Class actions à la française Here we go! This has been a long-running story in French civil procedure, but now class action lawsuits are making their entry into French law. On 12 February 2014, the French parliament passed legislation inserting Articles L.423-1 et seq. into the French Consumer Code, thereby introducing the class action procedure into our positive law. Called upon to examine its constitutionality, the Constitutional Council validated the law, which was enacted on 17 March 2014. Implementing decrees are expected over the coming months. The law will therefore come into force the day after its publication in the Journal Officiel, which should happen during the summer of 2014. This new type of action, which will only be heard by the Tribunaux de Grande Instance, also raises the question of fears and concerns, the outlook for the future and the impact on insurance policies. I. THE LAW PASSED BY PARLIAMENT The aim of the class action procedure introduced in Articles L.423-1 et seq. of the French Consumer Code is to allow compensation for losses suffered by consumers resulting from the illicit behaviour of professionals, such as anti-competition practices or breaches of contract: - Article 1 of the law defines the scope of application of the class action procedure and the conditions for its use (capacity to sue, procedural model, how the class is formed, jurisdiction); - Article 2 of the law provides for the adaptation of the Code of Judicial Organisation to take into account the introduction of the class action. i. The purpose of introducing class actions in France According to the reasons given when this draft law was presented, The interest of this mechanism is mainly to encourage consumers to combine their efforts, especially in cases where the overall damage is significant but where the individual damage is small. 1
As Professor Mainguy has pointed out, the starting point for the legislators was that the judicial efficiency of claims for compensation resulting from a loss suffered by a consumer was very low, either due to the small effect of the loss on the individual consumer in the case of diffuse damage, or due to the Olson paradox where, in a group of people all having suffered a loss for example, one group member will be reluctant to initiate proceedings until another group member has done so first. Paradoxically, the larger the group, the weaker it is when it comes to defending its interests and nobody has a special interest in getting involved in the action or the resolution of a difficulty for which the others could receive an unwarranted benefit. The class action can minimise but not eliminate the Olson paradox by pooling the cost of the trial, which then becomes marginal. ii. The scope of the class action In practice, the key provisions of this new law are: - the aim of the class action is to allow redress for individual losses suffered by consumers who are in a similar or identical situation and whose common cause is a breach by one or the same professionals of their legal or contractual obligations, although this procedure can only involve the repair of pecuniary losses arising out of material damage suffered by consumers (As the law stands, bodily injury and moral prejudice are excluded from the scope of the class action). Material damage as referred to in the Hamon law is much wider than the concept traditionally encompassed by insurance law. Indeed, the law of 13 February 2014 understands the concept of material damage in the civil law rather than the insurance law sense. Insurance law considers material damage to be damage to a thing or a substance. Civil law includes all financial and pecuniary losses suffered by a person. This is the definition that applies when understanding the scope of the damage referred to in the Hamon law. Therefore, consequential or inconsequential financial losses do come within the scope of the class action. It is important to note that the class action system excludes losses arising out of bodily injury, moral prejudice and environmental damage. - A consumer is defined by the law as being any physical person acting for purposes not related to his/her commercial, industrial, craft or professional activity. During the debate in the Senate on 11 September 2013, deputy minister Benoît Hamon stated that the repair of financial losses suffered by consumers through the sale of financial services, where the common cause is the same professional, whoever that may be, having breached his legal or contractual obligations, can be the subject of a class action. 2
