I INTRODUCTION TO CLASS ACTIONS FRAMEWORK
Class actions in a formal sense are not foreseen under German law. The concept of a plaintiff submitting a lawsuit on behalf of others who are potentially eligible to the same relief and who need not be present or even named in the lawsuit is largely unknown to German civil law procedure. The typical litigation envisioned by the German Code of Civil Procedure is a lawsuit between few, often only two, parties. To obtain the relief sought, a litigant must appeal to the court as an individual and must show that he or she seeks a certain remedy on his or her own behalf.
Nevertheless, German civil law and civil law procedure provide for certain means of obtaining collective redress: several parties can jointly commence a lawsuit. Alternatively, potential claimants can assign their claims to one single plaintiff who asserts multiple claims on their behalf. If several lawsuits on the same subject matter are pending, the court may select a model case to decide on factual or legal issues that the lawsuits have in common. Finally, certain institutions, such as consumer protection organisations, are able to legally pursue the enforcement of laws that serve the protection of others. Each of these measures partly resembles class actions in terms of their procedural objective, but none of them qualifies as a class action in the formal sense. In addition, all of them have specific drawbacks, which decrease their efficiency compared to class actions.
II THE YEAR IN REVIEW
In recent years, the debate about class actions in Germany has gained significant momentum. It has been fuelled in particular by ‘Dieselgate’ (i.e., the revelations on the alleged manipulation of diesel emissions tests by Volkswagen). This matter demonstrated to a larger audience the striking differences between the United States and Germany when it comes to collective redress. The fact that roughly 500,000 American plaintiffs were able to recover damages from VW in one single, comparably short court proceeding, whereas German plaintiffs are struggling individually to enforce their alleged claims, has been perceived as unjust by parts of the German public.2
In Germany, owing to the lack of class actions, car owners who are potentially eligible for claims have to file suit individually. According to press reports, about 7,000 of them have done so in the competent local courts scattered all over Germany.3 These courts have come to different legal conclusions: whereas some plaintiffs have prevailed, others, despite having the same cause of action, have not. For example, certain courts denied a car owner the requested damages on the basis that the emissions systems could be fixed,4 whereas others held that the relevant plaintiff had been defrauded and could claim the value of his car as damages.5 Other potential plaintiffs may have been discouraged from bringing proceedings at all considering that they had to act on their own at the risk of paying litigation costs and carrying the burden of fighting a lawsuit against a large corporation. Whether and to what extent a uniform assessment of the relevant legal issues will eventually be achieved is not yet clear. So far there has been no sign that differing judgments will be aligned in appeal proceedings. In light of the uncertainties of a lengthy proceeding and the often limited amount at stake, parties have been eager to settle. Over the past year, very few decisions by courts of appeal have been rendered in this matter. The decisions available often concern only singular legal issues and are, therefore, of limited use. Moreover, the courts of appeal have shown no uniform approach to the matters before them. Contradicting decisions have been the result and are likely to continue in the future. It is quite probable that claims of potential claimants will have become time-barred before legal certainty is obtained.
The German branch of a US law firm sought to test the limitations of German civil procedure. It made headlines by commencing a lawsuit before the District Court of Braunschweig on behalf of more than 15,000 car owners in November 2017, claiming over €350 million in damages. For this purpose, the law firm is cooperating with a limited liability company called ‘financialright GmbH’, known under the brand name ‘myRight’. The company is using the opportunity to bundle claims through fiduciary assignment. Car owners assign their potential claims to myRight, which then asserts these claims in court. In the event of success, myRight receives a payment, more precisely a fee of 35 per cent of the realised amount. It remains to be seen how the court will deal with this multitude of cases. Technically, every single claim transferred to myRight must be ruled on by the court individually.
Under the public pressure triggered by these observations, the political parties likely to form the next German government have reached an agreement in principle on the introduction of model case proceedings to simplify the judicial enforcement of consumer rights against companies. The legislative proposal may, in some respects, come close to the effects of a class action. In particular, it seeks to enable and encourage potential plaintiffs to recover low-value damages in cases where they are often deterred by disproportionately high litigation costs.
Also in the realm of Dieselgate, a separate group of plaintiffs commenced lawsuits against VW and Porsche, emulating the effects of a class action. Shareholders of the two corporations brought actions alleging that VW and Porsche did not inform them in due course about the ramifications of the emissions matter. They are making use of an instrument exclusively available to plaintiffs who sustained damages on account of false or misleading capital market information. The Capital Markets Model Case Act (KapMuG) allows courts to select a model case, decide common issues of fact and law, and thereby facilitate individual lawsuits brought by shareholders.
