Bundestag passes model declaratory lawsuit legislation with last-minute changes

On 14 June 2018, the German parliament, the Bundestag, passed an amendment to the German Code of Civil Procedure (ZPO) that adds the option of collective redress in the form of a model declaratory lawsuit. The amendment enters into effect on 1 November 2018. A model declaratory lawsuit will allow consumer protection associations, on behalf of large numbers of consumers, to receive from a court a binding declaratory judgment on the consumers’ legal positions or the substantial or legal prerequisites for them to assert claims against companies (cf. Noerr report from 11 May 2018). If the court finds in favour of the consumer association, each consumer must still litigate individually against the company, providing evidence of the justification and amount of the individual claim, but the second court is bound by the judgment in the model declaratory lawsuit.

Last week’s high-speed legislative processes involved some substantial changes:

• Now jurisdiction in the first instance rests with the higher regional court having jurisdiction at the company’s registered office. Appeal to the German Federal Court of Justice on points of law is always permissible.
• Now, non-consumers will also be able to benefit from a model declaratory judgment, at least indirectly.
• Additional simplifications for consumers and government-supported consumer associations.
• Clarification of the relationships among various model declaratory lawsuits.

High-speed legislation

The government’s draft dated 9 May 2018 (cf. Noerr’s report dated 11 May 2018) was discussed on 8 June 2018 during the first reading and again on 11 June 2018 in a public enquiry by the Bundestag’s Committee on Legal Affairs of experts including professors, representatives of the judiciary and representatives of the interests of consumers and business. Despite broad criticism from legal practitioners, academics and business leaders, three days later, in the second and third reading on 14 June 2018, the Bundestag hurriedly passed a version of the draft presented by the coalition’s factions that had been modified by the Committee on Legal Affairs (BT-Drs. 19/2741). At the same time, a different draft regarding a group lawsuit presented by the Bündnis 90/Greens faction was rejected.

First-instance jurisdiction for higher regional courts and expediting proceedings

The legislature wants each model declaratory lawsuit to be able to proceed just as quickly. Instead of regional courts, higher regional courts are now to be responsible for hearing and adjudicating the substance of model declaratory lawsuits according to the new version of section 119(3) sentence 1 Courts Constitution Act (Gerichtsverfassungsgesetz – GVG), which means that one instance is eliminated. This reduction to one – substantive – instance follows the lead of section 118 GVG related to the Act on Model Proceedings in Capital Market Disputes (KapMuG), in which, however, the model proceedings are triggered not by a lawsuit initiated by a consumer protection association but rather by a referral from lower court.

As regards jurisdictional location, the new section 32c ZPO provides for sole jurisdiction of the court having general jurisdiction over the defendant, i.e. usually at the location of its registered office. According to the new version of section 119(3) sentence 2 GVG, each German Land also has the option of giving sole jurisdiction to one higher regional court.

This means that the model declaratory judgment can only be re-examined by appeal on points of law to the German Federal Court of Justice, section 614, sentence 1 ZPO. This appeal is always available as an option because, according to section 614, sentence 2, the substance of a model declaratory lawsuit is always of fundamental significance.

By eliminating one instance and providing an option to specialise courts by combining jurisdiction in one court, the governing coalition intends to enable proceedings to be settled quickly and efficiently, thus countering the criticised excessive length of the proceedings – presumably based on current experience with the KapMug. A gain in efficiency and speed is also intended with the new section 610(4) ZPO, according to which the court must work towards appropriate lawsuit petitions during the first hearing at the latest. This provision gives rise to the hope that spurious, ineffectual or irrelevant petitions will be filtered out at an early stage and will not completely overburden the proceedings.

Non-consumers are to benefit indirectly from the judgments

The goal of a model declaratory lawsuit remains solely to determine substantial and legal prerequisites for claims or legal relationships between consumers and a company; only consumers can list their asserted claims against the defending company in the claims register and thus make the final model declaratory judgment binding on their subsequent proceedings against the defending company (new versions of sections 606(1) sentence 1, 608 and 613(1) ZPO).

Advance criticism arose against an inappropriate differentiation between consumers and small companies. This is now to be countered using an “interim solution” according to which a court adjudicating a case brought by a plaintiff that is not a consumer in which the decision depends on the desired declaratory judgment of a pending model declaratory lawsuit can suspend the proceedings at the plaintiff’s request until the model declaratory lawsuit has been settled (new version, section 148(2) ZPO). The legislature obviously hopes for a purely factual binding effect, because even in such a case, each court is actually still responsible for deciding for itself whether to follow the declaratory judgments issued in the model declaratory lawsuit and whether they apply to the case at hand. It remains to be seen whether this stands the test of practical application.

Additional simplifications for consumer protection associations and consumers

Basically, the right to litigate is still restricted in the new version of section 606(1) sentences 1 and 2 ZPO to associations that meet the requirements laid down in section 3(1) sentence 1 no. 1 German Act on Injunctive Relief (Unterlassungsklagengesetz – UklaG) (cf. Noerr report of 11 May 2018). However, for consumer protection centres and other consumer associations that are largely supported by public funds, there is now a simplification of the process of initiating a lawsuit. It is to be irrefutably assumed that they fulfil the special prerequisites (new version of section 606(1) sentence 4 ZPO).

Likewise, enrolment of claims by consumers has been further simplified. An enrolment is now valid even without stating the amount claimed. As in the draft version, the content of the claim information will not be examined according to the new version of section 608 (2) ZPO.

The new version further strengthens consumers’ position in that they can withdraw their enrolment, thus annulling the binding nature of the decision, by the end of the day on which the oral proceedings begin in the first instance according to the new version of section 608(1) and (3) ZPO. In the draft version, this was required by the end of the day before the first deadline for written arguments. This means that consumers can wait until the first hearing and decide on this basis whether they want to uphold their enrolment. If the first hearing seems to be proceeding to the consumers’ disadvantage, they can escape from the model lawsuit.

On the first day, model lawsuits may be bundled …

There was continued danger of a scramble on 1 November 2018 to be the first association authorised to litigate (cf. Noerr report dated 11 May 2018) because a pending model declaratory lawsuit meant that no other model declaratory lawsuit could be initiated by another association based on the same circumstances. This problem is mitigated to a certain extent because now another model declaratory lawsuit is only prohibited if the matter in dispute relates to the same circumstances and the same desired declaratory judgments. This means that another model declaratory lawsuit will not be blocked just because the first model declaratory petition was too narrowly worded.

Now it is possible to bundle lawsuits, but only if more than one model declaratory lawsuit is filed on the same day regarding the same circumstances and has the same desired declaratory judgments. The reasons given for the change are that it would not be proper if “almost identical or very similar lawsuits were filed on the same day” and it would depend “on chance” which lawsuit is delivered first and thus becomes pending, blocking all other lawsuits. This provision was probably necessary to maintain control of the competition among various lawsuits expected to be lodged on 1 November 2018.

Prospects

The model declaratory lawsuit is a type of lawsuit politically desired for an individual case, with all the related drawbacks in the legislative process. It introduces into civil proceedings a significant type of litigation, the effects of which are felt far beyond the individual case. The model declaratory lawsuit in and of itself remains controversial and continues to give rise to numerous legal issues. This means that courts will be busy in the coming years not only with issuing declaratory judgments on the substantial and legal prerequisites for claims in individual model lawsuits but also with clarifying the many unresolved legal issues involved in the model declaratory proceedings themselves.