Redress Actions – A Game Changer Moving Towards “American-Style Litigation”?

The New Redress Action

For several years, consumer associations have been able to pursue various types of claims against companies, including injunctions (particularly if unfair terms and conditions are concerned), claims for removal of consequences, disgorgement of profits and, since 2018, declaratory model actions (Musterfeststellungsklagen). These are designed to resolve specific legal or factual issues uniformly for large groups of consumers. In October 2023, the redress action (Abhilfeklage) was introduced additionally. Its key innovation is that companies can now be ordered, at the request of a consumer association, to make direct payments (or provide other relief) to consumers. If the action succeeds, a court-appointed administrator will typically determine which consumers are entitled to payment and distribute the funds made available by the defendant company.

A German Class Action?

A comparison with U.S. class actions is obvious. For the first time, smaller consumer claims can be enforced on a large scale and at low cost within the German legal system – similar to class actions in the United States. For defendant companies, a judgment can be accompanied by significant additional costs, including those incurred by the administrator. That said, the differences from U.S.-style class actions are substantial. German law does not recognise punitive damages, which can drive awards to extreme levels. Contingency fees and widespread litigation funding – major drivers of class actions in the U.S. – are also not available to the same extent under German law. Nor does German procedural law provide for a discovery process comparable to the American model.

Implications for Legal Advisers

When faced with a redress action in Germany, the primary objective for a defendant company is naturally to achieve dismissal of the claim. Equally important, however, will be the design and procedural management of the case – missteps at an early stage may result in burdens lasting many years, even decades. In the event of an adverse judgment, the goal must be to limit inevitable payments to consumers and ensure that the administration and distribution of funds are handled as cost-effectively as possible. Achieving this requires, among other things, a constructive dialogue with the claimant association and structured cooperation with the court-appointed administrator. In all these respects, advice from a law firm with long-standing experience in mass litigation – and with the legal-tech tools essential for efficient large-scale case management – is highly advisable.