CZECH REPUBLIC Trends and Developments Contributed by: Robert Němec, Michal Sylla, Viktor Glatz and Adéla Šmahelová, PRK Partners
to protect the defendants from frivolous lawsuits. The current system, though limited in some respects, is designed to ensure that claimants only pursue cases with a reasonable chance of success and conduct the collective proceedings properly. If consumer organisa- tions were not liable for the costs of the proceedings in the event of losing the case, the number of potentially abusive actions filed could increase. The requirement for legal representation also serves as a safeguard against the misuse of collective action proceedings. The Czech legislature assumed that attorneys would discourage their clients from pursu- ing unfounded or unjustified claims with no chance of success. At the same time, collective action pro- ceedings are relatively complex and require not only expertise in consumer law but also a solid grasp of procedural law and experience in court representa- tion. Finally, the new legislation also introduced incen- tives which make collective action proceedings more accessible – ie, the exemption of qualified entities from the payment of any court fees for bringing an action under the Collective Proceedings Act. Without this exemption, claimants would have to pay court fees generally ranging from 1% to 5% of the claimed amount and capped at CZK4,100,000 (approximately EUR165,000). Risks of Collective Action Abuse Despite some of the safeguards established in the Collective Proceedings Act, the risk of claimants bringing abusive claims still remains. For instance, legal entities seeking registration on the list of quali- fied entities only need to exist for 12 months, dur- ing which they must engage in consumer protection activities, such as educational events, publishing, or conducting consumer goods tests. Although this requirement is based on the availability of collective proceedings, such a short time frame was viewed by some as insufficient to prevent claimants from bring- ing frivolous actions. Under the applicable laws, anyone can relatively easily establish an entity solely for the purpose of enforcing a particular claim, conducting only minimum activi- ties in the field of consumer protection for 12 months
in order to become a qualified entity. This concern is not merely theoretical: some organisations currently registered, or seeking registration, as qualified enti- ties in the Czech Republic have previously operated in entirely unrelated sectors. For example, one such organisation (which is now registered on the list of qualified entities) had functioned as a nursery and changed its scope of activity in 2023, just a year before submitting the registration. The potential for abuse by such newly established enti- ties has raised concerns that collective actions could be initiated without meaningful financial risk to claim- ants or responsibility for covering defendants’ costs. This stems from the fact that the current legislation does not include any mechanism to ensure that claim- ants possess sufficient funds to cover the defendants’ costs of the proceedings in case they do not succeed. Qualified entities are not required to prove they have sufficient funds at any stage of the collective proceed- ings. Therefore, the defendant’s claim for costs of the proceedings may not be recoverable. To address this concern, it was proposed during the legislative pro- cess that consumer organisations should be required to have operated for several years (corresponding to the general limitation period) before becoming eligible for registration as qualified entities. Another related and long-discussed issue is the claimant’s obligation to pay court fees. As already mentioned above, qualified entities are exempt from court fees in both collective action proceedings and proceedings for the protection of customers’ collec- tive interests. While this increases the availability of collective actions for consumer organisations, it also raises the potential for abuse, as the only remaining limitations are the claimant’s costs related to conduct- ing the proceedings and the risk of paying the defend- ant’s costs (provided that the claimant has funds or assets at the end of the proceedings). Furthermore, this exemption means that only the defendant (if the collective action is successful) may be ordered to pay court fees at the end of the proceedings. Finally, a last-minute change to the Collective Pro- ceedings Act extended the definition of consumers (ie, persons whose claims may be exercised in collec- tive action proceedings) to include small businesses
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