Companies need to be aware of the legal and regulatory structures and risks that may condition and influence their economic activities and ensure they have a clear understanding and evaluate their legal effect and practical implications before commencing activities.
Today, in certain circumstances designated by law, companies may even face class actions (often referred to as representative actions, collective proceedings or mass actions).
[attach id="1364772" size="medium" align="right" type="image"]Dr David Fabri[/attach]
Today, the laws in many countries allow class actions and establish the procedures and the benefits that derive from them. A typical class action would be one single collective proceeding which brings together, under a special procedure, multiple consumer plaintiffs sharing a similar issue or dispute against the same defendant. These could range from a handful to thousands of claimants. It differs significantly from the situation where multiple distinct but similar cases instituted by different plaintiffs - having no relation to one another - are conveniently heard together by one court or tribunal. Important shareholders class actions instituted abroad against their companies have included Enron, Parmalat, Volkswagen, and Bosch. A class action offers substantial benefits by way of a claimant-friendly procedure, lower costs and time and avoids the risk of contradictory judgements.
This article briefly focuses on a very recent law which has given a procedural right to multiple consumers suffering a similar grievance in a number of sectors against the same defendant company by joining together and initiating one single collective action. Parliament has recently transposed Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC. The Representative Actions (Consumers) Act of 2023, which came into force on 25 June 2023, has transposed this Directive.
The first Maltese law to introduce class actions was the Collective Proceedings Act 2012
The 2020 Directive seeks to provide improved access to justice to groups of consumers by establishing a minimum standard for representative actions across the EU, primarily with the objective of better enforcing EU legislative measures. The sectors to which the Directive and the recent Act apply are data protection, financial services, travel and tourism, energy and telecommunications, as well as general consumer law (such as the rules on unfair contract terms and misleading advertising), in all instances as deriving from EU law.
Company law Directives are not listed, which means that shareholders are not being recognized as having rights similar to those enjoyed by consumers and investors in other Directives. Member States were allowed to opt to provide higher levels of protection for consumers, but Malta seems not to have taken up this option.
The introduction of representative actions would normally have posed a potential new risk for companies operating in the designated sectors, but this would have assumed that the new law is workable and effective.
A representative action may only be initiated by established functioning “qualified entities” approved by the Consumer Affairs Council. It is wrong to assume that Malta has functioning and resourced consumer associations ready and able to implement the law. The Consumer Affairs Council which verifies these Associations has more or less disappeared and both its membership and activities remain a mystery.
The first Maltese law to introduce class actions was the Collective Proceedings Act 2012. This Act only applied to three specific local consumer protection and completion laws. It has now been amended to apply exclusively to competition issues arising from national or EU law. Indeed, it has now been renamed the Collective Proceedings (Competition) Act. It did not and still does not extend to disputes arising under company law.
When one says that the Directive and the Act do not apply to company law, this means that a company’s shareholders, investors, creditors and consumers have not acquired any special new procedural remedy or right of action against the company. It seems that the time for shareholders class actions in Malta has not yet come, but the 2023 Act may still be of interest to companies carrying on any of the listed activities. I suspect there is a good chance that consumers will gain very little from the 2023 Act, which is extremely disappointing.
The new Act is limited to the enforcement of EU laws in Malta and excludes consumer rights which arise from national law, rather from EU law. This also means that Maltese companies should probably have little to fear from representative actions under this new law.
David Fabri LL.D, Ph.D. (Melit) has written extensively and has lectured on company law at the University of Malta since 1994. His forthcoming book will comprise studies on the subject.