On March 29, 2023, the German cabinet accepted the Minister of Justice’s Draft Bill on implementing EU Directive 2020/1828 on representative actions for the protection of the collective interests of consumers (“Draft Bill”). If the legislative process continues as planned, Germany will have its own type of consumer class action by June 25, 2023. The Draft Bill empowers certain qualified associations to bring bundled claims of consumers against companies. Until now, the only way for associations to collectively assert consumer claims was by means of the so-called model declaratory action (“Musterfeststellungsklage“). That action, however, can be used only to establish the existence or non-existence of the preconditions for individual consumer claims. The burden then remains with the individual consumer to bring a litigation for payment once the model declaratory action has been successfully concluded. The collective action introduced in the Draft Bill extends consumers’ options. Associations, on the consumers’ behalf, can sue companies directly for payment and other acts. For companies active in Germany, the Draft Bill significantly changes the risk exposure.
Preconditions of the new collective consumer action:
The action for redress (“Abhilfeklage“) requires that a qualified consumer association asserts claims of a large number of consumers (at least 50) relating to the same subject matter against the same defendant(s). Small businesses, i.e., those with fewer than 50 employees and annual sales of less than EUR 10 million, are considered consumers for purposes of the Draft Bill and may thus be part of the group represented by the consumer association. Consumers whose claims were not bundled in the collective action when it initially launched have two months to register their claims with the collective action register (“Verbandsklageregister“), counted from the first day of the court hearing (opt-in). Consumers who miss this deadline may still bring their claims in individual litigation following the traditional rules, but cannot join the association’s action for redress.
In the complaint, the association can request payment of a lump sum. In that case, the complaint is not required to list every single claim. Instead, the complaint has to either (i) provide the amount of a single consumer claim if all consumer claims are in the same amount, or (ii) provide a method by which the amount of the respective individual consumer claims can be calculated. It is possible to subsequently increase the lump sum in the course of the proceedings. Alternatively, the complaint can identify the participating consumers by name and request specific redress based on the named consumers’ claims. Regardless of the approach, the association needs to put the court in a position to understand the individual claims. The complaint may also seek redress other than payment, e.g., product repair.
If the association requests payment of a lump sum, the action for redress proceeds in four steps:
The first step begins with the filing of the association’s complaint, followed by the registration of claims by additional consumers and ends with the redress judgment on the merits (“Abhilfegrundurteil“). In the scenario of a request for lump sum payment the court issues this judgment if it concludes that the association’s claim for redress has merit. The judgment sets forth the requirements of the consumers’ entitlement to redress as well as the proof of entitlement that the individual consumer needs to furnish. This decision includes the judicial determination of either the amount that each consumer is entitled to or – if the individual claim amounts differ – the method for calculating such individual amounts. After issuing the redress judgment, the court shall request the parties to submit a written settlement proposal to implement the judgment.
In a second step, if the parties fail to reach an implementation settlement, the court continues the proceedings and issues a final judgment (“Abhilfeendurteil“). The final judgment orders the implementation procedure, preliminarily determines costs, and orders the company to pay said costs to the administrator. This decision includes the judicial determination of the lump sum, which is generally based on the number of registered claims pursuant to the collective action register. The court orders the company to pay the lump sum to a conversion fund handled by the administrator.
The court appoints an administrator who, in a third step, distributes the funds paid by the defendant. The administrator examines the individual consumer claims and may refuse payment if the administrator finds that a consumer claim is unwarranted. The consumer and/or the defendant may file a reasoned objection within four weeks of the administrator’s decision. The administrator’s ruling on this objection is unappealable. Any excess amount that is not distributed to consumers is returned to the defendant company.
The potential fourth step is an individual follow-on action that is not a component of the preceding collective action for redress. In this phase, consumers whose claims were refused by the administrator may individually sue the company. Similarly, if the defendant company believes that a consumer unjustly received money from the administrator, the defendant may reclaim the amounts paid in litigation against this individual consumer, e.g., on the basis of unjust enrichment.
In the alternative approach that the association in its action for redress identifies all participating consumers by name and their specific individual claims, the court may issue a judgment that orders payment directly from the defendant to these named consumers. In that case, the proceeding consists of a single stage only, rather than the four steps outlined above.
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