Highest German Civil Court clarifies requirements for qualified claimants under the Model Declaratory Actions Act

In its first judgment on the German Model Declaratory Actions Act (Musterfeststellungsklagengesetz – “MFKG”), the Federal Court of Justice (Bundesgerichtshof – “BGH”) dismissed a model action because the claimant, a consumer protection association, did not meet the requirements for qualified claimants under the MFKG. The ruling has significant practical consequences for model declaratory actions but could also be important for the future of collective redress in Germany in general.

Background: Requirements for qualified claimants

Under section 606 para. 1 no. 1 of the German Code of Civil Procedure (Zivilprozessordnung – “ZPO”), a qualified claimant needs to be an association with either 10 member organisations that pursue the same purpose or 350 members that are natural persons. Further, such associations need to fulfil their statutory tasks of protecting consumer interests to a large extent through non-commercial information or advisory activities. In other words, enforcing consumer claims by judicial actions or extrajudicial measures must not be the association’s main focus.

Qualified claimants need to meet a number of further requirements. They:

• have to be registered for at least four years in the EU or national lists for qualified institutions under the EU Directive on injunctions for the protection of consumers' interests and the German act implementing this Directive,
• must not bring model declaratory actions for the purpose of making a profit, and
• must not obtain more than 5% of their financial resources through donations from companies.

The case at hand

The claimant in the case at hand is an association with the statutory purpose to protect consumers from dishonest financial service providers. According to its statutes, it strives to realise the association's purpose by, in particular, taking action against invalid terms and conditions and other illegal conduct by financial service providers that is harmful to consumers.

From a substantive point of view, the case concerned compliance with mandatory requirements regarding information in consumer loan agreements concluded by the defendant bank with consumers for the purpose of financing motor vehicle purchase agreements. However, the BGH could leave the substantive issues open because it considered the action inadmissible (case XI ZR 171/19). Confirming the judgment of the first instance court, the BGH denied the consumer group’s status as a qualified claimant under the MFKG for two reasons: the number of its members and its purpose of protecting consumers.

Membership requirements

The claimant has more than 350 members, but a majority of its members do not have voting rights. Moreover, the association only provided evidence for the number of its members by way of anonymised membership lists, arguing that naming individual members created an unreasonable risk for those members.

The BGH decided that “members” under section 606 ZPO only refers to members that have the power to influence the association’s actions, i.e. members that have voting rights. The court did acknowledge that this interpretation is more restrictive than the German associations’ laws, which allow membership without voting rights. However, according to the BGH, this restrictive approach is necessary due to the MFKG’s purpose of ensuring that qualified claimants are not merely founded to bring certain model declaratory actions.

Further, the BGH confirmed that a qualified claimant cannot rely on anonymised members lists to prove the number of its members. According to the BGH, the provision of the members’ names is necessary to allow the court and the defendant to check the validity of the list. In the absence of a procedural basis to this effect, the mere – unsupported – allegation that members risk disadvantageous treatment by banks if their names are revealed does not release the claimant from the obligation to sufficiently prove its membership.

Purpose of qualified claimants

The claimant is mainly active in identifying legal infringements by analysing the general terms and conditions of credit institutions. If it finds a violation, it issues warnings to the institutions concerned and, if necessary, initiates legal proceedings. According to its submissions, the claimant had "issued warnings in almost 3,400 cases" and had brought legal action in "hundreds of cases". Also, according to the BGH, between 97% and 99% of the claimant’s income in 2017 and in the first half of 2018 came from judicial and extrajudicial enforcement of claims, and this income exceeded the income from membership fees many times over.

Under these circumstances, the BGH held that the claimant, notwithstanding the provisions of its statutes, did not meet the requirements for qualified claimants under the MFKG. In that regard it is crucial to note that according to the BGH, associations are not presumed to act according to their statutes. Instead, model claimants must prove that they actually meet the statutory requirements. To that end, according to the BGH, courts need to make an overall assessment of different criteria, like time and funds spent on certain activities as well as profits made from activities.

Comment

The decision shows that the BGH pursues a restrictive approach in the recognition of qualified claimants under the MFKG. In practice, this will exclude many associations and requires potential claimants and their lawyers to carefully assess whether all requirements are met. Defendants, on the other hand, are advised to carefully scrutinise the claimant’s actual business and its impact on the claimant’s right to sue under the MFKG.

On a more general note, the BGH’s restrictive approach could be crucial for the future of the – still quite new – model declaratory action, which consumer protectionists criticise as being too consumer-unfriendly and cumbersome. So far, the model declaratory action has been used much less frequently than the legislator had hoped, which could be reinforced by the BGH’s restrictive approach. Against this background, the BGH ruling will strengthen the critics of the model declaratory action.

Moreover, the judgment might be important for the implementation of the new EU Directive on Collective Redress, which also only allows qualified entities to bring representative actions on behalf of a group of consumers (about which you can read more here and here).