For many years, the pros and cons of collective redress have been intensively discussed in Germany and Europe, with the debate often influenced by fears of US-style class actions and litigation industry. However, this focus risks failing to take into account that many European legal systems, including Germany, still lack an efficient mechanism to enable litigants, and consumers in particular, to enforce their rights in an efficient manner. 2017 might, however, become a turning point.

In the past, the European Commission has conducted various initiatives, with a particular focus on consumer and competition law. As part of this, in June 2013, the European Commission published a Recommendation on Collective Redress inviting the European member states to implement collective redress mechanisms to ensure effective access to justice. The European Commission also announced it would re-assess the state of play, based on the yearly reports of the member states, and evaluate whether further measures to strengthen collective redress in the European Union are needed. The European Commission is currently undertaking this work.

Looking at the European member states, the landscape of collective redress has evolved over the last few years. Many countries offer some form of collective action mechanism including Spain, Belgium, Austria, Italy, Poland and others. For example, in France, certain consumer associations can bring a Common Representative Action for damages and there is also a Consumer Class Action mechanism available. In the UK, the options include Representative Proceedings, Group Litigation Orders and, in the competition sphere, class actions. Following the US Supreme Court’s ruling in Morrison v National Australia Bank (see our article on page 8), there has been renewed interest in these procedures, including in particular, the WCAM collective settlement procedure in The Netherlands. 

This trend is at least partly also reflected in Germany. While Germany does not have class or group actions, certain forms of collective redress are available, including for example the ability for (consumer) associations and other organisations to bring certain claims under consumer and competition law, including test cases, representative actions and skimming-off procedures. However, the practical relevance remains rather limited. The best known mechanism is the Capital Market Model Claims Act Procedure (KapMuG procedure), introduced in 2005, which was implemented in the wake of damage claims brought by investors against Deutsche Telekom AG following its second public offering in 1999 and third public offering in 2001. The KapMuG proceedings in relation to the 1999 offering have just recently been resolved by a decision of the German Federal Court of Justice confirming the Higher Regional Court Frankfurt’s finding that the underlying prospectus gives no basis for liability. By contrast, the much larger proceedings concerning the 2001 offering, involving around 17,000 shareholders, are still ongoing and, in a decision in late 2016, the Higher Regional Court Frankfurt found that Deutsche Telekom AG is responsible for faults in the respective prospectus. However, this finding does not determine that the shareholders are entitled to damages. In the KapMuG proceedings, the courts only determine common factual and legal questions with a binding effect for those plaintiffs participating in the collective action. Accordingly it remains to be determined in the individual disputes whether the individual shareholders can claim damages and whether the hurdles of establishing causation and loss can be met in each individual case. 

It remains to be seen whether the Volkswagen Dieselgate scandal will become a game changer for Germany. KapMug proceedings have recently been commenced before the Higher Regional Court Braunschweig, encompassing around 1,500 plaintiffs pursuing claims of about EUR 1.9 billion. In total, shareholder claims for roughly EUR 8.8 billion are pending with the Braunschweig courts. However, compared to the US, it is still perceived as an uphill battle for consumers to enforce their potential rights in Germany. This recognition has led to the production by the Department of Justice, at the end of 2016, of an (unpublished) draft proposal for introducing a model declaratory action. This action was supposed to allow for a model claim similar to the KapMuG procedure, to be brought by certain associations on behalf of consumers who could electronically register, and with the option of a collective settlement unless 30 per cent of the claimants opt out. Over the past few months, this proposal has faced political opposition, and it is clear that the proposals will not become law before the general elections in September 2017. Given the high thresholds for individual consumers to pursue claims for damages, it appears probable that this discussion has only been postponed rather than shelved. 

While the German legislator is still deliberating the need for reform and the European Commission continues to assess the need for further measures in the European member states, the Volkswagen scandal also shows, however, that plaintiffs will not necessarily wait for legislative action. In fact, in the wake of the Volkswagen case, the organisation of plaintiff lawyers has reached a completely new level, with US and domestic firms cooperating closely, litigation funders entering the scene and private initiatives stepping in where the legislator has not yet taken action. In particular, the platform has attracted much attention, seeking car owners as potential claimants to pursue their claims against a success fee of 35 per cent. Whilst it remains to be seen whether the actions against Volkswagen will prove successful or whether the platform can build up enough pressure to incentivise settlement discussions, it is quite clear that the new litigation industry has come to stay and has the potential to quite fundamentally change the playing field.