activities.

After establishing the right to initiate the procedure and represent a certain group of consumers in it, the qualified entity no longer needs to receive instructions or opinions from consumers regarding the resolution of the dispute. Thus, consumers will neither be able to independently initiate representative action nor be able to influence the course of the process (for example, regarding arguments, evidence or strategy). The new system provides flexibility in the procedural steps in court, but also exempts consumers (with some exceptions) from paying costs related to court proceedings.

Actions that qualified organizations can claim in court on behalf of a group of consumers

Qualified organizations can seek two categories of remedies in court after a company allegedly violates their customers’ rights.

On the one hand, with the help of representative actions, it is possible to demand measures to temporarily or permanently stop the activities of traders. On the other hand, the main innovation of Law 414 concerns compensation, which may consist of compensation, reduction or refund of the price, repair or replacement of the product, as well as compensation for the violation of the company’s obligations to consumers.

Option of consumers to be represented or not (systems choose in and refuse)

The only way consumers can influence the conduct of a representative action is by expressing their consent to be or not be represented in an action initiated by a qualified organization.

In the case of actions to stop certain practices, consumers do not have to express their consent to be represented by qualified organizations, they only have the option to express their disagreement to be considered represented by a qualified organization (system refuse).

In particular, once qualified, a qualified organization is deemed to have the consent of all consumers subject to a representative action that seeks to obtain measures to end practices deemed harmful to consumers. In such situations, the number of represented consumers may be uncertain during the duration of the representation, especially in cases involving large portfolios of consumers.

Conversely, in the case of representative actions aimed at protective measures, consumers must give their consent directly within certain periods provided by law (system choose in). The law does not detail the formal conditions for expressing the right of consumers to join a representative action, and verifying the validity of this agreement is likely to be a practical challenge and the subject of heated debate between qualified organizations and companies. Even in the system choose in upon confirmation of consent to representation in such litigation, the role of consumers ceases.

Sectors to which representative actions may be directed

Law 414 contains a list of almost 70 regulations, violations of which can give rise to representative actions. Thus, the legislator tries to cover as many areas as possible related to the protection of consumer rights. These acts cover both consumer protection in general and more specific areas such as liability for defects, financial industries, transport, communications, tourism, electricity and natural gas, retail, personal data protection, etc.

Funding of events in the representative office (financing of legal proceedings)

Law 414, for the first time in Romania, regulates the concept of third-party financing of legal proceedings (“financing of legal proceedings“”), which suggests that a third party can provide for the costs of performing actions in the representation, without the relevant financier acquiring rights of action or the prerogative to be able to influence the course of the legal process, but only with the possibility of receiving a profit after the resolution of the process (in the hypothesis of a favorable decision).

As another form of protection afforded to companies against wrongful lawsuits, the new regulation imposes a number of conditions and restrictions on the funding of third-party advocacy actions (for example, a lawsuit cannot be brought against a company that is a competitor of the sponsor or against a defendant from whom financier depends; financier cannot influence strategic decisions regarding funded litigation).

The possibility of concluding transactions regarding the repayment of the share of the representative office

Another innovation is the possibility of concluding a settlement agreement between a qualified person (acting on behalf of the consumer) and companies. Companies that are subject to a representative action can negotiate directly with the individual (rather than each individual consumer) to settle the dispute amicably. Courts must confirm the terms of the settlement agreement to protect the interests of consumers. Although the law states that the agreement is concluded directly between the company and the qualified organization, it also states that it is only binding on consumers who have expressly consented to its conclusion, without regulating the method of obtaining this agreement.

Thus, amicable settlement of claims by a large group of consumers, which seemed impossible for companies in the old paradigm, could be achieved through the procedures regulated by Act 414.

How are the measures assigned under the representative action carried out?

Neither Law 414 nor Directive 2020/1828 explicitly defines whether the role of qualified organizations ends after obtaining a court decision or can continue during the enforcement phase (for example, if the professional does not voluntarily pay the amounts that he was owed by each consumer represented). This is likely to be one of the challenges of the new regulation.

In conclusion, representative actions will fundamentally change the way disputes between consumers and companies are handled. In addition, since this is a novelty at the level of the entire European Union, introduced by Directive 2020/1828, which also regulates actions in cross-border representation, the practice of all Member States becomes relevant to be able to understand and anticipate the consequences of this new reality.

Reviews by Ana Galgociu-Sararu, Senior Managing Associate, and Anka Belciu, Senior Associate, Reff & Asociaţii | Deloitte Legal