After 40 years of hesitation, the class action "à la française" has finally made its entrance into the French Consumer Code (articles L. 423-1 et seq., introduced by Law no.2014-344 of 17 March 2014). According to the lawmakers, the aim of the new procedure is to bolster consumer compensation rights, as people are often discouraged from taking action against professionals due to the low cost-benefit ratio.
The new law includes a number of safeguards against abuses seen with class action suits in the US. The government expects the first suits to be filed before the end of 2014. Banking, energy, insurance and telecoms are the main sectors in the lawmakers' sights. However, all economic actors, especially those that directly interact with consumers, are affected.
I. Why introduce class actions?
The reasoning behind the creation of class actions is well-known. For lawmakers, there are too many situations in which consumers choose not to exercise their rights because there is such a low cost-benefit ratio of doing so. This is especially true in cases involving anti-competitive practices, where there is a stark contrast between the increasingly large fines handed down by competition authorities and, in practice, the lack of compensation for victims of the practices. All too often, unscrupulous businesses are able to reap the benefits of their unlawful conduct.
In France, the first proposals for the creation of a class action "à la française" date back to the 1970s. Proponents and opponents of the reform have exchanged the same arguments ever since: for the former, there is too much injustice to leave the situation as it stands, while the latter reply that the solution would be worse than the problem, citing the excesses of class action suits in the US as evidence.
In 1992, the lawmakers tried to reach a compromise by introducing a type of lawsuit referred to as a "représentation conjointe" [joint representation] action. However, this method was never as successful as first hoped. It was hindered because first, each claimant had to be identified by name in the initiating summons, and second, because consumer organisations were barred from advertising to "recruit" consumers to represent. In the 2000s, the fiasco of a lawsuit brought against mobile telephone operators that culminated in a finding against the initiating consumer organisation reignited the old debate.
These are the surrounding circumstances for the new law, which introduces class actions into French law through articles L. 423-1 et seq. of the French Consumer Code [Code de la consommation]. France is therefore following in the footsteps of the US and, more recently, the UK. Nevertheless, the chosen approach is very cautious both in defining the scope for bringing class actions and the applicable procedure.
II. Class actions are only for consumers seeking compensation for financial losses
Reserved for consumers. The lawmakers chose not to introduce a "universal" class action procedure. As a result, the procedure is reserved for consumers, namely any person not acting in a commercial, industrial, artisanal or professional capacity. On the other hand, if legal entities and individuals acting in a professional capacity are affected, for example by anti-competitive practices, they will not be able to bring a class action. As in the past, if they wish to file a suit, they must continue to act individually.
Limited to financial losses. Lawmakers decided to restrict not only the type of claimant, but also the type of loss for which compensation may be obtained in a class action. The procedure can only be used to seek compensation for "financial losses caused by material harm suffered by consumers", provided that they were sustained "in the context of the sale or supply of services" or "where the losses are caused by anti-competitive practices" (article L. 423-1 of the French Consumer Code).
Surcharges caused by anti-competitive practices, overcharging, unreasonable fees and commissions and unfair termination indemnities are all losses for which compensation may be sought. Banking, insurance, energy and telecoms are the main sectors in the lawmakers' sights. However, any business (or individual acting in a professional capacity) that directly interacts with consumers may very well be affected by a class action – and the lack of direct contact between consumer and professional does not protect the latter from class actions, particularly if anti-competitive practices are involved. On the other hand, compensation for bodily harm or mental distress remains the exclusive province of the individual action, even where such harm is suffered by consumers.
Exclusions. The lawmakers have chosen to exclude numerous areas in which collective losses are common, including the environment and healthcare. In the latter domain, the government has promised a specific law by the end of 2014. The class action is also not available to shareholders misled by false information given to the market, for example. In the immediate future then, the French courts will not be hearing class actions based on securities law.
III. Class actions have three stages
Monopoly for consumer organisations. Lawmakers opted to restrict class actions to approved representative consumer organisations of national scope (article L. 423-1). Consumers themselves cannot bring actions, nor can lawyers which should prevent the phenomenon of "ambulance-chasing" so prevalent in the US. To date, sixteen organisations are in a position to file a class action. This is the main safeguard designed to protect the system from misuse.
Stage 1 – The judgment on liability and definition of the class. A French class action will begin when a consumer organisation files proceedings in which it submits to the court a number of individual cases demonstrating the existence of a group of "consumers in similar or identical situations" who have incurred "individual losses [whose] common cause [is] the breach by the same business or businesses of its/their legal or contractual obligations" (article L. 423-1). The action must include at least two claimant-consumers and may target one or more business(es).
