Implementation of EU’s Representative Actions Directive takes shape in Germany

The centrepiece of the draft is a new Consumer Rights Enforcement Act (VDuG). It merges the regulations on the currently available model declaratory action with regulations on the introduction of a new type of action - the so-called redress action.

In contrast to the model declaratory action, which is solely aimed at establishing facts and legal questions, the new redress action will make it possible to bring a joint claim for performance against businesses. The action would cover all kinds of civil disputes, thus going beyond the provisions of the RAD which only cover the violation of EU laws. Performance can include damages, but also repair, contract termination, price reduction or purchase price reimbursement.

According to the draft, in order to bring an action for redress, it must be shown that at least 50 consumers are affected. Small businesses – those with fewer than 50 employees and with an annual turnover of less than €10 million – would be treated as consumers. Again, the draft goes beyond the requirements of the RAD which only covers consumers.

The claims pursued under the new redress actions would have to be "of the same kind", which means based on the same facts and raising the same questions of law. The aim is that the court can decide on all cases bundled in a single procedure without having to consider any particularities.

The redress action would be brought by so called qualified entities - certain registered bodies such as consumer protection associations. The qualified entities can also be based in a different EU member state.

In the event of an action for redress, all affected consumers would be able to register their claims in the register of representative actions of Germany’s Federal Office of Justice by the end of the day before the first oral hearing.

"The draft bill thus provides for an opt-in model, unlike, for example, the Netherlands, which provides for an opt-out system for domestic consumers. This opt-out system was already available before the RAD came into force," said Johanna Weißbach, mass action expert at Pinsent Masons. "The point in time by which registration should be possible has been controversial for a long time. It was suggested by the German Ministry for Consumer Protection that registration should be possible even after a settlement had been concluded or after the judgement had been handed down. Fortunately, this did not happen." 

The redress action will consist of four phases. First, if the court finds the claims to be justified, a basic redress judgment will be issued. This basic redress judgment sets out the conditions for entitlement, as well as the proof of entitlement to be provided by each individual consumer.

"In order to make proceedings more efficient and to overcome information asymmetries between qualified entities and the defendants, the Directive provides that member states, when transposing it into national law, may impose 'dissuasive and proportionate penalties' on parties to disclose evidence relevant to the claim," said Dr Sandra Gröschel, arbitration and litigation expert at Pinsent Masons. "The draft therefore provides that a fine of up to €250,000 may be imposed should a party not comply with a court order to disclose documents. So far, the German Code of Civil Procedure does not contain such sanction. Also, discovery, as known from other legal systems, does not exist in Germany. However, the details are unclear, for example, whether an administrative fine could be imposed several times for the same court order, which could undermine the upper limit of €250,000."

The basic redress judgment will be followed by a settlement phase in which the defendant and the qualified entity attempt to reach a settlement.

If this is unsuccessful, the proceedings will move to phase three, in which the court decides on the form in which the company must compensate the consumers. This decision would be called a "redress judgment" and would determine the total collective amount, if any, to be paid by the defendant, as well as the details of phase four, the implementation procedure. The company would pay the collective amount to an "implementation fund". The court will appoint an administrator to verifies the eligibility of the registered consumers and distribute the collective amount among them.

The planned new instrument differs from the model declaratory action introduced in Germany in 2018, which only leads to an establishment of certain facts or legal issues. Each individual consumer must subsequently enforce their individual claim in court. With the planned redress action, however, all registered consumers would be entitled to compensation without having to litigate again individually.

However, the model declaratory action will not disappear from the German legal system. According to the draft, the associations entitled to bring an action would have the choice of whether they want to file a redress action or a model declaratory action.

"The deadline for implementing the directive already expired on 25 December 2022. The new regulations must be applied as early as 25 June 2023," said Weißbach. "Due to divergent positions in the Ministry of Justice and the Ministry for Consumer Protection, the legislative process was delayed. However, Germany is not alone with the delayed implementation: on 27 January 2023, the European Commission announced that it would take formal action against a total of 24 member states. Time is running which is why interested parties may only provide their comments on the draft Bill until today."