The landscape
Spain is developing a stronger regime to facilitate class actions. This involves transposing the EU Directive on representative actions into domestic law, a process that still awaits approval from the Spanish Parliament. The proposed law is expected to increase litigation and opportunities for plaintiffs.
Historically, class actions in Spain have been the exception rather than the rule. The standard approach has been to file a large number of individual claims in connection with a similar object. Typical mechanisms have included multiple parallel proceedings, or a joinder by which parties are added to an ongoing lawsuit. Until now, this has primarily involved consumers and retail investors making claims against banks and other financial services firms on the basis that their products were misleadingly promoted to obtain flawed consent. The lack of homogeneity in these claims means Spanish case law remains undeveloped.
By comparison, class actions have been much less frequent and mainly used to achieve injunctive remedies rather than help harmed individuals seek specific redress. Public perception of the mechanism as an avenue to protect their rights has been limited.
The proposed law in Spain will be a cross-cutting regulation. Although legal standing is limited to qualified entities it is possible to launch a class action in any situation where the collective interest of “consumers” is damaged. Increased litigation is therefore likely in areas of the economy where contracting with consumers is common, and broader consumer protections already apply."
Fernando Gascon
Consultant
Current developments
The proposed law in Spain will be a cross-cutting regulation. Although legal standing is limited to qualified entities, it is possible to launch a class action in any situation where the collective interest of “consumers” is damaged.
Increased litigation is therefore likely in areas of the economy where contracting with consumers is common, and broader consumer protections already apply. As such, class action claims in other areas such as environment, social and governance or anti-trust law may only take shape in Spain where the damage used to ground the claim represents a contravention of consumer protection regulations.
Sectors that are already characterised by strong public and private accountability mechanisms will likely also provide fertile terrain for follow-on class action litigation. In Spain, regulatory bodies are generally active to protect consumers. Examples include the Spanish Data Protection Agency (Agencia Española de Protección de Datos) and the Antitrust Commission (Comisión Nacional de los Mercados y la Competencia).
Spain already has a well-established industry in law firms advising claimants on mass litigation. It is likely to become a more attractive jurisdiction for plaintiffs seeking to trigger class actions in the future."
Jaime de San Roman
Partner
Future trends
Spain already has a well-established industry in law firms advising claimants on mass litigation. It is likely to become a more attractive jurisdiction for plaintiffs seeking to trigger class actions in the future. In particular, cyber risk is a rising concern for companies recognising that failures can have a significant impact on broad groups of customers.
If important aspects of the draft law are finalised as expected, claims that are spurious or not well grounded will be struck out early as part of a rigorous pre-litigation certification phase. However, more plaintiff-friendly features should include the codification of an opt-out system. This is where group members are automatically included in a class action even if they do not actively sign up. Tight controls on third-party litigation funding are also expected to be absent.
The law in Spain with respect to class actions may also evolve as a result of the recent Court of Justice of the European Union judgment of July 2024. This was a landmark claim against CaixaBank for using unfair terms in its consumer contracts. The bank was ordered to cease and desist from using those clauses and to reimburse payments.
Next steps for business
Due to the EU Directive, companies in Spain are increasingly concerned about the potential for class actions to cause reputational and financial damage. As a result, they are improving internal procedures to anticipate and manage risk. Businesses with a presence across multiple jurisdictions have an incentive to ascertain their various forms of exposure across the markets in which they operate. This includes more complex scenarios such as cross-border class actions.
Key legal priorities for businesses include early detection of any breaches of consumer regulations within the company’s business model. Investment in new technology solutions will improve customer relationship management and mitigate cyber risk. Preparation of pre-litigation agreements is key to reducing the possibility of a class action. However, once a class action process has been triggered, internal coordination between impacted business units and in-house legal teams is essential to successfully manage the litigation.
Key contacts
Legal Notice
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2024
Stay in the know
We’ll send you the latest insights and briefings tailored to your needs