Representative Actions in Germany

The national implementation in Germany took place in October 2023, notably through the introduction of the new Consumer Rights Enforcement Act (VDuG). As previous practices have shown, energy providers, in particular, are increasingly becoming the "target" of plaintiffs under the VDuG.

Why is this the case? The VDuG supports lawsuits from multiple individuals making claims that are essentially similar. This is the typical constellation in the relationship between consumers and energy suppliers. Energy suppliers are legally obligated to provide their services under transparent and non-discriminatory (i.e., the same) conditions to their customers. This often means that legal violations by energy suppliers generally affect a large number of consumers, making the VDuG procedure ideal for lawsuits against energy suppliers.

Additionally, energy is currently a "hot topic." Energy costs are of immense importance for both private and commercial consumers.

How should energy providers handle lawsuits based on the VDuG? The primary focus should be on avoiding situations that could lead to lawsuits. However, if a legal dispute arises, energy providers need experienced and effective legal representation, particularly one that is familiar with "mass litigation" procedures. The goal should be to resolve the dispute quickly and efficiently.

In detail, regarding the VDuG:

The VDuG replaces the previous regulations on collective legal protection under Sections 606 et seq. of the German Civil Procedure Code (ZPO) and expands and combines the previous legal situation surrounding the Model Declaratory Action (Musterfeststellungsklage) into a new law. A new legal remedy has also been introduced: the Redress Action (Abhilfeklage). Both the Redress Action and the Model Declaratory Action are representative actions that allow consumer associations to take legal action, among others, against energy providers on behalf of consumers.

In general, a representative action is only permissible if the eligible entity, a qualified consumer association or a qualified organization, can demonstrate in a comprehensible manner that the representative action could affect claims of at least 50 consumers, or that the claims or legal relationships related to the objectives of the Model Declaratory Action could depend on the interests of at least 50 consumers. Additionally, under the conditions of Section 1(2) of the VDuG, small businesses are equated with consumers and can therefore join a representative action. This could be of relevance in the energy sector.

The newly introduced Redress Action additionally requires that the claims affected by the lawsuit are essentially similar. This is the case when the claims are based on the same facts or a series of essentially comparable facts, and when comparable factual and legal questions are decisive for the claims. The legislator requires that the amount of each claim can be calculated using the same formula. This is typically the case for the energy sector, as price change formulas for energy customers are generally designed in a standardized manner.

The new Redress Action under Section 14 of the VDuG offers several advantages over the Model Declaratory Action:

A successfully concluded Model Declaratory Action establishes essential requirements of the claim in a binding manner. However, if the company refuses to fulfill the obligation, consumers still need to bring another lawsuit for enforcement despite the preliminary success. With the Redress Action, consumer associations can now directly sue for the fulfillment of the claims. The competent Higher Regional Court then determines a total amount for all the claims made. The distribution of this amount is carried out by a court-appointed administrator. The Redress Action allows, for the first time, a payment-oriented lawsuit on behalf of a large number of consumers. Before the court's decision, there is also the possibility of an amicable settlement regarding the resolution of the dispute.

The pooling of resources is intended to lead to a simplified legal process for the plaintiffs and ensure legal certainty through consistent case law. This is accompanied by lower costs for individual consumers.

The Directive also creates the legal framework for cross-border representative actions. Since member states have some flexibility in implementation, attention must be paid to the specific procedural rules in each jurisdiction. For example, within the European Union, there are different regulations regarding the possibility of litigation financing for representative actions. In some member states, litigation financing, i.e., funding a representative action by a third party, is relatively unproblematic, provided that courts have the authority to request a financial disclosure detailing the funding sources used for the representative action, and no conflicts of interest arise from the financing. In contrast, the legal situation is much stricter in Germany, where a representative action is already inadmissible if it is financed by a third party who is promised a financial interest of more than 10 percent in the performance to be provided by the defendant.

The new Redress Action is more effective than the collective legal protection instruments previously provided under German law. The eligible entities are required to provide information on their website about ongoing and future representative actions, as well as the status of the proceedings. The Federal Office of Justice maintains a register of representative actions, which lists all publicly announced actions, currently primarily targeting energy providers. We will keep you updated on this topic.

Authors: Francis Bellen, Dr. Torsten Wielsch und Monja Zeyn

Published: February 2025