EU group action is on its way

On 23 June 2020, the negotiators of the European Parliament and the Council reached agreement in principle on the first EU-wide rules to govern EU group actions. According to the current Proposal for a Directive “on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC”, the aim of this new legal instrument of collective redress is to provide better redress opportunities for consumers in mass harm situations without, however, neglecting traders’ interest in legal certainty. This means that, in addition to the model declaratory action regime [Musterfeststellungsklage] under German law (Secs. 606 et seq. of the German Code of Civil Procedure [Zivilprozessordnung – ZPO]), consumers will soon have a European instrument of collective redress at their disposal to ensure compliance with EU rules and enforce redress such as damages, price reduction or replacement, although it is not clear at this point whether the model declaratory action regime under German law will continue to exist in its present form once the EU group action is available in practice.

The new EU group action is part of the “New Deal for Consumers” that was unveiled by the European Commission in 2018 to strengthen EU consumer rights and enforcement. Just like Germany’s model declaratory action regime, it was initiated in response to the emissions fraud scandal known as “Dieselgate”. Following the consent of the European Parliament and the Council, Member States have 24 months from the date of its entry into force to transpose the Directive into national law. That means the new EU group action will become available in practice at the earliest in 2023.

Who will be able to lodge a EU group action to claim redress?

Only qualified entities to be individually designated by Member States will be entitled to bring actions for injunctive and compensatory redress. The conditions qualified entities have to meet for this purpose depend on whether the redress sought is for a cross-border or national infringement. In cases concerning cross-border infringements, qualified entities must prove that they have worked for the protection of consumers for at least 12 months before their application to be designated as a qualified entity, and that they are not for profit. It must also be ensured that they are independent of any third parties who may have economic interests opposed to those to be represented by the qualified entity. This is the level of harmonisation the Directive prescribes. For domestic infringements, Member States may define their own conditions because criteria for harmonisation do not exist. Qualified entities include, for example, the Federation of German Consumer Organisations [Verbraucherzentrale Bundesverband – vzbv]. National administrative authorities are also to be able to bring group actions in future.

In what areas of law can group actions be lodged?

EU group actions can be lodged to enforce general consumer protection rights as well as with respect to matters of data protection, financial services, energy, the environment and health and for enforcement air and train passenger rights. Furthermore, EU group actions may be lodged to enforce compliance with EU rules and the provisions transposing them into national law. One example of such EU rules is the EU Product Liability Directive (85/374/EEC), which is transposed into German law by the German Product Liability Act [Produkthaftungsgesetz – ProdHaftG].

Is there a risk of the group action regime being abused?

There are hardly any standards defined at the European level to prevent abusive practices in the use of group actions. One criterion is the “Loser Pays Principle”. The exclusion of punitive damages is also intended to prevent abuse.

However, it is not clear yet whether consumers will have to opt in to EU group actions (opt-in system) or whether they will be automatically included as claimants and have to expressly opt out of them if they do not wish to be excluded (opt-out system). Also in this regard, the Directive does not provide for any harmonisation. This will be for each Member State to decide, which means that the likely outcome will be a patchwork of rules. Those Member States who choose the opt-out system would then have a legal instrument of collective redress similar to US class actions. The US class action regime has resulted in the evolution of law firms that specialise in bringing mass claims against companies. Since cross-border group actions will continue to be possible in the EU in the future, opt-out systems put in place in other Member States would have implications for German companies, too, not only if they have subsidiaries or other affiliated companies in the Member States concerned.

What is the difference between an EU group action and a model declaratory action under German law?

An EU group action goes beyond a model declaratory action under German law. The immediate result that can be achieved by a model declaratory action is that a merely abstract (non-enforceable) claim for damages is established that has to be enforced by separate and individual actions to be brought as a second step, while in an EU group action damages are claimed for directly. Consequently, qualified entities will consider carefully in the future which Member State offers the most favourable jurisdiction for them to bring their claims – an approach known as “forum shopping”. The more consumer-friendly the Directive’s transposition into national law is, the more qualified entities will sue in a Member State.

What do we have to offer?

GvW will follow current developments closely and keep you updated on them.

GvW assists you with a highly qualified and efficient team in your defence against mass litigations, group actions and model declaratory actions as well as liability suits relating to capital investments, in particular prospectus liability cases and KapMuG proceedings (defence of financial institutions and issuing houses against mass litigations under the German Act governing Model Proceedings in Capital Market Disputes [Gesetz über Musterverfahren in kapitalmarktrechtlichen Streitigkeiten – KapMuG]) and actions for damages for antitrust violations.

Since we use LegalTech solutions, we are able to handle mass litigations (comprising many thousands of claimants) for you.

We offer you highly qualified assistance in all areas of law in which mass litigations may be brought against you.