Germany

Introduction

Several attempts have been made, but to this day German procedural law does not provide for any procedure that resembles class actions as known in US law. Although the discussion about the implementation of class actions in German procedural law has been ongoing for many years and is unlikely to cease soon, there are no concrete plans for an implementation in the near future. Notwithstanding that, several legal instruments do exist which facilitate the enforcement of collective interests. It is possible to bundle individual actions which can then be tried in parallel (but do not merge into one single action).

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General features
  • German procedural law does not provide for class actions in the common law sense. In Germany class actions are inadmissible because German law does not recognise the principle of group involvement. Every claimant has the burden of proof for their individual involvement, their individual loss and the causal link between the harmful action of the defendant and the damage. In Germany there is also no general pre-trial disclosure.

    Although US-style class actions are not available in Germany, there are certain procedural mechanisms which look similar. Representative actions are possible in a number of areas. In particular, there have been significant developments in the field of investor protection (the introduction of the “KapMuG” procedure), and the grouping of some claims by assignment is permitted.

    In Germany, punitive damages are not available, there is no general disclosure obligation and the losing party usually pays the winner’s costs. Damages are calculated on the basis that the party causing loss or damage has to put the party who has suffered the loss or damage back into the same position he or she would have been in if the damage had not occurred, including lost profit. Damages can be discounted to take account of any contributory negligence.

    In Germany every action is heard by a judge (or depending on the level of jurisdiction by several judges). There are no juries in the common law sense. Only in commercial chambers of the regional courts (Kammer für Handelssachen) do non-professional judges hear cases together with a professional judge.

    As a matter of principle, judges are independent and are only required to follow the law. Unlike in the common law system a German judge is usually not bound by decisions of higher courts. The judge is only bound to follow judgments of the Federal Constitutional Court, the Court of Justice of the European Union as well as the higher court that has decided on the very same case and referred it back to the lower court (section 563 (2) of the German Civil Procedure Code). Practical experience, however, shows that more often than not judges do follow the decisions of the higher courts.

Types of collective redress
  • Joinder of parties (Streitgenossenschaft)

    This is allowed by law provided that certain conditions are met. Generally speaking, the joinder of parties occurs where there is more than one party on either side.

    Skimming-off procedure

    Since 2002, certain organisations have been entitled by statute to take representative action on behalf of groups of affected persons against corporations in cases regarding unlawful practices in matters of consumer protection, competition, environmental hazards and discrimination law. However, the only benefits to be gained by these actions for the persons affected are injunctions to stop the unlawful practices. The economic benefits realised by the corporations can only be skimmed off and will flow directly into the federal budget. No payments are awarded to the organisation or persons affected.

    Assignment of claims

    In another procedure available since 2002, consumer protection associations are permitted to bring damages claims that have been assigned to them by persons affected and have been grouped together, provided that the claims relate to consumer protection. The claims often involve minor economic losses which otherwise would not be pursued in individual actions. Practical limitations to these kinds of proceedings arise from the fact that the consumer protection associations have to fund the claims on their own and therefore can only take on a limited number each year.

    Collective actions in securities litigation (the “KapMuG” procedure)

