Claims

General climate

Describe the nature and extent of securities litigation in your jurisdiction.

Securities litigation in Germany has become ubiquitous, certainly since around 17,000 investors filed lawsuits against Deutsche Telekom AG based on allegedly false statements in its prospectus for a public offering in 2000. To help the court cope with the resulting caseload, the legislature enacted Germany’s first collective litigation scheme, the Capital Investors Model Proceedings Act, in 2005 (KapMuG).

Apart from the Deutsche Telekom case - which, 15 years later in November 2016, resulted in an appellate judgment on common issues by the Frankfurt Higher Regional Court that has since been appealed once again before Germany’s Federal Supreme Court - relatively few model proceedings have been initiated, and even fewer have been completed. This is mostly because the drafters of the KapMuG carefully avoided affording model plaintiffs the extra leverage that, for example, US class actions provide. However, the diesel emissions issue recently inspired KapMuG cases against Volkswagen and Porsche that have much bigger volumes than the Deutsche Telekom case. Moreover, a small number of large individual securities actions brought by litigation SPVs and individual investors in connection with the attempted takeover of Volkswagen by Porsche SE around 2008 was recast as a KapMuG case with a volume of several billion euro. In addition, innumerable individual actions filed by investors are keeping the courts busy.

The 2012 KapMuG reform somewhat increased the popularity of model proceedings, as the legislature introduced an unbureaucratic method of registering additional claims in such proceedings, suspending the statute of limitations and creating de facto precedents for the benefit of the claimants. While on average there were around 30 applications for model proceedings per year under the old regime, this figure has now risen to more than 50 applications per year. It remains to be seen whether this is a short-lived wave of renewed interest, similar to the wave following the introduction of the original KapMuG, or a continuing trend.

Recent developments indicate that institutional investors may have discovered model proceedings as an additional weapon in their arsenal, potentially combining the KapMuG with other securities litigation trends, such as assigning numerous securities claims to litigation vehicles to benefit from various economies of scale. Institutional investors use these litigation vehicles to pool collective claims of, for example, a €1 billion or more in a single action. Such vehicles also have the advantage that litigation funders may cover de facto contingency fees or purchase claims at variable prices. In addition, domestic vehicles may be exempt from providing security for costs and are more likely to be able to avoid cost reimbursement claims from opposing parties. If the litigation vehicle ultimately loses the action, it may avoid having to compensate the defendant’s substantial statutory cost reimbursement claims simply by filing for insolvency.

The German plaintiffs’ bar, which has firmly established itself in the wake of the Deutsche Telekom model proceedings, has also taken to bringing thousands of parallel cases in almost identical ‘copy and paste’ complaints. These cases are often directed at the initiators of investment funds, for example. However, the German plaintiffs’ bar has suffered major setbacks owing to its extensive use of mediation requests to certain publicly recognised mediation providers. In 2015, the Federal Supreme Court held (i) that such mediation requests only toll the statute of limitations if they provide sufficient information to the opposing party to give a reasonable basis for its decision whether or not to participate in the mediation proceedings, and (ii) that, if the opposing party has made clear that it will not participate in such mediation proceedings, the plaintiff may not rely on a subsequent mediation request to toll the statute of limitations.

Moreover, parallel securities claims against initiators of investment funds or issuers are often supplemented by mis-selling claims against brokers and dealers, a trend that has been fuelled by a series of Federal Supreme Court judgments holding that a bank’s failure to disclose sales commissions received behind customers’ backs constitutes mis-selling and gives rise to a damages claim to unwind the tainted transaction. Until 2012, mis-selling claims were excluded from model proceedings, probably also contributing to the KapMuG’s initial lack of popularity.

In 2011, the Federal Supreme Court issued a controversial judgment on complex swap agreements, allowing banks’ counterparties to unwind the transactions under ill-defined conditions. Among other things, the court requires banks to disclose sufficient information to customers to provide a level playing field for the contract negotiations, including disclosure of initial negative market values of the swap from the customer’s perspective. The court’s vague and perhaps indefinable criteria have led to a significant wave of follow-on litigation, enabling municipalities and public utility companies in particular to unwind swap transactions and avoid losses. In 2015, the Federal Supreme Court issued two further opinions on swap agreements, specifying that the initial negative market value generally only has to be disclosed by the bank that is party to the swap agreement, not by third-party investment advisers. This is because in the court’s view the initial negative market value gives rise to a conflict of interest for the swap party that stands to benefit from it. Further, the court held that the duty to disclose the initial negative market value does not exist if the customer enters into the swap agreement to reduce risks inherent in a loan agreement subject to a variable interest rate.

