An extract from The Class Actions Law Review, 4th Edition

Procedure

The goals of the following means of collective redress available under German law partly resemble the objectives of class actions.

i Model Case Proceedings

Model Case Proceedings allow 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 that meet the requirement that the claimant made a valid registration for the Model Case Proceedings. Thus, the Model Case Proceedings do not themselves provide any relief for the injured class and there is no payment that follows directly from the proceedings. Rather, following the Model Case Proceedings, each individual party has to bring an individual claim before a court, which is then bound by the determinations of the proceedings. This is one of the reasons why the introduction of the Model Case Proceedings has not resulted in consumers no longer filing individual law suits in the Dieselgate matter, as they believe they are better off in a lawsuit directly aimed at obtaining compensation in the form of damages.

A payment only arises from the Model Case Proceedings themselves if the parties agree upon a class settlement. Commentators have therefore continued to call for further expansion of collective redress mechanisms.

The actions under the new law may be brought by 'qualified entities'. These entities must (1) have a certain minimum number of members, (2) have been registered for at least four years, and (3) focus on helping consumers by way of advice and education. They must not (1) pursue claims in Model Case Proceedings for purposes of making profit, and (2) receive more than 5 per cent of their funding from private sector companies. As mentioned above, the specific make-up of consumer organisations eligible to initiate Model Case Proceedings has already become a decisive issue in early Model Case Proceedings cases.

Once Model Case Proceedings are pending, no further Model Case Proceedings are permissible in respect of the same motions and the same subject matter. There are no safeguards to ensure that the first proceedings to be initiated are in fact pursued by organisations that are actually well adapted to the task. Quite simply, it is a first come, first served approach.

Model Case Proceedings are permissible if (1) they have been initiated by a qualified entity, (2) it has been demonstrated that the motions for a declaratory judgment are relevant for the claims or legal relationships of at least 10 consumers, and (3) at least 50 consumers registered their claims or legal relationships within two months of the court publishing the matter in the registry of the Federal Office of Justice (the Registry).

In principle, Model Case Proceedings follow the general rules of civil procedure. The most notable exception is that the court of first instance is the higher regional court, which usually only acts as a court of appeal.

To participate in Model Case Proceedings, consumers must enter their claims or legal relationships in the Registry. This can be done only up until the date prior to the first hearing of the case, to prevent free-riding on proceedings the hearings for which hold promising prospects for claimants. The registration may be revoked up until the close of the day of the first oral hearing.

The registration of a claim or legal relationship triggers a number of legal consequences: (1) the lapse of the relevant limitation period is suspended; (2) registrants are no longer in a position to initiate an individual lawsuit for as long as the Model Case Proceedings are pending and individual actions pending at the time the claim is registered must be suspended; (3) only registered consumers will participate in the binding effect of the facts and legal views established by rulings in the Model Case Proceedings.

Model Case Proceedings end with either a judgment or a settlement. A judgment has the binding effect outlined above, irrespective of whether the ruling is in favour of the plaintiff or the respondent. It can only be challenged in the Federal Court of Justice, which, in principle, is bound by the factual findings of the court of first instance and will review the case only from a legal perspective.

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 adequate 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, in turn, is 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 because of several proceedings against Deutsche Telekom AG concerning stock market flotations of Telekom shares in 1999 and 2000 that resulted in plaintiffs filing lawsuits against Telekom alleging prospectus errors.

In contrast 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 arising from 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.

The first stage of the proceedings takes place before the trial court and starts with the request of one litigant to execute Model Case Proceedings 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 proceedings 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. 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 Case Proceedings, unless a plaintiff withdraws from the action within a month.

In the second stage, the higher regional court appoints a model case plaintiff. This is in contrast to Model Case Proceedings, which follow a first come, first served approach. 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. The remaining plaintiffs may take part in the proceedings as third parties with limited rights. As such, they are entitled to avail themselves of means of contestation or defence independently. There is no model case defendant. Instead all defendants of the initial proceedings are considered defendants in the Model Case Proceedings.

Subsequently, the case is published in the litigation register of the Federal Gazette once again. Third parties have the opportunity to register their claims within six months of this publication. While the parties registering must be represented by a lawyer, they do not become involved in the Model Case Proceedings. Rather, the registration serves the purpose of suspending the limitation period of the claim.

The Model Case Proceedings are 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 to the Federal Court of Justice on points of law. 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 Case Proceedings. The judgment obtained in the continued proceeding can again be appealed for reasons that were not the focus of the Model Case Proceedings.

As for the aforementioned Telekom trials, two Model Case Proceedings were concluded by the Higher Regional Court of Frankfurt in 2012 and 2013. However, despite some back and forth between that Court and the Federal Court of Justice, the matter has not been comprehensively resolved by a final and binding judgment even to the present day. Under the KapMuG, therefore, no relief has been provided to the plaintiffs 18 years after the incurrence of the alleged damage and even this fact alone shows that the KapMuG has not lived up to the expectations many had for it. This is because, among other things, the relevant cases are conducted not by one or more plaintiffs on behalf of others in a single trial but essentially by way of two trials, the individual and the Model Case Proceedings – each with the possibility of appeal.

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. For purposes of procedural economy, the courts tend to interpret the requirements liberally insofar as the suitability of joint proceedings and decision-making are alone 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 that make it generally unattractive for larger groups of plaintiffs to bring a joint lawsuit. Most importantly, even though only one proceeding takes place, each litigant must obtain his or her own judgment and the court must rule on each case individually and determine the merits of each plaintiff's claim separately. Therefore, the higher the number of plaintiffs, the greater the difficulties in handling the case. 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. 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 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 a large number of multiple claimants.

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 state their claims because the hassle associated with litigation and the risk of bearing the costs in the event of defeat are reduced to a minimum. This method does, however, differ from class actions in one important aspect. While the economic effects for 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 proceedings that one uniform judgment is appropriate for all class members. The 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. 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 professional liability insurance are required. It is for these reasons and for those discussed above that the pursuit of multiple claims by special purpose vehicles on behalf of consumers has been, and still is, highly controversial.

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

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 in the form of damages, he or she must commence a separate lawsuit.