Type: Client Alerts
On 1 October 2016, the French consumer class action celebrated two years of existence. The initial assessment is rather reassuring for companies, although media coverage from the very beginning has been worrying and illustrates a cynical tendency that must be addressed.
Functioning of the class action
To recap, a class action can only be exercised by one of 15 nationally certified consumer associations. It may be brought against any professional in breach of their legal or contractual obligations “upon the sale of goods or the supply of services.”
All business-to-consumer businesses are thus theoretically likely to incur liability. In practice, the scope of action is limited in two ways. First, consumers must be in a similar or identical situation. Second, only damage to property resulting from the material damage can be repaired.
Class action proceedings involve two phases. The first phase results in a judgement ruling on the liability of the professional and defines the consumer group concerned, the conditions governing compensation, and the implementation of advertising measures following exhaustion of remedies. The second phase is that of compensation from the professional to the consumers via the association. It may be conducted through amiable settlement or litigation. It is solely during this second phase that the consumers seeking compensation must make themselves known.
Assessment of the actions initiated
While some feared a surge in class actions from 1 October 2014, in reality only nine proceedings have been started. One of them was resolved by a settlement agreement and only one judgement was rendered, which went against the consumer association.
The Court held that the four individual cases submitted were not conclusive enough and did not establish a shortcoming attributable to the professional. Emphasising once again the need for the associations to submit evidence proving the alleged violation by the professional is salutary.
The other seven cases are still ongoing.
A common feature of all the cases is the heavy media coverage surrounding their launch. The consumer associations communicate extensively with the media to gain maximum coverage for their actions.
This heavy media coverage is likely to damage the image and the reputation of the company concerned, or even its share price. It is all the more concerning since class action proceedings themselves provide for publicity measures. These are decided by the judge once the decision regarding professional liability is final.
In the actions introduced so far, the companies were broadly exposed to media pressure when the action was brought, although to date, none of the proceedings have reached the stage of implementing the advertising measures provided under the Consumer Code. When this occurs, there will undoubtedly be tremendous media exposure once again, but with a major difference: a final judgement shall have ruled that the professional was liable.
In light of the length and complexity of class action proceedings, the consumer associations have realised that media pressure is a powerful weapon. They are not alone. We have seen over the past two years a growing number of announcements of ‘group action’ or ‘collective action’ by people who are not qualified to lead a true class action, but who intentionally use ambiguous terminology.
Advice for companies
When managing their risks in such a context, companies are well advised to further develop their monitoring processes. Upstream, they should also develop preventive measures to secure the sale process and the quality of their products and services.
Downstream, corrective measures are needed to maintain their customer relationships. Finally, the use of mediation, either through internal mediators or industry federation mediators, may enable companies to effectively manage, upstream, a large number of situations potentially leading to a class action.
Client Alert 2016-307