Class action suits now also available to SMEs

Analyse Following the Fipronil egg scandal, the Belgian Federal Government has decided to give SME’s access to the class action-procedure, which was previously already available for consumers. This article will list some of the possibilities this procedure has to offer and the rules that must be respected during the procedure.

On 22 May 2018, the Law of 30 March 2018, which extended the availability of a claim for collective damages (hereinafter "class action") to SME's, was published in the Belgian Official Gazette.

We already published a report on the availability on class actions, provided by the Law of 28 March 2018, but at the time they were only available to consumers.

However, after review of the 2014 Law, giving SMEs access to class actions was deemed desirable. This insight came following the Fipronil scandal, which saw dozens of poultry farms closed by the Belgian Federal Food Agency (FAVV) because they might have been producing eggs that had been contaminated by the insecticide Fipronil.

This expansion was introduced by the Law of 30 March 2018. This will allow not only consumers but also self-employed persons and SMEs to go to court in order to claim recompensation for the damages they have suffered as a result of the same incident caused by the same company.

SMEs are defined as enterprises which employ fewer than 250 persons and which have either an annual turnover of less than 50 million euro or an annual balance sheet total of less than 43 million euro. As a result of this very broad definition, no less than 98% of the companies in Belgium qualify for a class action.

Below you will find the headlines of the class action.

1. The class action can only be filed when each of these conditions have been met:

  • The invoked cause is a breach of one of the contractual obligations of the company or is a breach of certain specific legal provisions such as competition laws, market practices and consumer protection, product and service safety, intellectual property, e-commerce, etc. (class action on an extra-contractual basis is therefore excluded);
  • The person requesting the action must be a group representative who fulfills the requirements laid down in article XVII. 39 and who is found suitable by a judge (this will be further specified under point 3);
  • Recourse to collective redress must appear to be more efficient than legal action through common law.

The damages that result in a class action must have a cause that took place after 1 September 2014.

2. Exclusive jurisdiction of the Belgian Commercial Court

Class actions brought by a group of SMEs falls within the exclusive jurisdiction of the Commercial Court.

3. Representation of the group

As for consumers, a group of SMEs may only be represented by a single group representative.

They must meet the following requirements:

  • They must be of a non-profit nature;
  • They must either have a corporate objective that is in line with the collective damages suffered by the group, or they must be an inter-professional association with a seat in the Belgian High Council for Self-Employed Persons and SMEs, or they must be a body recognised by another Member State while meeting certain conditions;
  • Have sufficient financial and human resources.

If, during the course of the procedure, the group representative does not meet one of those conditions, the requester will lose their capacity as group representative and the court will appoint another group representative, with the express agreement of the latter. If no other candidate representative fulfils the conditions or accepts the capacity of group representative, the court shall decide on the conclusion of the collective redress procedure.

Consumers and SMEs may, as two separate groups, bring an action for collective redress against the same company in respect of the same damages and may also be represented as two separate groups by a single separate group representative. The reason for this is that each of these groups may have different interests to represent in the same case.

4. Composition of the group bringing a class action

As for consumers, two systems are in place to determine whether a company is part of the group initiating a class action: an opt-in and an opt-out.

Opt-in implies that everyone who has expressed their will to be a member of the group, will be so. Opt-out, on the other hand, assumes that everyone who has suffered damages is a member of the group, with the exception of those who have expressed their will not to be so.

SMEs whose main place of business is in Belgium may, depending on whether an opt-in or opt-out system was chosen, express their desire to be part of the group or not to be part of the group.
SMEs whose main place of business is not in Belgium are only subject to the opt-in system, which means that they must express their wish to belong to the group within the period laid down in the decision for admissibility of the class action.

The SMEs are required to inform the Court Registry of their choice.

5. The application for collective redress

The application for collective redress must contain the following elements:

• Proof that the conditions of admissibility have been met;
• A description of the collective damages;
• The proposed option system (opt-in or opt-out) and the reasons for this choice (more on this in subsection 4);
• A description of the group for which the group representative intends to act, with the best estimate of the number of disadvantaged persons;

The conditions of admissibility will be examined ex officio by the judge on the basis of and within two months of the lodging of the application;

6. Preference for alternative dispute resolutions

It remains important that the class action be the ultimate action and that a mediated solution (the so-called alternative dispute resolution (ADR)) between both parties remains the preferred option. In addition, the law expressly states that agreeing to a settlement of a collective redress does not imply recognition of liability or fault on the part of the defendant.

The judge may provide a period of time during which the group representative and the defendant can negotiate a settlement agreement. He may also, at the request of both parties or on his own initiative but with the agreement of both parties, appoint a certified mediator to facilitate the negotiation of the agreement.

Finding a solution through dialogue and negotiation remains the preferred option

If the parties have reached an agreement on collective redress, the party raising the issue must submit the agreement to the court for approval, they must also inform the other party accordingly.
In this case, too, the judge must decide whether or not to approve the settlement within two months of the submission of the agreement. The approval decision has the same consequences a judgement would have and binds all members of the group together.

The judge can refuse to approve, for example if he should find the agreed settlement to be unreasonable, in which case he can invite both parties to review their agreement within a specific period of time.

If, however, both parties are unable to come to a new agreement within the given timeframe, the group representative must give the judge immediate notice of this, while informing the defendant of the date on which the judge was notified.

7. Examination of an action for collective redress

In the event that no agreement has been reached or no agreement has been approved by the judge, the investigation into collective redress will be continued and the court will take a decision on its merits, deciding on the obligations of collective redress on the part of the defendant.

Even during the proceedings on the merits and as long as the court has not taken a decision, the parties remain free to reach a settlement agreement and to submit it to the court for approval.

8. Publication and continuation

The decision to approve a settlement agreement of collective redress or a court decision on the merits of the case is published in the Belgian Official Gazette and a copy is sent to the FPS Economy, SMEs, Self-Employed and Energy, which will publish the decision in full on their website.

The law also provides for the manner in which the homologated agreement or the decision on the merits must be executed. This is supervised by a claims handler who must be chosen at the court from a list composed of lawyers, ministerial officials or judicial representatives.

9. Conclusion

On the one hand, it is a good thing that companies can also group together in order to take joint action against another company that does not comply with its agreements or does not comply with specific legislation.

On the other hand, this possibility is not intended to be treated lightly either, as it could result in companies facing an increased risk of a trial, which could lead to an increase in insurance premiums. Because of this, it is somewhat fortunate that non-contractual damages cannot give rise to a class action procedure.

Finding a solution through dialogue and negotiation remains the preferred option.

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Leila Mstoian

Leila Mstoian

Alain De Jonge

Alain De Jonge

Leo Peeters

Leo Peeters