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Injunctions against businesses that violate consumer protection laws being inconsistently applied across EU, says Commission report

The cost, length and complexity of legal proceedings are among the reasons behind why laws that enable courts to make an order against companies to ban them from engaging in illegal practices are not being "fully exploited", the European Commission has said.14 Nov 2012

The Commission said that limited effect of the injunction rulings and difficulties around enforcement are also to blame for the "potential" of the injunctive powers not being utilised. It said that the "obstacles" are particularly apparent in cross-border cases where injunctions may be served.

Under the EU's Directive on injunctions for the protection of consumers' interests, courts have the power to make an order that requires "the cessation or prohibition of any infringement" of a list of consumer protection laws as identified and brought before the court by "qualified entities", such as regulators.

However, the Commission said (16-page / 140KB PDF) that a study it had conducted into how the Directive was being applied, and the results of a questionnaire it had sent out to public authorities and consumer groups, had revealed that there are "important disparities" in the "level of use and effectiveness" of the injunction powers under the Directive.

"Despite its limitations, injunctive actions constitute a useful tool for the protection of the collective interests of consumers," the Commission said in its report. "Qualified entities are gradually becoming aware of the possibilities offered to them by the Directive and gaining experience with its use."

"However, important disparities exist among Member States in its level of use and effectiveness. In any event, even in those Member States where injunctions are considered quite effective and are widely used, their potential is not fully exploited due to a number of shortcomings," it added. "The most important are: the high costs linked to the proceedings, the length of the proceedings, the complexity of the procedures, the relatively limited effects of the rulings on injunctions and the difficulty of enforcing them. These difficulties are even more present in injunctions with a cross-border dimension."

According to the report, a "wide range of breaches in consumer protection legislation" have led to injunctions being served on businesses. Most commonly injunctions were served against traders that have used unfair contract terms or those that had engaged in "unfair commercial practices and misleading advertising". The Commission said that other "violations of provisions regarding guarantee rules, price indication regulations or the sending of unsolicited e-mails" had accounted for injunctions being served, although "to a much lesser extent".

Telecoms companies, banking and investments firms, and tourism and package travel businesses have most commonly been served with the injunctions, the report said.

The Commission said that the findings from its study and its questionnaire had revealed that injunctions "are a successful tool for policing markets, especially to ensure fair contract terms" and that they had "brought substantial benefits to consumers as a whole". It said it was "very difficult" to quantify the benefits in "monetary terms" but said that the use of injunctions against companies can deter other businesses from acting unlawfully.

"Injunctions work particularly well with market players who respect to a certain extent the law," the Commission's report said. "Against rough traders and criminal actors, injunctive actions are not always an appropriate mechanism to put a stop to illicit practices. Several interviewees say that, in such situations, criminal and administrative sanctions like penalties and imposing specific restrictions on carrying on business activities may be necessary to ensure compliance with consumer protection legislation."

The power of courts to issue injunctions can also encourage businesses to negotiate settlement deals with regulators over their infringements, the Commission said.

The Commission said that in most EU countries individual consumers affected by practices for which businesses are served an injunction are not automatically compensated for the "harm" they suffered. In some countries, though, there are collective redress schemes that allow groups of affected consumers to claim damages as a result of illegal activity perpetrated by traders, it said.

However, the Commission said that because of the "financial risks" involved in taking court action, the length and complexity of those proceedings, and the "limited legal effect of the rulings" and how they are enforced present "obstacles" in cases where injunctive action may be "effective".

Although stakeholders made some recommendations on how to overcome some of the shortcomings to the injunctive power legal framework, the Commission said that there "does not appear to be sufficiently strong reasons to propose amendments to the Directive at this stage". It said it would "review the situation" when it forms its next report on the application of the Directive, which is due in 2015.

Some public bodies had suggested, among other things, that there should be a "greater degree of harmonisation" in how the Directive is applied across the EU "with regard to time limits for introducing the action, the deadline for rendering a court decision and costs ... at least for cross-border cases".