Croatian Consumer Protection Act authorizes qualified entities such as consumer organizations and public authorities to bring civil proceedings against traders or trade associations engaged in practices that violate Croatian consumer protection laws. Under the current regime, the competent court is authorized to (i) establish that the infringement occurred, (ii) order the respondent (e.g., trader) to cease the prohibited behaviour and, if possible, to adopt measures necessary to eliminate the harmful effects of respondent’s prohibited conduct, and (iii) prohibit any such or similar future behaviour.
The law as it stands does not allow the qualified entity to bring a representative claim for compensation of damages or other redress measures for individual consumers affected by the infringement. In other words, individual consumers can currently seek such compensation only in individual litigation proceedings. Although consumers may rely on the court’s decision adopted in collective proceedings when bringing individual actions, they are often discouraged from bringing individual claims due to psychological reluctance and negative balance of the expected costs relative to the benefits of individual action.
The current regime is now being replaced by way of Croatia’s transposition of the Directive (EU) 2020/1828 of 25 November 2020 on representative actions for the protection of the collective interests of consumers (“Directive”). The new rules are not intended to form part of Croatian Consumer Protection Act (or the Civil Procedure Act). Rather, the Croatian legislator has decided to introduce a separate piece of legislation governing exclusively the procedure of consumers’ representative actions, i.e., the Draft Act on representative actions for the protection of the collective interests of consumers (“Draft Act”). If adopted by the Croatian Parliament, the Draft Act is intended to enter into effect on June 25, 2023.
The Draft Act contains procedural rules on domestic and cross-border representative actions, and allows qualified entities to file claims with competent courts requesting (i) determination that a given practice constitutes an infringement of consumer protection law; (ii) order to the trader to cease the practice that violates consumer protection law and to adopt measures necessary to eliminate the harmful effects of such practice (injunctive measures); and (iii) compensation of pecuniary and non-pecuniary damage caused by violation of consumer protection law. The distinction between domestic and cross-border representative actions is made in accordance with Directive’s preamble and definitions, depending on whether or not the qualified entity is bringing the claim in the EU member state where it is designated. The Draft Act expressly provides for the jurisdiction of commercial courts, which is being justified by the nature of the parties to proceedings, i.e., that the claimant would typically be a consumer association while the respondent would either be a trader or a trade association. With regard to the venue, the Draft Act allows claimants to bring actions before the courts of respondent’s registered seat or alternatively before courts of place where the infringement was committed or could have been committed.
In order to ensure the opportunity for redress measures, the Draft Act provides for an opt-in mechanism requiring consumers to explicitly express in writing their wish to be represented by the qualified entity in the representative action, except in cases of injunctive measures (either definitive or provisional) that the qualified entity may request without consumers’ opt-in. When filing the representative claim, the qualified entity is authorized to request compensation of damages only for those consumers who have opted in for representation up to the conclusion of the main hearing. Furthermore, the Draft Act lays down the rules allowing the qualified entity to require consumers who have opted in to pay an entry fee for their participation in the representative action. The Draft Act sets the limit for the above symbolic entry fee to maximum 5% of the value of claim for compensation, but no more than EUR 70,00.
Croatian legislator has also made use of the opener clause contained in Article 8(4) of the Directive by allowing the qualified entity to seek injunctive measure only after it has entered into consultations with the trader concerned with the aim of having that trader cease the infringement. Specifically, before filing the representative claim, the qualified entity must provide a prior written warning to the trader, notifying the trader that it would file a representative claim if the trader does not cease infringement. However, the Draft Act allows the trader a somewhat longer period than the Directive to bring the infringement to an end, since the qualified entity is authorized to bring the claim before the competent court only after expiry of 30 days following the delivery of the notice to the trader. Filing a representative claim before the expiry of the above 30-day deadline would result in such claim generally being considered as ineffective to confer jurisdiction on the court, and the court would be required to dismiss it.
With regard to Directive’s requirement to ensure procedural expediency, the Draft Act provides for the court’s duty to hold a preliminary hearing no later than 30 days after receipt of respondent’s statement of response or after expiry of the deadline to provide a statement of response, while any decision(s) on interim measure(s) must be rendered and dispatched to the parties within 30 days from the preliminary hearing. In addition, the appellate court must decide and dispatch its decision on appeal no later than 30 days from the date of receipt of the appeal.
During consultations in the legislative process, Croatian Supreme Court (whose representatives were involved in the working group on the Draft Act) articulated the need to allow the review of fairness of redress settlements, which is why the Croatian legislator decided to make use of the opener clause contained in Article 11(2) of the Directive and extended courts’ jurisdiction to also assess the fairness of settlements in representative claims. The rules of civil procedure require Croatian courts to assess whether the settlement proposed by the parties is in line with mandatory rules and rules of public morals. With entry into force of the Draft Act, courts will also need to assess whether the proposed settlement is fair and will not allow the conclusion of settlements that do not satisfy this condition.
When laying down rules on penalties for failure or refusal by a respondent to comply with an injunctive measure, obligations relating to disclosure of evidence, or obligations to inform the consumers on any final decisions on injunctive measures, redress measures, or settlements, the Croatian legislator opted for daily fines which are determined by the competent court on a case by case basis, depending on the gravity of violation of consumers’ rights.
The Draft Act ensures that the final decision of the court concerning the existence of infringement harming collective interests of consumers can be used by parties to the proceedings and interested parties as evidence in the context of any other action before Croatian courts to seek redress measures (i.e., compensation of damages) against the same trader for the same practice. Although the parties may use the operative part of judgment as evidence of existence of infringement in other proceedings against the same trader, any facts established in the reasoning of the decision will be assessed by the court in such other proceedings on a case by case basis, i.e., the reasoning of court’s decision on representative claims is not binding for any other Croatian court.
In a nutshell, although the Draft Act significantly improves the position of consumers affected by the infringement of any area of consumer law set in Annex 1 of the Directive, it also brings some good news for potential defendants by providing for an opt-in mechanism in damages proceedings, instead of including by default all consumers on whose behalf the qualified entity decided to bring the action.
By Iva Basaric, Partner, and Lovro Klepac, Senior Associate, Babic & Partners