In 2018, the German legislator introduced a new model action allowing certain consumer protection bodies to file declaratory actions to have courts determine liability claims of consumers against commercial parties. This legislation was inspired by the claims of thousands of Diesel car owners against Volkswagen group in connection with the Diesel emissions issue. The first action was filed on 1 November 2018 and by 31 December 2018, more than 300,000 consumers registered their individual claims with the Federal Justice Office. The new legislation combines elements of the KapMuG with elements of the German implementation of the EU Injunctions Directive. While aimed at consumer claims in general, the new legislation may also allow the assertion of securities claims.

Available claims

What are the types of securities claim available to investors?

Three basic types of securities claims are available in Germany:

  • specific statutory securities claims, for example, for false or misleading material statements in securities prospectuses (statutory prospectus liability), under the German Securities Prospectus Act, the Capital Investment Code and the Capital Investment Act, or for an issuer’s failure to disclose inside information to market participants in a timely and accurate manner (ad hoc liability) under the Securities Trading Act;
  • specific ‘common law’ securities claims in analogy to statutory claims, for example, for false or misleading statements in securities prospectuses or other sales materials (civil prospectus liability); and
  • general civil claims such as tort or contractual liability applied to securities transactions, for example, implied contractual liability for mis-selling by brokers and dealers or counterparties in private securities offerings.
Offerings versus secondary-market purchases

How do claims arising out of securities offerings differ from those based on secondary-market purchases of securities?

In some respects, claims arising out of securities offerings do not differ at all from those based on secondary-market purchases of securities because, for example, the liability for securities offerings on securities exchanges extends to all secondary-market transactions of indistinguishable securities for six months after the securities offering. Moreover, the liability for damages arising out of secondary-market transactions in listed securities is in practice dominated by ad hoc liability under the Securities Trading Act. Secondary-market transactions in unlisted securities, however, are less well protected because securities claims under general tort law often require intent.

Public versus private securities

Are there differences in the claims available for publicly traded securities and for privately issued securities?

Yes. Many statutory securities claims are aimed at protecting investors against incorrect public statements and are therefore not applicable to privately issued securities. Courts have, however, to some extent levelled the playing field by assuming contractual causes of action in relation to individual securities transactions that achieve substantially similar results to private securities offerings. By contrast, secondary-market transactions outside of regulated markets are only subject to general tort liability, which often requires intent on the part of the tortfeasor.

Primary elements of claim

What are the elements of the main types of securities claim?

Statutory prospectus liability generally requires:

  • a prospectus (or in some cases only a summary thereof) containing incorrect or incomplete information that is material for the assessment of the securities;
  • a purchase of the securities in reliance on the prospectus;
  • intent or gross negligence of the person responsible for the prospectus;
  • causation; and
  • damages;
    • if the securities are listed on a stock exchange:
      • a negative impact of the misrepresented facts on the stock prices; and
      • the stocks must have been purchased within six months of a public offering of indistinguishable securities; and
    • if the securities are not investment funds under the Capital Investment Code or certain other securities:
      • a negative impact of the misrepresented facts on the purchase price of the securities; and
      • the securities must have been purchased during and within two years of the beginning of the offering period.

Civil prospectus liability was developed by the courts in analogy to statutory prospectus liability and, therefore, has largely similar requirements. In addition, however, it not only applies to statutory or substantially similar prospectuses, but includes any written marketing materials for securities.

