Class actions arrive in France but unlikely to spark mass claims for now

Class actions became a reality in France in mid-February when the French Parliament approved a new consumer law that for the first time enshrines the principle of class actions in the country. But French class actions are set to be much less aggressive than in the US. The range of issues that can be targeted under the new rules is more restricted than in the US. Companies will, for example, not be hit by astronomical punitive damages and there are strict limits to what lawyers can do to boost compensation for clients and their own fees.hideBut French companies still face considerable non-monetary risks if they find themselves at the wrong end of a highly public class action, pointed out Renaud de Pressigny, a partner at risk consultancy Arengi. "There could be damage to the image of the company in the case of a class action," he said. "The risk of consumer claims will probably gain weight for companies and they should pay attention to areas such as consumer complaints and consumer relations to try and prevent such actions," added Arengi in a statement. The risk consultant believes that class actions should create liability exposures for companies such as those in the insurance, banking, telecommunications and consumer goods sectors. But current liability policies should cover the risk, according to Arengi. "I do not see any reason for a change on wordings because of the class actions," Mr De Pressigny said. One broker agreed with the consultant. "The introduction of class actions is unlikely to disturb the insurance market," said Christophe Pardessus, Head of Claims in Continental Europe at Marsh. "And in any case, the guarantee and limits of liability contracts that companies already have in place should be enough to cover this risk, as long as one company is not facing a class action and some other significant claims at the same time." But the bill does create some risks that must be taken into consideration, he warned. "The law enables class actions to be started inter alia because of behaviour that is contrary to competition laws," Mr Pardessus explained. "Insurance contracts usually exclude cover where claims result from unfair or anti-competition acts or wilful misconducts. More broadly, claims resulting from a class action may be subject to coverage denials or restricted coverage simply due to the policy wording," he added. In general, however, the experts do not think that France will see the development of a class action industry in the mould of the US. "One major difference of the French system to its American counterpart is the absence of punitive damages," said Christine Gateau, a partner at the Paris office of law firm Hogan Lovell. "It is the possibility of high punitive damages that makes American class actions such a powerful tool," she added. The French bill establishes that only the damage effectively caused by the faulty product or service can lead to compensation. "The scope of the French law limits class actions to consumers of goods and services. It will not apply to employees of companies, who in the US can sue a company because of alleged discrimination, for example," added Ms Gateua. Another important difference that can work to the benefit of companies under the new French system is that lawyers will not be able to launch actions on their own initiative. Only an organised consumer association with nationwide influence can start a class action. Only 16 such organisations exist in France today. Furthermore, lawyers cannot advertise ongoing actions on TV as their American peers can do in a highly effective way. The French law also adopts the principle that consumers who feel entitled to compensation must opt into a class action. In the US all consumers that are theoretically affected are automatically entitled to compensation once a verdict is issued by the courts. A further difference between the French and US systems is that in France compensation can only be awarded when consumers suffer monetary damage. This means that consumers cannot initiate a class action against a company to ask for compensation if they believe that their health was affected by a product. Individual legal action will remain the norm in such cases in France. But Mr Pardessus believes that health and environmental damages will be included in class action legislation at some point in the future. This would inevitably have an impact on the insurance market. For now, the situation could still change. The parliamentary process has been concluded but challenges to the bill remain. An appeal has been lodged by the government opposition in the constitutional court, the highest level of the French judicial system. This appeal argues that the class action tool, as currently defined by Consumer Affairs Minister Benoît Hamon's bill, violates the constitution and should therefore be void. The court has 30 days to reach a verdict on the appeal. Other European countries such as Spain and Italy have already adopted watered down class action legislation but it has hardly created a deluge of consumer action against companies.

Class actions arrive in France but unlikely to spark mass claims for now

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