Class action lawsuits are coming to the Czech Republic. Retail better get ready!

To some extent, Czech laws already allow for jointly asserting one’s claims in court, for instance in consumer disputes. In civil proceedings, this can be done through intervention in proceedings. Yet, current regulation is rather fragmentary and does not provide an efficient tool to assert collective claims. In practice, missing legal regulations are often substituted with various contractual arrangements, such as commission agent arrangements or the assignment of receivables.

The bill in its present wording provides for the possibility of collective proceedings for all private-law disputes. Czech class actions should allow for both opt-out-based and opt-in-based proceedings. The original wording of the bill preferred opt-out proceedings, where all holders of identical or similar claims would be parties to the proceedings by operation of law without having to take any active part in the proceedings (or even being aware of it being pending).

The funds recovered would be deposited by the defendant in the account of the court, which would then satisfy the individual participants’ claims. The remaining amount not collected would be forfeited to the state. This is inspired by the US system of damage compensation, which accentuates its punitive nature. Such a concept of damages, however, does not have a tradition in the Czech legal environment, which is why it was not favoured by the professional public. In response to the criticism, the justice ministry has reconsidered its approach. Now, opt-in proceedings where claim holders actively register (opt-in) are the preferred type; this corresponds better to Czech law.

By drafting the bill, Czech legislators preceded their EU colleagues, as the Directive on Representative Actions is only just being discussed in the European Parliament. As much as legislators declare in the explanatory report the proposed regulation’s compliance with the directive, it differs in many aspects. Unlike the Czech regulation, the directive exclusively targets consumer disputes, and explicitly forbids class actions to be financed by the defendant’s competitors. It is therefore likely that once the directive is adopted, Czech legislators may have to amend their class action law accordingly.

Class actions are an entirely new tool to facilitate asserting even smaller claims that are not presently worth pursuing in court on an individual basis. Retail businesses in particular should monitor the legislative development and get ready for the new rules. Class actions are bound to expose some businesses to even more consumer claims and, in their final effect, may lead to greater emphasis on the quality of products and services and compliance with legal standards.