Case Law (#1-2 January-February 2022)

Practical Aspects of Class Action as an Efficient Mechanism of Sustainable Development

by Artemii Vorobiov

In recent years, the world community and especially developed countries have been constantly looking to find a balance between meeting the needs of the present generation and maintaining the necessary economic indicators for decent standards of living on one hand, and introducing some technologies and approaches to ensure and guarantee for future generations living conditions that are no worse than today. This balance consists in sustainable development, which is to protect future generations, and especially their right to a safe environment.

Implementation of this concept requires a comprehensive approach on the part of public administration. It is the state that establishes binding norms and rules of conduct on a relevant territory, determines both the implementation of legislative mechanisms aimed at sustainable development and application of enforcement measures in the event of non-compliance.

Sustainable development is one of the main preconditions for the life of todays society. It implies a careful attitude towards the environment by the population and businesses that carry out their economic activities, including compliance with environmental regulations, implementation of the best technologies available, and the mandatory polluter pays principle. The competent public authorities are primarily responsible for supervising implementation of the relevant principles, technologies, rules and terms of economic activity that may be harmful for the environment.

However, control of environmental legislation is a task that not only the government and its supervisory bodies are in charge of. On the other hand, such control is exercised by citizens both individually and through their participation in public associations and organizations whose statutory objective is to protect the environmental rights of citizens. In order to ensure the right of the concerned public to have unhindered access to information and justice on all environmental issues, the Aarhus Convention was adopted. It was also ratified by Ukraine.

Protection of rights both in Ukraine and in other developed countries is carried out primarily by courts, an independent branch of power that applies the rule of law to specific relations in resolving relevant disputes. Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms guarantees everyone the right to a fair trial, and Article 13 of the same Convention obliges member states to provide efficient tools for protection of rights in their legislations.

In terms of environmental protection, the most efficient tool for protecting the rights of citizens is a class action. The tools use enables the comprehensive and effective restoration of the rights of a group of people who have similar requests arising from the same circumstances of a businesss operation. Most often, class actions are characteristic for environmental relations, because as a result of the adverse impact of economic activities of a particular entity (polluter), the rights of multiple citizens of a given territory may be breached in the same way, and also for consumer rights relations when an unlimited number of people are hurt by low-quality goods.

In general, class actions are characterized by a compensatory mechanism to meet the claims of aggrieved persons, when thousands of people present their claims against transgressors. The claims run to significant amounts, and violators understand the need to urgently eliminate their wrongdoings.

Despite the dynamic development of the institution of class action in the United States, Sweden, the United Kingdom, and the Netherlands, this institution did not have any practical implementation for a long time in Ukraine, though certain norms of the substantive law made it possible to introduce class actions in Ukraine, including Article 21 of the Law of Ukraine On Environmental Protection. Its language has remained virtually unchanged since 1991, and provides for a possibility of opt into class actions with compensation for environmental damage. Since 2006, Article 25 of the Law of Ukraine On Consumer Protection implies a possibility of opt out class actions for consumer protection. In both cases, class actions should be initiated by public organizations (NGOs) with relevant tasks and authorities reflected in their charter documents.

The first stage in class action development was a claim made in 2018 by an NGO representing more than 2,000 people affected by the largest man-made disaster in the history of independent Ukraine a two-week long fire at an oil depot that could not be contained in the summer of 2015 and was caused by violations of technological processes on fuel management. A military unit was located next to the oil depot. The oil depot held a large volume of fuels and oil, and fire could spread to other facilities at any moment. The people in the surrounding settlements were scared, they breathed in poisonous combustion products, and poisonous substances precipitated in the area after the fire was contained.

For a long time, people did not defend their violated rights to a safe environment, which was misused by the owners of the oil depot. They carried out corporate restructuring of their businesses in order to complicate recovery of the damages caused by fire.

After a public organization was established and it initiated a class action, more than 2,000 people joined it. The class action was filed in court. The relevant defendants included the persons who obtained the oil depot assets due to the restructuring. The court delayed the hearing for a long time. At the same time, the court took measures to restrain the defendants property. Due to repeated appeals against these restrictive measures, the court of first instance kept transferring the case to higher courts, which is not stipulated by the procedure, and thus it demonstrated its unwillingness to hear the case ipso facto, created legal uncertainty for the plaintiffs, and violated the right to dispute resolution within reasonable time as guaranteed by Article 6 of the Convention on Protection of Human Rights and Fundamental Freedoms.

