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Procedure

Class actions are not available under German law. Yet there are certain means of collective redress available that, while they are limited, partly resemble the objective of class actions.

i Model Case Proceedings

The Model Case Proceedings allow for registered consumer organisations to bring an action that bindingly determines legal issues or contested facts. As opposed to regular actions, which only have effect inter partes, these determinations have binding effect for other court proceedings. The Model Case Proceedings bind the decisions of all individual claims under the requirement that the claimant made a valid registration to the Model Case Proceedings. Thus, the Model Case Proceedings do not operate as a true class action, because they do not themselves provide any relief for the injured class. There is no payment that follows from the Model Case Proceedings themselves. Rather, each individual party has to bring an individual claim before a court, which is then bound by the determinations of the Model Case Proceedings. A payment only arises from the Model Case Proceedings themselves, if the parties agree upon a class settlement. This is a major difference to class actions. Commentators have therefore continued to call for further expansion of collective redress mechanisms.

The actions under the new law may be brought by consumer organisations. For these, special limits apply in order to prevent claimants from creating consumer associations as litigation vehicles (e.g., the consumer organisations may not receive more than 5 per cent of their funding from private sector companies). As mentioned above, the specific make-up of consumer organisations has already become a decisive issue in the Mercedes-Benz Bank case. The court specifically pointed out that the organisation may not pursue consumer protection mainly through litigation, but needs to focus on helping consumers by way of advice and education, with litigation playing only a minor role. A downside is there are no safeguards to facilitate that the Model Case Proceedings are in fact pursued by organisations that are actually well adapted to the task. Quite simply, the first Model Case Proceedings regarding a matter are admitted, with later proceedings of the same substance being inadmissible. A first-come-first-serve system is applied rather than a selection of the best claimant and best model case.

The established facts and legal views of the Model Case Proceedings do not affect all individual claims on the adjudicated matter, but only bind courts for claims registered to the action. To achieve this, Model Case Proceedings are mandated to be entered into the Registry. Claimants can then add their claims to the proceedings by entering them into the Registry. This can be done until the date prior to first hearing of the trial. This rule is intended to prevent free-riding on proceedings for which the hearings give promising prospects to claimants. Claims that are not registered prior to this date cannot benefit from the determinations of the Model Case Proceedings. The registration of claims may be revoked until the close of the day of the first oral hearing.

Model Case Proceedings follow the general rules of civil procedure, with some notable exceptions. At first instance, the proceedings are judged by a Higher Regional Court, which usually only acts as a court of appeal. Furthermore, the inadmissibility of the Model Case Proceedings is determined by a rather unique mechanism. An action is only admissible if at least 50 parties sign their claims onto the action. This means that at the point of filing, all actions are by default inadmissible and in turn grow into admissibility with future registration of claims. Additionally, pending Model Case Proceedings bar not only other Model Case Proceedings on the same matter, but also individual actions for individual claim if they have been registered to the Model Case Proceedings Registry.

Model Case Proceedings end either with a judgment or a settlement. A judgment has the binding effect outlined above irrespective of whether the ruling is in favour of plaintiff or respondent. A different effect is attached with regard to settlement. A settlement needs to contain stipulations on the compensation payable to the registered consumers, when these payments are due and also how the individual claimants need to verify their claims. The settlement is also subject to approval by the court. The court must evaluate whether the proposed settlement is an adequate amicable settlement for the claims at hand. Despite these in-built protections against the misuse of settlements, consumers may still choose to opt-out of the settlement within one month. The settlement only becomes effective if no more than 30 per cent of claimants choose to opt out of the settlement. This is, in turn, determined by a court decision, which is the final requirement for the effectiveness of a settlement.

ii Capital Markets Model Case Act

The Capital Markets Model Case Act (KapMuG) facilitates the establishment of factual or legal aspects of claims on behalf of a group of plaintiffs in capital market mass disputes. It became known to the public owing to several proceedings against Deutsche Telekom AG concerning stock market flotations of Telekom shares in 1999 and 2000. After each flotation, the share price decreased significantly in a short period of time, causing plaintiffs to file lawsuits against Telekom alleging prospectus errors. Between 2001 and 2002, approximately 17,000 investors filed 2,650 actions with the Regional Court of Frankfurt, which led to an overload at the court with the consequence that no oral hearing could be arranged until the spring of 2004. This incident accelerated the efforts of the German parliament to enact the KapMuG. It is because of this that the KapMuG is seen by some as a lex Telekom. The KapMuG came into force in 2005 and was maintained and slightly modified in 2012.