Ad hoc liability requires:

  • an issuer’s failure to disclose inside information directly related to the issuer in a timely manner, and:
    • a purchase of the securities after the issuer’s failure to disclose the inside information and ongoing ownership of the securities when the inside information becomes public; or
    • a purchase of the securities before the inside information comes into existence and a sale of the securities after the issuer’s failure to disclose it;
  • an issuer’s disclosure of untrue inside information directly related to the issuer, and:
    • reliance on the untrue inside information; or
    • a purchase of the securities after the disclosure of untrue inside information; and:
      • ongoing ownership of the securities when the inaccuracy of the disclosed inside information becomes public; or
      • a sale of the securities before the inaccuracy of the disclosed information becomes public;
  • intent or gross negligence of the issuer;
  • causation; and
  • damages.

Adviser’s liability requires:

  • the implied (or, less common: express) conclusion of an advisory agreement;
  • its breach by a failure to advise about:
    • all relevant aspects of the potential investment; and
    • the investment’s suitability for the prospective investor;
  • causation;
  • damages; and
  • at the least, negligence of the adviser.
Materiality

What is the standard for determining whether the offering documents or other statements by defendants are actionable?

A prospectus is incorrect if it contains misstatements about material facts and is incomplete if facts were omitted that would have been material to the investor’s assessment of the securities at the time of publication. The incorrect or omitted information must be material for the assessment of the value of the securities. The prospectus must generally be comprehensible from the perspective of an average reasonable investor who is able to understand the information contained in the prospectus if he or she has carefully read the prospectus and is able to comprehend financial statements, but who has no further special knowledge or education. Higher documentation standards apply if the securities are specifically marketed to a particular group of less sophisticated investors.

Scienter

What is the standard for determining whether a defendant has a culpable state of mind?

Statutory prospectus and ad hoc liability require intent or gross negligence (ie, a violation of obvious standards of care), whereas adviser liability only requires negligence (ie, a violation of ordinary standards of care).

Reliance

Is proof of reliance required, and are there any presumptions of reliance available to assist plaintiffs?

For statutory prospectus liability, reliance on the prospectus is presumed. The presumption is rebuttable, however, if it can be proved that, on the purchase date, the prospectus no longer influenced buying decisions (eg, due to the later publication of negative financial statements or a significant drop in the securities’ price).

With respect to ad hoc liability, a presumption of reliance is disputed. While some commentators argue that there should be a presumption of reliance comparable to the fraud on the market theory under US law, the German Federal Supreme Court has repeatedly rejected this argument.

Causation

Is proof of causation required? How is causation established?

German law generally requires the breach of duty to have been a proximate cause for the damages claimed by the plaintiff.

Other elements of claim

What elements present special issues in the securities litigation context?

Where no presumption of reliance exists, such as for ad hoc and adviser’s liability, issues of causation arise. Moreover, the amount of damages caused by inaccurate information is often difficult to establish, but may be estimated by the courts.

Limitation period

What is the relevant limitation period? When does it begin to run? Can it be extended or shortened?

The general limitation period runs for three years starting at the end of the year in which both the claim has arisen and the claimant has, or, but for gross negligence, should have gained knowledge of the facts underlying his or her claim, including the identity of the defendant.

Defence, remedies and pleading

Defences

What defences present special issues in the securities litigation context?

Reliance presents special issues in the securities litigation context because courts have established several criteria regarding the presumption of reliance, particularly the ‘investing frenzy’ that is presumably caused by a prospectus, and its rebuttal, for example, through negative news that may have become public since the publication of the prospectus.

Remedies

What remedies are available? What is the measure of damages?

In securities litigation, the main remedy is monetary damages. Other relevant remedies are rescission of the investment contract and restitution of unjust enrichment.

Prospectus liability

The claimant who still owns the securities can demand the reimbursement of the purchase price (including incidental expenses) in return for the securities. The reimbursement is limited to the issue price of the securities. If the claimant is no longer in possession of the securities, his or her damages are calculated based on the difference between the purchase price and the sale price.

Ad hoc liability

The German Federal Supreme Court recently held that investors can claim not only damages but also rescission. However, the court limited this remedy to cases of reliance. Thus, ordinarily damages will be awarded and calculated based on the difference between the purchase price paid and the hypothetical purchase price had the issuer complied with its disclosure obligations.

Pleading requirements

What is required to plead the claim adequately and proceed past the initial pleading?

