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German Federal Government adopts bill to introduce Consumer Class Action

  • United Kingdom
  • Germany
  • Insurance and reinsurance
  • Litigation and dispute management

14-05-2018

On 9 May 2018 the Cabinet passed a bill to broadly introduce Consumer Class Action (Musterfeststellungsklage; “MFK”) in Germany (see here). The new law shall come into force already by 1 November 2018. It is now being consulted in the parliamentary process.

The key features of the bill are:

  • Right to Sue: Only for registered “non-profit” consumer advisory associations with at least 350 consumer members or 10 consumer association members; listed for more than four years; less than 5% funded by business enterprises (sample claimant).
  • Quorum of Consumers: 10 consumers to instigate, (within two month time window) at least 50 consumers to continue proceedings to trial.
  • Objectives of Action:
    • Binding declaratory court decisions on questions of fact and/or law; no motions for payment.
    • Businesses are protected from being “snowed” by multiple individual claims, or presumably more aggressive class actions brought by “commercial plaintiffs”.
    • Courts are relieved from multiple proceedings.
  • Opt in: Consumers can join until first hearing has been held; likewise they can withdraw.
  • Opt out: Consumers can opt out within one month after a settlement has been served.
  • Effect: Suspends the statute of limitation; no costs for consumers to register their claims and no need for counsel at that stage; consumers benefit from favorable findings.

The proposal aims to strengthen consumer rights and at the same time intends to avoid misuse. Therefore only certified and qualified German or EU-based consumer associations will have the right to sue, and their actions will be limited to obtain binding decisions on questions of fact or law that affect groups of consumers in a comparable manner. Such consumers will have to register their alleged claims centrally. It thus shall be secured that the sample claimant acts exclusively in an adequate manner and in the interest of the consumers; and it shall be prevented that the class action is misused to solely damage businesses.

While the motions strictly speaking are limited to declaratory conclusions, settlements which require the approval of the court may well provide for performances, e.g. payments by the defendant. Further, the consumers are not a party to the proceedings and thus could potentially act as witnesses (which they could not under German rules of civil procedure did they sue in their own name). This has the potential to increase the pressure on businesses. Having said that, if defendants refrain to pay or perform in line with the sample decision, consumers yet will have to start their own action, but it is expected that it will be easier for them to pursue their claims on the basis of a binding sample decision.

The bill would clearly facilitate the bundling and litigation of claims that in these days would not be pursued by the individual consumer, because, for example, the amount in dispute would be too low (like with telecom or utility provider fees), the risk too high (like in complex product liability litigation) or the opponent too powerful (like financial institutions or global corporates). At present, group litigation in Germany is limited to narrow, well defined areas like, for example, shareholder claims (Kapitalanleger-Musterfeststellungsverfahren; “KapMuG”) or cease and desist actions again brought by (consumer) associations to stop the use of unfair contract terms or business practices.

It remains to be seen whether and with which modifications the bill passes the legislative process. However, the current government appears to be determined to push the bill through, and there seem to be not too many reasons why this project could be blocked yet another time: the conservative wing of the government had blamed the former social-democratic minister of justice for not having presented an adequate bill in good time during the last legislature. Now there is a new bill on the table!

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