If the initial action is successful, the court must (i) define the class or group of consumers to whom the business is liable; (ii) set the criteria for belonging to the group so that affected consumers can come forward; and (iii) define the losses for which compensation may be awarded and the amount thereof or the criteria for assessing the amount; where appropriate, the court may order compensation in kind (article L. 423-3). In the same judgment, the court may also order the business to place part of the amounts it will ultimately need to pay out as compensation into escrow (article L. 423-8).
The new law does not introduce any special rules for the substantive assessment of liability. Claimants must therefore prove that the business in question breached its "legal or contractual obligations" (article L. 423-1). Further, the burden of proving the loss incurred and the causal relationship between that loss and the breach is borne by the consumers. Lastly, the new law does not depart from the principle that any damages awarded must correspond exactly to the loss incurred. The lawmakers did not take this opportunity to introduce the notion of punitive damages into French law.
Stage 2 – Publication of the judgment on liability. The judgment on liability specifies how the judgment will be publicised so that the consumers that fall within the defined group can come forward, and the deadline – from two to six months – for joining the group (article L. 423-5). Consumers who join the group must individually and voluntarily take steps to do so. The official formation of the group is the next step, and lawmakers preferred an opt-in system (only those consumers who so wish are included in the group) rather than an opt-out system (all relevant consumers are part of the group unless they expressly request exclusion).
It had to be possible to publicise the judgment on liability for the class action mechanism to be successful. One reason for the failure of the "joint representation action" established in 1992 was that consumer organisations were barred from any kind of publicity, which made forming groups an impossible task in practice. It should be noted that measures to publicise the judgment will not go into effect while the judgment of liability is still open to appeal. The rule here is different than under ordinary law – as an exception, appeals to the French supreme court (Cour de cassation) will suspend enforcement (article L423-4). This is another safeguard created by lawmakers.
Stage 3 – Compensation. Once the judgment on liability has been publicised, the business itself compensates consumers in keeping with the judgment's provisions (article L. 423-11). Compensation is carried out under the supervision of the consumer organisation that brought the class action. If authorised by the court, the organisation can have third party assistance with this task (article L. 423-9). All related costs are borne by the business.
The court that handed down the judgment has exclusive jurisdiction over any difficulties that arise during the compensation phase. The court issues a single decision to cover all compensation claims that have not been satisfied by the affected business (article L. 423-12).
IV. Special rules and provisions
Simplified class actions. Where the "identity and number of consumers harmed is known, and where such consumers have suffered a loss for the same amount, for the same amount per service rendered, or for the same amount by reference to a given period," the judgment on liability can include an order that the business compensate the consumers directly (article L. 423-10). Once the judgment on liability is no longer open to appeal, the business in question must inform each affected consumer individually before making the compensation payment (article L. 423-10). The simplified class action will apply in particular to cases where the group consists in subscribers to a service, as in the telephone or energy sectors. Consumers thus informed have the option of declining the proposed compensation (and bringing a separate action). This means that simplified class actions have an opt-out, rather than opt-in, mechanism.
Specific features in cases involving anticompetitive practices. Class actions for anti-competitive practices can only be brought on the basis of a final decision from French or EU competition authorities. Here again, enforcement is suspended during the appeals process (article L. 423-17).
Once no more appeals are possible, a class action may be brought under the conditions described above. The suit must be filed within five years (article L. 423-18). If competition authorities have found that the business committed infringements, there will be a conclusive presumption of infringement in the class action. The consumer must still, however, demonstrate his or her loss and the causal relationship between the infringement and the loss, which may prove difficult.
As another exception to the general rule, judgments on liability in cases involving anticompetitive practices can include an order for immediate enforcement of publicity measures, so that a group can be formed even if a judgment is appealed. In this way the group can be organised while the appeal is pending.
Mediation. The new law allows negotiated settlements through mediation. Only the association that brought the class action can participate in mediation (article L. 423-15). If an agreement is reached, it must be endorsed by a court, which verifies that the agreement is consistent with the interests of the affected consumers. The agreement must specify terms for publicising the matter so that consumers can come forward. Court endorsement makes the agreement binding and enforceable (article L. 423-16).
Suspension of the limitations period. The filing of a class action stops the limitations period applicable to the infringements at issue from running. The limitations period resumes running for a minimum period of six months once the judgment on liability has become final (including Supreme Court appeals) (article L. 423-20).
Additional actions. Consumers, including those who have joined a group, retain the right to file suit individually to seek compensation for losses not covered under the judgment on liability (article L. 423-22).