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The Challenge of Implementing Class Action Regulation in the Czech Republic

The Challenge of Implementing Class Action Regulation in the Czech Republic

Czech Republic
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One of the challenges of introducing class actions to the Czech legal system is the finding of a proper balance between the interests of clients and those of attorneys. While the default position is that attorneys are to protect the justified interests of their clients and place them before their own (within statutory limits, of course), a careful balancing exercise will need to be carried out if class actions are to be allowed. While class action law is still at the stage of an initial proposal in the Czech Republic, this proposal is demonstrative of the direction the Czech Ministry of Justice intends to take.

A perfect example of the trickiness of this balancing exercise is the determination of the remuneration payable to attorneys representing claimants in class actions. There are many examples from other jurisdictions (including the USA in particular) that clearly demonstrate the difficulty of the task as well as the extremes that can occur when sufficient safeguards to protect relevant interests are not put in place (including, for example, when attorneys’ fees significantly exceed the damages received by the claimants, whether as individuals or even a group).

The current proposal in the Czech Republic allows for the possibility of attorney remuneration on the basis of a percentage share of the awarded damages, up to 25% of the awarded amount. While this structure is generally allowed in the Czech Republic, it is not an entirely traditional form of attorney remuneration. Historically, it was permitted only in exceptional circumstances, and even today the Czech Bar Association’s Code of Conduct requires that remuneration on this basis be proportionate and generally amount to a maximum of 25% of the awarded amount.

Even though this proposed system of remuneration in the context of class actions may, at first glance, seem somewhat noble – it does, after all, provide access to justice to even the poorest of claimants – steps must be taken to ensure that it does not serve as an incentive for claimants (and their attorneys) to file frivolous claims forcing defendants to choose between entering into costly settlements or even more costly litigation. It must also be ensured that an attorney is not motivated by this form of remuneration to pursue a class action against the interest of his or her clients. It is questionable whether a limit of 25% can do this.

Concerns in relation to remuneration as percentage of the award have also been voiced by the European Parliament’s Committee for Legal Affairs, which has proposed an amendment to the proposal for a Directive of the European Parliament and of the Council on Representative Actions for the Protection of the Collective Interests of Consumers and Repealing Directive 2009/22/EC, which reads: “Member States shall ensure that the lawyers’ remuneration and the method by which it is calculated do not create any incentive to litigation, unnecessary from the point of view of the interest of any of the parties. In particular, Member States shall prohibit contingency fees.”

It should also be noted that despite the popularity of the class action instrument in the USA, some US states have now also started restricting the use of contingency fees or limiting the remuneration awarded to attorneys.

Despite the evident shift in the approach to class actions (and attorney remuneration in relation thereto) and the experience in other jurisdictions, the Czech Ministry of Justice has failed to take into account extensive (and constructive) criticism of the draft law by professional bodies, courts, and other legal professionals. The draft law therefore still contains the concept of remuneration as a share of the amount awarded and does not, as yet, incorporate sufficient safeguards and guarantees to ensure that the system of collective redress would not be abused.

By Robert Nemec, Partner, and Azlbeta Hermankova, Associate, PRK Partners

This Article was originally published in Issue 6.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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JŠK, advokátní kancelář, s.r.o. (JŠK) is a medium-sized law firm based in Prague providing a comprehensive range of commercial legal advisory services in the Czech Republic. Our team consists of almost 30 lawyers, five of whom are partners with many years of experience from leading international law firms. We advise local and international clients from banking, insurance and various industry sectors, boast a respected projects practice, and work for the public sector at the federal and municipal level.

Ever since it was founded in 2004, JŠK has striven for the epitome of professionalism, expertise and ethical integrity. We continuously seek to surpass what large global law firms can offer and to give our clients a personal approach. All mandates are equally important to us regardless of size as we guide clients through both complex and seemingly routine matters.

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