- Over and above consumer disputes in the strict sense of the term, the scope of the class action also includes losses arising out of breaches of competition law, which would allow compensation for losses resulting from price fixing. - Only national, approved consumer defence associations have the right to initiate the action. There are 16 such associations: 1. ADEIC Association de Défense, d Éducation et d Information du Consommateur 2. AFOC Association Force Ouvrière Consommateurs 3. ALLDC Association Léo Lagrange pour la Défense des Consommateurs 4. ASSECO-CFDT Association Syndicale d Étude sur la Consommation 5. CGL Confédération Générale du Logement 6. CLCV Confédération de la Consommation, du Logement et du Cadre de Vie 7. CNAFAL Conseil National des Associations Familiales Laïques 8. CNAFC Confédération Nationale des Associations Familiales Catholiques 9. CNL Confédération Nationale du Logement 10. CSF Confédération Syndicale des Familles 11. FF Familles de France 12. FR Familles Rurales 13. FNAUT Fédération Nationale des Associations d Usagers des Transports 14. INDECOSA-CGT Association pour l Information et la Défense des Consommateurs Salariés 15. UFC-Que Choisir Union Fédérale des Consommateurs 16. UNAF Union Nationale des Associations Familiales - Articles L.423-15 and L.423-16 of the French Consumer Code also provide that mediation can be organised in order to obtain redress for individual losses. This is rather strange insofar as the object of mediation is much wider, since the agreement must aim to solve the dispute in its globality. iii. The procedural framework for the class action The procedure that has been adopted is limited to an opt-in mechanism. In this system, each claimant must express his/her will by voluntarily joining the action (see below). The procedure must take place in two stages: - The judgement on the merits will rule on the liability of the professional, determine the criteria based on which consumers may demand compensation, fix the amount of compensation, or at the least the method by which it is calculated, as well as the procedure through which consumers can obtain that compensation; Only after that judgement is handed down can consumers manifest their desire to opt in. The monopoly given to the associations could lead to abuse. Indeed, the association could decide to come up with only a few consumers in order to make its 3
action admissible, without those consumers being representative of the future class members. The class action could therefore lead to the professional being found liable too easily. Furthermore, as the professional does not have a comprehensive view of the consumers involved, it will be difficult to put forward arguments in defence. - This is followed by the compensation phase, which will enable consumers to receive the compensation as fixed in the judgement, either out of court or, if difficulties arise, according to the decision of the judge who will be asked upon to rule on the difficulties appearing at that stage. II. REFERRAL TO THE CONSTITUTIONAL COUNCIL Immediately after the vote on the Hamon law, 90 senators brought the matter before the Constitutional Council, considering that the law went against the principles of personal freedom, the guarantee of rights, the presumption of innocence, accessibility and ineligibility of the law and respect of privacy. You have to admit that introducing class actions into our legal system is truly a philosophical revolution, considering our legal tradition. However, on 13 March 2014, the Wise Men of the Constitutional Council came to the decision that the law was not unconstitutional. They noted in particular: - as regards conformity of the class action procedure with the rights of the defence: o the provisions of Articles L.423-3 and L.423-10 [of the French Consumer Code], by virtue of which the first stage of the procedure is conducted without having first determined the number and identity of the consumers who will effectively be granted compensation in the terms of the judgement handed down at the end of this stage, do not disregard the rights of the defence (cons. 19); o during the third stage of the procedure, the professional is not deprived of the possibility of putting forward any other means of defence relating to the individual compensation of the interested consumers (cons. 18); - as regards the entry into force of Articles 1 and 2 of the law: o these new provisions pertaining to the procedure by which the liability of a professional towards consumers can be acknowledged in court do not change the fundamental rules that determine the conditions of that liability (cons. 26); o the immediate application of these provisions does not confer a retroactive nature upon them (cons. 26), which allow that the rules of procedure applicable to actions brought on the basis of the new law can apply to breaches committed before it was voted in. Finally, the Constitutional Council confirmed the provisions of the Hamon law without placing any limitations on them. Therefore the law is fully applicable. 4
However, it is important to note that the decision of the Constitutional Council does not exclude it being called upon in the future to examine the constitutionality of the monopoly given to consumer associations and the limitation of what losses are repairable. III. SHOULD WE BE AFRAID OF THE ARRIVAL OF CLASS ACTIONS IN FRANCE? i. Fear of the unknown? The class action lawsuit came into being in the Anglo-Saxon world and rapidly expanded there. The first country that springs to mind is the United States of course, but there is also Canada 1, Ireland, New Zealand 2 and Hong Kong. In the Anglo-Saxon world, there are 2 types of class action. Opt-out (the model in the USA and recently Australia) is a class action through which all of the persons displaying the defined characteristics are part of the class action except for those persons who have expressed their desire not to be part of it. Unless that wish has been expressed, those persons, even if they are unknown, are considered to be members of the class action. They will be bound by the outcome