Implementation of Directive 2020/1828 on
representative actions in Germany

Prof. Dr. Astrid Stadler
Kyoto, October 2023

Universität Konstanz

Outline

I.

Introduction

II.

The European framework for representative actions

III.

Implementation in Germany

1. General structure of representative actions
2. Legal standing and requirements for admissibility
3. No opt-out mechanism
4. Late opt-in of consumers

5. Settlements
6. Distribution of funds
7. Funding
IV. Outlook

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I. Overview•Discussion on collective redress in EU since 2002•

Directive 2020/1828 (RAD) – political trade-offtriggered by VW Dieselgate− model declaratory actions (MFK) since 2018
− not successful, only few actions− only 1/3 of 2,3 mio. car owners took legal action− settlement in MFK action for 250.000 car owners− approx. 100.000 cases still pending•

Deadline for implementation of RAD: December 2022
(June 2023)•Germany: implementation by Consumer Rights
Enforcement Act(Verbraucherrechtedurchsetzungsgesetz)

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II. European Framework•

Directive applies to consumer cases only•

Minimum harmonization – MS may keep other instruments•‚Qualified entities‘ (consumer associations) represent consumers‘ interests•

Domestic & cross-border represenative actions•

Requirements for qualified entities for cross-border actions✓ 12 months of existence✓ Public activities in consumer law✓ Non-profit making charachter✓ Ad hoc founded associations for particular mass harm events?
Injunctive relief(also provisional)(Art. 8 RAD)suspends
limitation period
for all consumer
claimsRedress measures(Art. 9 RAD)
compensation, repair, replacement,
price reduction, reimbursement …..,
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Great leeway for implementation•

Opt-in /opt-out(opt-in only mandatory for foreign consumers)•Details for proceedings left to Member States•

Loser pays principle must apply•

Individual consumers must not pay costs of proceedings•

Funding of representative actions: third-party funding neither allowed nor
probhibited by RAD•

In case of third-party funding: no conflict of interests, no undue influence byfunder on proceedings

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III. Implementation in Germany by Consumer
Rights Enforcement Act

1. General Structure of representative actions✓ Jurisdiction: Courts of Appeal✓ Scope of application: consumers and small companies✓ Not only violations of consumer law, but all civil actions including tort law

traditional actions for

MFK actions

Injunctive relief(declaratory judgment +individual actions fordamages by consumers)

Actions for relief
other than money
payments

for payment of a specificamount to indivual (named)
consumers

Redress actions

for payment of a collective
total amount for a group of
unidentified consumers
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2. Legal standing & requirements for admissibility
Requirements for qualified entities fordomestic representative actions✓ Minimum existence of qualified entity

Ad hoc founded associations forparticular mass harm event?

reduced from 4 yrs to 1 year
✓ Members: 3 associations or 75 naturalpersons✓ No-profit making character•in principle allowed•

associations must also represent general
consumer interests (e.g. information onwebsite)
financial ressources?

✓ No funding of more than 5% of thebudget from companies•➢ only „modest entry fee“ by consumers
allowed by RAD➢ Third-party funding limited: maximum of
10% success fee allowed➢ Contingency fee arrangements with lawyers:
only for small claims up to 2.000 Euros

Admissibility of actions:•••

Q.E. must demonstrate that more than
50 consumers might be affected
no minium number of registrations
necessary
All claims must be „essentially similar“•

no cross-border recognition of ad hoc
founded qualified entities
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3. & 4. No-opt mechanism/ late opt-in•••

Member States may choose between optin & opt-out•

Time frame for consumers‘ opt-in very
controverisal issue•

Now: opt-in from start of proceedings
until 3 weeks after the formal end of oralproceedings (before judgment !)•Judgment must not be handed down
before 6 weeks after the formal end oforal proceedings•Probably high number of parallel
individual proceedings based on thesame case (barred only once consumer
has registered)•

Relief for court system?

Germany: only opt-in
for mall consumer claims instead:=> actions for skimming-off illegallygained profit (Sec. 10 Unfair CompetitionAct)=> thresholds lowered, third-party
funding allowed without any cap ofsuccess fee

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5. Settlements••

In general: no settlement before expiry of registration timein case of actions for payment of a collective amount of compensation following procedure:
End of oralproceedings(Schluss dermündlichen
Verhandlung)=> 3 weeks forregistration (orwithdrawl)

Distribution offunds byadministrator

Interlocutory
judgment on
defendant‘s liability+ criteria for consumer‘seligibility+ specification of
method for calculationof damages+ evidence to bepresented by consumer

Final judgment••

Fixing amount ofcompensation
to be paid todistribution funds

Court invites parties
to present asettlement anddistribution plan

Court approvalof settlement(appeal, if denied)

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6. Distribution of funds•

Only in actions for the payment of a collective amount of compensation•

Court appointed administrator responsible for distribution•

Position similar to administrator in insolvency proceedings (under supervision of thecourt, fiduciary duties (consumers & defendant)•

Consumers must present evidence as specified in the judgment (in practice limited todocuments!) - no complex fact finding•If total amount paid by defendant insufficent => action for additional payment•

defendant & consumers may appeal to the court if they do not accept administrator‘
decision on individual claim, but evidence limited•

Individual claims by consumers with full evidence allowed, if appeal is not successful•

Defendant may also sue consumers for repayment, if objections were not taken into
account by in distribution proceedings (limited evidence!)

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7. Funding•

funding issues not adequately addressed during legislative
process – consumer associations have small budgets!

•Last minute decision in favour of a 10% cap of third-party funders‘ success fee•

average success fee in Europe: 25-35% depending on risk•

Requirement of complete disclosure of funding agreement=> only to the court or also to defendant?

•

Difficulty for funders to calculate funding risk due to late opt-in of consumers•

How to conclude a funding agreement without the consent of consumers before filing of theaction?

•Commercial funders will not support representative actions•

General suspicion against commercial third-party funders in Europe (initiative of the European
Parliament for strict regulation)•Alternatives: contigency fees very limited/no state-adminstrated „access-to-justice“ fundUniversität Konstanz

IV. Outlook➢ Implementation of RAD is (small) step forward➢ Consumer Rights Enforcement Act does not provide the best possible solution➢ Main problem: limited budgets of consumer associations and restrictions on third-paryfunding➢ Qualified entities may strategically bring only actions for injunctive relief or declaratory
judgments => consumer must sue defendants individually➢ Still a broad field of activity for legal tech companies which operate on assignments andask for a success fee➢ State-run ‚access-to-justice fund‘ better solution for consumers & defendants (nosuccess fees, no frivolous actions)

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Thanks for listening !

Prof. Dr. Astrid Stadler
Tel.: +49 (0) 75 31/88 - 2331
astrid.stadler@uni-konstanz.de

Universität Konstanz