The future of mass claims - draft of the implementation law for the Representative Actions Directive leaked
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New possibilities for lawsuits by consumer organisations
The core of the draft is a new law on the enforcement of consumer rights (Consumer Rights Enforcement Act – "VDuG"). According to this, consumer organisations with at least 350 members or ten member associations can bring claims, which consumers and smaller businesses can join. In contrast to the Representative Actions Directive, the draft VDuG is not limited to infringements of EU law, but allows representative actions to enforce private law claims of any kind.In addition to the model declaratory actions ("Musterfeststellungsklagen") already possible, the VDuG's draft provides for a new type of procedure: The remedial action. The major difference to the model declaratory action is that the remedial action enables consumers and small businesses to enforce compensation payments without having to sue again themselves after a declaratory judgement.
Requirements for redress actions
When filing a redress action, the respective consumer organisation must prove in its statement of claim that at least claims of 50 consumers or small businesses are affected by the action. However, there is no corresponding requirement that more than 50 parties must also join the representative action.Secondly, the respective consumer organisation must prove that the claims of the affected customers or small businesses are "similar". This requirement is fulfilled if the claims are based on the same facts or on a series of comparable facts and the same questions of fact and law are relevant for their decision. Finally, the statement of claim must state the amount claimed by each consumer or small business if all individual claims are of the same amount. If, on the other hand, claims arise in different amounts, the statement of claim must contain a corresponding method for calculating the amount of the claim.
Course of the court proceedings
Association actions under the VDuG draft fall under the jurisdiction of the Higher Regional Courts. Appeals against judgments in redress actions may be lodged with the Federal Supreme Court.In general, the VDuG draft provides for a four-stage procedure for remedies:
Stage 1
The court first examines its jurisdiction and the merits of the claim - but not the final amount to be paid. The court then issues a redress judgment on the merits granting or a final judgment dismissing the action. If the court upholds the action, it determines the following:
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The concrete conditions according to which the eligibility of the consumers concerned is determined and
- The credentials to be provided by each individual consumer or small business.
Stage 2
The court invites the parties to reach a settlement. Such a settlement is binding on the consumers or smaller businesses that have filed their claims, unless they object within one month of the notification of the settlement.
Stage 3
If again no agreement can be reached, the court shall issue a final redress judgment fixing the total amount of all claims pursued in the remedial action and payable to a court-appointed custodian. The court has considerable discretion in determining the total amount and is allowed to estimate the total amount. This is a considerable advantage for the claimant side, as objections concerning the amount of the claims can hardly be raised at this stage.
Stage 4
In the implementation procedure, the administrator appointed by the court uses the total amount fixed in the final redress judgment to set up an implementation fund. He then checks whether consumers and small businesses are entitled to compensation according to the criteria set out in the basic remedy judgment and makes appropriate payments.
A decisive advantage for the claimants is that objections by the defendant companies can only be raised subsequently in a separate action. Companies that are liable to pay must therefore pay in advance and fight for a possible claim for reimbursement against the consumer.
Third party funding
Representative actions under the VDuG draft can also be financed by third parties. However, the VDuG draft aims to avoid conflicts between the interests of the financing third party and the collective interests of the consumers involved in the action. For this reason, representative actions may not be funded by a third party under certain circumstances (competitors of the company sued, economically dependent companies, risk of influencing the conduct of the lawsuit to the detriment of consumers). Third-party funding of the lawsuit must also be disclosed in the statement of claim.Comment on the draft law
The redress action provided for in the VDuG draft has the potential to become an effective legal enforcement instrument for consumer claims with litigation risks strongly shifted to the defendant companies in the draft. Objections to individual claims are only possible after the conclusion of the remedy proceedings in a separate procedure.However, the draft contains ambiguities in two essential places which - should the draft become law - are likely to lead to legal uncertainties:
It is not clear which claims are to be considered sufficiently "similar" to be bundled in a remedial action. Even minor variations in the legal assessment or the underlying facts of life could lead to the inadmissibility of the combination within a remedial action. In the case of claims in connection with the "diesel scandal", for example, the question would arise whether cars of different model series or engine types can be combined in one action. Similar delimitation issues may also arise from a different date of purchase or the consumer status of a claimant.
Further questions arise in connection with the incompatibility rules on third-party financing: The determination of possible competitors to be excluded from financing the representative action should not pose any particular difficulty. However, the criteria to be used to determine whether there is a risk of a litigant influencing the conduct of the case to the detriment of consumers will be much more difficult to assess in individual cases.
Unlike the current class actions by debt collection service providers, however, these legal uncertainties do not jeopardise the enforcement of claims. The current "assignment models" bear the risk that legal violations of the business model of the collection service providers make the entire claim unfounded. There is no such risk in case of representative actions under the new draft law. To the contrary, filing a redress action would inhibit the limitation period for participating consumer's claims even in the case of an impermissible linkage.