Leaving aside the special procedure for model proceedings relating to capital market instruments, two main procedural mechanisms are currently available for civil litigation in the interest of consumers: The ‘Musterfeststellungsklage’ and the injunction action according to the ‘Unterlassungsklagengesetz’. None of these actions can result in a direct redress award to consumers.
The ‘Musterfeststellungsklage’, available since 1 November 2018, is enables a declaratory judgment on factual or legal statements only. Every consumer who registered for the ‘Musterfeststellungsklage’ then has to initiate their own follow-on proceeding for redress measure against the defendant trader.
The ‘Unterlassungsklagengesetz’ aims at the prohibition of the use of unfair commercial terms or other infringements of consumer laws by way of injunction. Consumer participation is not necessary for this.
Germany, however, is forced to amend its civil procedure to comply with EU law. By 25 December 2022, all Member States in the EU shall adopt and publish, by 25 December 2022, the laws, regulations and administrative provisions necessary to comply with Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers. There are doubts whether Germany can adhere to this timeline for the adoption of the law. Only recently a draft proposal for a bill by the Federal Ministry of Justice became known. The Directive expects application of its content beginning 25 June 2023. For Germany, that means that representative actions for redress measures as provided for in article 9 of the Directive have to be introduced.
Key points of the proposal
It was thus clear that the centrepiece of the German draft bill would be the introduction of a collective action for redress measures. The proposal suggests a special procedural code for collective actions in the interest of consumers, the so called “Verbraucher-Rechtedurchsetzungsgesetz“ (“VDuG”).
The draft of the VDuG foresees three phases for the new redress procedure. (1) The merits phase concluded by redress judgment, establishing general liability (Abhilfegrundurteil), (2) the settlement phase concluding either with a court-approved settlement or with a final ruling on redress, ordering the enforcement procedure (Abhilfeenurteil), and (3) quantum and enforcement phase, handled by a court appointed administrator.
Phase 1: Merits Phase
Qualified entities - also from other EU Member States - matching strict criteria, can bring a redress claim against traders. Competent courts are the Higher Regional Courts. The redress claim can aim at monetary compensation, but also at other possible redress measures like e.g. repair/ replacement of the product, termination of the contract etc. German and EU consumers can register their claims in connection to the subject matter of an action in a registry - as already known from the current system of the ‘Musterfeststellungsklage’ Prerequisite for an action is that at least 50 consumers are concerned by the subject matter. Central admissibility requirement for the redress claim is the "similarity" of the consumer claims: the court must be able to decide pattern-like on all claims asserted in the redress action.
If the claim has merit, the court will hand down the Abhilfegrundurteil. The judgment sets forth the specific prerequisites for the entitlement to claim redress and which proof of eligibility the registered consumers need to provide.
If the action sought monetary compensation by way of a collective total amount of money, the judgment includes the individual amount allocated for each registered and entitled consumer or if the amounts are different for consumers concerned, the calculation method. The losing party can appeal the judgment.
Phase 2: Settlement Phase
A final Abhilfeendurteil will only be handed down if no settlement can be reached between the qualified entity and the defendant trader.
Therefore the court will request the parties to propose a settlement to enforce the Abhilfegrundurteil. The parties shall agree on a verification and distribution system for the registered consumers and which they subsequently implement on their own. According to the recitals of the draft bill, this should enable the defendant trader and the qualified entity to take the implementation of the settlement into their own hands. In particular, the defendant can develop a suitable system for the verification of individual proofs of entitlement of the consumer and, for example, assign third parties to assist in the process. The settlement requires approval by the court. Registered consumers can opt-out of the settlement.
Phase 3: Quantum and enforcement phase
If no settlement could be reached, the court hands down its final judgment and appoints an administrator. The administrator sets up an "implementation fund" with the collective total amount the court estimated in its final judgment; if the total amount is not sufficient, it can also be increased later. The court appointed administrator distributes the money to the registered consumers or regulates other possible redress measures like e.g. repair, replacement or termination of the contract the trader was sentenced to.
If the registered consumer or the defendant trader do not agree with the court appointed administrator’s decision on a specific case, they can file an objection with the court appointed administrator. If the court appointed administrator does not remedy the objection, the trader/consumer need to pursue their rights in separate proceedings against the trader/consumer which is not part of the redress proceeding as the redress proceeding should not be slowed down by individual disputes.
What happens to the Musterfeststellungsklage and injunctive relief?
Injunctive action is already established in Germany in the Unterlassungsklagengesetz (“UKlaG”) and other laws which only need to be slightly adapted and will continue to exist.
The proposed bill incorporates the Musterfeststellungsklage, a representative action in the interest of consumers into the new VDuG. Qualified plaintiffs can choose whether to move for an redress award or a declaratory ruling on legal or factual pre-requisites of consumer claims.
Scope
Annex I of the Directive currently lists 66 EU Directives and Regulations that require EU Member States to provide for collective redress and injunctions mechanisms against possible infringements of traders against those regulations at least. The new Digital Markets Act (“DMA”) also orders that Directive (EU) 2020/1828 shall apply to representative actions brought against infringements by gatekeepers of provisions of the DMA that harm or may harm the collective interests of consumers which makes them 67. Annex I can be amended in the future to include (future) EU directives and regulations concerning the protection of collective interests of consumers.
The draft bill, however, does not limit the scope of the new VDuG on the Directive’s Annex I. The new redress action is broader than the scope of the Directive and could relate to any type of civil law consumer claim or civil law legal relationship with a consumer.
Small companies can opt-in as well
Small companies can opt-in as well and benefit like consumers from the redress or declaratory judgment or a potential settlement. According to the VRUG, small companies are those that employ fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed ten million euros.
Third party financing
Third-party financing of redress actions is possible - if the third party is not a competitor or depends on the trader being sued or the third party is expected to influence the proceeding conducted by the qualified entity, including settlement decisions, to the detriment of consumers. Further rules guide that process.
Outlook
The draft bill is not yet final or binding. It is at the stage where the relevant federal ministries are aligning on a draft which ultimately should result in a draft bill that the German Federal Government will submit into the legislative process. The German Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection seem to have already requested changes. Public stakeholders will usually be consulted later in the legislative process discussing the bill. It is likely that the draft bill will undergo some changes during the process.
