An institution of class action has been operating for a long time abroad and it has proven its efficiency. To what extend is this innovation needed in our country? Can class action potentially become a tool in unfair competition?
Aggrieved under the same circumstances
Today, there are quite common cases of violation of rights of similar by their nature. Herewith, the number of individuals whose rights have been violated is quite remarkable, however, but each of them file their own lawsuits to the court individually. All these lawsuits have common aspects -the dispute has the same grounds and the claims have the same nature, therefore it is quite reasonable to combine them into the category of “class actions”.
Thus, the Draft Law “On Amendments to Certain Legislative Acts of Ukraine Regarding Class Action Suits for Protection of Consumers’ Rights, Right to Safe and Healthy Environment” (No. 10212) has been registered in the Verkhovna Rada, whereby it is proposed to introduce the institution of class action for consumers in the civil procedure.
The Draft Law is subject to amending the Civil Procedure Code, as well as the Laws of Ukraine “On Environmental Protection”, “On Consumers’ Rights Protection”, “On Court Fee”, “On Public Associations” and “On Enforcement Proceedings”.
Thus, it is proposed to introduce legal procedural mechanisms for consideration of class action within civil legal procedure of Ukraine. The motivation behind is the fact that, even after a substantial update of the Civil Procedure code in 2017, there is still an unresolved issue of introducing a special procedure for consideration of cases over protection of rights and legitimate interests of numerous groups of individuals, rather than just individuals.
Thus, it can be argued that the current Civil procedure Code does not correspond to the present-day developments and does not contain provision for consideration of lawsuits in case non-pecuniary and financial damage is inflicted to groups of individuals and in case of mass violations of consumer rights by an unfair manufacturer of goods or service provider.
As stated in the explanatory note to the Draft Law, the institution of class (collective, mass, representative, etc.) action has a significant socio-political potential. It gives the society an opportunity to control environmentally hazardous enterprises and quality of goods and services through the use of lawsuit instruments.
The authors of the Draft Law aimed for determing the basic principles of court consideration of class actions under the rules of the Civil Procedure Code as an effective instrument for protection of the rights of groups of individuals aggrieved by the same offense committed by one or more entities.
In the interests of the society and… judges
It is quite obvious that such Law is necessary, and this is due to several factors.
Many courts of first instance have a limited number of judges and therefore are not able to consider cases within a reasonable period of time in the event of a large number of individuals filing individual lawsuits in respect of the same legal relations. In turn, enshrining the institution of class action in the legislation will help to optimize the workload of the courts.
Currently, the Civil Procedure Code does not expressly regulate both, the mechanism for access to justice for organized public groups (such as public organizations engaged in consumer rights protection), and the right of initiative citizens to protect group interests without creating a non-governmental organisation.
The introduction of the institution of class actions in the civil process will provide a kind of public control, and enterprises and institutions that have inflicted damage to groups of individuals by their actions will not be able to avoid property liability for their unlawful actions.
Adoption of such law will substantially harmonize the legislation of Ukraine with the legal systems of such countries of the European Union as Sweden, Portugal, Spain, Finland, Norway, Denmark, France, where the institution of class action and representative lawsuits is being successfully used for a long time. Thus, the national legal system will be closer to the world trends in the development of justice and implement successful court practice in its legal field.
Initiators and additional requirements
In general, a class action can be defined as a recourse to the court with a lawsuit based on a common subject matter and grounds by a significant number of persons (according to the Draft Law – at least 25 individuals). Such a lawsuit may relate to protection of consumer rights, the right for a safe and healthy environment, and contain demands towards one or more defendants to cease a violating the rights actions, to compensate property and non-pecuniary damage.
According to the Draft Law, an individual (initiator plaintiff) or a public organization has the right to apply to the court with a claim on protection of the rights and interests of a group of persons without their participation in the proceedings (class action).
The following conditions must be met so as the lawsuit is considered to be a class action:
at least 25 individuals with similar demands based on the same grounds to one or more defendants joined to the lawsuit of the initiator plaintiff;
a public organization has filed a lawsuit in cases provided for by the law with at least 25 individuals being its members with similar demands based on the same grounds to one or more defendants.
The Draft Law provides for clearly defined requirements for such a lawsuit. In particular, it is availability of a petition of the initiator plaintiff or public organization for consideration of the case, which is filed simultaneously with the statement or may be part of the statement of claim. Such petition should relate to the consideration of the whole case, rather than a certain part of the claims.
The initiator plaintiff may file a class action either with the possibility for extra persons being members of the group and whose legitimate rights and interests are being protected to join the lawsuit (open class action), or without such a possibility.
The initiator plaintiff represents the group members without a power of attorney on the basis of applications of individuals about joining (additional joining) the class action or a decision of the majority of the group members, which is executed in the form of minutes of the meeting and submitted to the court with signatures of those who voted for such decision.
The Draft Law defines the peculiarities of all stages of the court proceedings on class action, from initiating the proceedings to the final decision on the case.
Thus, given the fact that there is currently no adequate regulation of class action in the Ukrainian legislation, it can be stated that the proposed process is quite successful.
Probability of abuse
However, we should not forget about the probability of abuse of such an innovation. Although the institution is aimed at helping consumers and their protection, there are opinions about the possibility of its use for unfair competition.
The Antimonopoly Committee of Ukraine defines unfair competition as unfair actions of an entrepreneur aimed at eliminating or restricting competition in the market through the use of other person’s business reputation, creation of obstacles to a competitor and obtaining unlawful advantages, unlawful collection, disclosure and use of trade secrets.
Thus, class actions may damage business reputation of competitors and create obstacles for doing business or even cause losses. Given the reports of the Antimonopoly Committee of Ukraine and relevant statistics on violations of antitrust legislation, it is quite possible that some unfair business entities can use such methods to fight against their competitors.
However, class action can not become a new tool for unfair competition. The very mechanism of pseudo-protection of violated rights in the court is not novice, and methods of combating it have long been known.
Thus, the introduction of the institution of class action in Ukraine seems to be a rather good idea. This will give an opportunity to systematize, organize and simplify consideration of certain categories of cases, in particular those related to protection of consumer rights.
Tetiana Romanchenko, senior associate, and Mykhailo Kostroma, junior associate, dispute resolution, exclusively for Zakon & Business