As mentioned above, class actions as such are not available under German law. There are, however, certain means of collective redress available that, while they are limited, partly resemble the objective of class actions. They include (1) the joinder of parties, (2) the bundling of claims, (3) model case proceedings, and (4) lawsuits brought on behalf of others by associations or interest groups.
i Joinder of parties
Several litigants may, or in certain cases must, sue or be sued as joined parties. An option to sue jointly exists in three scenarios: (1) a plurality of plaintiffs form a community of interest with regard to the matter in dispute, the most important example being joint property; (2) a plurality of plaintiffs is entitled or obligated to the same factual and legal cause, for example, if several plaintiffs are party to the same contract; or (3) similar claims or obligations form the subject matter in dispute and such claims are based on an essentially similar factual and legal cause. The latter provision could be relied on by car owners who assert claims for elevated emissions. For purposes of procedural economy, the courts tend to interpret the aforementioned 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. In essence, 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. While in theory the number of plaintiffs who can join a lawsuit is not limited, joint proceedings run the risk of becoming uneconomic with a rising number of plaintiffs. Every plaintiff has to appear in front of the court, must be heard and make his or her case individually. Unlike in class actions, it is not possible for plaintiffs to appear on behalf of other potential plaintiffs who claim to have suffered the same grievance.
ii 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 aforementioned law firm 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 Act regulates the provision of legal out-of-court services by non-lawyers. Institutions like 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.6
iii Model case proceedings
Introduction and overview
A method available under German procedural law that partly resembles class actions is the model case proceeding. In particular, it is a common feature of both model case proceedings and class actions that factual and legal questions are decided in a single trial commenced by one plaintiff on behalf of others claiming the same cause of action. The most striking difference is that model case proceedings do not directly award plaintiffs a remedy, but aim at facilitating the consequent pursuit of individual claims. A model case proceeding is generally conducted in three steps. First, a court determines a model case out of a multitude of similar pending proceedings and suspends the other cases. The court then decides the model case in a second step. In a third and final step, the suspended cases are decided individually on the basis of the model judgment, which is binding with regard to the factual and legal questions that the cases have in common.
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 model case proceedings against Deutsche Telekom AG concerning various stock market flotations of Telekom shares in the years 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.
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. 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 for reasons 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 after 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, both model case proceedings were concluded by the Higher Regional Court of Frankfurt in 20127 and 2013,8 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 1999.9 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.10 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.11 Telekom appealed the decision and the case is now pending in front of the Federal Court of Justice again.12 It is thus unlikely that a final decision will be rendered anytime soon. 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. One-hundred-and-seventy shareholders filed suits against VW for damages totalling an amount in dispute of approximately €4 billion. The model proceeding is pending in front of the Higher Regional Court of Braunschweig. The court has scheduled several hearings throughout 2018.13 The proceeding against Porsche is pending in the courts in Stuttgart.14 It is still in its early stages.
Proposal on model action for a declaratory judgment
As shown above, the scope of the KapMuG is limited. It does not provide relief in regular consumer actions that are not related to capital market information. The political parties likely to form the next German government have, therefore, reached an agreement in principle on the introduction of a model action aimed at a declaratory judgment with a wider scope of application. The legislative undertaking was triggered mainly by the allegations against VW concerning the manipulation of emission tests.
It is likely that the implementation of the agreed-upon approach will resemble a Musterfeststellungsklage: a bill for a ‘model case declaratory action’ published by the Federal Ministry of Justice in July 2017. According to the bill, consumer protection associations would be entitled to commence an action for a declaratory judgment. The court would decide on legal and factual issues common to the claims of at least 50 consumers. Only the aforementioned consumer protection association would become party to the proceedings. After an action is filed, it would be published in a litigation register. Affected consumers would be able to register electronically without having to retain the services of an attorney, thereby safeguarding their potential claims against statutory limitations.
The proceeding would either end by declaratory judgment or settlement. Once a judgment was issued, and unlike in class actions under US law, plaintiffs would have to pursue their potential claims in separate lawsuits. However, they would be able to rely on the declaratory judgment of the model case proceeding, to which the courts dealing with the individual claims would be bound. In case of a settlement between the parties, the mechanism of the KapMuG would apply to the extent that the concerned parties would have to decide within a month whether or not to participate in the settlement. A settlement would become effective only if less than 30 per cent of the registered stakeholders were to declare their withdrawal.
Presumably having in mind that the claims by consumers in the VW emissions matter may become time-barred at the end of 2018, the coalition parties have vowed that the new law should come into force on 1 November 2018.
iv Association or interest group complaints
Act on Actions for Injunctions
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 certain 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 in cases in which 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. The latter includes, for instance, provisions in the Civil Code regarding distance contracts, purchase contracts for consumer goods or payment services contracts. Moreover, the German legislator decided in 2016 to include specific data protection laws.
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.
