Group actions draft federal laws will be completed by November 2013 – FAS official

25.07.2013

PaRR Confirmed

Draft Russian federal laws on group actions are expected to be completed in November 2013, Sergey Maksimov, the deputy head of the legal department of the Federal Antimonopoly Service of Russia (FAS) has told PaRR.

Last week, Igor Artemyev, the head of the Russian antitrust agency, told journalists at a FAS briefingthat the FAS is promoting the idea of introducing group actions in Russia.

The Group actions project is being developed by a Competition Road Map working group, which includes representatives from the business and legal communities, as well as representatives from federal institutions, including FAS, said Alexander Galushka, co-chair of the Business Russia organisation and the head of a governmental working group responsible for the “development of competition and improvement of antimonopoly politics”.

However, the group action system is unlikely to be introduced in Russia soon, said Nikolay Voznesenskiy, a partner at Moscow-based law firm Goltsblat BLP, the Russian practice of Berwin Leighton Paisner. Introduction of such a mechanism is a long and complicated process, involving many nuances, he said. Currently, Russian legislation has a clause on protection of the rights and legitimate interests of groups of people. Yet, it does not work due to a number of complications, he said.

The new group action draft federal laws will cover the introduction of legal mechanisms to protect the rights and legitimate interests of individuals in the courts, including the possibility of participation of legal entities in group actions, Maksimov explained.

It is important to note that the Russian group action draft law is not the same as class actions in the US system, said Voznesenskiy. In the US, class action implies that a suit can be filed on behalf of a large group of people (class), without their approval, he said.

In Russia, the legislature has the right to determine what should be the minimum number of individuals [or legal entities] needed in order for a suit to be considered a class action. For example, it may be at least 15 individuals or legal entities, said Sergey Maksimov.

This project will have to be approved by the government. Hence, it is too early to talk about its exact content, project participants said.

The courts will also take into account the extent of the alleged damage being done by a defendant. The size of the total loss will be calculated as the sum of the damages of all potential claimants, Maksimov said.
It is worth noting that such laws often set rules, ensuring that plaintiffs who failed to adhere to the primary claim may still submit their application later. International experience shows that the time frame may be limited, for example, to three years, Maksimov said. It should also be noted that such applications are considered after the satisfaction of the primary claim, based on the size of the remaining part (after compensation of damages to ‘primary’ plaintiffs and payment of attorney fees), he added.

Maksimov also said that group actions satisfy the interests of the following parties in this order: those who filed a group action lawsuit or joined it later (for example, before a court decision), secondly, the interests of lawyers (or law firms) which represented the interests of the plaintiffs, and finally - all other potential claimants in equal shares upon receipt of such complaints before the date required in the decision of the court or the law.

This mechanism is designed to encourage good conduct of companies, which work with a large number of clients and customers. It is also designed to create a new culture of protection of violated rights, Maksimov said.

Introduction of such a system will be beneficial for lawyers because the group action mechanism may become a profitable activity for many lawyers, said Voznesenskiy. Hence, this initiative is lobbied for by the legal community, he added. Yet, it may be damaging for the legal system if it is not introduced thoughtfully, he added. The class action system is open to criticisms in the US. In Russia in reality such system may become a temptation for lawyers and judges, he added.

A part of the business community, which is already facing the unpleasant consequences of class actions law suits in other countries and part of whose business production and trade policy is based on unfair competition, may oppose the introduction of such a mechanism in Russia, Maksimov predicted.

Natural resources companies are likely to lose from this initiative most of all, said Goltsblat’s Voznesenskiy. These companies will have to pay not only fines, which they already pay to the FAS, but damages as well, he added.

FAS also want to use this mechanism to protect interests of groups of consumers to defend them from local ‘monopolies’, said Igor Artemyev at a FAS briefing last week.

In this way, FAS will manage to identify small consumer related cases that are currently neglected, Voznesenskiy said.

by Natalia Lapotko in London

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