Class Actions Act in force: a game-changer in consumer claims enforcement against businesses in the Czech Republic?
The Czech Class Actions Act implementing the EU Directive on representative actions will likely come into effect on 1 July 2024. The draft law was signed by the President of the Czech Republic on 7 June 2024, only a couple of days before this article was written and is yet to be published in the Collection of Laws. Nevertheless, its final wording is already clear.
This long-awaited legislation will enable the collective enforcement of consumer claims against businesses, which has been very limited in the Czech Republic so far. This brings risks, especially for businesses with a larger number of consumers in the financial services, insurance, energy and telecommunications sectors. Surprisingly, besides consumers, the final wording of the Czech Class Actions Act also brings small businesses into play as claimants.
This article introduces a series focusing on the key aspects of the new legislation that may pose increased risks to businesses. Our class actions series will be released regularly and will address questions retail businesses may have, focusing on practically navigating the often reputationally challenging class action landscape.
Who can bring a claim and what claims are eligible?
The class action may be filed only by registered non-profit organisations active in consumer rights protection for at least 12 months. These organisations must be independent of entities having an economic interest in the filing of a class action.
Individuals and small businesses may opt into the class action by submitting an application. The class needs to have at least 10 members. This is a significant drop compared to the original draft bill, which called for at least 20 members.
Another surprising change is the shift from initial exclusive targeting of B2C relationships. The current Czech Class Actions Act also considers small companies employing less than 10 employees and with annual turnover or annual balance sheet sum not exceeding CZK 50m (approx. EUR 2m) to be consumers. Therefore, also small businesses will be able to jointly bring their claims against corporations.
Consumer claims from these relationships must follow a similar factual and legal basis and will comprise only disputes arising after 24 November 2020, i.e. from the effectiveness of the EU Directive implemented by the Czech Class Action Act.
Financing and risk of competitive abuse
The new Czech Class Action Act allows third-party litigation financing. However, the court may require the claimant to provide an overview of its financial resources and their origin. The rationale behind this is to mitigate conflicts of interest and the risk of a class action being brought by a competitor. The true effectiveness of this tool is yet to be examined.
Another interesting shift occurred in connection with the remuneration of the claimant increasing from the original maximum of 5 % to 16 % of the award, while a cap of CZK 2.5m (approx. EUR 100,000) has been set for certain types of awards.
What's next?
Many other topics and issues, such as reputational risks due to the publicity of admitted class-action proceedings and risks related to the obligation to provide the court with evidence (including confidential information), as well as more details on all the topics outlined above, will be covered in our regular series on Czech class actions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.