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Is the Czech Republic Ready for Class Actions? Some Parts of the Draft Law May yet Be Amended

Is the Czech Republic Ready for Class Actions? Some Parts of the Draft Law May yet Be Amended

Czech Republic
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As early as 25 June 2023, legislation should come into force in the Czech Republic that could give consumers another powerful weapon in the battle against unfair business practices. This legislation introduces the so-called class action lawsuit, which will allow multiple victims, each typically holding small claims, to join together for united representation in court proceedings.

The draft law on class actions is now pending in the Chamber of Deputies, but its current wording raises a number of questions. In particular, it is expected that discussion will center around issues relating to the range of possible claimants, the appropriateness of the exclusive introduction of the 'opt-in principle' and whether the regulation will also apply to existing claims.

Class actions are a civil law instrument which has its roots in the USA; they can also be found in some form in some EU member states.

One of the main arguments for the introduction of class actions is the fact that for many consumers harmed by the actions of businessmen it does not make financial or rational sense to litigate for a claim in the hundreds of thousands of crowns or even less. However, the total claim of a group of consumers so injured can be several orders of magnitude higher, and failure to recover such claim would result in unjust enrichment of the businessmen who (whatever their motives) committed the breach of law. The European Directive on representative actions for the protection of consumers' collective interests was drafted with this idea in mind. All EU member states must transpose this directive into their legal systems by 25 June 2023, and the Czech Republic is of course obliged to do so as well.

Only through consumer organizations

There is no consensus across the political spectrum or among legal experts on the current form of the class action bill. Heated debate is expected in the coming weeks and months, particularly regarding the part of the law that grants the right to bring a class action only to selected consumer organizations, not, for example, to aggrieved individuals. If the range of claimants is broadened, adequate safeguards against potential abuse would need to be set up and adopted, as this could also increase the likelihood of putative actions being brought.

Consequently, the law would need to be amended and refined, which would ultimately delay its adoption again.

These consumer organizations – of which there are currently 12 registered in the Czech Republic, the most important being dTest, the Association of Czech Consumers, and the Association of Citizens' Advice Centres – are non-profit entities whose main purpose is to promote the legitimate interests of consumers. They offer advice in disputes with businesses and should therefore act on consumers’ behalf in collective proceedings without further delay.

The question arises as to how the law will work in practice if only consumer organizations are allowed to bring class actions. It is important to note in this case that there will not be an infinite number of consumer organizations entitled to bring class actions. In view of this, it is likely not every consumer would find representation, as the conduct of the proceedings will be complicated by the need for sufficient staff capacity and financial resources. Unsuccessful claimants will also have to pay the costs of the legal proceedings, which could be a major drain on the budget. From this perspective, it is possible that the actual number of class actions filed will not be high, at least initially.
We believe that effort to introduce the institution of collective actions should not only aim to comply with the Directive – in some respects it should go beyond it, as is quite common in other member states. A good example in this respect is the substantive scope of the bill, which now covers a wider range of relationships than the Directive and therefore provides consumers with a wider range of options for pursuing their claims.
It is also worth pointing out that only a businessman can be a defendant. The draft law does not empower citizens to bring collective actions against the State or municipalities, whereas in some other countries this is possible. Going forward, the question is whether such an approach, which in some ways discriminates against the private sector, is justified or deprives citizens of other legitimate avenues for bringing class actions.

So, when will we see the law?

It is quite certain that the draft law will continue to be subject to some debate among experts and politicians. The road to the final form of the law is still a thorny one. This can be illustrated by the discussions on the possible form of the so-called transitional provisions – whether the new law and the procedure under it will also apply to claims arising before or after its entry into force.

The current draft law does not contain any transitional provisions and, as a procedural rule, would therefore presumably apply to claims arising from breaches that occurred before its adoption. At the same time, the proposal introduces into the Czech legal system an institute of a different legal culture which may significantly affect already established consumer-business relations. It is therefore worth considering whether the proposed law should apply only to claims arising after its entry into force, or whether it should limit its retroactive effect in time, as for example in Slovakia. The latter principle was previously proposed by both the Czech Bar Association and representatives of the judiciary.

The traditional institution of European legal orders

Although the Czech legal system is unfamiliar with the institution of class actions, it is a relatively common phenomenon in other member states of the European Union. Such actions are used in Poland, France, Denmark, Portugal, Sweden, Spain and Italy. In our neighbor Poland, for example, related legislation has been in force since 2010, with 265 class actions filed by 2018. Most of them concerned civil disputes. The largest class action in Poland so far was the Millennium Bank S.A. case, involving approximately 5,000 plaintiffs.
Some proceedings in Poland were also brought against the state, which will not be possible here. These include, for example, the class proceedings in response to the tragic accident that took place on 28 February 2006 in Katowice, where 65 people died when a hall collapsed. The class action in this case was brought by the survivors of the victims, 82 of whom joined together for this purpose. The trial was decided in favor of the class plaintiffs, who succeeded in their claim for compensation, reached a settlement with the defendant and received the financial compensation they sought.

The UK, the Netherlands and Portugal are considered the European countries with the strongest tradition of class actions. Statistical data shows that in 2021, a total of 110 class actions were brought in selected countries (UK, Netherlands, Poland, Romania, Northern Macedonia, Portugal, France, Germany, Austria) – but most of them in the UK and the Netherlands.

By Lukas Duffek, Partner, Rowan Legal