The Directive (EU) 2020/1828 was implemented by amendments to the law against unfair competition (Gesetz gegen den unlauteren Wettbewerb (UWG)) and the Law on injunction (Unterlassungsklagegesetz (UKlaG), the Code of Civil Procedure (ZPO), and — most importantly the new consumer rights enforcement act (Verbraucherrechtdurchsetzungsgesetz (VDuG)). The VDuG was adopted by the Federal Parliament on 7 July 2023 and entered into force on 13 October 2023. This was the first time an action for collective redress was introduced in Germany. The Musterfeststellungsklage was kept as an alternative option, now regulated in the VDuG, and can still be used to seek a collective declaratory judgment regarding the existence or non-existence of factual or legal prerequisites for the existence or non-existence of claims or legal relationships between a consumer and a trader. Actions for redress and for model declaratory rulings are possible for all civil law disputes concerning the claims and legal relationships of a large number of consumers against traders. This e,g, includes consumers’ contractual claims, tort claims, consumer law remedies as well as antitrust damages actions by consumers, and claims in the context of environmental social governance (ESG) or supply chain compliance. In this respect, the scope of the collective actions is broader than that of the injunctive actions which limit the scope of application for injunctive relief to the consumer protection laws listed in Section 2 (2) UKlaG. Furthermore, the German legislator has chosen to implement the Directive (EU) 2020/1828 in such a way that only the association, and not the affected consumer, becomes a party to the collective action under VDuG. All collective actions are to be heard in the first instance before the Higher Regional Courts. The associations entitled to bring an action under VDuG can freely choose which type of action they prefer in each individual case–redress or declaratory ruling. The principle of subsidiarity of declaratory actions as usually given in German civil procedure is expressly waived for the actions under the VDuG.
Consumers can register their claims and thereby are prevented from pursuing their claims individually for the duration of the representative action proceedings, including the enforcement procedure; actions brought by registered consumers after registration are inadmissible. In the case registered consumers’ actions are already pending, the proceedings are to be stayed, and the decision in the collective action proceedings is binding on the consumer. For consumers who have not registered their claims by the deadline or have withdrawn their registration, the collective action has no direct legal significance.
While this article will mainly discuss the procedure under the VDuG, it is important to note that there were was a reform of the Capital Markets Model Case Act that came into force on 20 July 2024. With these amendments, the German legislator has expanded the scope of application of the Capital Markets Model Case Act and aligned it with the other collective action instruments. Among other things, the changes affects providers of crypto assets and crypto asset services that hold or manage crypto assets for customers, as well as persons who apply for admission to trading in crypto assets. Specifically, model proceedings will in future also be possible for investor claims for damages for losses of crypto-assets or the funds for accessing them under Art. 75 (8) of Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023, on markets in crypto assets (MiCA Regulation).
Rules for commonality of claims/class certification
Pursuant to Sec. 15 (1) sent. 1 VDuG, the action for redress is only admissible if the claims of the consumers concerned by the action are essentially the same. This is the case if 1) the claims are based on the same facts or on a series of essentially comparable facts and 2) the essentially identical factual and legal issues are relevant to the decision for the claims.
Introduction and system
Sec. 15 (1) sent. 1 VDuG contains requirements regarding the homogeneity of the claims to be asserted in the context of a representative action. In this regard, the provision navigates the difficult balance between the effectiveness and attractiveness of the representative action instrument on the one hand and the practicability of the enforcement procedure on the other. Thus, the provision establishes a special admissibility requirement for the action for redress by regulating the similarity of consumer claims and the information provided when applying for a collective total amount.
Similarity as a condition for admissibility/criteria for similarity
In the case of similarity, a distinction is made in accordance as to whether the claims arise from the same facts (“single event”), as for example in the case of an aircraft crash, or from a series of similar facts (“single cause harm”), as for example in the case of product damage. Section 15 (1) no. 2 VDuG requires that the decision on all asserted claims must also be based on the same factual and legal issues, which means that an identical basis for the claim is regularly required. Whether this similarity exists is determined on the basis of whether the court would need to conduct an individual examination of the specific case. Therefore, the claims must be sufficiently similar to enable the court to conduct a template-based, abstract, and typified examination of the factual and legal requirements for the claims. The similarity must be presented by the plaintiff in the statement of claim. The trial court does not examine whether the claims subsequently filed are actually of the same kind. Ultimately, this is the task of the administrator in the implementation proceedings, based on the criteria specified by the trial court. The effectiveness of the administrator procedure depends to a large extent on the administrator being able to make the distribution decision on the basis of provable characteristics.
Class member participation (opt-in/opt-out)
When the VDuG was drafted, no use was made of the option of an opt-out procedure under Article 9 (2) of the Directive (EU) 2020/1828; instead, a late opt-in solution was adopted. Section 46 VDuG is the central provision governing registration in the Register of Representative Action. Consumers can register themselves for the claims register without the assistance of a lawyer and must comply with the deadline (para. 1) and the content (para. 2) of the registration.
