Earlier this year the French legislature passed a new law to allow class actions for consumers against professionals, including financial advisors - a law that will be available to users of financial services.

Earlier this year the French legislature passed the "loi Hamon" to allow class actions for consumers against professionals, including financial advisors. This law could be available to users of financial services. Clément Dupoirier, a partner at Herbert Smith Freehills in Paris, explains in detail.

The idea of introducing class actions into French law has been around for 40 years. Class actions do not accord with certain basic principles of French law, including the principle according to which no one can argue for someone else. The idea of empowering certain persons to act on behalf of others is very problematic and has been disputed in France since the 1970s.

Capital market activity is not mentioned in the new law but there is no specific exclusion regarding it. The law states that class actions can only be initiated in relation to the sale of goods or the provision of services by a professional to consumers. The class action law sits in the French 'consumer code' because it is only meant to apply when there is a consumer/professional relationship (some unsuccessfully argued in favour of a wider scope). Hence, a class action may spring from the terms and conditions applicable to the provision of services in the financial sector. The law is very generic here – for it to apply, some service has to have been performed in a deficient manner and must have caused harm to a group of consumers. Breaches of professional contractual duties in relation to the provision of services may be covered.

The law has been passed but is not in operation yet. This will happen when the responsible ministry publishes various decrees.

The legislators were very concerned that this new law would not allow class action litigation to become a national sport, the way it is in America. One of the safeguards against this is the fact that the only persons who can start proceedings will be the associations of consumers who have received government approval. Individual consumers (or lawyers) will not have the legal standing to start class actions on their own. As of today, 16 associations of consumers are qualified to launch class actions.

The association in question will have to present the court with 'test cases', from which the court will define the relevant group of consumers to be indemnified (if the claim is successful) by the professional(s). There is no specific timing to initiate a class action, provided that the action is timely and launched in compliance with the relevant statute of limitations (which sets a time-limit on the taking of legal action for breaches of the relevant law).

Once the court agrees that the association has produced sufficient evidence that a group of consumers has suffered from the same illegal behaviour of a given professional, it will set the criteria for the determination of the group and the financial compensation owed to the members of the group. The court will also order its decision to be publicised, so that interested consumers will be in a position to make themselves known for the purpose of receiving compensation (this period can be as short as two months and as long as six, at the discretion of the judge).

There are other safeguards against the excessive use of class actions which stem from the general principles of French law. First, French courts do not award punitive damages and have not been allowed to do so for centuries. The general principle when it comes to awarding damages is that the claimant must be put back in the same situation he was in before he suffered the harm or loss in question. To put it another way, a claimant cannot come out of court richer than he was before he was wronged. Another safeguard is that French law does not allow lawyers to charge contingent fees on a 'no-win-no-fee' basis. Associations of consumers who will want to start a class action will have to pay for their legal fees. French law allows success fees to some extent, but it remains to be seen how this will apply in the context of class actions. Generally speaking, success fees are still relatively uncommon in France.

* M Dupoirier can be reached at clement.dupoirier@hsf.com or on +33 1 53 57 70 70.