Dispute Resolution – Litigation – Arbitration Proceedings09.09.2024 Newsletter
Class actions: cross-industry risk for companies
Class actions against Vodafone, Amazon and DZN are currently causing a stir. They are a cross-industry risk that companies should prepare themselves for. Find out below all you need to know about class action lawsuits and how you can prepare for the associated risks.
Class actions: model declaratory action and redress action
With class actions, consumer associations can enforce claims of consumers and small companies in a bundled manner. There are two types of class actions to choose from:
The aim of the model declaratory action is to have certain requirements of a claim or legal relationship determined by a court. If the defendant company refuses to fulfil the claim even after a model declaratory judgement, the individual consumer additionally has to file an individual action.
Since 2023, consumer associations have been able to sue directlyfor performanceto the consumer by way of redress action. In order to do so, the association must demonstrate that the consumers' claims are essentially similar. Similarity is given, for example, if all products in a series are defective and consumers suffer damage as a result.
Although the redress action spares consumers having to file individual actions, it will not completely replace the model declaratory action. For example, claims to compensation for pain and suffering are dependent upon numerous individual factors and therefore most certainly are not similar. However, the requirements for the claim to damages for pain and suffering can be determined with the model declaratory action, which means that "only" the amount of damages for pain and suffering has to be determined in the individual proceedings.
The following applies to both types of action: consumers only benefit from a class action decision if they register their claims in the register of class actions of the German Federal Office of Justice (Bundesamt für Justiz - BfJ) in good time.
Risks for companies
Class actions are a cross-industry risk because they are generally available for all civil law disputes. For example, class actions can relate to sales contracts, product liability, data protection, antitrust law or ESG and supply chain compliance.
The redress action in particular harbours a major economic risk. The extent of such risk often only becomes apparent late in the proceedings, as it has been possible since 2023 for consumers to file their claims for up to three weeks after the end of the oral hearing. At this point, the prospects of success for consumers are easy to predict. High individual claims are arising from applications from so-called "small companies" with fewer than ten employees and an annual turnover of up to two million euros. They may also join a class action.
Class actions quickly tie up enormous human and time resources. A comprehensive clarification of the relevant facts is necessary for an effective defence. In some cases, relationships with hundreds of customers have to be checked and thousands of documents analysed - all under the pressure of court deadlines. Side issues can cause additional effort. These include, for example, disputes with the BfJ about the fulfilment of information claims regarding consumer information required for defence purposes. Accompanying measures to contain damage to the company's image caused by negative press coverage are also common.
Risk minimisation measures
Companies should therefore take the risks of class actions seriously, protect themselves proactively and prepare for the worst-case scenario:
- Strengthen compliance: Find out about current developments in consumer law. Implement compliance and whistleblowing programmes to identify legal risks at an early stage.
- Market observation: Monitor whether your sector is being targeted by consumer associations. Check the BfJ's public register of actions to see whether there are any class actions against your competitors so that you can better assess your risk and eliminate it at an early stage if necessary.
- Proactive communication: Respond to complaints from consumer associations to avoid high-profile legal action. Our experience shows that associations are open to amicable solutions if consumer interests are adequately taken into account.
- Optimise documentation: Manage your customer data and documents so that you can react quickly and efficiently in the event of an emergency. This not only makes it easier to process the facts, but also makes for a more effective defence.
The Litigation & Arbitration team at Oppenhoff helps you to avoid conflicts by carefully drafting contracts and clearly defining rights and obligations.
Where disputes are unavoidable, the team will represent your interests before the state courts and arbitration tribunals - with convincing arguments and customised litigation tactics. The team has already successfully defended against several class lawsuits.
Further information on the Litigation and Arbitration team can be found here.
Read more regarding this topic here:
