Monday, 25 June 2018

Representative actions in the Visegrád 4 countries – real improvement? by Rita Simon

This is a guest post by dr Rita Simon from the Institute of State and Law at the Czech Academy of Sciences that has been based on a report prepared by her for BEUC

Representative actions in the Visegrád 4 countries – real improvement?
Mass harms cause a mass of problems. In mass harm situations, collective claims constitute a better means of access to justice than individual ones, especially regarding bagatelle harms. Although certain collective redress mechanisms exist all over Europe, their effectiveness is questionable. Studies such as “Evaluation of the effectiveness and efficiency of collective redress mechanisms in the European Union” and the “Fitness check of consumer law” showed that the existing redresses are rarely used or they do not produce the desired results, in almost all Member States. We can also observe the ineffectiveness of injunction actions in the V4 countries. The New Deal for Consumers, which has been published in April this year, aims to strengthen the enforcement of consumer rights, which is the Alfa and Omega of consumer protection. The proposed way of improving enforcement by the European Commission follows the German, Austrian and French practice: the launch of representative actions by consumer organisations will be supported more strongly by the Commission. However, the question of whether such actions could be the best solution for enforcing consumer rights and access to justice in the V4 countries should be posed.

Injunctive reliefs
Depending on who has the right to file for an injunction and how effective the action is in practice, some key differences should be observed. In the Czech Republic, only consumer protection organisations can file for injunctive relief; in the other three countries some control authorities, such as the financial surveillance authority or office of consumer protection or consumer ombudsman can also initiate injunction actions. How often these authorities file an action often depends on the consumer policy of the government in power. An interesting fact is that in Hungary – similarly to in Spain - the state advocate also has the right to file an injunctive action if the public interest is affected. Such actio popularis actions have been very effective in eliminating unfair clauses, e.g. in financial service contracts. The yearly total of filed injunctive actions is very low in the Visegrád 4 countries, at not more than 1-2 actions per country. However, it should be pointed out that in Hungary and Poland compensatory collective redress is available in combination with an injunctive action, which significantly increases the impact of such a redress. In contrast with this, in the Czech Republic, the consumer organisation often withdraws the filed action, because of the length of the procedure or due to competency problems between the courts and other supervisory bodies. In Poland, the President of the Competition and Consumer Protection Office (UOKiK) does not have an obligation to initiate an injunction procedure automatically at the request of a consumer organisation or the ombudsman; it is at his discretion. A further criticism is that an injunction decision against a foreign trader is not enforceable, and it is reported in all the Visegrád countries that consumer organisations generally lack sufficient financial and human resources. The impossibility of consumer organisations to demand monetary compensation is problematic in the Czech Republic and Slovakia.

Other existing mechanisms – class action, and actio popularis
Class action mechanisms as a form of group action have been in force since 2010 in Poland, and in Hungary since January 2018. Group actions popped up in Poland like mushrooms and were filed in very different areas, such as construction disasters, mass poisoning and unfair clauses in credit or travel contracts, but also against motorway operators and against a regional authority. The number of suits initiated is over 100, but many claims were rejected due to the limited scope of application of the class action. Class actions can be initiated exclusively regarding tortious conduct and product liability, but claims for personal injury and infringement of human rights (health, body integrity, good reputation image, etc.) are excluded from the scope. In contrast, the Hungarian scope of application does not exclude personal injury, but limits the fields of law in which class action can be used. Therefore, a group action can be filed in Hungary in labour and consumer disputes and over some health claims resulting from environmental damage. Group actions in both countries follow in some respects the US class-action model but, regarding joining the group, just an opt-in possibility is given, and the Polish model in particular contains numerous safeguards to avoid malicious, ruinous claims.

As other interesting collective redress, Hungary improved its “actio popularis” rules in 2012 and differentiated between so-called public interest actions and public interest enforcements, which can be commenced if the infringement has harmed a large, identifiable group of consumers, or has caused a significant disadvantage. The public interest action can end in two ways, first with a declaratory judgment establishing the infringement or second with a cease and desist order on its own or with a case order accompanied by a restitution order. In the first model, which ends with the declaratory judgement, consumers have to file a simplified follow-on damages claim. In this claim, they need to prove the causal link between the infringement and the extent of the damage suffered. A public interest enforcement presumes a prior administrative process that has established the infringement. Despite high expectations, this type of claim has so far not achieved its purpose. Collective actions have been filed much less often after the amendments than before 2013. This can be explained by the continuing decline in consumer financing and the abolition of the Department of Collective Action at the Consumer Protection Agency. In addition, the reluctance of consumers to file follow-on complaints regarding the damage suffered needs to be emphasised, as does the lack of information on the existence of actio popularis decisions.

Unlike in Hungary and Poland, the two other Visegrád countries have not introduced new group action mechanisms yet; the Czech legislator is working on a class-action proposal, but the new government has not given priority to this entering into law. Business associations, especially the banking association, have been trying to have the legislation shelved until the new Directive on representative actions has been announced

Are representative actions suitable collective redress models for the V4 countries?
The proposal for the Directive allows "qualified entities", such as consumer organisations (but also ad hoc entities), to launch actions on behalf of all consumers. These entities will have to satisfy minimum reputational criteria (they must be properly established, not for profit and have a legitimate interest in ensuring compliance with the relevant EU law). Compensatory collective redress actions will also be available. A very important feature of these actions is that, in order to protect the interests of consumers, the above-mentioned entities will be entitled to seek redress by repairs, exchanges, reductions and termination of the contract or repayment of the purchase price. A very interesting innovation is that if a prior administrative or court decision has assessed an infringement, it should be taken as irrefutable evidence in any subsequent redress action not just in the same but also in other Member States. This emphasis on the acceptance of court and administrative decisions should avoid legal uncertainty and unnecessary costs for all parties, including the judiciary. Such a new development could certainly bring positive changes; the only question to pose is whether the legitimacy of bringing representative actions should be reserved for consumer associations alone.

In the Visegrád 4 countries, there is considerable concern that - due to the lack of funding of consumer organisations and the impossibility of receiving funding from third parties - these entities will not be able to perform properly. The situation, which has been observed in current injunction practices, will not improve in the future. It should therefore be recommended that other state organisations (e.g. consumer authorities, the ombudsman, financial supervisory authorities and trading standards agencies) should also receive the right to launch these collective actions. The state organisation has better access to evidence and it has a bigger legal department than consumer organisations. To support the participation of consumers in civil law proceedings, it seems useful to introduce parallel “clean” opt-in class action models in all the Visegrád states. It is also recommended to define the form and content of simplified individual follow-on-damage claims, similar to the Hungarian model after public interest/enforcement actions. These changes should be proposed with sufficient precision at the European level, because otherwise is can be assumed that the national legislatures of some countries (including the Visegrád states) would not make their collective redress mechanisms significantly more effective, due to the resistance of business and banking associations. Without simple, clear and feasible collective redress, the enforceability of consumer rights will not improve in Slovakia and the Czech Republic at all and just a new rule on paper will be announced.  

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