New Legislative Framework for Class Actions in the Czech Republic

Background

The Czech Republic is one of the few EU Member States that has yet to adopt a comprehensive collective redress or "class action" system, despite the recommendation of the European Commission, which has been calling for collective redress arrangements to be put in place for some time now. Following the 2013 non-binding Recommendation on Collective Redress [1], the Commission is currently evaluating whether further EU action is needed in this area. The lack of adequate national legislation was also recently criticised by the Czech Constitutional Court. 
 
This latest legislative initiative is being proposed in an environment where abusive corporate practices such as unlawful bank charges, unfair practices by mobile phone operators, unjustifiable variations in food quality across the EU, "Dieselgate" and other cases that highlight the often hugely unequal relationship between consumers and corporations are facing harsher scrutiny.

Aims of the proposed regulationThe new regulation aims to facilitate access to justice, especially where the enforcement of small claims is not always cost-effective at present. Consumers in particular, despite being protected by a large body of consumer protection law, often do not take advantage of their right to enforce claims for small amounts where the legal costs may exceed the claimed amount.

Furthermore, in environmental and consumer protection matters, many people are often affected by the same illegal or unfair practices, but the current legislative framework and procedural rules do not provide sufficient incentive to bring individual legal actions. The proposed regulation aims to redress this situation by introducing a procedural mechanism that allows many individual claims relating to the same case to be bundled into a single court action.

It is anticipated that affected customers could benefit from the proposed regulation, especially in industries such as telecommunications, financial and consumer loans services or travel agencies. Claimants as well as the defendant and the court itself will save on procedure costs, making the process more economical overall.

Principles of the proposed regulationUnder the proposal, collective redress proceedings would be available to the widest range of private law claims and would entitle both consumers and companies to seek injunctive relief or claim damages.

The ministerial outline of the proposed new law sets out the following principles:

• Admissibility and certification standards – to be admissible, collective action must meet various conditions, including numerosity, commonality, typicality and adequacy of representation, and must be the best possible procedural way of dealing with the claims. During the initial part of the proceedings (certification), the court will also reject any arbitrary action or action bound to fail;
• Opt-out mechanism – as a general rule, anyone who meets the conditions set out in the certification decision is included in a lawsuit, unless they take affirmative steps to be excluded;
• Reimbursement of legal costs to the winning party ("loser pays") – the legal representative of the claimants group bears all costs of the collective action, including court fees. If the collective action is successful, the legal representative gets a percentage of the award made (this is an entirely new concept for Czech civil procedure); if the collective action is rejected, the legal representative must reimburse all legal costs to the defendant;
• Court settlements available – the court may only approve a settlement that is legal and that observes the common interest of all claimants;
• Specialised or higher courts competent to decide – these courts are deemed to be better placed to decide specific and complex matters. 

Final remarks

The concept of the new law is subject to changes during the legislative process. It will still be many months until the final act is adopted. In the meantime, a shift towards further harmonisation at the EU level may be expected. Collective redress in the EU seems to be a growing trend, and with the volume and value of the cases being filed across Europe in recent years, companies doing business in the Czech Republic should certainly keep an eye on local developments in this area.



[1] COMMISSION RECOMMENDATION of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law (2013/396/EU).