10.1.2017
DSPT
> Prevention and Resolution of Disputes

Class Actions – a new tool for ensuring the respect of Code of Conduct on the market?

Some recent consumer organization activities were related to the alleged irregularities in a number of offers made by trading accounts providers, which flourished because of registered accounts abolition at Central Securities Clearing Corporation (KDD). The consumer organization actions (as usual) included a public warning and numerous calls on the state and regulatory institutions to eliminate and sanction the alleged irregularities. Some time ago, we could also follow the Ministry of Justice working on a new Law on Collective Actions, in respect of which many expect new and more effective means of ensuring the compliance with the Code of Conduct in the market. Therefore, what can we expect after the adoption of the new law?

The purpose of the new Law on Collective Actions should be ensuring that the efficient system of reimbursement in the event of mass damage caused (to physical or legal persons) and in the prevention – according to the law proposer’s explanation – to eliminate the problem of potential lawbreakers being aware of the fact that in case of causing the mass damage, most persons who suffered damages will not assert their claims before the courts, and the total unlawfully gained and retained benefit by the offenders is substantial. Deriving from the premise that the victims compared with the company – violator are weaker (particularly financially and legally), the law in many ways deviates from the rules of procedure in “usual” civil proceedings.

In principal, the bill roughly introduces two types of class actions: a collective indemnity lawsuit and a collective negatory lawsuit (the latter is already included in the Consumer Protection Act, but this institute has in practice not been utilised). The proposer had opted for a system of an “organizational action”, or a “representative class action”, i.e. a system where individual consumers or victims are not parties in the proceedings, but a legal protection for their benefit is asserted by an organization, which must meet several statutory conditions (among others, it must meet the condition of “representativeness”). The current legislative proposal empowers the state advocate general (now the state attorney) to lodge class actions. The process is in principle divided into four phases: 1) the phase of approval of a class action, 2) the phase of integration (opt-in) or exclusion (opt-out) of individuals from the effect of the case, whereby the proposer of a bill – due to the inactivity of individuals (concern that individuals will not “take care” of their rights due to failure to give a statement that they want to be included in the collective action impact) – at least in cases of claims of lower value prefers the principle of exclusion, 3) the phase of ruling on the substance, and 4) the enforcement phase, where in case of determining the “aggregate” compensation by the court (i.e. a total amount of compensation without indicating the individual beneficiaries) or determining the amount the defendant must pay to anyone who proves to be a member of the indemnified group, an appointment of a class damages manager will also be required.

The proposed law provides the statement of defence has to be lodged by the defendant company already at the stage of the class action approval, whereby the content of the response is not further specified (i.e. whether the statement of defence is limited only to the question of admissibility of class action at this stage) nor the deadline to lodge the statement of defence is extended in comparison to deadlines which applies in ordinary civil proceedings. According to the proposed law, the process is therefore designed so that it requires the defendant’s active participation from the outset, with no further prescription of the defendant procedural conduct (as opposed to the plaintiff’s actions, which are in addition controlled by the court itself). The proposed law in fact emphasizes the active role of the court in favour of the injured parties – the court oversees the plaintiff and may decide to replace the plaintiff with another authorized organization. In addition, the plaintiff is in the procedural acts (e.g. recognition of the facts, change of action, etc.) limited and is required to obtain the court’s approval, this representing a significant departure from fundamental principles of modern civil procedure.

Considering the afore mentioned, what can we expect after the enactment of the new Law on Class Actions? The new law will certainly have a significant prevention impact in all areas subject to the class actions (class action claims will include alleged violations pertaining to provisions on the prohibition of restrictive practices referred to in the Prevention of Restriction of Competition Act; claims related to the violation of rules of trading in regulated markets and prohibited actions of market abuse in accordance with the law regulating the financial instruments market; and labour claims). The class action proceedings are designed to shift the balance of (in)equality in favour of the victims. A class action filed will be noted in the register of class actions and made public. In the preparation of the bill, interests of the weaker victims have been at the forefront, therefore it needs to be ensured that while implementing the law, there will not be any excessive or unreasonable infringement of rights (and reputation) of companies – alleged violators. For this reason, the accused companies will have to prepare their defence well and already at the stage prior to the class action approval, particularly in areas where the special knowledge is required, such as Competition Law or rules of trading in regulated markets. On the consumer organizations side, a legal proceeding should remain ultima ratio. Especially in times of rapid changes in legislation or insufficient legislation pertaining to certain areas, it may occur that the alleged illegality is in fact a result of different interpretations of the law (as it has been claimed in relation to the alleged irregularities in the offers of the trading accounts providers).