Class actions coming soon but not for all
Shortly before Christmas last year, the Ministry of Justice presented a bill on collective proceedings. The new legislation, which could enter into force as early as this year, will allow consumers to assert their identical claims against the same person in a single class action. The bill is now heading for debate in the chamber of deputies.
At present, several persons can to some extent assert similar rights jointly by using the concept of accession to proceedings. However, the legal regulation lacks complexity and does not constitute an effective instrument for asserting such claims. In practice, the situation is often resolved by assigning/transferring the claims to entities that specialise in the enforcement of consumer claims, or by concluding commission agency contracts.
From the perspective of the EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers, this not sufficient. The directive requires EU member states, thus also the Czech Republic, to put in place an effective and efficient procedural mechanism for representative (collective) actions, which would boost consumer confidence, empower them to exercising their rights, contribute to fairer competition and create a level playing field for traders operating in the EU internal market. According to the directive, the relevant national legislation is to be adopted by 25 June 2023.
Two types of collective claims will be enforceable by collective action:
- fulfilment of an obligation (in practice, this will mainly involve the payment of an outstanding monetary claim)
- determining whether a legal relationship or right exists (in practice, this may include, e.g., the right to return goods or the liability for defects in a product or service).
However, collective actions shall not be filed by just anyone who has a legal interest in the matter but solely by a non-profit entity qualified to file collective actions, typically a consumer organisation.
For a specific person (i.e., a consumer) to become a party to collective proceedings, they will have to register for the proceedings within a set deadline (‘opt-in’). On this point, the bill differs from previous legislative proposals that usually envisaged the opposite approach, i.e., that specific persons are parties to a collective action until they deregister (‘opt-out’). Such an approach had been subject to criticism, as it goes against the basic principles of private law, such as the autonomy of will or the principle that the law aids the vigilant (those who actively care for their rights). In addition, the opt-out regime carries a higher risk of harassing actions - collective actions filed with the intention to harm a competitor.
Who will finance the collective proceedings and what about the reward from a won claim settlement?
Under the bill, the plaintiff (the non-profit organisation) and not the persons registered shall bear the costs of the proceedings, and the risk of failure of the case. This setup is intended to motivate non-profit organisations to only litigate proceedings where they have a chance of success, to conduct these proceedings properly, and to obtain the most favourable judgment for the members of the group. At the same time, it is a form of protection for consumers who have only limited rights in the proceedings and limited possibilities to influence its development. As compensation for the costs, risk, and time that the non-profit organisation invests in the proceedings, the court may, at its request, award it a reasonable reward from the won claim settlement. This point is also subject to criticism, as remuneration must be set properly, so that, on the one hand, it compensates the non-profit organisation for the risks and costs but, on the other hand, is not so high as to motivate the initiation of collective proceedings for profit.
Collective proceedings are a tool that should enable consumers to effectively assert even smaller claims that would not be worth enforcing individually (especially small claims of up to CZK 10 thousand). On the other hand, it can present a considerable risk to entrepreneurs in the event of non-compliance with their obligations and, as such, could lead to a greater emphasis on improving the quality of products and services as well as compliance with legal regulations. However, the bill is only at the beginning of the legislative process and may still undergo several amendments.