German civil procedure does not provide for notice pleading but generally requires substantiated pleading of all elements of a claim. The burden of pleading is, however, often reversed for information originating from the opposing party’s sphere, such as internal information. Regarding such information, the claimant’s burden of pleading is eased and the defendant cannot simply dispute the allegations but needs to submit a substantiated account of the facts. Failure to do so will be treated as an admission of the facts submitted by the opposing party. The extent of the shifting of the burden of pleading depends largely on the circumstances and the discretion of the court. Depending on the circumstances, the reversal of the burden of pleading can have similar effects on the defendant to discovery and disclosure in the common law world, but without the associated level of expenses.

Procedural defence mechanisms

What are the procedural mechanisms available to defendants to defeat, dispose of or narrow claims at an early stage of proceedings? What requirements must be satisfied to obtain each form of pretrial resolution?

There is no formal mechanism in the German Code of Civil Procedure to dispose of claims at an early stage of the proceedings. Courts can, however, dismiss cases for failure to state a claim before hearings progress to the evidentiary phase.

Liability

Secondary liability

Are the principles of secondary, vicarious or ‘controlling person’ liability recognised in your jurisdiction?

‘Controlling person’ liability exists primarily in the form of prospectus liability. With respect to prospectus liability, not only those who expressly assume responsibility for the prospectus may be liable, but also those who are in fact responsible for it (ie, those who are in factual control of the issuer or the offering and who have an economic interest in the offering).

Claims against directors

What are the special issues in your jurisdiction with respect to securities claims against directors?

Germany’s Federal Supreme Court has found directors liable for aiding and abetting members of the management board in respect of the managers’ intentional infliction of damages on investors in a manner contrary to public policy, although these are rather extreme and exotic cases. Liability can, for instance, arise from the intentional release of incorrect ad hoc announcements to manipulate the market in a way that will benefit the director. However, the exact criteria for such liability are controversial because, so far, very little case law exists.

Claims against underwriters

What are the special issues in your jurisdiction with respect to securities claims against underwriters?

Underwriter liability is a relatively rare phenomenon in Germany. Only one German Federal Supreme Court opinion from 1998 mentions in an obiter dictum the underwriter’s liability for information contained or omitted in the prospectus. But there are two judgments from the Higher Regional Court of Frankfurt am Main from 1994 and 1999 in which the court held underwriters liable for incorrect or incomplete statements in the prospectus.

Owing to this dearth of case law, the standard of care for underwriters is still controversial. It is argued in legal commentaries that, based on their respective level of involvement and access to information, the standard of care required of the lead underwriter should be lower than that for the issuer, whereas the standard of care required of junior banks should be even lower than for the lead underwriter. So far, no court has passed judgment on the issue.

Claims against auditors

What are the special issues in your jurisdiction with respect to securities claims against auditors?

The liability of auditors in connection with prospectuses is controversial in many respects. While prospectus liability often does not apply, the courts have occasionally resorted to assuming a protective effect of the audit contract for the benefit of a limited class of investors. However, auditors will generally not be liable to the investing public at large. Exceptions may apply in cases of intentional infliction of damages on investors contrary to public policy.

Collective proceedings

Availability

In what circumstances does your jurisdiction allow collective proceedings?

The KapMuG enables investors to have specific elements of pending securities actions adjudicated collectively. The Act came into force in 2005 and sought to address the German courts’ difficulties with processing large numbers of similar securities actions, in particular over 17,000 individual actions brought against Deutsche Telekom. It introduced a unique procedure permitting claimants to collectively litigate common issues of law or fact that arise in their individual securities actions before a single higher court. In 2012, the German legislature amended the Act, simplifying and streamlining model proceedings, as well as including a new collective-settlement mechanism on an opt-out basis. The 2012 KapMuG also gives investors the opportunity to benefit indirectly from model proceedings by simply registering their claims with the court in charge of the model proceedings.

Originally, the law only applied to damages claims directly based on public information concerning securities and claims for specific performance under the German Securities Acquisition and Takeover Act. However, the 2012 amendment extended the scope of the Act to include mis-selling claims in which false or misleading public information concerning securities is an element of a claim against a broker or dealer in financial products. Thus, not only parties responsible for prospectuses and ad hoc notices can be defendants in model proceedings, but also brokers and dealers.

