The introduction of class action in France: a new legal and financial risk for companies

It has been a long time coming, but class actions are finally here. According to a new consumer law finally adopted on 13 February 2014, class actions are now possible in France. Its scope remains quite limited in practice, despite the media’s constant involvement in the law’s passage.

  1. What is a class action?

It is a collective lawsuit that allows several victims to claim compensation for their damages against the same company in a unique litigation proceeding.

  1. Who can initiate a class action?

Consumers …

Class actions can be initiated by consumers only.

Economic operators are excluded from the benefit of a class action, including SMEs and micro-sized companies, each of whom would have suffered from economic damages caused by anti-competitive practices. The only way that they can seek damages is through individual actions before the national jurisdictions or arbitration.

This exclusion of economic operators from class actions represents a deviation from the Competition Commission’s recommendation on 11 June 2013. This recommendation encouraged EU member states to respect in their national collective redress actions systems several European common principles, including allowing private persons, physical or legal, to seek damages.

… represented by government-approved associations.

Only consumer protection associations, who are nationally represented and who have been approved by the French government, are allowed to file class actions. Consequently, the class action will be introduced by the association acting by a mandate on behalf of the consumers. It is a monopoly granted to the 16 government-approved associations.

  1. Against whom may a class action be filed?

The law uses the vague term “professional”. This could include both the producer and the supplier of a product or a service. However, the scope of a class action is limited in two ways.

First, class actions concern only the professionals who (i) would have committed a contractual or pre-contractual breach during the sale of goods or provision of services or (ii) to those who would have harmed consumers through anti-competitive practices (as defined by national or EU legislation).

Then, the law deals only with material damages to the consumers. This excludes the possibility to initiate a class action for non-pecuniary or environmental damages.

  1. What are the possible conditions to initiate a class action?

To initiate a class action, the association will have to present to the judge individual, concrete cases and not only potential victims. The minimal number of individual cases necessary is not specified by the law and will depend on the case.

In any event, the damages alleged should be suffered by consumers placed in a similar or identical situation, all of whom have a common cause of action.

In the competition field, as recommended by the French antitrust authority, professional liability can only be pronounced following a final decision on anti-competitive behaviours observed by the national authorities or jurisdictions or by the EU competent authorities.

However, it is possible to initiate a class action before the final decision of the competition authority. Consequently, the judge will be able to order, without delays and at any time during the proceeding, investigative measures, necessary to preserve evidence and produce documentary evidence, including those held by the professional. Once the decision of the competition authority is rendered and no appeal is possible regarding the part of the establishment of breaches, a sentence of the professional by the judge of the class action can be pronounced.

  1. Under which conditions could it be possible to seek liability of the company?

As with any action for damages, both contractual or tortious, it belongs to the victims to demonstrate the company’s fault, the damages, and the causal connexion between the fault and the harm suffered.

The evidence is, however, eased regarding the anticompetitive practicesThe law provides that the professional’s breaches, assessed by the competition authority, must be indisputably recognised. This is along the same lines as the Directive of the European Commission and currently discussed by the European Parliament. Concretely, consumers are exempted to establish the existence of an abuse of a dominant position or a price-fixing cartel and the participation of the professional to it. The potential plaintiffs still have to demonstrate the existence of a personal damage resulting from practices assessed by the competition authority. It will not be easy in practice because it will be necessary to determine the amount of the price increase caused by the anticompetitive practice, which involves demonstrating the price premium paid by consumers as a result of the practice in question.

The quantification of damage suffered by each plaintiff will not lean directly on the competition authority decision, because the authority assesses the damage caused to the economy as a whole. However, the judge will be able to base its decision, in part, on the Commission’s orientations elaborated recently to the attention of the national jurisdictions in a non-binding Communication and Practical Guide on the quantification of harm in antitrust infringement cases.

  1. How do class actions take place?

Class actions involve a two stage process: a judgment phase and a phase of damage liquidation.

As part of the first phase, the judge: (i) rules on the professional’s liability given the cases submitted to him or her; (ii) defines the concerned consumers; (iii) sets out the connecting factors and (iv) determines the damages, including their exact amount or elements which would allow an efficient evaluation of said amount.

The ruling on the professional’s liability is subject to publicity measures, on his expenses, which bring attention to the concerned consumers and give them an opportunity to join the class action within a specified period. This is the “opt-in” system. It consists of joining the class action on a voluntary basis, which is privileged. This is converse to the “opt-out” system, which includes all the group of potential plaintiffs.

In the second phase of liquidation, the professional compensates each consumer in the group individually for the damages suffered. Pursuant to the court order’s terms, such compensation may be done directly, through an association, or through an individual member of the legal profession (which the association may choose through possible judicial assistance).

The class action procedure can be simplified when the identity and the number of consumers are known and when they have suffered from damages of the same amount. In this way, the judge, after having ruled on the company’s liability, can demand that it compensates directly and individually, in a defined period and pursuant to the modalities he or she chooses, the harmed consumers. The simplified procedure is derived from the judge ruling on individual information of the affected consumers and on the company’s expenses. This provides for the consumer’s ability to be compensated.

Finally, litigation could be avoided through mediation. The compensatory agreement between a professional and a consumer association has to be approved by the judge. Consumers will be then informed of the agreement thanks to advertising measures ordered by the judge and will be able to join it.

Under debate for several years, the field and the scope of class actions are still at this stage incomplete.  Procedural and practical difficulties, in particular the quantification of damages in the competition field, will certainly emerge during the implementation of class actions.

Class actions are, nevertheless, now a part of the French legal system, and the legal and financial risk that class actions represent cannot be ignored by companies. Plaintiffs, who in the past abandoned any judicial action because of the low amount of their damages, will be tempted now to act in order to obtain compensation. Such compensation could represent a high cumulative sum.

Key elements:

  • Class actions can be initiated by consumers only. Companies are excluded from the benefit of a class action.
  • Only consumer protection associations, who are nationally represented and who have been approved by the French government, are allowed to file class actions. There are currently 16 such associations.
  • For instance, the law deals only with material damages to the consumers. This excludes the possibility to initiate a class action for non-pecuniary or environmental damages.
  • To initiate a class action, the association will have to present to the judge individual, concrete cases and not only potential victims.
  • It is based on the “opt-in” principle: consumers would need to sign up voluntarily, which is preferred, contrary to the “opt-out” principle where the group includes all potential victims.
  • In the competition field, professional liability can only be pronounced following a final decision on anti-competitive behaviours observed by the national authorities or jurisdictions or by the EU competent authorities.
  • The evidence is eased regarding the anticompetitive practices. The law provides that the professional’s breaches, assessed by the competition authority, must be indisputably recognised.