Germany
Implementation of the European Directive on representative actions
Which national regulations transpose the Directive into national law?
The Directive on Representative Actions is transposed into German law by the so called “Verbraucherrechtedurchsetzungsgesetz (VDuG)” (consumer rights enforcement act). The VDuG entered into force on 13 October 2023. For the first time in German law, a multitude of consumers represented by a consumer organisation is entitled to sue corporations for performance. The VDuG also replaces the previous regulations on model declaratory actions (Musterfeststellungsklagen). In the past, model declaratory actions already allowed a multitude of consumers represented by consumer organisations to bring actions against corporations, however not for performance but only for a declaratory judgement.
Who is entitled to bring a representative action?
Only certain qualified consumer organisations may bring a representative action. They must fulfil different criteria such as being registered in a list published by the German Federal Office of Justice and not obtaining more than 5% of their funding from businesses. Qualified entities from other EU Member States can bring actions in Germany under similar conditions. On the same subject matter only one representative action may be brought. Individual consumers themselves do not have the right to bring representative actions.
What can be the subject matter of a representative action?
The representative action is available for all consumer claims in private law disputes. It is not limited to infringements of EU law or its national transposition. Therefore, e.g. antitrust damage claims or tort claims are possible as well.
The claimant must demonstrate in a comprehensible manner that at least 50 consumers may be affected. Small companies with less than 10 employees and less than EUR 2 million annual turnover are considered consumers. Further, the claims must be essentially similar, i.e. based on the same or essentially comparable facts. The term “essentially” may give rise to broad interpretation and legal uncertainty.
A representative action can be brought to seek injunctive measures (e.g. prohibition to continue a violation, an order to provide information etc.) or redress measures (e.g. reimbursement, damages etc.). It can also seek a declaratory judgement. The formerly existing model declaratory action (Musterfeststellungsklage) became a sub-category of representative actions.
Which individual consumers are represented in a representative action?
The VDuG provides for an opt-in model. A consumer can join up to three weeks after the closing of the oral hearing in order to be represented in a representative action and to benefit from its effect of suspending or interrupting limitation periods. As a consequence, consumers have the possibility to make this decision depending on how the oral hearing went.
What will be the outcome of a representative action?
If the action is admissible and well-founded and a payment to named consumers is demanded, the court orders the defendant to pay the named consumers. If the claim is for the payment of a collective total amount, the court shall at first decide on the merits and give the parties the opportunity to settle on that basis. If the acting consumer organization settles, the settlement is binding on all customers who joined the action. Consumers are however allowed to withdraw from the settlement within one month.
If the parties do not settle, the court shall decide on the quantum and order the defendant to pay a collective total amount to a fund. The court appoints an administrator who distributes the money among the consumers who joined the action. If necessary, the acting consumer organisation may request the court to increase the quantum of the payment in case the amount does not cover all claims.
Are there particular rules for the disclosure of evidence?
The VDuG does not provide for additional rules for the disclosure of evidence. In particular, it does not provide for a discovery as customary in the procedural law of common law countries. The usual limited German procedural rules on the disclosure of individual documents apply. The VDuG does however provide for specific fines of up to EUR 250,000 in case of non-compliance with a court order to disclose individual documents.
Is third party funding possible?
Third party funding is allowed. The third party funder may not be a competitor of the defendant or dependent on him or be promised an economic share of more than 10 % of the performance to be rendered by the defendant. Third party funding and the agreement with the third party funder must be disclosed when the action is submitted.
Conclusion
The VDuG transposing the Directive on Representative Actions introduces for the first time a “class action” directed at performance in German law. The previously existing model action for a declaratory judgement was not comparable and only allowed a declaratory judgment on circumstances which were relevant to a large number of cases. Subsequently, each consumer still had to bring an separate action for performance.
The VDuG is perceived as a compromise between consumer and business interests. From a business perspective it is important that the law provides for an opt-in model, meaning that consumers must actively join the action. However, the fact that the opt-in can still be exercised after the oral hearing is seen as a disadvantage for defendants.
Even if the legal regulations are well-balanced, the mere possibility of a representative action is likely to lead to more claims for damages being asserted against companies. The hurdle for individual consumers to join an existing representative action is incomparably lower than the hurdle of filing an action themselves.
Contact
Stephan von Marschall
T: +49 151 5515 9434 E: stephanvonmarschall@eversheds-sutherland.com
Joos Hellert
T: + 49 89 5456 5181 E: jooshellert@eversheds-sutherland.com
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