Will first ruling trigger class action avalanche?

Class action proceedings take place in several steps:

 

We have described in detail how collective proceedings are conducted in this previous article.

 

The current decision is the first that has gone through the entire process. Although the court's decision is not yet final, it is the first indication that the concept works.

 

It is therefore to be expected that the possibility to join claims in collective proceedings will be used by further consumers. Unlike in individual court proceedings, consumers do not bear the costs of the proceedings and face no financial risks should the proceedings fail. It is sufficient to gather 10 claimants to file a class action. Apart from consumers, micro-entrepreneurs with fewer than 10 employees and turnover of up to CZK 50 million can also join collective proceedings. The defendant may then object to each individual claim brought within the class action suit.

 

Businesses must therefore be on their guard, as even small consumer claims where an individual action would be pointless because of their insignificant amount can pose a threat in a class action. It is also to be expected that class actions will receive significant media coverage, hence posing not just a financial but also a reputational risk for businesses.

 

What’s more, a register of collective proceedings in which all currently pending proceedings can be found (including the lawsuits and the subsequent submissions) is already active. The public will thus gain an overview of unfair practices of businesses that would not have come to their attention in individual cases. Although class actions may raise some concerns in the business community, their main purpose is to make the market more transparent and to create fairer business conditions.

One potential shortcoming of collective proceedings is that only non-profit organisations registered with the Ministry of Industry and Trade may file such lawsuits, and currently, only two such organisations have been registered. If the number of proceedings increases in the future, the capacity of these organisations may be insufficient. The funding of their activities also remains a question.

Another problematic aspect is the complexity of enforcing the claims once awarded by the court against the defendants, i.e. the businesses. In some cases, defendants may be in financial difficulties, and it may not be possible to fully satisfy consumer claims because of pending enforcement or insolvency proceedings.

We recommend businesses not take any pre-suit notices from the two currently registered non-profit organisations lightly and seek professional advice from the outset.