of the case (out-of-court solution or court judgement). Opt-in (the model in the UK, Singapore ) is a class action where injured persons must display their desire to join in the action. To be a member, they must prove that they meet the predefined conditions. The French legislators chose to adopt this second system. Several countries in continental Europe have been won over by the class action system. In Portugal, the popular action (acção popular) was introduced into the constitution in 1995. The class action must be approved by a Judge. Portugal adopted the opt-out system. In Italy, the class action has existed since 1 January 2010 3. Italy adopted the opt-in system. In Sweden, a type of collective action has existed since 1973, but it was only in 2003 that the class action was actually introduced for all civil actions as well as for actions involving environmental law. Sweden adopted the opt-in system, considering that the opt-out system was in breach of Article 6 of the European Convention on Human Rights insofar as a citizen could, in the opt-out system, become a party to court proceedings without having given his/her consent. Norway has a very similar system. In 2001, Spain also set up a class action system 4. Spain chose the opt-out system. 1 The Provinces of Alberta, British Colombia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Saskatchewan all have the class action. Since 1979 Quebec has a unique system of collective action. 2 New Zealand does not have a special system of class actions. 3 Article 49 of Law no. 99 of 23 July 2009 4 Law of 7 January 2000 5
In the Netherlands, the class action has been in the code of civil procedure since August 2005. 5 The Netherlands adopted the opt-out system. So the introduction of class actions in France is not an isolated phenomenon, but is in keeping with the dynamics of justice systems in western countries. Nobody should therefore be afraid of the unknown, as this type of action is well-known to professionals. ii. Fears that procedural costs may rocket Another concern surrounding class actions is procedural costs. These are often colossal and exhaust defence cost coverage in insurance policies. The absence of discovery or disclosure in the French procedure will certainly mean that procedural costs will continue to be far lower than in Anglo-Saxon countries. There is therefore no reason to be overly afraid about the costs that these procedures could generate. iii. Fears about loss of image However, there is no doubt that initiating a class action will be harmful in terms of image and reputation for the company being sued. This is unquestionably a pressure factor that professionals will have to take into account. iv. Fear of punitive damages Finally, it is important to note that the law does not change the principle of full compensation for the damage suffered. Therefore, even if the introduction of punitive damages into French law is still a topic of conversation (here we must not forget the current debate surrounding ecological damage), this type of loss is not yet included in the repairable losses. Nevertheless, in a judgement handed down on 1 December 2010 6, the French Supreme Court ruled that punitive damages were not contrary to public policy. Furthermore, the proposal to reform liability law, known as the Catala proposal has suggested reversing the exclusion of punitive damages and allowing them in French law. 5 Wet collectieve afwikkeling massaschade of 23 June 2005, came into force in August 2005 6 French Supreme Court, Civ. 1, 1 December 2010, n 09-13.303 6
IV. WHAT IS THE OUTLOOK FOR CLASS ACTIONS IN FRANCE? i. The sectors involved The sectors that will probably be the most at risk of a class action lawsuit are financial services and the sectors supplying services and intangible goods, such as telephony (landline or mobile), electricity, gas and water. So today, in France, the class action appears to be limited to certain subjects, or rather to certain types of dispute. Its expansion should therefore be contained. ii. The scope of the class action is very likely to be widened Nevertheless, it is important to note that in a draft law 7 tabled on 14 January 2014, some members of parliament are proposing to set up a class action whose scope is extended to environmental and health issues. If the law is passed, then a broad spectrum of businesses could be exposed to class actions. iii. Towards a broadening of the type of losses that are repairable through class actions As the law stands, losses that can be repaired through class actions are, according to the provisions of the new Article L.423-1 of the French Consumer Code, pecuniary losses arising out of material damage suffered by consumers. However, this limitation is in direct conflict with Article 1 of the First Additional Protocol of the ECHR, which led the Court to appreciate the right to compensation for a loss in a very wide sense. It appears that a dispute brought before the European Court of Human Rights cannot be dismissed. In France, we should therefore see the first class actions being initiated after the summer of this year. We must be vigilant when this procedure is implemented for the first time. HMN & Partners 7 Draft law aiming to set up a class action whose scope is extended to environmental and health issues, n 1692, tabled on 14 January 2014 7