    In November 2005 legislation for test cases, the Kapitalanleger-Musterverfahrensgesetz (Capital Markets Model Case Act) (KapMuG) was introduced, relating to damages actions for wrong or misleading information in relation to capital markets. This is the closest procedure in Germany to a class action or collective/group litigation. It was originally designed with the sole purpose of coping with the huge number of proceedings (17,000) brought against Deutsche Telekom by small and medium sized investors claiming they had used an incorrect assessment of value for their second phase of going public, and it was initially planned to expire after a five year pilot stage. The KapMuG has now been extended until October 2020. The KapMuG procedure only applies to certain types of cases (in particular, investors’ claims for damages based on misleading capital market information). The KapMuG entitles investors to apply for a test case where common questions of fact or law are dealt with in multiple parallel proceedings. If a number of similar cases are already pending before a trial court, on the application of one or more claimants for a KapMuG procedure the trial court can order the publication of the application in the claims register (Klageregister) of the Federal Gazette (Bundesanzeiger), suspend the pending lawsuit and refer the matter to the higher regional court (Oberlandesgericht). The higher regional court may choose one claimant to represent all of the other claimants in order to determine common factual and legal issues. Other affected parties may directly join the test case by registering their individual claims. Provided that at least nine other claimants register their cases within a six-month period from the registration of the test case by the competent court, a decision will be sought for the test case. This decision then has a binding effect on all cases involved. While the decision in the test case is pending, the other parallel actions are stayed. After the decision, the parallel actions will be resumed again to deal with any points specific to the actions. It is important to note that this instrument does not exempt the individual investors or shareholders from each bringing a claim before the court. Once the higher regional court has handed down its decision, the cases are split up again and are redirected to the original court(s) to determine individual factual and legal issues such as the amount of damages.

    The KapMuG is essentially an “opt-in” mechanism, requiring the affected investors or shareholders to participate by filing their respective claims (section 10(2) KapMuG). Any settlement is binding on all participants in the action (section 17 KapMuG), unless the participants opt out within one month of service of the settlement. The settlement is nevertheless binding upon all participants if less than 30% opt out.

Funding and costs
  • In Germany there are no specific funding or cost provisions for collective redress, which means that the usual rules apply. The general rule is that the loser pays the winner’s costs including court fees and the other party’s legal fees, but only up to statutory fee rates, which are usually lower than the hourly rates charged. Legal costs incurred beyond these standard amounts are not recoverable.

    The potential costs consequences of bringing an unsuccessful claim are a barrier to the bringing of cases seeking collective redress for consumers where the amounts in dispute for each participant are small.

    There are litigation funders in Germany. These are private companies, for example insurers, and they usually enter into an individual contract with the claimant who still has to pursue the claim in his or her name. If the claimant wins, the litigation funder usually receives a percentage of the money awarded. In the event that the claimant loses, the litigation funder usually covers all litigation costs.

Recent developments, trends and predictions
  • On 15 February 2007, the Higher Regional Court of Stuttgart handed down the first model case decision in proceedings brought by several investigators who complained that Daimler Chrysler AG had not published the resignation of its CEO, Jürgen Schrempp, in time. The model case had been initiated on 03 July 2006, after ten investors had filed for a model case proceeding against Daimler Chrysler AG in the local court of first instance. The Higher Regional Court ruled that Daimler Chrysler had not breached its disclosure duties. The local court of first instance is bound by this decision and will now have to dismiss all of the investors’ claims. In this first model case proceeding the KapMuG has proven to be efficient because only one model case had to be tried.

    The first case to put collective redress on the agenda in Germany started more than a decade ago in April 2001, when the first of many damages claims against the German telecommunications company Deutsche Telekom was filed. Due to the huge number of claimants, the federal government responded by enacting the “KapMuG” (Kapitalanleger-Musterverfahrensgesetz - Capital Markets Model Case Act). The Deutsche Telekom case is probably the most prominent example of collective shareholder action in Germany (and largely prompted the German legislator to pass the KapMuG Act). The background to this action is the issue/private placement of shares by Deutsche Telekom in 2000, which were acquired by thousands of private and institutional investors. During the course of the year 2000 the share price decreased rapidly. The investors sued Deutsche Telekom for damages and based their claims on, amongst other things, allegations that certain information in the issue prospectus was wrong. In 2012, the Higher Regional Court in the relevant KapMuG procedure held that the prospectus was not deficient and dismissed the KapMuG action. Upon appeal the German Federal Court of Justice (BGH) overruled this decision in October 2014 and remitted the matter back to the Higher Regional Court for further consideration in view of the decision of the German Federal Court of Justice, where it is now pending.

