In a landmark decision dated 18 June 2015, the German Federal Supreme Court (Bundesgerichtshof, “BGH”) decided that pro-forma applications for conciliation (Güteverfahren) do not suspend the limitation period for misselling claims if the applications are too generic and do not contain details of the financial product concerned, the amount invested, the advice given and of the relief sought by way of the application.  The cases determined by BGH related to private investors who had used model form applications for conciliation which had been drafted by lawyers, and offered to the wider public; they have been adopted by a significant number of investors.  The BGH announced that the judgment will mean that a large number of misselling claims by private investors will now potentially be time-barred.

Mathias WittinghoferFriso Heukamp and Tilmann Hertel from our Frankfurt office consider the decision further below. 

Background: conciliation applications suspend the limitation period

Model form applications for conciliation have been an instrument of choice in Germany for mass applications by private financial investors who have directed them against insurance companies, banks and other financial services providers.

Conciliation proceedings, as described in section 204 para. 1 no. 4 of the German Civil Code (Bürgerliches Gesetzbuch, “BGB”), were originally introduced by the legislator as an alternative dispute resolution (“ADR”) mechanism, usually amalgamating elements of different kinds of ADR tools, primarily mediation.  However, most claimants were not adopting conciliation in respect of claims against financial services providers because of a firmly-held belief in the advantages of ADR in their particular case, but rather to toll the limitation period.  Under German law, an application for conciliation is one of various means of suspending the limitation of a claim; others examples include applying for a statutory demand or filing a complaint with a court.  Private financial investors filed applications in order to prevent alleged claims for misselling of financial products from becoming time-barred. 

Applying for conciliation is a quicker and cheaper way to suspend the limitation of a claim than filing a full-fledged complaint (with exhibits) with a court.  In most cases, filing a complaint with a court would require a lawyer to be instructed.  An application for conciliation, on the other hand, can be filed by anyone.  In addition, a lawsuit (which is often expensive) need not necessarily follow immediately.  If the respondent does not wish to participate in the conciliation, or if the conciliation fails, the claimant still has six months within which to file a complaint with a court before the limitation period becomes operative.

It is for this reason that so many investors chose to apply for conciliation in preference to filing a complaint with a court.  The practice has proved burdensome for the financial services industry: one German financial services provider, for example, was the target of applications from approximately 9,000 of its (former) customers.

The claims and their filing

The claimants in the four cases before the BGH had sought damages for misselling from a financial services company.  They had invested in closed-end property funds between 1999 and 2001.  Their claims would have become time-barred on 2 January 2012.  In order to suspend the limitation of the claims, they all filed applications for conciliation with the same conciliation body in December 2011.  The applications for conciliation, which were largely identical, were based on a model form application which had been drafted by a law firm.  Apparently, several thousand investors throughout Germany had used the model application, and many court proceedings are currently pending before German courts.

The Decision

The BGH decided that applications for conciliation should generally specify the respective financial instrument, the amount invested, the approximate time period when the investment advice was given and at least a rough outline of the content of the investment advice.  In addition, the application for conciliation should specify the relief sought so that the opponent knows the kind of claim it faces and its likely value.  The exact amount of the claim does not necessarily have to be stated, but the content of the application for conciliation must put the opponent in a position where it can assess whether defending itself against the application will be successful and whether it would like to participate in the conciliation. In addition, the application must allow the conciliatory body to assess and prepare for its task of conducting the conciliation. 

The applications for conciliation which initiated the four cases determined by the BGH did not fulfil the requirements set out above – they merely contained the names of the applicants and the name of the relevant financial instrument, but failed to give details of the amounts invested, the approximate time when the investment advice was given or any other details which would have helped to identify the relevant investment.  The relief sought was not specified in any detail, and the amount requested as compensation in each case could not have been inferred by the respondent from the information presented.

The BGH decided that because the applications did not fulfil these requirements, they did not suspend the limitation of the claims.  In this case, the claims had become time-barred on 2 January 2012, and were accordingly dismissed as being without merits by the BGH (in German law, the statute of limitation is treated as a matter of material law, not of procedural law).

Outlook: impact of the decision

The judgment of the BGH (as yet only a press release is publicly available) will result in several thousand complaints for alleged misselling against the same respondent being dismissed by various courts of first and second instance all over Germany in the weeks to come. 

The judgment provides welcome guidance as to the (relatively high) requirements of filing applications for conciliation which have as their only goal the suspending of the limitation period.  It raises the bar for private investor-claimants and gives financial institutions legal clarity and certainty.

BGH, decisions of 18 June 2015, docket numbers III ZR 189/14, III ZR 191/14, III ZR 198/14 and III ZR 227/14.