As opposed to the new Model Case Proceedings, the scope of the KapMuG is limited to (1) claims for damages on account of false, misleading or omitted public capital market information, (2) claims for damages owing to the use of such capital market information or the omission of necessary clarification and (3) contractual rights to performance resulting from an offer of shares according to the German Securities Acquisition and Takeover Act. Public capital market information is defined as information on business data directed at a large number of investors that concern an issuer of securities or any other distributor of financial instruments. It refers, for instance, to offering prospectuses, information sheets, annual accounts and status reports.

The first stage of the proceedings takes place before the trial court and starts with the request of one litigant to execute a Model Case Proceeding under the KapMuG. The request must aim to establish a certain fact or legal aspect that is decisive for the alleged claim. If admissible, the trial court will suspend the proceeding and publish the request in the litigation register of the Federal Gazette. Provided that at least nine further similar requests are published within six months, the trial court refers the matter to the Higher Regional Court (a decision that cannot be contested). The decision has the effect that further pending proceedings with trial courts concerning the same subject matter are also suspended, and that the parties to those proceedings will be involved in the model proceeding, unless a plaintiff withdraws from the action within a month.

In the second stage, the Higher Regional Court appoints a model case plaintiff. The selection is generally left to the discretion of the court. However, the court must take into account (1) the suitability of the plaintiff litigating the case compared to the other plaintiffs, (2) an agreement of the plaintiffs regarding the appointment, and (3) the amounts claimed by each plaintiff. In contrast to the Model Case Proceedings, which follows a first-come-first-serve approach with regard to case selection, the KapMuG action features the selection of a suitable model case by the court. The remaining plaintiffs may take part in the proceeding as third parties with limited rights. As such, they are entitled to avail themselves of means of contestation or defence independently. In contrast, there is no model case defendant. Instead all defendants of the initial proceedings are considered defendants in the model proceeding.

Subsequently, the case is published in the litigation register of the Federal Gazette once again. Within six months of the publication, third parties have the opportunity to register their claims before the competent Higher Regional Court. While the parties registering must be represented by a lawyer, they do not become involved in the model case. The registration rather serves the purpose of suspending the limitation period of the claim so that the registered party may wait and contemplate whether a future action is suitable.

The model case is then concluded either by a decision of the Higher Regional Court or by settlement. The decision by the court is binding for all suspended cases, but may be appealed on points of law to the Federal Court of Justice. The validity of a settlement depends on the approval of the court and the participants. The latter have the right to withdraw from the court-approved settlement within a month of service of the written settlement. If less than 30 per cent of the registered claimants declare their withdrawal, the settlement becomes effective for all parties who have not opted out of the settlement.

During the third and final stage, the suspended proceedings before the trial court are continued and concluded by judgment or settlement, including a decision on the costs of both the initial and the model proceedings. The judgment obtained in the continued proceeding can again be appealed for reasons that were not the focus of the model case.

As for the aforementioned Telekom trials, two model case proceedings were concluded by the Higher Regional Court of Frankfurt in 2012 and 2013, which found that the Telekom prospectus had not been misleading. The plaintiffs appealed both decisions. At the end of 2016, the Federal Court of Justice approved the decision concerning the flotation of 1999. In 2014, the Federal Court held that there was a prospectus error regarding the flotation of 2000 and remanded the case to the Higher Regional Court of Frankfurt for the determination of causality and fault. The Higher Regional Court of Frankfurt then confirmed the responsibility of Telekom for the misleading prospectus and ruled that the causality between the prospectus and the decisions made by the investors had to be determined individually by the competent trial court. Telekom appealed the decision and the case is now pending in front of the Federal Court of Justice again. The mere fact that the KapMuG has not provided any relief to plaintiffs 18 years after the incurrence of the alleged damage shows that it has not lived up to the expectations many had for it. This is, among other things, because of the fact that the relevant cases are not conducted by one or more plaintiffs on behalf of others in one single trial, but that there are essentially two trials, the individual and the model case proceedings – each with the possibility of appeal.

As mentioned above, two model case trials have recently been commenced against Volkswagen AG and Porsche SE. More than 2,000 shareholders filed suits against VW for damages totalling an amount in dispute of approximately €9 billion. The model proceeding is pending in front of the Higher Regional Court of Braunschweig. After delay, the oral hearing was recommenced on 26 November 2018. Owing to the large number of participants, the hearings are taking place in a local convention centre. Separate proceedings against Porsche SE were rejected as inadmissable by the Higher Regional Court of Stuttgart on 27 March 2019. In doing so, the Court has upheld the view that the proceedings before the Higher Regional Court of Braunschweig concern the same subject matter and thus bar all other proceedings on this matter.

iii Joinder of parties

Beyond specific forms of collective redress, German law provides some instruments that may be used to try to mimic some effects of class actions. Several litigants may, or in certain cases must, sue or be sued as joined parties. The option to do so is, however, not provided for all scenarios. For purposes of procedural economy, the courts tend to interpret the requirements liberally insofar that the mere suitability of a joint proceeding and decision-making is considered sufficient to justify a joinder of parties.