Opt-in/opt-out

In collective proceedings, are claims opt-in or opt-out?

The KapMuG combines elements of ‘opt-in’ and ‘opt-out’ procedures. If a claimant applies for model proceedings, his or her application is published in an internet-based register and the underlying action is automatically stayed. If nine similar applications are filed within six months, the first court to receive an application for model proceedings will submit the common issues of fact or law to the Higher Regional Court for adjudication. At this point, all actions affected by the common issues of fact or law are stayed. The model ruling binds all claimants - including those who have not applied for model proceedings - and does not allow them to continue their individual actions. Affected claimants are only granted the right to withdraw and thereby essentially waive their claims within one month of their actions having been stayed. Once the common issues have been decided, the individual actions are resumed to adjudicate the remaining individual issues of fact or law.

Damages

Can damages be determined on a class-wide basis, or must damages be assessed individually?

Damages must be assessed individually. In model proceedings judgment can only be passed on issues of law or fact common to all similarly situated claimants and not on individual issues such as damages.

Court involvement

What is the involvement of the court in collective proceedings?

The revised KapMuG permits claimants with pending lawsuits to apply for a collective action regarding common factual and legal issues before a Higher Regional Court. If a sufficient number of claimants apply within a certain time frame, the first trial court to receive an application aggregates the applications and submits them to a Higher Regional Court. The Higher Regional Court then selects a lead claimant to represent all other claimants in the model proceedings, while all individual actions are stayed. All other claimants may still file briefs in the model proceedings, but are not allowed to contradict the lead claimant’s submissions. The Higher Regional Court also hears applications for any amendment of the relevant common factual or legal issues.

The revised KapMuG further enables the lead claimant in model proceedings to negotiate a settlement with the defendants, which is, after approval by the Higher Regional Court, binding on all parties, provided that no more than 30 per cent of the claimants opt out.

Regulator and third-party involvement

What role do regulators, professional bodies, and other third parties play in collective proceedings?

Under the KapMuG, applications for model proceedings can only be brought by investors who are permitted to bring securities actions (ie, individuals and institutional investors as well as defendants in such actions). Therefore, the Act does not grant regulators, professional bodies or other third parties the right to participate. Such parties play no role in model proceedings.

Funding and costs

Claim funding

What options are available for plaintiffs to obtain funding for their claims?

A common form of funding claims is private litigation insurance. While for a couple of years insurers tried to exclude prospectus liability claims, the German Federal Supreme Court recently found such clauses to be invalid. Therefore, private litigation insurance will probably be an increasing source of funding in securities litigation in the retail investment area.

Another funding option is contingency fee arrangements, although these are still rare in Germany because they are, as a general rule, contrary to lawyers’ standards of professional conduct and, until recently, were categorically prohibited. However, the prohibition was slightly eased in 2008 after a ruling of the German Federal Constitutional Court, and German law now provides that a contingency fee may be agreed upon in individual cases, but only if the client, because of his or her economic situation, would otherwise, from a reasonable point of view, refrain from pursuing claims. This includes cases of insufficient funds as well as cases involving high cost risks that might prove ruinous.

In addition, third-party funding of claims is available and becoming more and more popular. In Germany, this generally means that a private or commercial third party advances the funds required for court or arbitral proceedings and bears the risk of an adverse cost award in exchange for a share of any judgment or settlement. The Volkswagen and Porsche securities actions in connection with the diesel emissions issue are largely supported by litigation funders.

Finally, legal aid is available to indigent parties. Legal aid, if granted, covers the court fees and the applicant’s own statutory lawyer’s fees, but does not cover the costs expended by the opponent, which an unsuccessful applicant must bear in accordance with the German Code of Civil Procedure.

Costs

Who is liable to pay costs in securities litigation? How are they calculated? Are there other procedural issues relevant to costs?

Under German law, the successful party can recover the costs that were required to bring an appropriate action or to appropriately defend against an action brought by others. These generally include statutory lawyers’ fees and incidental expenses, such as court fees. Where each of the parties has partially prevailed, the costs are shared proportionally.

Foreign plaintiffs from outside the European Union/EEA and non-signatory states to the Hague Civil Procedure Convention may have to provide security for the cost of defending claims.

