Faculty of law blogs / UNIVERSITY OF OXFORD

‘Dieselgate’: European Collective Redress and the New German Model Declaratory Action

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Caroline Meller-Hannich

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4 Minutes

Collective redress on behalf of consumers has been debated for long in Europe and Germany. The ‘Dieselgate’ scandal has brought another occasion to advance the discussion. Both Germany and Europe are now in a state of upheaval with respect to collective redress mechanisms. The current ambitions of the EU Commission were reflected in a proposal for a new directive on collective actions on 11 April 2018 (COM(2018) 184 final). It would introduce a system of collective redress under European Union law with various modalities of injunctive relief, damages, and determination. In Germany, on the other hand, a new statute on model declaratory actions was implemented on 1 November 2018.

‘Dieselgate’

The ‘Dieselgate’ scandal relates to software that a number of German car manufacturers installed in their vehicles, a conduct that went as far back as 2005. Said software was known to activate during a test situation (on the so-called chassis dynamometer) in a mode that caused higher exhaust gas recirculation. However, during normal road use, the software switched to another mode wherein exhaust gas recirculation was lower. As a result, more exhaust gas was returned during the test simulation while at the same time emissions were reduced; contrariwise, during normal road use, less exhaust gas was returned (which, should be noted, protected the engine) and more expelled. On the basis of the measured values during test situations, the Europe-wide approval of the corresponding vehicle type was granted in accordance with the EU Regulation on the Type Approval of Motor Vehicles ‘Euro Standard 5 or 6’ (Regulation (EC) No 715/2007, now Regulation 2017/1151).

Yet the regulation also prohibits ‘defeat devices’. A 'defeat device' is any design which senses temperature, vehicle speed, engine speed (RPM), transmission gear, manifold vacuum, or any other parameter for the purpose of activating, modulating, delaying, or deactivating the operation of any part of the emission control system that reduces the effectiveness of the emission control system under which it may reasonably be expected to be used in normal vehicle operation and use (Article 3(10) of the Regulation (EC) No 715/2007).

Most German courts have agreed that said software used by automakers constitutes a defeat device. Nevertheless, the German Federal Motor Transport Authority (‘Kraftfahrtbundesamt’) has failed to revoke or withdraw the type approval after use of the software became known. A recall, however, has been put into effect to restore compliance. Since then, many cars have been equipped with new and improved software.

Court actions

Since the use of the defeat device has been revealed, thousands of car owners have filed lawsuits against automakers and independent car dealerships. A number of German law firms have engaged in collecting car buyers' claims. Even British law firms are currently promoting their representation in litigation under UK law. In May 2018, a group litigation order has been filed against Volkswagen, Audi, Seat, and Skoda at the High Court of Justice for buyers from England and Wales. ‘Dieselgate’ thus occasions a new discussion regarding collective redress in Germany and Europe.

European collective redress—the New Deal for Consumers

At the European level, the directive on injunctions for the protection of consumer interests (Directive 2009/22/EC, formerly Directive 98/2/EC) is the only European legislation currently in force that recognises some type of collective redress. It applies to all European consumer protection laws. However, it is confined to actions for an injunction. This directive had been followed by a series of European initiatives in the form of Green Books and White Books, consultation processes, and recommendations, but not by new legislative proposals at the EU level.

On 11 April 2018, however, the Commission has published its ‘New Deal for Consumers’, which contains the proposal for a directive on collective actions for the protection of collective consumer interests (COM(2018) 184 final). The proposal establishes various modalities of injunctive relief and damages. It includes payment awards, is not limited to an opt-in model, and provides a permissive statute-barring effect of the collective action. If adopted, it would bring quite a profound change in regard to collective redress in the EU.

The new German statute on model declaratory actions

The German legislator has moved faster and without taking into consideration the European Proposal. Two months after the Commission’s proposal, the German Bundestag passed a bill to implement a new ‘model declaratory action’; the law came into effect on 1 November 2018. According to this statute, the model declaratory action needs to be filed by a recognised consumer association. It aims at a binding determination of facts and legal issues. Individual consumers can join the lawsuit. Only these participating consumers benefit from a statute-barring effect of the action while being bound by the resulting model declaratory judgment.

The proceedings are relatively complicated and so far untested. Obtaining a model judgment is expected to take a long time, not least because the case will often be appealed to the Federal Court of Justice and submitted to the European Court of Justice for a preliminary ruling. The new act fails to make provision for the follow-up phase after the court has handed down a model declaratory judgment. To recover from the defendant, each consumer must individually file a complaint on the basis of the court’s findings as set out in the model judgment. Finally, it is unclear whether and how consumer associations can be held liable in the case of unsuccessful litigation. This is a relevant issue in view of the fact that only a single model action can be filed in respect of one specific event, so that the resulting incorrect litigation at the expense of all registered consumers can hardly be corrected.

For all of these reasons, many German academics consider the new action inadequate to remedy the procedural problems associated with scattered and mass damage. Also the German Convention of Jurists (´Deutscher Juristentag´), a highly recognised private body dedicated to law reform and dating back as far as 1860, in its 72nd session in Leipzig in September 2018 has expressed its position: ‘The model declaration action is to be rejected as inadequate as it does not address the shortfall in sanctioning and preventing violations of the law, and is insufficient for the effective management of mass losses events and fails to provide relief to the civil justice system’ (resolution C 15).

Outlook

Evidently, the new German law needs to be revised and extended. In addition, by excluding actual payment awards and by limiting itself to an opt-in model as well as in its restrictive statute-barring effect, it falls short of the provisions of the draft directive mentioned above.

The German Convention of Jurists in its Leipzig meeting in 2018 called for a new kind of German class action: ‘A group action directed towards a judgment granting performance is needed to handle mass losses events. The group action should consider the overall dimension of a class of similar losses and deal with the overall loss event in a comprehensive and effective manner. The respective provisions are to be included in the Code of Civil Procedure’ (resolution E 20).

Caroline Meller-Hannich is a Professor of Civil Law, Civil Procedure Law and Commercial Law at the Martin Luther University in Halle-Wittenberg. She served as the main rapporteur for the civil procedure section of the 72nd session of the German Convention of Jurists.

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