In essence, plaintiffs asserting a similar cause of action are able to jointly bring a lawsuit in the same court. In this respect, the possibility of joinder resembles class actions. There are, however, significant differences and striking disadvantages that make it generally unattractive for larger groups of plaintiffs to bring a joint lawsuit in most matters. Most importantly, even though only one proceeding takes place, the court must still rule on each case individually and determine the merits of each plaintiff's claim separately. Each litigant must obtain his or her own judgment. Therefore, the higher the number of plaintiffs is, the greater the difficulties in handling the case become. Moreover, a (voluntary) joinder of parties may result in inconsistent decisions in terms of procedural law, for instance, if a default judgment is rendered against one party but not another, and does not prevent the court from coming to different conclusions on the merits of the individual cases under substantive law. From the plaintiffs' perspective, a joinder of parties may also not be desirable because the litigants are no longer available as witnesses in each other's proceedings as they become party to the consolidated lawsuit. Finally, it is in the court's discretion to separate the joint lawsuits as it sees fit. In short, there is little incentive for plaintiffs to resort to a joinder of parties in order to bring similar claims against one defendant.

iv Bundling of claims

Another way of allowing plaintiffs to partly emulate the effect of class actions is the bundling of claims. Potential plaintiffs may assign their claims to an institution or entity, or may give them the authorisation to assert such claims on their behalf. In this way, multiple claims can be concentrated in one proceeding. The 'myRight' action chose this approach to assist car owners in asserting their potential claims.

In some ways this may resemble the effects desired by class actions, given that one plaintiff asserts claims on behalf of multiple others. Those others do not carry the burden of engaging in the litigation, yet benefit if the plaintiff prevails. Potential plaintiffs may be less hesitant to allege their claims because the hassle associated with litigation and the risk of bearing the costs in case of defeat are reduced to a minimum. This method does, however, differ from class actions in one important aspect. While the economic effects on potential claimants may be similar to class actions, the legal structure is not. From a legal point of view, every single claim transferred to the plaintiff must be evaluated by the court individually. Even though only one plaintiff appears in court, it must argue and prove every individual case separately. Unlike in class actions, there is no class certification process that ensures at an early stage of the proceeding that one uniform judgment is appropriate for all class members. The mere fact that only one judgment is required provides little relief to the court or to trial economics.

A further drawback is that in order to be valid, the assignment of claims must comply with the requirements of the Legal Services Act (RDG). This law regulates the provision of legal out-of-court services by non-lawyers. Institutions such as consumer organisations and other associations as well as individuals are entitled to provide such services only if they are registered in the legal services register. The registration process sets out high standards on proof of personal suitability and reliability. In addition, theoretical and practical knowledge and a professional liability insurance covering at least €250,000 are required. The European Court of Justice recently added another disincentive to the bundling of claims. The court ruled that a consumer who asserts claims assigned to him or her by other consumers may not rely on Article 18 of the Brussels Ia Regulation. This means the consumer is barred from commencing a lawsuit on behalf of other consumers in the courts of his or her place of domicile.

v Association or interest group complaints

Collective redress can be obtained to a certain extent by lawsuits brought by associations or interest groups. The Act on Actions for Injunctions (UKlaG) aims at ensuring a comprehensive level of consumer protection and enables private parties to enforce consumer protection laws.

The UKlaG allows qualified representative organisations, such as consumer protection associations and chambers of commerce, to seek injunctive relief against parties that use or recommend the application of certain general terms and conditions. It mainly applies when general terms and conditions are considered to be invalid or a law aimed at the protection of consumers (interpreted in a broad sense) is infringed. While the UKlaG facilitates the enforcement of consumer protection laws, it deviates in important ways from class actions. On the one hand, it allows claims to be brought against illicit practices and standard terms that affect a large number of consumers. By forcing businesses to refrain from using such clauses, relief is provided to a potentially large number of affected claimants. The method is also beneficial from an economic point of view because the trial only involves two parties. On the other hand, unlike class actions, consumers affected by the violation of consumer protection laws are not entitled to receive any further remedy in the course of the lawsuit. If, for example, a consumer feels entitled to compensation of damages, he or she must commence a separate lawsuit.