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A Step Closer to Group Actions in France

 

25 June 2013

The debate on introducing a class action mechanism in France gained momentum with a new reform proposal presented to the Conseil des ministres on 2 May 2013. If adopted, this would impact the way consumers, including to some extent investors, could litigate their claims in France.

“Class” or “group” actions as such do not exist in the French legal system. There are, at present, only a few, very limited procedures in France that permit parties to pursue claims for mass wrongs or injuries. These include procedures for joining actions to aggregate several parties to different proceedings into one single proceeding and actions taken in the collective interest, although the latter does not purport to compensate a loss personally suffered by individuals (rather a collective interest needs to be at stake). In some instances, claims can also be brought by certain representative associations on behalf of their members (“action en représentation conjointe”).

These procedural mechanisms have, however, been rarely used in practice. This is why introducing a proper group action procedure has long been a topic of discussion in French academic, judicial, and political circles. Discussions in France were also triggered by the wider development in recent years of class action procedures across the European Union (and abroad) and recent discussions at the European level. There have also been a number of cases of French companies (such as Vivendi or Société Générale) being sued in the U.S. rather than in France by claimants who wanted to benefit from the U.S-style class action mechanism or of French claimants tentatively joining class actions taking place abroad. For example, in the Vivendi case, a number of French investors had filed a consolidated class action complaint together with American investors against Vivendi before the U.S. District Court for the Southern District of New York.

Discussions on introducing some form of group action in France recently revived with François Hollande’s clear commitment in favour of group actions during his campaign for the Presidential election in 2012 and when the newly formed government launched a public survey on group actions. More recently, on 2 May 2013, a bill was presented to the Conseil des ministres by Benoît Hamon, Deputy Minister of Social Solidarity and Economy, and Pierre Moscovici, Minister of Economy and Finance. The bill is scheduled to be reviewed this month by the French National Assembly (if the bill passes at the French National Assembly, it will also need to be reviewed by the French Senate).

Overview of the proposed group action

The proposed group action would allow for the compensation of individual losses suffered by consumers in the same or similar situation, where such losses are the result of the same breach of legal or contractual obligations by the same party (a professional), and where either (i) the breach occurred during the sale of goods or performance of services, or (ii) where the losses are the result of anti-competitive conduct.1

Only approved consumer associations that are representative at national level would have standing to bring group actions.2 The proceedings would comprise two distinct phases, the first phase being the court ruling on the defendant’s liability and the second phase being the indemnification of the losses suffered.

Assuming the defendant is found liable at the first stage, the court would proceed to define the consumer group for which the liability is incurred as well as the amount of damages to be awarded for each consumer or each type of consumer. This decision would be published (at the defendant’s expense) after the time period within which an appeal can be made has lapsed. The court would decide the time limit and the conditions under which consumers may join the group and obtain compensation for their losses, and in particular the amount of damages due and whether the relevant consumers are to obtain compensation directly from the defendant or via the relevant consumer association.3 The bill specifies that only material losses (ie financial losses) could be compensated via such group action. There is no minimum number of consumers for the purpose of constituting a group.

The second phase would deal with the payment of damages. The proposed bill provides that the defendant must indemnify each consumer for its personal loss. The court that ruled on liability also has jurisdiction to rule on any issue that may arise at this stage. The proposed bill further provides that commencing a group action suspends the limitation period for individual claims.

COMMENT

The proposed group action is based on an opt-in mechanism, unlike U.S.-style class actions, in which an individual is assumed to be part of a class unless it has “opted-out”. This is not surprising as the majority of French scholars and politicians have long been opposed to the idea of an opt-out class action, as this would contravene several principles of French law, including the constitutional principle of nul ne plaide par procureur, which requires that all parties to a lawsuit be identified. However, the group under this proposed bill would not be constituted until after the court has ruled on liability. This would mean that the defendant would not be able to identify the group of claimants from the outset. Some commentators have already raised this issue as potentially being in breach of the aforementioned constitutional principle, and more generally the right to a fair trial.

The scope of the group action is more limited than some would have hoped; in particular, albeit not expressly, it excludes issues related to health and the environment (these are predominant themes in a typical class action mechanism). The proposed reform has been said to deal with “daily life disputes”. Typically, the group action aims, for example, at dealing with disputes with telephone operators or insurance companies.

It is unclear to what extent investors’ claims could fall within the ambit of the proposed bill. There is no doubt that investors can, in some instances, fall within the definition of consumer. For example, commentators are of the view that if a financial product is sold at a distance (eg via internet), it would fall within the scope of the reform proposal. This is because, in this scenario, an investor finds himself in the same situation as a consumer (facing the marketing of a product by a commercial party). This is confirmed by the language found at Article L121-20-8 of the French Consumer Code, which “governs financial services to a consumer under an organised distance sales or service provisions scheme run by the supplier or an intermediary”. It follows that individual investors acquiring shares and who receive misleading information from a market professional would be covered. It is unclear, however, to what extent securities litigation may be covered by this reform proposal, a point on which the proposed bill has already been criticised.

Other criticisms relate to the exclusivity conferred upon national approved consumer associations to start any group action. This option was probably chosen for this draft bill as a protection against procedural abuse. The U.S. class action system allows lawyers to constitute a class, which allows them to make substantial profits out of such proceedings (also via allocation of success fees). There is certainly a will in France to distance itself from such types of U.S. class actions, which may explain why, under this proposed bill, only consumer associations would have standing to bring a group action before the courts. The issue remains that this limits the number of entities that would have standing to introduce such proceedings as there are currently only 17 national approved consumer associations in France. Further criticism is that the exclusivity conferred upon these associations may be inconsistent with the principle of free and equal access to justice under the European Convention on Human Rights.

There are also concerns about the time frame for a group action, as the actual claim for damages would only be made after there has been a ruling on liability, which may take several years (in particular, if there are appeals).

Finally, some also see it as too restrictive that group actions under this bill would only allow for the compensation of material damages (ie financial damages), to the exclusion of moral damages (it should also be added that contrary to the U.S. legal system, French law does not allow for the award of punitive damages).

To conclude, while there seems to be a consensus that some type of group action needs to be introduced in the French legal system and that such a mechanism will need to be different from the class action procedure in the U.S. and other common law countries, there is still an ongoing debate on the exact features of such a group action. The restricted scope of the current proposed amendment will certainly lead to discussions at the National Assembly and at the Senate. It should also be added that two other reform proposals were submitted to the French Senate in January and April 2013, both also relying on an opt-in scheme but with a wider scope (one of them deals with mass damages in the consumer, anti-trust and health context, while the other purports to create a group action in all types of contexts, including consumer, anti-trust, financial, securities, health and environmental disputes).

These proposals are not yet scheduled for discussion at the French Senate. What is clear at this point, however, is that there seems to be sufficient political will for the introduction of a group action procedure in the French legal system in the near future.

Footnotes

1. Article L.423-1 of the proposed bill.
2. Article L.423-1 of the proposed bill.
3. Article L.423-3.

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.
 

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