Class Actions: Practical Results for 7 Months

Anton Malginov
Partner
Muranov, Chernyakov & Partners

In July 2009, Federal Law No. 205-FZ “On Amendments to Certain Legislative Acts of the Russian Federation” that made substantial changes to the RF Arbitration Procedure Code (the RF APC) was passed. In particular, this federal law introduced a class action institution (or, using the RF APC terminology, “the action for protection of the rights and legitimate interests of a group of persons”), which is a relatively new phenomenon for the Russian legislation.

The necessity to introduce a class action institution has been the subject of a lively discussion in the legal community. Some lawyers believe that such a legal institution is vital in the modern conditions of an active development of legal relations with multiple participants. Others treat similar innovations with utter skepticism. We think that the class action is a useful tool that serves as a method for protecting the rights and legitimate interests of a wide range of persons. However, the present legal regulation (as almost any new regulation, though) is not perfect.

The backbone of the action for protection of the rights and legitimate interests of a group of persons is that it permits combining claims of a lot of persons into one judicial proceeding, thus enabling them to join the claims of the class action initiator through submission of a relevant application (the RF APC prescribes that necessary minimum of five persons should join the action for it to be qualified as a class one). The clear advantages of the class action are reduced procedural expenses and guaranteed protection of interests of the group “weak” members who for some reason may be unable to efficiently defend their interests in court on an individual basis.

It was originally planned to introduce the class action institution only in respect to corporate disputes (with the draft law initially considered to be solely an “anti-raider” one). However, while the draft law was under elaboration, the scope of application of the class action was extended. Currently, the scope of grounds under which a person may file a class action is open thereby enabling one to use this construction in any disputes with multiple participants.

At the same time, though the RF APC provisions on the class action have been in effect for seven months, the available court practice regarding its application is nearly lacking. Just a few judicial decisions touching upon the questions of the class actions may be found in open sources. The class action was considered by the Arbitration court of the Novosibirsk region in Case No. A45-29962/2009, dated May 21, 2010. However, the Arbitration court dismissed such action for protection of the cooperative society members filed to declare the assignment agreement invalid due to expiry of the limitation period. In other cases, the considered actions were basically not class ones, and the court instances just indirectly touched upon the issue of the class actions (e.g., Cases No. A33-1932/2010, No. A61-1952/09, No. A32-21372/2009, etc.).

One may say the overenthusiastic comments about the introduction of the class action institution were too optimistic. Claimants are not yet ready to extensively use this new tool for protection of their rights.

No doubt, it is too early to make final conclusions so far, as only a short period of time since introduction thereof has passed. The present drawbacks of the class action regulation, however, may make the application of this institution in the future slow down.

The Chapter 28.2 of the RF APC has been the target of much criticism. Firstly, its implicit wording determining the group of persons gives rise to serious questions as to what is implied under “participants of the same legal relation.” Secondly, the absence of a group member’s option to withdraw from the class action in order to bring an action individually thereby giving an opportunity to make abusive acts in respect to the same “weak” group participants whose interests the class action is intended to protect. (Besides, the procedural status of the latter and their powers in the proceeding are limited while the consequences of the class action decision entry into force are quite grave — the termination of proceeding the individual action irrespective of whether or not the group participant has used the right to join the class action). Thirdly, the legal specificities of an amicable agreement and enforcement of judicial decisions with regard to the class actions are not legally fixed. And, finally, there is no motivation for the original claimant to bring exactly the class action as this procedure takes more time and is more complicated than to bring an individual action.

The persons interested in development of the class action institution are the attorneys, as the said institution has certain potential for creating a new legal product benefiting all parties: the group participants, the courts and even the defendants. The incentive for boosting the attorneys’ interest in the class actions could be the success fees and fixing of certain guarantees preventing the unreasonable replacement of the attorney originally representing the initiator of the class action. Unfortunately, there is little hope that such incentive measures will be taken at the legislative level.

Despite all the drawbacks, the introduction of the class action institution may be regarded as a progressive phenomenon that will allow (if not now, then in the future) efficient solving of various legal, social and economic issues, which are successfully resolved through class actions in common law countries.