IV CROSS-BORDER ISSUES
Owing to the fact that there is no general collective redress mechanism in the German legal system, there are no genuine cross-border issues concerning class actions. The aforementioned rules and proceedings are generally applicable to foreigners.
Class action judgments by foreign courts are largely recognised in Germany. Issues may only arise if the recognition would violate public policy. The fact that the foreign proceeding was a class action does not as such conflict with German public policy. It is widely assumed, however, that enforcement of a class action may violate public policy if a party domiciled in Germany did not have the possibility to opt out of the action.15 Enforcement of foreign judgments is also likely to violate public policy if a class action judgment awards punitive or treble damages.16
V OUTLOOK AND CONCLUSIONS
Means of collective redress are comparably insignificant in Germany, in particular when compared to the significance of class actions in other countries such as the United States. Attempts to circumvent the absence of class actions in Germany by resorting to a joinder of parties or the bundling of claims tend to be uneconomic because in these cases every single claim needs to be assessed and decided on separately. It is widely held that the model case proceedings that have been introduced in certain areas to fill the gap have not lived up to expectations. The fact that even in these cases individual and model proceedings have to be performed in parallel or subsequently, each with the possibility of appeal, has led to exceptionally long trials. Providing consumer protection organisations with the possibility of taking action against improper general terms and conditions and other violations against consumer protection laws may have an effect on ensuring consumer protection, but does not provide relief to the individual consumer.
Currently, the German lawmaker is walking a thin red line. On the one hand, recent events fuelled the discussion that German law should facilitate collective redress in particular, as it is considered to be a burden for individuals or small or mid-sized businesses to pursue potential claims individually against large or multinational corporations. On the other hand, there is also significant concern that an expansion of collective redress might lead to a ‘claims industry’ or ‘conditions like in the United States’, where – in the perception of many – highly professionalised plaintiffs’ firms have the power to coerce or even blackmail companies with the mere threat of a class action.17 In its efforts to change the law, the German government has, therefore, taken a rather cautious approach to the matter. The significant differences to the prominent example of the United States may also be explained by a difference in legal philosophy. It appears that in common law, class actions not only serve the purpose of simplifying private legal enforcement, but also the purpose of deterring companies from breaking contractual or legal obligations. This approach is rather alien to German civil law.
The introduction of the aforementioned model action for consumers seems to be a compromise that is currently likely to become law. The proposal illustrates the hesitation of German lawmakers to allow for a fully fledged class action on the one hand and the necessity to heed the popular demand for facilitating collective redress for consumers on the other. The concept has the potential to improve the legal situation of consumers. At the same time, scepticism is justified as to whether the model actions for consumers will prove more effective than the ones foreseen by the KapMuG. It is too early for a final assessment. Given the uncertainties surrounding the political process, it is difficult to predict what exact form the law will take and, even more so, whether the intended effect of this new type of action will be achieved.
1 Henning Bälz is a partner at Hengeler Mueller.
2 Legal Tribune Online, Braucht Deutschland die Sammelklage?, 27 May 2016.
3 Spiegel Online, ‘15.000 weitere Diesel-Kunden klagen gegen VW’, 6 November 2017,
4 District Court of Dortmund, judgment of 31 October 2015, reference number 7 O 349/15, BeckRS 2016, 113626.
5 District Court of Hildesheim, judgment of 17 January 2017, reference number 3 O 139/16, ZIP 2017, 332.
6 ECJ judgment of 25 January 2018, reference No. C-498/16.
7 Higher Regional Court of Frankfurt, judgment of 16 May 2012, reference No. 23 Kap 1/06, ZIP 2012, 1236.
8 Higher Regional Court of Frankfurt, judgment of 3 July 2013, reference No. 23 Kap 2/06, ZIP 2013, 1521.
9 Federal Court of Justice, judgment of 22 November 2016, reference No. XI ZB 9/13, ZIP 2017, 318.
10 Federal Court of Justice, judgment of 21 October 2014, reference No. XI ZB 12/12, BGHZ 203, 1.
11 Higher Regional Court of Frankfurt, judgment of 30 November 2016, reference No. 23 Kap 1/06, BeckRS 2016, 114441.
12 Federal Court of Justice, court ruling of 20 June 2017, reference No. XI ZB 24/16.
13 Higher Regional Court of Braunschweig, court ruling of 5 August 2016, reference No. 5 OH 62/16, WM 2016, 2019.
14 District Court of Stuttgart, court ruling from 28 February 2017 reference No. 22 AR 1/17 Kap.
15 Stein/Jonas/Roth, Commentary on the German Code of Civil Procedure, Section 328 Paragraph 113.
16 Federal Court of Justice, judgment of 4 June 1992, reference number IX ZR 149/91, BGHZ 118, 312.
17 Tilp/Schiefer, NZV 2017, 14, 18.