    As a side note it should be noted that there are private associations in Germany who represent investors’ interests, such as the SdK (Schutzgemeinschaft der Kapitalanleger e.V.) or the SfA (Schutzvereinigung für Anleger e.V.). It is not, however, common practice for these associations to appear in court in their own name on behalf of the investors (although technically it is possible to claim another person’s right in a so-called representative action (Prozessstandschaft)). There are, however, some highly specialised law firms in Germany which deal with nothing other than acting for shareholders in lawsuits.

    In a separate case in February 2007, the Dusseldorf Regional Court made an important interim judgment, declaring that a “bundled” damages claim against a cement cartel accused of anti-competitive conduct was admissible. The Court of Appeal in Dusseldorf upheld this judgment on 14 May 2008. 36 claimants had bundled their damages claims resulting from the infringements by assigning them to a Belgian company set up to pursue such claims. However, this damages claim was not a genuine class action, since 35 of the 36 applicants transferred their claims to one claimant. Defence lawyers argued that this type of assignment constituted an illegitimate case of representative action but the court ruled that the claimant legitimately invoked a distinct, acquired right. The case has now been remitted to Dusseldorf Regional Court to decide the substantive question of whether the damages claim has been proved.

    Opinions remain sharply divided as to whether further steps should be taken to enable more collective redress actions in Germany, but the issue remains one that is debated at the highest levels. Indeed, the Federal Ministry of Justice hosted a conference on “Implementation of collective law in Germany” in November 2008 at which the former Minister of Justice, Brigitte Zypries, argued in favour of strengthening of consumer rights by enabling consumers to bring claims even in cases of minor damage. This view is supported by the Green Party, which submitted a proposition aiming to facilitate class actions under German law while shifting the burden of proof to corporations in cases of alleged illegal behaviour.

    The Federation of German Consumer Organisations took the opportunity presented by International Consumer Day on 15 March 2011 to call for effective representative and class actions, arguing that demand and supply can only be harmonised if there is effective redress for unlawful conduct.

    In the opposing camp, the president of the German Association of Chambers of Commerce and Industry has warned against creating additional and unpredictable burdens for businesses. This view would seem to be more aligned to the views of the German government. The current coalition agreement states: “We disapprove of the introduction of class actions nationally and on a European level”.

    The EU Commission is developing a model for collective redress in the areas of competition law, consumer law and financial law and in June 2013 the Commission published its communication “Towards a European Horizontal Framework for Collective Redress” and its recommendation “on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law” (see next chapter).

    However, for now there is more negative than positive feedback on this topic. This does not unexpected. The majority of the German legal community is rather sceptical about class actions. Many commentators believe that collective actions would not only be superfluous, but also detrimental. The EU Commission had discussed the introduction of collective actions as long ago as 2007, but stopped the project in 2009 in the light of strong resistance from France and Germany, in particular.

    In June 2014, the opposition party “Die Grünen” (the German Green Party) even officially asked the federal government about its position with regard to class actions in Germany and whether the government agrees or disagrees with the opinion held by the EU Commission. According to Die Grünen, class actions would improve consumer rights, referring to examples such as compensation for flight delays or excessive electricity payments. According to this official question, class actions would make it easier for customers to file claims for damages against large corporations, levelling the economic imbalances between consumers and big corporations.

    The federal government’s opinion is that the Code of Civil Procedure already contains appropriate instruments that provide the same (or almost the same) opportunities (known as objektive und subjektive Klagehäufung - objective and subjective application clustering). On this basis there have already been successful class actions in the recent past against banks, energy supply companies and insurers. The government is also currently examining whether, besides the present options for class actions, improvements in the law are needed. It also takes into account the published opinion of the German Federal Bar Association which states that the European Commission’s proposals ought to be improved in many respects: First, the jurisdiction questions and the proceeding provisions should be defined; second, it is not clear how class actions are to be funded, how the people would be informed about the possible class action and how to prevent possible abuse. Therefore, the German Federal Bar Association suggests that no further steps should be taken until the European Commission modifies the proposals.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.