The The rules on collective redress were first introduced in Croatia’s legal system by two special acts – the 2003 Consumer Protection Act and the 2009 Act on Prevention of Discrimination. It was only later, in 2011, that the Civil Procedure Act provided the general legal framework for collective redress actions, named “actions for the protection of collective interests and rights.”
The Civil Procedure Act provides a non-exhaustive list of protected interests – including environmental, moral, ethnic, consumer, and anti-discrimination. The threshold for the admissibility of an action is that the defendant’s conduct severely violates or seriously threatens one or more of the protected interests.
Those entitled to bring collective redress proceedings before the court include associations, bodies, institutions, or other organizations whose activities involve the protection of the collective interests, provided that a special act explicitly provides for such authorization. For example, according to Croatia’s Consumer Protection Act, the Croatian Government is empowered to designate those entities which can bring collective redress proceedings for the protection of consumer interests before the court.
The main objective of collective redress in Croatia (similar to other European countries) is to determine violations of collective interests (in the form of illegal conduct by the defendants) and prohibit such behavior in the future. This is one of the primary differences between collective redress proceedings and class actions in the USA, where the compensatory character of class actions determines many of its characteristics (such as the opt-out mechanism, lawyers’ contingency fees, and so on). In addition, under Croatian law, and unlike in the USA, the court cannot award punitive damages. Only real damage can be compensated, meaning that the compensation should not serve as a punishment to the person liable for the damage.
A collective action cannot be used to directly claim damages from the defendant; instead, it serves as an abstract protection of collective interests. A defendant may bring a counter-claim and request that the court determine that there was no violation of collective interests.
If a court finds that there has been a violation of a collective interest, the judgment would not contain an award of damages to a designated group. The judgment serves to determine if certain conduct (e.g., unfair provisions in terms and conditions) violated a collective interest (e.g,. the consumer interest).
Individual actions for damages caused by such illegal conduct can of course be brought separately (and regardless of the collective redress action). This represents a sort of opt-in mechanism in which the persons whose interests or rights have been declared as violated or threatened in the collective redress proceedings can initiate individual compensation claims if they wish. Those persons do not have to give their consent for filing the collective redress action in advance.
The legal findings of a judgment in which the claim for collective redress is accepted are binding on the courts considering related individual actions. Consequently, most claimants may wish to initiate individual claims only after a favorable judgment in a collective redress proceeding. This could turn out to be cost-efficient as the court would be focused mostly on determining an appropriate amount of compensation in a subsequent individual action. Court practice recently confirmed that individual actions concern damages as well as restitution claims for unjust enrichment. This was previously an issue as the law mentions only individual actions “for compensation of damage.”
In March 2018, the Croatian Supreme Court clarified another issue: that filing a collective redress action interrupts the limitation period for an individual (restitution) claim. The limitation period starts running again from the date of the final and binding decision in the collective redress proceedings. If the collective redress action is unsuccessful, the limitation period is deemed not to be interrupted. This is not applicable if an individual claim was time-barred before the collective redress action was even filed.
The question of the limitation period was raised in the context of an individual restitution claim that followed from the most famous collective redress action in Croatia, which was filed by the Potrosac (English: Consumer) association against eight Croatian banks. In the Potrosac case, the court determined that the interest rates of the CHF-denominated loans were altered by the banks’ unilateral decisions without previously negotiated parameters and that this practice violated collective interests of the consumers.
The Potrosac case triggered a rapid development of court practice regarding collective redress in the last five years. It has yet to be seen if collective redress will be a popular tool for protection of interests beyond those of consumers.
By Sandra Lisac, Partner, and Ivana Kikerec, Attorney-at-Law, Bardek, Lisac, Musec, Skoko in cooperation with CMS
This Article was originally published in Issue 5.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.