Another Step Forward Towards the Collective Redress Mechanism in the Czech Republic
Last year, the Czech Ministry of Justice published a draft Act on Class Actions (“Act”), which was created in the aftermath of European Commission’s proposal to enact a directive on representative actions. Although the European Commission’s proposal is aimed at boosting consumer protection in the European Union, the Czech draft Act goes one step further and aims to provide access to collective redress to a broader group of individuals. During the last few months, the draft Act was subject to an interdepartmental commenting procedure within the government as well as to the scrutiny of professionals in both public and private sectors. The Ministry of Justice received a considerable amount of criticism, which highlighted the possibility of the misuse of class actions for the purposes of competitive fights. As the legislative procedure continued, the Ministry reflected some of the concerns in the new draft Act, which is now being reviewed by the Government Legislative Council. The Ministry expects the draft Act to be presented in the current state to the Chamber of Deputies of the Czech Republic in October 2019. Below, we highlight three important changes the draft Act has undergone so far:
Jurisdiction ratione materiae
Both the previous draft Act and the recast draft Act were limited to disputes resulting from private law legal relations. Such a broad definition of jurisdiction ratione materiae admits resolution of shareholder’s squeeze-out disputes, environmental law infringement claims, intellectual property rights claims and many others via the collective redress.
The recast draft Act maintained this approach and kept the broad definition of jurisdiction ratione materiae. The only change made was in relation to the negative definition, i.e. what types of claims do not fall within the material jurisdiction. The recast draft Act now explicitly excludes claims which fall within the scope of the Act on Specific Court Proceedings as well as the Act on State’s Liability for Damages Caused by State Administration. This specific exclusion has now reduced the uncertainty as to which claims are actually excluded from the collective redress and which claims do fall within the scope of the Act.
Opt-in procedure as a default
The previous draft Act featured opt-out procedure as the default type of proceeding commenced by the class action. The plaintiffs in the opt-out mechanism were defined very broadly as possibly anyone who could have been affected by the defendant’s alleged breach of obligation. More importantly, a person possibly affected by a breach of obligation could have unknowingly been a plaintiff in a proceeding they did not – or even did not want to – commence. Such a person has the right to “opt-out” from the proceeding as soon as they become aware of it.
The recast draft Act used an opt-in procedure as the default type of proceeding as an answer to the extensive criticism of the opt-out procedure and its setbacks. Further, the conditions for commencement of the opt-out procedure, which is still available under the recast draft Act as a second resort, have been tightened up. Under the opt-in mechanism, a plaintiff is someone who has actively joined the proceeding commenced by the representative action. Consequently, the group of plaintiffs in the opt-in procedure is precisely defined from the very beginning of the proceeding.
The issue of discovery was also heavily criticized by commentators. The previous draft Act included provisions that enabled plaintiffs to request the production of documents even before a class action was filed and the proceeding commenced. The purpose of the obligation to produce documents by the defendant is obvious – in many collective redress cases the defendant often possesses documents vital for the assessment of possible claims and the plaintiff usually does not have any other way to access these documents than by filing a request with the court.
Ultimately, the obligation to produce documents even before the class action is filed might hinder – or even breach – the defendant’s right to privacy and business confidentiality. Consequently, the new draft Act introduced a limited procedure for the discovery of documents, which might be commenced only after the representative action is filed.
Although many of the serious issues have been resolved in the recast draft Act, critics remain sceptical of the benefits the Act should provide if enacted.