German Government Releases Draft Act on Class Actions in Germany

by Jones Day
Contact

Jones Day

In Short

The Situation: As agreed in the Coalition Contract of the current German government, the Federal Ministry of Justice officially presented the Act on Model Declaratory Proceedings ("Draft Act") on May 9, 2018, after protracted last-minute negotiations within the government.

The Plan: The Draft Act, if ratified, would give qualified institutions the right to raise claims on behalf of groups of consumers in order to obtain a declaratory judgment. The plan is to enact the Draft Act by November 1, 2018.

Looking Ahead: The European Commission has issued a proposal along the same lines, and its suggestions go far beyond the draft provided by the German government. Germany is therefore already under pressure to anticipate the next legislation in this regard, even though the Draft Act has not even been enacted yet. It is therefore expected that extensive—potentially divergent—actions will be taken on Member State and EU level in this area of law.


Presented by Germany's Federal Ministry of Justice, the Draft Act, if ratified, would grant qualified institutions the right to bring class actions for groups of consumers in order to attain a declaratory judgment. Enactment of the Draft Act is planned for November 1, 2018.

The Draft Act's Core Elements

An action in relation to a claim or legal relationship between a consumer and a company may be raised by any qualified institution that has been registered for four years under the German Injunctive Relief Act or (if foreign) with the European Commission under Directive 2009/22/EC. Further, the institution must consist of 10 associations or 350 natural persons. It may not receive more than 5 percent of its financial means from corporate entities and may not raise model proceedings in order to make profits.

In order to initiate the claim proceedings, the consumer association needs to demonstrate that it represents 10 identified consumers that are affected. The initiation of the proceedings does not prevent consumers from filing individual claims. Once a model proceeding has been initiated, no further model proceedings may be commenced based on the same set of facts against the same defendant.

To have the proceedings executed in court, 50 applicants must access the claim by registering their claims with the claims register within a time frame of two months.

Any consumer affected by the alleged wrongdoing has the right to join the ongoing model proceedings by registering his or her claim at least one day before the oral hearing. Any consumer who has already joined the model proceedings may withdraw from the proceedings until the same point in time.

Model proceedings are terminated either by the court's issuance of a declaratory judgment or by means of settlement.

The court's declaratory judgment findings have binding effect for any consumer who accessed the proceedings before the oral hearing. On the basis of these findings, the consumer may initiate an individual proceeding for damages.

Alternatively, the qualified institution may settle the claim on behalf of all registered consumers. Any settlement must be approved by the competent court, which will grant approval if the agreement between the parties constitutes an "adequate amicable settlement." The settlement becomes valid unless 30 percent or more of all consumers registered explicitly opt out of settlement.

Assessment

The right to initiate a model proceeding is granted to any qualified institution registered under the Injunctive Relief Act (Unterlassungsklagegesetz) or Directive 2009/22/EC. The question of who should have the right to initiate a claim was highly disputed in the preparation of the Draft Act, as there is a legitimate concern that the right to sue may be abused.

The current draft shows that certain limitations on the right to sue were implemented. In particular, the requirement that a qualified institution has been registered for four years will prevent the creation of such institutions merely for the sake of being able to file model proceeding claims. However, these limitations do not fully eliminate the concern that an eligible qualified institution might team up with third-party funders and/or law firms that specialize in class action or group claims. Such a combination could be highly profitable for the law firm or litigation funder and, at the same time, would not affect the qualified institution's right to sue. The Draft Act therefore drastically increases litigation risks for consumer-facing companies.

Further, the rationale behind the Draft Act was to enhance consumer rights by overcoming the so-called "rational lack of interest" that a consumer faces when presented with filing an expensive claim for a small damage amount. However, under the Draft Act, any consumer would still need to complete a two-step process. First, the consumer would have to initiate or accede to a claim filed by a qualified entity in order to obtain a declaratory judgment. Second, the consumer would have to file a separate, follow-on claim for damages.

It is doubtful whether consumers will want to go through such a cumbersome process for small amounts of damages. Consequently, neither consumers nor consumer-facing companies seem to be better off with the Model Proceedings Act.


Two Key Takeaways

  1. Under the Draft Act, it expected that qualified institutions will team up with law firms that specialize in class action claims and with litigation funding companies so that they may file model proceedings, particularly against well-funded companies. At the same time, it is questionable whether consumers will actually profit from the model proceedings filed in their name.
  2. Further far-reaching changes are to be expected in the area of collective redress in Germany and the European Union, as the European Commission is already pushing for the implementation of further consumer rights in this area.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jones Day | Attorney Advertising

Written by:

Jones Day
Contact
more
less

Jones Day on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.