Investment funds and structured finance

Interests in investment funds

Are there special issues in your jurisdiction with respect to interests in investment funds? What claims are available to investors in a fund against the fund and its directors, and against an investment manager or adviser?

For a long time, no statutory prospectus liability existed for the offering of securities in investment funds. This regulatory gap motivated courts to create a civil prospectus liability in analogy to the statutory rules. Today, however, a statutory prospectus liability regime for investment funds is provided in the Capital Investment Code. The liability regime is, as discussed above, very similar to the previously existing prospectus liability rules for listed stocks. Unlike the issuer of stocks, however, the investment fund itself (as a non-incorporated combination of assets) is usually not liable for incorrect prospectuses.

Structured finance vehicles

Are there special issues in your country in the structured finance context?

In 2011, the German Federal Supreme Court ruled that banks have particular advisory duties regarding swap transactions. Banks are obligated to ensure that the investor has the same level of information regarding the swap as the bank itself. In particular, the bank has to inform the investor if the swap initially has a negative market value from the investor’s perspective, because the court sees this advisory duty towards investors as taking precedence over the bank’s own interests. The court’s opinion is, however, vague and contradictory. It has therefore spawned a lot of follow-on litigation with no end in sight.

In 2015, the Federal Supreme Court issued two further judgments on swap agreements, specifying that the initial negative market value generally only has to be disclosed by the bank who is party to the swap agreement, not by third-party investment advisers. This is because, in the court’s view, the initial negative market value gives rise to a conflict of interest for the swap party that stands to benefit from it, while under a duty to advise the investor objectively. On the other hand, the investment adviser who does not enter into the swap agreement is not subject to this conflict of interests. Therefore, the investment adviser probably only has a duty to disclose the initial negative market value if it is so material that the investor’s chance of a return on investment is significantly impaired. Furthermore, the court held that the duty to disclose the initial negative market value does not exist if the customer enters into the swap agreement to reduce risks inherent in a loan agreement subject to a variable interest rate.

Cross-border issues

Foreign claimants and securities

What are the requirements for foreign residents or for holders of securities purchased in other jurisdictions to bring a successful claim in your jurisdiction?

Residents of other jurisdictions are not restricted in bringing actions in Germany, but German statutory prospectus liability does not necessarily apply to securities purchased in other jurisdictions. Outside applicable treaty law, foreign plaintiffs may be required to furnish security to cover statutory cost reimbursement claims of the opponent.

Foreign defendants and issuers

What are the requirements for investors to bring a successful claim in your jurisdiction against foreign defendants or issuers of securities traded on a foreign exchange?

For a successful claim against foreign defendants, German courts must first of all have jurisdiction over the case. Two different jurisdictional regimes exist: one under European law for foreign defendants from European jurisdictions and another under domestic law for all others. The jurisdictional regime for non-European defendants is particularly far-reaching. For example, it gives German courts jurisdiction over all defendants who own assets in Germany, with very limited exceptions.

While controversial, under the applicable European conflicts-of-law principles, the fact that securities are traded on a foreign exchange is irrelevant for the issue of which law applies. Therefore, German courts are likely to apply German law if German residents incur damages from transactions abroad. However, German statutory prospectus liability only applies to foreign issuers whose securities are also listed abroad if a jurisdictional link to Germany exists (ie, if the securities were bought in Germany or some of the services in connection with their purchase were rendered in Germany).

Multiple cross-border claims

How do courts in your jurisdiction deal with multiple securities claims in different jurisdictions?

German law applies the lis pendens rule and courts will accordingly only assume jurisdiction if the claim is not pending in any other jurisdiction.

Enforcement of foreign judgements

What are the requirements in your jurisdiction to enforce foreign-court judgments relating to securities transactions?

