After nearly 30 years of discussions, debates and lobbying and several attempts to pass legislation without success, the government of Mr. François Hollande finally decided to introduce a class action regime in the French legal system. The proposed bill was passed in the Parliament on July 3rd, and while the proposal is expected to generate much debate before the French Senate, it is clear at this point that the main contours appear to be set.
France’s move takes place concomitantly with the release by the European Commission of a non-binding recommendation indicating that within two years all EU Member States should adopt mechanisms for “collective redress” which allow multiple claimants to seek damages or injunctive relief on a collective basis or through a representative claimant. This first EU’s pan-European, cross-sector initiative is aimed at creating a common framework for collective claims for breaches of rights granted under EU law. The features of the collective redress mechanisms that the Commission wants the member states to adopt include notably the following: (i) opt-in, (ii) prohibition of punitive damages, (ii) standing limited to non-profit making entities, (iii) certification test, (iv) information on collective redress actions that balances freedom of expression with the right to protection of the good name of the defendant, (v) loser-pays principle and (vi) restriction of third-party litigation funding.
Today, most European countries have already granted their national consumers the right to act in a collective action. This is notably meant to apprehend the immense harm done to society by infringement of competition law, i.e. approximately 20 billion of illicit profits annually made by professional, according to EU statistics.
In France, the proposed bill has been thought to avoid the alleged US adverse effects and to comply with several principles of French law (including the constitutional principle of “nul ne plaide par procureur” and the attorney solicitation prohibition).
1. Opt-in / Opt-out
The majority of French scholars and politicians have long been opposed to the idea of an opt-out class action (purportedly because the constitutional principle of “nul ne plaide par procureur” would require that all parties to a lawsuit be identified whereas some exceptions already exist in the French legal landscape). In the same way that they want to keep lawyers away from the litigation process.
Accordingly, the bill is based on an opt-in mechanism and does not allow lawyers to collect plaintiff claims and initiate class actions proceedings on their behalf. Instead, the 16 government-approved consumer associations are granted an exclusive right to introduce legal action on behalf of a minimum of two consumers.
The current bill provides that the group would not be constituted until after the court has ruled on liability. The decision as to who is “in” and who is “out” is therefore ultimately left to the court, leaving the defendant in a rather unsecure position where he will not be able to identify the group of claimants from the outset. The question as to whether or not such bill would be in breach with some constitutional principle, and more generally the right to a fair trial is an open question.
2. How will a class action be introduced?
The proceedings would comprise two phases, the first being the court ruling on the defendant’s liability and the second being the indemnification of the losses suffered.
a. Phase 1 – Liability
The class action will have to be brought by an approved national consumer association representing at least 2 consumers. The consumer association will take action against the professional seeking a judgment finding the professional liable.
b. Phase 2 – Group definition & damages
Assuming the defendant is and only if he is found liable at the first stage, the court will (i) define the group of affected consumers for which the liability is incurred and (ii) the amount of damages to be awarded for each consumer or each type of consumer (or the criteria enabling such calculation).
The decision would be published, at the defendant’s expense, after the time period within which an appeal can be made has lapsed and the court will enjoin the professional to inform the consumers who will then be able to join (specifying the time limit and the conditions).
The decision will also set whether the consumers may obtain damages either directly from the defendant or through the leading consumer association.
The bill further provides that starting a group action shall suspend the limitation period for individual claims.
This second phase is aimed at ensuring that the recovery of the damages and effective payment will occur.
Among the critics related to the exclusivity conferred upon national approved consumer associations to start any group action, one of the most convincing may well be the inconsistency with the principle of free and equal access to justice under the European Convention on Human Rights.
3. Scope: daily life disputes only
The scope of the bill is rather narrow. In particular, albeit not expressly, it excludes issues related to health and the environment.
Although it is clear that investors are sometimes consumers (see article L121-20-8 of the French Consumer Code), it remains unclear whether broad investors’ claims would fall within the ambit of the bill.
Accordingly, if individual investors acquiring shares and receiving misleading information may well be covered, it remains to be seen whether securities litigation are eligible to the class action scheme.
4. Follow-on antitrust class actions: consumers only.
The bill strictly limits the scope of antitrust class action litigation related to violations of EU and French antitrust rules, to follow-on class actions, i.e. until after the EU Commission and/or the French national competition authority has actually found an antitrust violation. Additionally, Antitrust class action litigation may only be filed on the basis of a final infringement decision, i.e. that either (i) the time-limit for challenging the decision has expired or (ii) the decision has been unsuccessfully challenged and can no longer be subject to appeal.
The victims will therefore be able to rely on a final decision to seek compensation, but like in any other civil case, they will have to demonstrate a causal link between the antitrust violation and their injury and to quantify the harm suffered.
Surprisingly, businesses have been left out from the class action scheme. Accordingly, the various participants in the supply chain, e.g., retailers, intermediaries and undertakings, will therefore have to continue to bring their damage claims under the standard rules of civil procedure.
5. Damages: only for the injury actually suffered
The French government believes that the threat of a class action would be sufficiently deterrent to hinder undertakings from engaging in illicit behaviour. It remains to be seen whether the awarded damages will be sufficiently dissuasive since no punitive damages will be available.
Under French law, the amount of damages that may be awarded cannot be greater than the actual injury.
The bill further specifies that only material losses (i.e. financial losses) could be compensated.
6. Third-party funding
The current bill raises many practical questions that will have to be addressed in the implementing legislation. In particular, it is clear that the approved consumer associations do not have the financial means to conduct detailed economic analyses to provide the courts with evidence on how much the class should be awarded. Even though the court may request that the professional pays an advance on cost to the consumer association, it is very likely that litigation finance will be needed to bridge the gap and/or fund the lawsuit from the outset.
Interestingly, on the European level, the EU recommendation requires claimant to declare the source of their funding, and third-party funders should be prohibited from influencing procedural decisions, including on settlement. Further, third-party funders should not be compensated on a contingency fee basis (i.e., paid a percentage of any settlement or damage award) unless third-party funding arrangements are subject to regulation by a public authority. It remains to be seen what this exactly means in terms of funding opportunities.
This guest blog post was written by Frederic Pelouze of Alter Litigation, a French third-party litigation finance company. They fund a wide spectrum of claims throughout France and Europe, including commercial disputes, cartel damage claims, and international arbitration.