New draft law on class actions in the Czech Republic
Introduction
Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers has not yet been implemented into Czech law.
Although the Ministry of Justice of the Czech Republic introduced a draft Act on Collective Proceedings (i.e. draft Class Actions Act) at the end of 2022, the aim of which is to transpose the relevant EU Directive, the draft Class Actions Act is still subject to inter-ministerial comment and has not yet been submitted to the Chambers of Deputies (the lower chamber of the parliament) to undergo the standard legislative procedure.
The current possibilities for claims of a similar nature do not offer consumers adequate solutions in the Czech Republic. This is particularly so with small claims where individual consumers are often discouraged by the costs of proceedings and drop their claims.
What is the scope of the draft Class Actions Act?
Class actions will be limited in scope to disputes arising out of legal relations between businesses and consumers.
The draft Class Actions Act promises a faster, easier, more efficient and more budget-friendly solution for consumers in disputes. The Ministry believes that introducing and adopting the act will reduce the load on the courts and strengthen legal certainty in court decisions.
Who can be the claimant?
The claimant in class actions will exclusively be a legal entity that is registered in the list of authorised persons. The law requires legal entities to fulfil several requirements in order to be eligible for placement on the list. Among other things, the entity must be not for profit. It must share information about its structure, funding sources, and goals publicly on its websites, and the entity must be able to demonstrate that it has a legitimate interest in protecting the interests of consumers. The entity must have a history of activity in the field of consumer protection for a certain period of time, which has not yet been determined although a draft amendment to the Act on Consumer Protection contains two suggestions: one year or five years.
The list of authorised persons must be maintained by the Ministry of Industry and Trade of the Czech Republic, which has two months from the submission of an application to decide whether to register the applicant onto the list of authorised persons. After being added to the list, the entity must share information publicly on its websites about any class action that it has filed, the state of proceedings of any filed actions, and the results of any actions that have been solved.
How many consumers does the claimant need to represent and what rights do they have?
The claimant must represent a group consisting of a minimum of 20 consumers at trial.
The individual consumers will have limited procedural rights, consisting mainly of the right to be heard and the right to inspect the court file.
How does a consumer apply for the class action proceeding?
The draft Class Actions Act proposes an opt-in option, which means that the affected consumers must actively join a class action in order to assert their rights.
Consumers can join the group by filling an application to the court within a set period of time after the commencement of the proceedings or by prior given consent.
The Ministry of Justice will publish an application for consumers to join the proceedings, enabling consumers to join easily, irrespective of where they may be. In addition, the draft Class Actions Act also provides for the creation of a registry of on-going class actions.
Admissibility proceedings
After the class action is filed, the court will consider the admissibility of the class action by checking whether the statutory requirements are met:
- the claimant has, in accordance with its main purpose, a legitimate interest in the protection of the rights or legitimate interests that are the subject of the proceeding;
- the claimant is acting in the interests of the group and is not in a conflict of interest;
- the group has at least 20 members;
- the alleged rights or legitimate interests of the members of the group are based on similar facts;
- the class action was not filed with malicious intent, and in particular the intent to harm the consumer group or to unfairly prejudice the entrepreneur; and
- the class action is not funded by a third party that is a competitor of the entrepreneur.
The claimant will also be required to provide the court with an overview of its financial resources, including the origin of those resources, to satisfy the court that the claimant is not committing an abuse of a class action (i.e. a class action being brought by a competitor).
New rule on discovery
On the motion of a participant to the proceedings who has offered reasonably available evidence in support of its claims and has pointed to evidence under the control of the participant against whom the motion is directed, the court may order the participant against whom the motion is directed to provide such evidence.
If the participant who is obliged to do so fails to provide the evidence without giving a justifiable reason, the court may draw adverse inferences and make a determination in favour of the requesting participant.
Are judicial settlements available in class action proceedings?
Yes, the participants to class action proceedings may reach a judicial settlement.
If the participants submit a proposal for a judicial settlement to the court, the court will without undue delay publish it in the registry of on-going class actions. The court will then assess whether the proposed settlement serves the interests of the consumer group appropriately, whether the claimant represented the group’s best interests, and whether the settlement is fair when taking into account factors such as costs, risks, and length of the proceedings.
The court will not accept the proposed settlement if it is unfair towards the interests of the consumer group.
The approved settlement will also have the effect of a final judgment.
Remuneration of the claimant
Only the participants to the proceedings bear risks and costs arising from the proceedings. Individual members of the consumer group represented by the claimant could be obliged to cover those costs that would not otherwise have arisen except for the fault of the member.
The draft Class Actions Act provides for a maximum of 5% or 25% of the claimant's share of the award. The exact maximum amount has not been decided yet. Thus, the group members’ share of the award will be reduced accordingly.
Conclusion
In conclusion, the draft Class Actions Act introduces long-awaited legal rules, which can effectively secure rights of consumers, especially in small cases, and protect businesses from the misuse of class actions by competitors and/or consumers (or organisations representing consumers).
Nevertheless, as the legislation process is still in its infancy, many of the proposed provisions could be significantly amended. We will continue to monitor the draft’s development and provide an assessment of the act as soon as it is adopted (if ever).