Deadline according to section 46 ( 1 ) VDuG
Registration in the claims register must be made within three weeks of the end of the oral proceedings, which means that an opt-in solution as late as possible has been chosen. The end of the oral proceedings arises from the fact that the court sets a date for the pronouncement of judgment in accordance with section 310 (1) ZPO. If no judgment is actually pronounced at this date, the deadline does not apply.
Effectiveness requirements for opt-in
The substantive requirements for opt-in of consumers are listed in section 46 (2) VDuG and are based on section 253 (2) ZPO. This provision specifies the minimum information that a statement of claim must contain. According to Section 46 (2) no. 1 VDuG, which requires the name and address of the consumer, the aim is to ensure that the defendant is informed of the identity of the registered consumers. According to no. 2, an applicant that is a small business must indicate this separately. More important in practice is the precise description of the potential subject matter of the dispute according to no. 5. The information on the subject matter of the dispute must make it possible to individualize the claim/legal relationship to determine whether the judgment in the class action has a binding effect in subsequent proceedings. The individualization of the claim is also important for the question of the suspension of the statute of limitations according to § 204a para. 1, no. 3, 4 German Civil Code (Bürgerliches Gesetzbuch (BGB)). In addition, according to no. 6, the correctness and completeness of the information must be assured to prevent abuse. Furthermore, in the case of claims for monetary benefits according to section 46 para. 2 sentence 2. VGuG, the amount of the claim must be stated. The Federal Office of Justice does not check the content of the information provided in the application, but only for formal requirements to ensure it is complete.
Consequences of the registration
The law attaches a number of legal consequences to the application. For example, consumers have a right to information concerning their registration. Section 11 (2) of the Act precludes individual actions of consumers who have registered, and an court approved settlement also applies to consumers who have registered in accordance with Section 9 (1) VDuG.
Both judgments, i.e. redress action and preliminary judgment on the merits of the case, are subject to appeal on points of law. The possibility to appeal is given by law and the appeal is heard by the Federal Court of Justice (BGH). This means that there is only one instance of fact in the German class action proceedings. Unlike in general civil proceedings, the appeal is not dependent on the fulfillment of admission requirements.
An appeal on points of law is provided for in the case of preliminary judgment on the merits, judgments granting performance, combined judgments, and judgments dismissing the , as well as final judgments granting relief in accordance.
The regulation of funding is intended to protect against abuse in two ways: on the one hand, it is about protecting the company from the influence of competitors, and on the other hand, it is about protecting consumers from funding-related disadvantages. When considering financing before taking legal action the primary concern is the assumption of the financial risk of partial or complete failure, as well as advances on legal fees and court costs at the beginning of the proceedings and, if necessary, on appeal. In Germany, external financing will often be taken into consideration because the limit on the amount in dispute is set at EUR 250,000 or EUR 300,000 in accordance with section 48 (1) sentence 2 court fees act (Gerichtskostengesetz (GKG)), thereby limiting the statutory fees for lawyers.
No financing by competitors
(Section 4 ( 2 ) no. 1 VDuG) Pursuant to Section 4 (2) no. 1 VDuG, a representative action is inadmissible if it is financed by a third party that is a competitor of the defendant company. The rationale for this is the consideration that companies may have an interest in damaging the image of a competitor by bringing an unfounded action or threatening to do so, or in harming it financially by means of “compensation payments”.
Identity of the financier
According to Section 4 (2) no. 3 VDuG, a representative action is inadmissible if it is financed by a third party that is dependent on the defendant’s business. The exclusion of this constellation serves to protect consumers, as it prevents the defendant from steering the action against him toward failure. Structural conflicts of interest should be voided, which is also why the suing association must disclose the identity of the financier in accordance with section 4 (3) sentence 1 VDuG.
Cap on the success fee (Section 4 ( 2 ) no. 3 VDuG)
According to Section 4 (2) no. 3 VDuG, a representative action is inadmissible if it is funded by a third party who is promised an economic share of more than 10 percent of the performance to be rendered by the defendant. In the context of traditional litigation funding, the financier assumes the legal costs rise in return for a share of the potential proceeds of the action (participation rate). This figure of 10 percent is well below the usual margins of 25-35 percent and will make third-party financing relatively unattractive.
Expectable influence on the financed process
According to Section 4 (2) no. 4 VDuG, a representative action is inadmissible if it is financed by a third party who can be expected to influence the conduct of the action by the entity entitled to bring an action, including decisions on settlements, to the detriment of consumers. Section 4 (2) no. 4 is intended to take into account the risk that the litigation financier will influence the conduct of the proceeding to the detriment of the consumers concerned in order to maximize their own profits. ears that the financier will prioritize its interests therefore are regularly raised when a settlement is reached, if the financier insists on an early settlement contrary to the consumers’ interest in order to save further costs.
Disclosure in the statement of claim
Disclosure of the financing must always be made when the action is brought. The content of the duty to provide information initially relates to the origin of the funds and the content of the agreements made with the financier. If third-party financing is only provided after the action has been brought, the duty to provide information applies accordingly.