The new collective action lawsuit - Consumer Rights Enforcement Act has been passed in the Bundestag

"Potius sero, quam numquam." (Titus Livius, ab urbe condita)

On 25th of June 2023, the deadline for implementation of the EU Directive on representative actions for the protection of the collective interests of consumers expired. On 7th of July 2023, the last session day before the summer recess, the German Bundestag adopted the draft law on Consumer Rights Enforcement Act with the votes of the government factions, against the votes of the CDU/CSU and AFD, while the faction Die Linke abstained from voting.

In our blog, we have already reported on the preliminary draft (blog post of February 17, 2023), the government's draft (blog post of March 31, 2023), and the hearing in the Legal Affairs Committee (blog post of May 11, 2023).

The Consumer Rights Enforcement Act introduces a new form of collective action, the action for redress by qualified entities, and incorporates the provisions of the model declaratory action from the Code of Civil Procedure. The Federal Government expects that the action for redress will provide relief to citizens, the economy, and particularly the courts. The aim is to replace 22,500 individual actions by 15 actions for redress.

"Who Can Sue and How?" - Qualified Entities and Actions for Redress

An action for redress is a lawsuit filed by qualified entities on behalf of a multitude of consumers against companies in civil law disputes. Small companies with fewer than ten employees and an annual turnover or balance sheet total below EUR 2 million shall be considered to be consumers under the scope of this act. Qualified consumer organizations and entities registered in the corresponding European Union register shall have the right to initiate actions for redress. Qualified consumer organizations must (i) not derive more than 5% of their funding from companies and (ii) be listed in the register pursuant to Sec. 4 of the Act on Injunctive Relief (Unterlassungsklagegesetz). The qualified entities, along with the register for representative actions, must publish about actions for redress and inform consumers about how they can participate. An injunctive measure shall only be admissible if it is comprehensibly demonstrated that claims from at least 50 consumers may be affected.

The Consumer Rights Enforcement Act restricts the financing of an action for redress by third parties. The financing must be independent of the success of the action and the company sued. It must be disclosed to the court at the time of filing, along with the agreements made.

An action for redress can be directed either towards providing payment or performance to the affected consumers or towards the payment of a collective sum. The claims asserted by the consumers must be substantially similar. Substantially similar facts and issues of fact and law that are relevant to the decision are decisive. Consumers must register their claims in the register for representative actions. Registration is even possible up to three weeks after the conclusion of the oral hearing.

The Higher Regional Court at the registered seat of the company concerned is competent for any action for redress. An appeal on points of law is provided for by law without the need for admission in the judgment.

"What does a litigation procedure end with?" - Judgment, Redress Judgment on Liability, Settlement and Final Redress Judgment

As a rule, an action for redress shall end with a judgment, settlement or final redress judgment. Prior to a final redress judgment, a redress judgment on liability is issued. A redress judgment on liability shall be issued if an action for redress is substantiated on the merits and not directed towards providing payment to a consumer. A redress judgment on liability shall contain specific requirements for consumer eligibility and the proof of eligibility to be provided for this purpose.

If a collective sum is awarded, the judgment must include either the amount per eligible consumer or the method for determining the individual amounts due.

If a redress judgment on liability is initially rendered, the parties may be requested by the court to submit written settlement proposals.

If no settlement is reached, the procedure concludes with a final redress judgment.

"How do consumers obtain their money?" - The Implementation Procedure

The action for redress is followed by the implementation procedure. If the collective total amount determined is insufficient, it can be increased on request. The competent court for the action for redress shall remain competent for the implementation proceedings. A trustee is appointed to implement the judgment. In the process, an implementation fund is set up into which the determined amounts are to be paid. The trustee fulfills legitimate consumer claims from this implementation fund. Only consumers who have validly registered their claims with the register for representative actions may participate in the implementation procedure.

The trustee examines the claims of participating consumers and determines their eligibility based on the specific requirements and evidence established in the judgment. Consumers or companies can file an objection against the trustee's decision. The final decision on the objection is made by the court. The implementation procedure concludes with the trustee's final report, which is reviewed by the court. The termination of the implementation procedure is determined by a court decision. In individual cases where a consumer's claim has not been positively considered in the implementation procedure, the option of subsequent individual litigation against the company remains available.

"Unnecessary or innovative?" - Outlook into the Future

The German government hopes that the action for redress and the Consumer Rights Enforcement Act will make it easier for consumers to assert their claims. This is expected to significantly alleviate the burden on the judiciary. The jurisdiction of the Higher Regional Courts, applying the rules for firstinstance proceedings before the Regional Courts, effectively limits the admissible legal remedies to appeals on point of law. In all cases, at the very least, appeals are permitted. However, there is no further legal remedy for decisions by the Higher Regional Court on objection in the implementation procedure.

In particular, the latest amendments in the Committee on Legal Affairs will influence the dynamic picture of the action for redress in the future. Qualified entities need only to demonstrate that 50 consumers may be affected and need not to elaborate on actual affectedness. Small companies, like consumers, can participate as affected parties in representative actions and actions for redress. The ability to register for the representative action even after the oral hearing will influence consumer behavior.

The coming years will show whether the new representative action will be accepted by practitioners and whether the Consumer Rights Enforcement Act will achieve the anticipated effects.

Dr Ralf Hafner
Tobias Pörnbacher