Class actions are not provided for in Germany but there is a test case procedure for claims based on false information regarding capital investments. The law was recently revised to permit collective settlements. Last June the EU Commission published a recommendation to introduce procedures for collective redress in cases that involve a breach of EU law.
The Original KapMuG Procedure
Some time after the IPO of Deutsche Telekom, the stock market price of its shares dropped. A class action was filed in the United States, alleging that the value of the real estate property had not been properly assessed and that material information about the planned takeover of a US mobile telephone company had not been properly disclosed. In 2005, the action was settled for $120 million.
The litigation in Germany was more burdensome. In 2003 approximately 17,000 claimants, represented by nearly 900 lawyers, initiated about 2,700 individual lawsuits alleging inaccurate information in a sales brochure. All cases had to be assigned to a single judge. Compared to a judge's annual average of 150-200 cases, it was assumed that it would take him more than 20 years to decide all the matters.
Consequently the German Parliament enacted the Kapitalanleger-Musterverfahrensgesetz (KapMuG), which, loosely translated, means code on test case procedure related to capital investments. The KapMuG which became law on November 1 2005 is limited to actions based on inaccurate information regarding capital investments. In cases where at least 10 actions against one defendant are filed and all raise the same or similar issues, the plaintiffs apply for the test case procedure and the court of appeals makes the final determination of the common legal or factual issues. The court in which the first motion was filed defines the issues common to all cases, and the court of appeals then appoints the test plaintiff and tries the common issues with a mandatory oral hearing. The plaintiffs of all other cases may file pleadings as well. While the test case proceeding is pending all other proceedings regarding the same issues are stayed. The parties to the test case, as well as all other claimants, can appeal the ruling to the German Federal Court. The final decision is binding for all pending cases.
After the final decision on the test issues the courts in which the cases were originally filed reopen each individual case and, based on the court of appeals' ruling, decide on its merits, for example, the amount of damages. The court's judgments are then appealable.
The test case procedure has worked in some, but not all, instances. The court of appeals in Frankfurt handed down a judgment in favour of Deutsche Telekom in spring of 2012, nine years after the suits were filed and six years after KapMuG came into force. An appeal is still pending.
The Newly Enacted KapMuG Procedure
On June 28 2012, the German Parliament enacted a new version of the KapMuG, which went into force in November 2012. The statute was revised to clarify several issues and to speed up the proceedings. Furthermore, an electronic platform is eventually to be introduced throughout Germany for the proceedings.
The most important new feature is a procedure for a collective settlement which was modeled on Dutch law. In the original version of the KapMuG, a settlement required the consent of the defendant and all plaintiffs. This proved to be impractical given the large number of plaintiffs involved. The new statute provides that the court can approve a settlement if the test plaintiff and the defendant agree on a settlement that includes the following terms after the other claimants were given an opportunity to be heard:
- The amount of total damages to be paid;
- The distribution of damages among all plaintiffs;
- The requirements for establishing a claim;
- The distribution of the costs of the proceeding.
After court approval, the settlement becomes binding by a formal court declaration for all plaintiffs, unless they opt out individually within one month after formal notification. If 30% or more opt out, the settlement will not be declared binding.
Another important feature is a simple procedure to register claims without filing suit. A claimant may formally register his claim through an attorney within six months after the publication of the test case procedure. This will stay the statute of limitations but the claimant will not become part of the test case proceedings and will not be bound by its result.
Unfortunately there are no records about the success of the new rules yet.
The EU-recommendation regarding collective redress of June 11th, 2013
On June 11 2013, after years of preparatory work the EU Commission, GD SANCO finally published a recommendation to introduce procedures for collective redress in the EU, which apply to all claims based on a breach of EU law. Proposed is a representative action handled by non-profit organizations or administrative bodies which shall be authorized to file suit for injunctions and/or claim damages on behalf of victims of breaches of any kind of EU law, provided that they have opted in. To avoid the abuse associated with US-style class action procedures the EU Commission decided not to use an opt-out procedure and also to rule out any sort of pre-trial discovery and punitive damages award while confirming that the loser pays rule shall apply. Unfortunately, the recommendation offers no concrete suggestions on how the representative action shall be organized regarding such issues as contribution to the costs of such procedures and the sharing of its (potential) proceeds. Also, the proposal of the EU Commission does not explain how the individual prerequisites for damage claims, including the amount of the individual damages, shall be ascertained without the same amount of effort and expenses as witnessed in individual procedures. Even a proposal for a collective settlement like in the Netherlands is lacking.
It is therefore unlikely to expect that a practical, workable procedure for collective redress in all kinds of mass damage situations will be introduced in the EU and Germany in the foreseeable future, although the EU Commission is allegedly prepared to pursue its plans. At present it seems more likely that the range of the KapMuG may be widened beyond capital investments eventually if the amended rules prove to be more user-friendly than the original ones.