The landscape
Germany's class action landscape is distinctive in that potential claimants have a variety of legal options, each with their own characteristics.
The system is still dominated by mass individual actions (MIAs) in which large numbers of claimants (up to several thousand) suffering analogous situations pursue separate legal proceedings. A well-known example is the litigation by investors for failing to achieve projected financial gains in the aftermath of the 2008 Global Financial Crisis. There is also the diesel emissions scandal of 2015, when the US Environmental Protection Agency issued a violation notice to Volkswagen Group triggering a wave of litigation in Germany.
The number of class actions in Germany is likely to increase in coming years. This is due to recent legislative changes, but also Firms are developing growing specialisation in this area of law and there are more funders prepared to support litigation.
Christoph Zuschlag
Senior Associate
In 2018, Germany introduced the Model Declaratory Action (MDA) to ease the workload on its courts. This is a form of class action that enables certified consumer associations to assert claims on behalf of individuals, resulting in either a settlement or declaratory decision. However, the MDA has not achieved the anticipated level of uptake. This is most likely because awarding of damages is not permitted. If a settlement is not reached and the court finds the MDA to have merit, each individual who joined the MDA is required to pursue a standalone claim for damages before a German court.
Another form of collective action is the so-called assignment model (Abtretungsmodell). This model pools claims from individuals in return for the payment of a contingent fee.
Current developments
At the end of 2023, Germany added to its class actions regime with the Consumer Rights Enforcement Act (known as the “VDuG”).
This is designed to enact the EU Directive 2020/1828 of 25 November 2020 on representative actions. For the first time, it enables consumers in Germany represented by certified consumer associations to bring a class action for “remedial measures” directly against companies. This includes but is not limited to claims for damages. Small businesses can join such class actions.
The German parliament has more recently adopted a new procedure that would accelerate the process of obtaining high court decisions on legal matters that are of significance in MIAs. Providing potential litigants with greater certainty should help to prevent a surge of speculative MIAs.
Future trends
The number of class actions in Germany is likely to increase in coming years. This is due to recent legislative changes, but also the growing use of legal technology.
As information becomes more accessible and processes more streamlined, citizens can easily identify whether they are affected by matters that could potentially be the subject of class actions or MIAs. Firms are developing growing specialisation in this area of law and there are more funders prepared to support litigation.
A unique feature of class actions under the VDuG is that consumers can base their claims not only on violations of specific provisions of European consumer law, but also on the entire body of German civil law. This opens up significant potential class action liability for companies in important areas such as financial markets, energy, cyber security, environmental, social and governance matters, and follow-on claims for violations of antitrust law.
However, pre-existing instruments, including the MIAs, MDA and the assignment model will remain relevant – particularly because entities with the legal standing to bring new class actions under the VDuG are prohibited from pursuing profit-oriented activities.
Next steps for business
Adopt a centralised approach: Many German companies are conducting a detailed review of the EU countries in which they operate, taking into account each country's national implementation of the EU Directive.
Carefully consider products and services: For example, a product that is particularly risky and in direct contact with consumers may necessitate greater attention to potential litigation risks.
Know the reputational risk: Understand the impact of class actions and their potential to inflict economic damage through share price declines, particularly for large investors. Investors who have suffered losses may wish to pursue legal recourse to obtain compensation.
Class actions a bargaining tool: The threat of a class action is often used in Germany to exert pressure in the period preceding litigation. In fact, many German companies are placing significant emphasis on settling at the pre-trial stage, subject to confidentiality clauses, to avoid being taken to court.
Scenario planning: When a specific class action risk is identified, it is important in Germany to immediately begin formulating a public communications and legal defence strategy that is tailored to the specific “class action scenario”.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
