Update: New type of class action in Germany – Federal government agrees on draft bill

On 27 January 2023, the European Commission initiated infringement proceedings against Germany and 23 other Member States because the Representative Actions Directive (RAD) was not transposed into national law by the due date of 25 December 2022. Germany now plans to transpose the RAD at the very latest by the application deadline of 25 June 2023. After much back and forth, the federal cabinet passed the government draft for the implementation of the RAD on 29 March 2023, thus paving the way for its timely introduction.

Procedure for the new representative action

The core of the government draft is the introduction of a collective action for redress in addition to the model declaratory action (cf. Schläfke/Lühmann/Stegemann, PHi 2022, 138).

According to the government draft, a qualified entity may bring an action for redress if at least 50 persons register similar claims in the register of representative actions. The established requirements of section 606(1) of the German Code of Civil Procedure for the legal standing of qualified entities (350 members and a minimum registration period of four years) will be replaced by less stringent requirements. It will be sufficient for a qualified entity to have 75 members and a minimum registration period of one year. This means that qualified entities can be established and used as claimants whenever there is an occasion to do so while limitation periods are still running.

Affected persons have to register in order to participate in the collective action. Thus, as before, Germany will be using an opt-in model. Registrations will be possible until two months after the first oral hearing. Judgments and court settlements before the end of this registration period are not possible (pre-judgment and pre-settlement opt-in).

Small businesses (i.e. those employing fewer than 50 people and with an annual turnover or an annual balance sheet of less than EUR 10 million) can also register their claims. Since the government draft does not contain a limitation on original claims, according to the wording of the draft there is considerable potential for circumvention and abuse because, for example, litigation-funded claim vehicles may register multiple claims previously assigned to them.

The material scope of the representative action goes beyond the RAD as it covers any civil claim and not only claims based on an infringement of provisions of Union law referred to in Annex I of the RAD. Representative actions could therefore become relevant in a variety of areas, such as claims for breaches of the law on data privacy, product liability cases, cartel damages, capital investment cases or the enforcement of the Digital Markets Act.

The procedure following an action for redress will be divided into the following stages:

Estimation of damages and determination of a collective total amount

The qualified entity bringing a collective action for redress has to provide sufficient facts in order to establish the amount of damages claimed to the court’s satisfaction. Based on those facts, the court is authorised to estimate damages pursuant to section 287 of the German Code of Civil Procedure.

In the final redress judgment, the court will determine a collective total amount. When doing so, the court may in certain circumstances assume that all claims are justified. Whether the registered parties are entitled to demand compensation on the basis of the final redress judgment will only be examined in the implementation proceedings. Any excess sums awarded will be refunded.

Litigation funding possible

Litigation funding will generally be possible. There are certain admissibility requirements to avoid conflicts of interest between consumers and litigation funders. Since qualified entities often have limited financial resources, litigation funding can give them significantly more room for manoeuvre. However, the question is what motivation litigation funders would have to fund a representative action for redress, since generally the entire amount claimed must be paid to consumers and because a profit-sharing agreement with the individual (often unknown) consumers cannot usually be entered into.

Litigation funding of actions for skimming off profits possible

It is planned to allow litigation funding in case of actions for skimming off profits under section 10 of the Act against Unfair Competition (UWG). One condition is that the competent public authority approves the funding (in particular the success fee) in advance. Until now, such litigation funding was not possible. In addition, actions for skimming off profits will no longer require an intentional infringement, but only gross negligence. These amendments are likely to increase the number of such actions in the future.

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Noerr is a pioneer in defending against collective and mass actions. With a specialised team of over 50 lawyers in our Class & Mass Action Defence practice group, Noerr regularly advises clients on defending against capital investor model proceedings, model declaratory actions and representative actions as well as on defending against claims through structured litigation vehicles and in mass actions.