Foreign judgments will be enforced in Germany if:

  • the foreign court had jurisdiction of the case in accordance with German jurisdictional principles;
  • the document commencing the proceedings was duly served and made known to the defendant in a timely enough manner to allow for an adequate defence or, in case of non-compliance with this requirement, the defendant does not invoke such non-compliance or has nevertheless appeared in the proceedings;
  • the judgment is not contrary to (i) any prior judgment that became res judicata rendered by a German court or (ii) any prior judgment that became res judicata rendered by a foreign court, which is to be recognised in Germany, and the procedure leading to the respective judgment is not in contradiction to any such prior judgment or a proceeding previously commenced and still pending in Germany;
  • the effects of its recognition will not be in conflict with fundamental principles of German law, including, without limitation, fundamental rights under the German Constitution;
  • the reciprocity of the enforcement of judgments is guaranteed; and
  • the judgment has become res judicata under the law of the place where it was pronounced.

Particularly relevant in the securities litigation context is the non-­recognition of a judgment if the foreign court did not have jurisdiction according to German law. In connection with the KapMuG, the German legislature introduced a statutory provision regarding the exclusive jurisdiction of courts at the seat of the issuer for securities actions, which was intended to operate as a blocking statute. Some commentators have, erroneously, construed this provision as barring the enforcement of all foreign securities judgments against German issuers, creating unnecessary legal uncertainty for German companies intending to issue securities abroad.

Alternative dispute resolution

Options, advantages and disadvantages

What alternatives to litigation are available in your jurisdiction to redress losses on securities transactions? What are the advantages and disadvantages of arbitration as compared with litigation in your jurisdiction in securities disputes?

In Germany, parties are free to agree on alternative methods of dispute resolution. The most common method of alternative dispute resolution is arbitration.

In 1998, Germany essentially adopted and incorporated the UNCITRAL Model Law on International Commercial Arbitration in its entirety, with minor qualifications and clarifications for avoidance of doubt. Its provisions can be found in the German Code of Civil Procedure. The provisions on arbitration in the German Code of Civil Procedure apply equally to international and commercial arbitration, as well as to domestic and non-commercial arbitration. Under German law, arbitration agreements must be in writing. German courts have no discretion to stay the proceedings, but must reject the action as inadmissible if they find an arbitration agreement to be valid.

Parties seeking enforcement of an arbitral award must obtain exequatur from a German court before the award, whether domestic or foreign, can be enforced. Germany is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

German law distinguishes between court-annexed and private mediation. Because German courts, at all stages of the proceedings, are to act in the interests of arriving at an amicable resolution of the legal dispute or of the individual points at issue, the German Code of Civil Procedure requires that any hearing shall be preceded by a conciliation hearing, unless efforts to come to an agreement have already been made before an alternative dispute resolution entity, or the conciliation hearing obviously has no prospects of success. For the conciliation hearing, as well as for further attempts at resolving the dispute, the court may refer the parties to a judge delegated for this purpose, who is not authorised to take a decision (conciliation judge). Conciliation judges may avail themselves of all methods of conflict resolution, including mediation. Additionally, German courts may suggest at any point in the proceedings that the parties pursue such procedures. Should the parties decide to pursue mediation or other alternative conflict resolution procedures, the court orders the proceedings stayed.

In Germany, there is not simply one Office of the Ombudsperson. Instead, there are several offices of ombudspersons dealing with complaints against members of specific industries (eg, investment funds, banks, building societies, utilities companies, insurance companies and public transport companies) or against individuals, for example, lawyers.

UPDATE & TRENDS

Recent developments

What are the most significant recent legal developments in securities litigation in your jurisdiction? What are the current issues of note and trends relating to securities litigation in your jurisdiction? What issues do you foresee arising in the next few years?

As mentioned above, the Germany has introduced a new model action, the Musterfeststellungsklage. Cartel damages lawsuits are another potential field for collective redress mechanisms in the near future. There has been a steep rise in cartel damages follow-on litigation in Germany over the past few years. They could also be enforced by way of a model action. Current cartel damages actions have been asserted by litigation SPVs that allow the claims of commercial parties to be combined. In addition, the EU Commission is currently pushing another initiative aimed at introducing collective redress mechanisms across the member states. The proposal provides an authorised consumer protection associations with the exclusive right to sue. The consumer associations may also assert damages and payment claims - which goes beyond the German model action that only allows a determination of liability or of facts. The arrival of US plaintiff firms in Germany alongside the corresponding litigation funders continues to play an increasingly important role in the future development of securities litigation (as well as other types of collective redress).