German Government agrees on draft for the implementation of the Collective Redress Directive

Following a controversial debate, the German Government adopted a draft law to implement the Collective Redress Directive on 29 March 2023. The bill largely corresponds to the draft that the Ministry of Justice prepared. Upon pressure from the Ministry for the Environment and Consumer Protection, the Government’s draft does, however, differ from the Ministry of Justice's draft in some important details.

Key changes

The Government made two key changes to the ministerial draft to ensure adequate consumer redress.

First, consumers will no longer be able to register a claim only up until the first oral hearing. Instead, they will be given two months after the first oral hearing to consider whether to join an action. When taking the decision whether to join the representative action, sue on their own or with the help of legal tech companies, or drop the claim altogether, consumers will thus benefit from their impression of the first oral hearing. Defendant companies, on the other hand, have certainty at a relatively early stage as to which plaintiffs they will have to deal with and can align their litigation strategy accordingly.

Second, compared to the ministerial draft, the Government has reduced the criteria that qualified associations must meet to be eligible to sue. It is now only required that the association:

• has at least three associations active in the same field or at least 75 natural persons as members;
• has been registered as an association (Vereinsregister) for at least one year at the time of application and has fulfilled its statutory duties for one year;
• on the basis of its past activities and its human, material and financial resources, is likely to continue to fulfil its tasks effectively and appropriately in the future and will not assert claims primarily for commercial purposes;
• does not grant benefits from the association's assets to members and does not favour persons working for the association with inappropriately high remuneration or other benefits; and 
• does not obtain more than 5% of its financial resources through donations from companies. 

The additional requirements envisaged by the Ministry of Justice that are currently applicable to model declaratory actions (Musterfeststellungsklagen), including minimum periods of registration as a qualified entity and higher minimum numbers of members, have been deleted from the Government’s draft.

Various other amendments are also consumer-friendly. Others are of a clarifying nature and/or concern details.

Outlook

The Government's draft is now being discussed in Parliament, aiming for the new rules to come into force by 25 June 2023, as foreseen in the Directive. Otherwise, the infringement proceedings that the EU Commission already initiated for non-transposition of the Directive (read more here) will proceed and the discussions on a direct effect of the Directive will gain further momentum.

However, the parliamentary process will be far from consensual: According to initial statements, various parliamentary groups see a need for further discussion, so that further amendments seem possible despite the time pressure imposed by the Directive. In particular, while the current draft only provides for a suspension of the limitation period for claims of consumers who actively participate in the redress action, consumer advocates are calling for the suspension of the limitation period to be extended to all affected consumers. On the other side of the spectrum, there are other political parties who consider the new draft to be too consumer-friendly.

However, even if further amendments seem possible in the parliamentary process, the main cornerstones of the German implementation act appear to have been set. It is also likely that the Parliament will quickly pick up work to ensure that the law will enter into force at the end of June. It is therefore high time for companies to familiarise themselves with the upcoming collective redress system and to adapt their analysis of litigation risks to avoid collective litigation.