Class actions are historically unfamiliar to German civil procedural law. Transferring the findings and evaluations of a single model case to various cases with a similar background contradicts a cornerstone principle of German civil procedural law – that the assertion of claims on behalf of a third party is prohibited.
Exceptions to this rule (as allowed by the legislator) used to be very limited. The risk of contradictory decisions in similar cases, the risk of legal costs being borne by the consumer bringing the action, and the burden on the judiciary of a large number of similar proceedings were all accepted factors.
However, these historical principles have been eroding since the introduction of the Capital Markets Model Case Act (KapMuG), which was intended to enable class action lawsuits by capital investors for the first time in the early 2000s. The law was drafted under enormous public pressure when numerous retail investors had suffered substantial losses after investing in shares of the formerly state-owned communications company Telekom AG and wanted to claim damages due to alleged prospectus errors. Since then, there has been a trend towards class action proceedings in German procedural law, also strengthened by efforts of European consumer protection law. Extending the scope of class actions beyond the sphere of capital investment, the Model Declaratory Judgment Procedure was introduced in Germany in 2018. Here, too, the background to that introduction was the burden on courts with an unmanageably large number of – essentially similar – civil proceedings after the manipulation of diesel emission filters by various car manufacturers. Model Declaratory Judgment proceedings are currently also being pursued in connection with claims for damages against the auditor EY following the Wirecard insolvency.
This increasingly broad application of class action proceedings is planned to be extended further by the implementation of the EU Directive on representative actions for the protection of the collective interests of consumers.
Implementation of the EU Directive on representative actions for the protection of the collective interests of consumers
The German government’s draft of the law was submitted to the Bundestag on April 24, 2023. The draft essentially consists of a new so-called “Consumer Rights Enforcement Act”, which introduces a collective action for relief. Such a collective action for relief goes far beyond the judicial declaration of claims or legal relationships already possible today. In the future, the plaintiff will be able to choose whether to sue for relief or for a declaratory judgment.
The draft provides that the action for relief will be divided into three phases. The first phase ends with a basic relief judgment, in which the court determines if the defendant’s liability is justified on the merits or dismisses the action. In the subsequent settlement phase, the parties are to seek an amicable agreement to implement such judgment. If no settlement can be reached, the court issues a final relief judgment. Subsequently, the so called implementation phase commences.
The key provisions of the draft in its current form are:
- As with the previous Model Declaratory Judgment proceedings, consumers themselves are not entitled to raise a claim. Only special representative organizations that meet certain requirements can bring an action on behalf of affected consumers. Their activities must be aimed at informing and advising consumers, and they may not receive more than 5 percent of their financial resources from donations from companies to ensure impartiality. The draft expressly provides for the possibility of cross-border representative actions. Several representative organizations may raise claims as joint litigants.
- In addition to consumers, smaller companies, i.e. companies that employ less than 50 employees and whose annual turnover does not exceed EUR 10 million, may also be represented by the representative organizations.
- The draft provides for an opt-in procedure in Germany. An affected consumer does not automatically become part of the proceeding, but must actively participate. In order to benefit from the binding effect, consumers must register for the representative action by the end of the day prior to the first oral hearing. Individual actions by consumers who have not joined remain possible.
- According to the reasons given by the legislator, the interests of the defendants are to be taken into account by ensuring that a judgment dismissing an action also has a binding effect on all registered consumers. An individual claim by such consumers should then no longer be admissible.
- If any documentary evidence is not produced despite the court’s order to do so, the court can order a fine of up to EUR 250.000. This is a novelty under German law: violations of an obligation to produce evidence were before now only sanctioned by the court’s ability to make adverse inferences in the assessment of evidence to the detriment of the respective party.
- The regulation on the suspension of the statute of limitations corresponds to the previous regulation for Model Declaratory actions. Such a proceeding only suspends the statute of limitations for consumers who register their claims in the register and thus participate in the action. The limitation period is not suspended for other consumers outside those proceedings.
German legislation does not ignore the fact that class action proceedings are, nowadays, essential for efficient and effective enforcement of rights, especially for consumers. The implementation of the EU Directive is a prime example of the slow but steady evolution of German civil procedure law.