How to Extend the Class Action Onto Mass, But Small Claims

6 September 2016

Small amounts from mass claims, e.g. consumer claims, could be pursued in lawsuits where the group would be created automatically – suggests the Ministry of Development. The Ministry has developed assumptions of the reform extending the scope of group proceedings submitted in July 2016 for pre-consultation to, among others, legal circles.

Group Formation Methods

As explained by the Ministry of Development, there are two ways in which a group bringing the action can be formed in group proceedings.

In the opt-in model, a group is made up of individuals who clearly state that they want to be covered by the group proceedings and their procedural and material consequences. This principle applies in Poland (but also in Sweden, France, and Italy): only those who submit a written declaration on joining the group become members of the group.

The opt-out model, on the other hand, in force in Belgium, Denmark, and the United Kingdom, includes all persons who meet certain criteria (e.g. participated in one event) without the need to make any declarations. They are covered by the effects of a judgment rendered in group proceedings unless they expressly oppose it in advance by declaring that they wish to be excluded from the group.

Reforms Recommended

According to the Ministry of Development, the scale and value of the claims pursued today in Polish class actions is much lower than the actual damage caused. The groups formed in cases arising on the grounds of prohibited contractual provisions usually do not even cover a significant part of the affected parties who could take part in the proceedings. This is because – due to time, money, and complicated procedures – many of those who are entitled to small claims (small claims, mass claims) of several dozen zlotys do not engage in group disputes. As a result, such processes are not a real “deterrent” for behaviours causing little harm to many entities – e.g. consumers – which bring significant economic benefits to the infringers.

According to the Ministry of Development, the way for the effective collective enforcement of claims related to consumer protection or competition law infringements (including claims of small and medium-sized enterprises) is to introduce an opt-out model into the Polish regulation, however, using safeguards preventing abuse in the form of bringing obviously unfounded actions in order to settle – the so-called blackmail settlement).

Introducing the opt-out principle – as an alternative option for the grouping of smaller claims – would increase the effectiveness of the protection of citizens’ rights.

Opt-out Regulation: Key Points

The basic principles for the regulation of the opt-out system in Polish group proceedings were developed on the basis of recommendations of the Economic Law Team at the Minister of Development, in the section headed by Rafał Kos, attorney-at-law from Kubas Kos Gałkowski law firm.

The opt-in variant would remain essential. The opt-out model would only be admissible to the claimant’s motion and if the additional formal conditions to be assessed by the court are met. The group representative would have to make it plausible that the event giving rise to the defendant’s liability has resulted in such a large number of claims that they could not be effectively pursued under the opt-in principle.

The statement of claims should, therefore, include:

  • description of the event’s circumstances common to all members of the group,
  • description of the group to be represented by the group representative with an indication of the possibly most accurate number of injured parties,
  • substantiation of the selection of the opt-out model (which would reduce the risk of its abuse).

The opt-out mechanism would extend to claims arising from:

  • acts of unfair competition
  • use of prohibited contract terms
  • practices infringing upon consumers’ collective interests
  • anti-competitive practices
  • liability for a hazardous product
  • unfair market practices
  • infringement of other consumer rights
  • making unreliable, untrue, incomplete information available to the general public or omitting information, the obligation of which to include the information in the prospectus, information memorandum, and other documents arises in relation to the public offering, subscription, or sale on the basis of this offer or the application for the approval of securities into transactions on the regulated market.

The amount of individual claims should be limited to a statutory amount not exceeding the equivalent of EUR 200 (consumers) and EUR 500 (entrepreneurs).

The claimant group should consist of entities seated or domiciled in Poland.

A representative of the group whose members are consumers could be: the municipal (district) consumer ombudsman, the Financial Ombudsman, the Civil Rights Ombudsman, while the group whose members are entrepreneurs – e.g. a national organisation acting to protect the interests of entrepreneurs. It could also be a member of a group who, in the opinion of the court, would provide a guarantee of proper representation of the group.

Mediation could be mandatory in the proceedings with a view to a possible amicable settlement of the dispute.

Proceedings should be conducted by a single specialised court – modelled after the Competition and Consumer Protection Court. This would create a “specialisation effect” and lead to the stabilisation and predictability of decisions.

The notification procedure, i.e. notifying the members of the group of the proceedings in progress, should be extended as the absence of a declaration to withdraw from the group in due time would result in the person concerned being covered by a judgment.

Hence, the following should be regulated:

  • the obligation for the claimant and the defendant to identify all potential group members known to them who would be individually notified of the proceedings,
  • the obligation to publish the announcement of the commencement of the proceedings in the Public Information Bulletin of the court before which the proceedings are pending or on another website indicated by the claimant, possibly also on the defendant’s website.

Creating a central directory of group proceedings (e.g. in the BIP of the Ministry of Justice) would also be a good solution. Such a directory would contain information on, among other things, the model in which the proceedings are prosecuted and, in the case of the opt-out model, the time limit within which anyone who meets the indicated criteria for being a member of the group can leave the group.

The amount of damages awarded to group members should be distributed among them by a public entity specialising in the fiduciary management of assets for the benefit of creditors (e.g. supervisor, administrator, receiver), acting under the supervision of a court.

As the authors of the concept of class action reform discussed above conclude, its introduction would increase the effectiveness of collective small claims recovery without the risk of infringing upon citizens’ right to court. It would allow for extending the scope of the application of this institution and at the same time could preventatively discourage practices causing minor harm to individuals but adding up to a large economic benefit for the “wrongdoers”.

Edited by: Ireneusz Walencik

The text originally published in: Rynek Prawniczy, 6 September 2016