German Parliament adopts consumer-friendly changes to the bill for the implementation of the Collective Redress Directive
The German Bundestag eventually adopted a bill to implement the EU Collective Redress Directive. Following controversial debates in expert hearings and the public, the Bundestag made important changes to the Government’s draft. While the implementation act still needs to pass the Bundesrat (i.e. the legislative chamber representing the federal states) in autumn before coming into force, the main pillars for collective redress actions now appear to be in place and the new regime will be far more consumer-friendly than initially envisaged.
The Bundestag stuck to the main elements of the governmental draft on which we reported earlier, but made some important changes. Most of the changes aim at making the new representative actions more attractive for consumers and the claimant entities representing them:
- The scope for representative actions has been widened insofar as the qualified entity representing the affected consumers no longer has to demonstrate that the representative action affects least 50 consumers (Glaubhaftmachung), but only has to allege in a comprehensible manner that at least 50 consumers might be affected (nachvollziehbare Darlegung).
- Going beyond the Collective Redress Directive, small companies will be able to benefit from the representative action as well. However, compared to earlier drafts, the Bundestag lowered the thresholds for qualifying as a small company. They are now defined as companies with less than 10 employees and an annual turnover of less than € 2 million.
- Consumers and small companies will have 3 weeks after the end of the oral hearings to register their claims in order to benefit from the representative action. The opt-in period was one of the most controversial issues and the Bundestag’s approach is – as requested by some political parties and consumer associations– far more consumer-friendly than earlier drafts (the ministerial draft proposed to allow for registrations until the first oral hearing while the governmental draft set a deadline of 2 months after the first oral hearing). Defendants will thus only know after the oral hearings about how many claims they are negotiating, which creates considerable uncertainty as to the litigation strategy during the oral hearings.
- As reported earlier, actions for redress will only be admissible if the consumer claims affected by the action are of the same kind (gleichartig). The Bundestag clarified that the claims only need to be essentially of the same kind (im Wesentlichen gleichartig), thereby deliberately choosing a wording that is open to interpretation. While this change gives courts more flexibility, it might also lead to complex discussions amongst the parties to the redress action.
- The Bundestag reduced the financial risks for claimants by limiting the maximum amount in dispute (Streitwert) to € 300,000 (instead of € 410,000 as foreseen in the Government’s draft). Accordingly, fees of opposing counsel and courts, which claimants must bear in the event of a loss, are capped.
- On the other hand, the requirements for litigation funding have been tightened compared to the previous drafts. In addition to further prerequisites already provided for in earlier drafts, the litigation funder will be entitled to a maximum of 10 % of the economic benefit resulting from the redress action. In addition, the claimant must explain where the financial funds for the lawsuit stem from and, in case of third-party funding, disclose the relevant contractual arrangements.
Various other changes are of a clarifying nature and/or concern details. Interestingly, no further amendments have been made to the provisions on limitation periods. In particular, the limitation periods will only be suspended in case of a redress action for those consumers who have actually registered their claims. Consumer associations and others had requested that all consumer claims should benefit from a suspension once a redress action has been launched.
The Bundesrat will deal with the bill after its summer break in September, meaning that the new rules will come into force in October at the earliest. However, companies should already familiarise themselves with the upcoming collective redress system whose main cornerstones have been set. The new regime implies that even for minor legal violations and related damages, companies might face massive financial liabilities due to the possible large number of consumers involved. Specifically, companies with a large customer base should stay vigilant and may need to adjust their assessment of litigation risks in response to the new consumer-friendly regime. While the Bundestag expects only 15 redress actions per year, the actual number could be significantly higher given the great interest consumer associations and other qualified entities have shown during the legislative process and the consumer-friendly changes that have been made to the initial drafts.