New legislation introducing group actions in France - Law No 2014-344 of 17 March 2014 on Consumer Protection

After 40 years of debate about a potential introduction of group actions in France, the French legislator finally adopted the so-called "Consumption Law" on 17 March 2014 allowing such actions.

This new procedural mechanism, which is "opt-in", is tailor-made to fit constitutional principles of French Law. The applicability of the regime to securities litigation is a topic of debate.

Since 1972 there have been numerous attempts to establish group action laws in France, which have failed. There was a fear of collusion with the U.S. style class actions, which are perceived as conflicting with well-established principles of French Law. For example, the principle of nul ne plaide par procureur forbids proceedings involving unidentified parties. There were alternative mechanisms to protect consumers' interests, such as the so-called "joint representative action" created in 1992. This mechanism was, however, barely used as it required an express mandate from consumers to consumer associations to sue on their behalf. Against this backdrop, the challenge for the French legislator was to create an action both (i) in accordance with French constitutional principles and (ii) efficient enough to provide consumers with a useful means of action.

New legislation: Law No 2014-344 of 17 March 2014

Article L.423-1 of the French Consumer Code defines the personal scope of group actions: "consumers1 in a same or similar situation" will be the only persons entitled to seek damages for their individual losses. Such losses will have to be the result of the same breach of legal or contractual obligations by the same professional or professionals, 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.2 In addition, only material losses are subject to the award of damages: compensation for moral damage and physical injury is excluded from the scope of the action.

Only consumer associations have standing

Only approved consumer associations have standing to bring group actions. There are currently 16 associations of this kind in France.

Does it apply to securities litigation?

 As explained above, the Consumption Law makes clear that a breach of a legal or contractual obligation by a professional in the context of the performance of services may trigger a class action.

It is unclear to what extent securities litigation is covered by this new legislation. Most commentators assert that litigation following losses suffered as a result of financial products may fall within the scope of group actions.3 Other commentators only exclude specific stock market offences.4 A few commentators argue that financial products are not within the scope of the text.5 This is clearly a question that needs to be answered by the Courts.

With regard to the specific case where a financial product is sold remotely (eg via the Internet), there is a consensus that such a sale constitutes a consumer contract6 and would therefore be included in the scope of a class action.

Two stage action

The procedure will take place in two phases: the court will first rule on (i) the admissibility of the action and the liability of the defendant, and then on (ii) the indemnification of the losses suffered.

During the first stage, the court will: (i) rule on the admissibility of the claim (ie is the consumer association approved? does the claim fall within the scope of the group action?); (ii) rule on the defendant's liability; (iii) define the consumer group (and subgroups) for which the liability is incurred; (iv) set the amount of damages to be awarded for each type of consumer;7 (v) order the publicity measures to be taken by the defendant in order to inform the relevant consumers;8 and (vi) set the deadlines by which the consumers must have joined its group in order to obtain compensation.9

It is therefore only at the end of this first phase that consumers will be allowed to join the proceedings as France has adopted an "opt-in" approach, ie only those consumers expressly wishing to join the proceedings will be bound by the judgment.

The next phase relates to payment: the defendant will have to compensate every consumer within the group.10 Its only available defence will be to prove that each consumer, individually, does not fit within the definition of "victim" given by the judge in the first phase.

The new law provides for "simplified group action" proceedings11 which are available where the identity and number of consumers affected by the alleged breach are known and their losses are identical. In that case, the Court may hold the defendant liable and order him to compensate directly, within a fixed period, each consumer who suffered a loss.

Comment

The first phase of the procedure proved controversial during the parliamentary debates. The fact that, during the first phase of the process, the number of consumers is not known to the defendant has been said to be a potential violation of constitutional rights. The French Conseil Constitutionnel has accordingly been seized by 60 Deputies and 60 Senators in order to determine whether the Law is compliant with the French constitution and in particular the Declaration of the Rights of Man and of Citizens' Article 16 (right to a fair trial).

In its decision No 2014-690 of 13 March 2014, the French Conseil Constitutionnel confirmed the group action's constitutionality, noting that even if the consumers are not identified at first, the defendant can, at any point in the proceedings, raise any appropriate defences.

The group action addresses issues of access to and effectiveness of justice for consumers: compensation will be easier to obtain and court proceedings concerning the same losses will be before a sole judge. However, for businesses there are some issues:

- insurers are likely to take the risk of group actions into account when renegotiating insurance policies, possibly resulting in increased premiums;

- even the threat of a group action poses a reputation risk for potential defendants; and

- as in any dispute, the company will estimate its financial exposure in case of litigation and set aside an adequate amount for payment of potential damages.

However, in the specific context of a class action, not only do the damages reach very high figures but the defendant cannot reasonably anticipate the exact number of claimants who will opt-in and join the class action. Inevitably, companies will be obliged to make significant financial provision.

All the Tribunaux de Grande Instance (TGI) have rationae materiae jurisdiction over class action litigation. Therefore, a consumer association wishing to bring an action before a "favourable" TGI ("forum shopping") is likely to cherry-pick individual consumer cases within its jurisdiction (ie where the good has been delivered and/or the service performed) to initiate the class action. Even where a consumer association has already brought a class action before a TGI, another one can initiate a concurrent class action (ie against the same defendant on the same grounds) before another TGI, until a decision ruling on the defendant's liability is rendered.

Such an event would force both TGIs to make complex use of the French rules of lis pendens. A Decree of the Conseil d'Etat, expected by the end of 2014, should hopefully clarify the group action regime.

Footnotes

1 Only natural persons are within the scope of the law.
2 In that case, the losses are the result of anti-trust violations as defined in Title II of Book IV of the French Commercial Code and article 101 and 102 of the EU Treaty. For more details, cf. Articles L.423-17 and L.423-18 of the French Consumer Code.
3 L'introduction de l'action de groupe en droit français, JCPE No 12, 20 March 2014, 1144.
4 La loi relative à la consommation. Aspects de droit bancaire, Revue de Droit bancaire et financier No 2, March 2014, Study 6.
5 V. Rebeyrol, La nouvelle action de groupe, Recueil Dalloz 2014 p.940.
6 JurisClasseur Contrats – Distribution Fasc. 2480 section IV; JurisClasseur Concurrence – Consommation Fasc. 904 section IV.
7 Article L.423-3 of the French Consumer Code.
8 Article L.423-4 of the French Consumer Code.
9 Article L.423-5 of the French Consumer Code.
10 Article L.423-11 of the French Consumer Code.
11 Article L.423-10 of the French Consumer Code.