In general, the judiciary of Ukraine was extremely reluctant to consider this class action, as they did not fully understand how to apply the regulations without any previous practice in Ukraine.

One of the procedural decisions by the court of first instance in this case was to terminate the proceedings without prejudice, since the court was of the opinion that the public organization did not have any authority to represent the interests of its members. However, the Court of Appeal and the Supreme Court (decision of 19 March 2020, case No.754/8602/18) recognized the decision erroneous and confirmed that a public environmental organization acting on its own behalf, but representing aggrieved persons, may legitimately file a class action on compensation of damages caused by a violation of the environmental legislation.

Subsequently, the Grand Chamber of the Supreme Court (decision of 15 June 2021, case No.904/6125/20) came to the same conclusion, and thus it put an end to any discussions on the admissibility of class actions in Ukraine. Such actions are admissible, necessary, and subject to civil proceedings, and they should be filed in the interests of aggrieved persons by an initiating public organization.

After two and a half years of hearing the case in the court of first instance, an amicable settlement was reached on the payment of USD 1 million to the aggrieved persons as compensation for the damage on ex gratia terms. Thus, the aggrieved people received the due compensation under an amicable settlement. It was the first time in the history of Ukraine that class actions were confirmed in practice as an efficient tool to protect citizens rights.

Another claim engaging our lawyers is a class action filed by residents of Mykolaiv Region against the Mykolaiv Alumina Refinery (MAR), the largest industrial polluter in the area. Local residents established a non-governmental organization called STOP SLUDGE to defend their right to a safe environment after illegal disposal of poisonous and toxic red mud of 47 million tons near the city of Mykolaiv and its suburbs. In May 2021, the Zavodsky District Court of Mykolaiv fully satisfied claims by the NGO STOP SLUDGE and ruled to recover a total amount of UAH 9.2 billion from MAR LLC as moral damages caused to the affected residents of Mykolaiv Region.

At the same time, the appellate court sided with the alumina refinery and denied the class action, which caused outrage both among the public and the legal community. The case is currently pending in the Supreme Court.

During consideration of this class action against the alumina refinery it turned out that it was necessary to prove the illegal behavior of the defendant-polluter using information and examinations from different sources other than the government regulatory authorities, which did not compile any records of violations by the refinery. However, that was fully in line with the ECHRs position in the Dubetska and Others v. Ukraine case (claim No. 30499/03). In that case, the ECHR emphasized that decisions adopted by the national authorities cannot be relied on blindly, especially when they are obviously incompatible or contradictory. In such a situation, courts should assess evidence in its entirety. Other sources of evidence to consider in addition to the plaintiffs narrative of the events could include, for example, their medical records, relevant reports, statements, or examinations carried out by private institutions. This approach is a novelty in Ukrainian jurisprudence.

Both these class actions became the focus of close attention on the part of journalists and the legal community, and the progress of the proceedings was covered by the national media. This also drew the attention of citizens to a real tool that exists to protect their violated rights. An average citizen without a professional background and self-confidence is usually not capable to defend his/her violated rights both in the field of environment and consumer protection via the filing of an individual claim. Taking into account Ukrainian realities, individual claims can be heard for years, and polluters or manufacturers possess more tools to win such a dispute, including by exerting pressure through artificially initiated criminal cases, after which citizens lose all their motivation to continue such disputes. And when there are thousands, tens of thousands of aggrieved persons with the amount of compensation reaching billions, such claims make a really powerful tool to restore peoples rights. Given the considerable media attention to such proceedings, as well as qualified legal support, the combination of these circumstances prevents legal purism and excludes sham justice. It is in class actions, that courts acquire the status of entities that protect violated citizens rights.

I hope that class actions in Ukraine, if successful in the future, will perform several functions: 1) they will provide a fair amount of compensation to the aggrieved persons; 2) they will serve an incentive for polluters to introduce modern technologies, and for manufacturers to avoid unfair business practices that violate consumer rights; 3) they will stimulate Ukrainian legislation to adopt cardinal changes. All this will have a positive impact on both the well-being of the general public and the environment, and will bring Ukraine closer to the fully-fledged implementation of the sustainable development concept.

Artemii Vorobiov is a lawyer with the Greco Law Company
The Ukrainian Journal of Business Law

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