Collective redress procedures have mainly been developed in Germany by way of model case procedures in specific areas or by the authorisation of certain organisations to commence actions to protect the interests of others.
Under the Model Declaratory Action Act, qualified organisations may file a model declaratory action to protect consumer interests. Decisions in the model case proceedings are of declaratory nature only but will be binding in subsequent individual proceedings on the defendant and all injured consumers who have registered claims. In addition, there are collective redress mechanisms in other areas of law, such as the Capital Markets Model Case Act which permits a model case to be brought in the context of certain capital markets disputes to determine factual or legal issues with binding effect for other cases. There is also scope for actions to be brought by associations and qualified representative organisations for injunctions, particularly in the context of unfair competition law and/or consumer protection claims.
What forms of collective actions are permitted in this jurisdiction and under what authority?
German civil procedural law does not permit the bringing of a claim in the name of a group of unknown claimants in the form of a class action akin to that available in the US. Indeed, only a limited number of other collective redress mechanisms are available in Germany, most of them limited to specific areas of law.
Model Declaratory Actions
Following intense discussions in the wake of the diesel scandal, the Model Declaratory Action Act (Musterfeststellungsklagengesetz (“MFKG”)) was adopted in early 2018 and makes significant amendments to the German Code of Civil Procedure (Zivilprozessordnung (“ZPO”)). The new law applies to all consumer-related disputes and entered into force on 1 November 2018 - just before the expiration of the limitation period for many consumer claims related to the diesel scandal on 31 December 2018.
Decisions in the new model case proceedings are of declaratory nature only. The Higher Regional Courts (Oberlandesgericht), which are the courts of first instance for such actions, do not award damages or issue an injunction order. Instead, consumers must subsequently initiate their own individual proceedings based on the facts determined in the model case proceedings. For all registered individual claims, limitation periods are suspended while the model case proceedings are pending. In addition, the declaratory judgment is binding between the registered consumers and the defendant as far as the subject matter of the model case claim is concerned. A settlement agreement may also be concluded for and against registered consumers, provided it meets certain substantive conditions and is approved by the court. It will only become effective if fewer than 30% of the registered consumers declare their withdrawal from the settlement.
Only qualified institutions that comply with certain criteria are entitled to file model declaratory actions under the new law. The claim is admissible if the institution demonstrates that at least ten consumers are affected by the relevant subject matter and at least 50 consumers apply effectively for entry onto the register of claims within two months of the model declaratory action being published. Once the model case has been filed, no other model declaratory action may be brought against the same defendant on the same subject matter ("first come, first served"). Moreover, registered consumers may not bring individual claims against the defendant regarding the same subject matter.
Other collective redress mechanisms under substantive law
There are also several collective redress mechanisms that are limited to other areas of law:
- Under the German Act on Actions for Injunctions (Unterlassungsklagengesetz (“UKlaG”)), certain qualified representative organisations (such as consumer protection associations and chambers of commerce) may commence proceedings for injunctions preventing breaches of consumer law or statutory restrictions on the use of standard business terms (which also apply in a business-to-business context).
- In addition, under section 8 of the German Act against Unfair Competition (Gesetz gegen unlauteren Wettbewerb (“UWG”)), entities engaging in a commercial practice that is illegal under the UWG may be sued by certain qualified representative organisations (such as consumer protection associations and chambers of commerce) for elimination of the unlawful conduct and any effects that have resulted from it and, in the event of the risk of recurrence, to cease and desist. The same entities can claim recovery of improper gains (Gewinnabschöpfungsklage) from companies which benefitted financially by intentionally violating the UWG, pursuant to section 10 UWG. However, successfully recovered funds are not paid to the entities bringing the action but to the German federal budget. Similar provisions exist in the area of competition law pursuant to the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen (“GWB”)).
- Finally, the procedure under the Capital Markets Model Case Act (Kapitalanleger-Musterverfahrensgesetz (“KapMuG”)) allows a claimant in an appropriate capital markets dispute to apply for specific factual and legal issues to be clarified before the Higher Regional Court (Oberlandesgericht) by way of a lead or model case with a binding result. If at least nine further applications are filed, the Higher Regional Court selects one lead case. Until judgment is given, all other pending proceedings in which the court’s decision depends on the results of the lead case are stayed, regardless of whether the parties to those proceedings have applied for a KapMuG proceeding or not. The decision reached in the lead case will be legally binding on all cases that have been stayed, which will then resume hearing in their respective courts.
Another option for bundling individual claims against the same defendant(s) into one legal dispute is to assign them to a claims vehicle, pursuant to the German Civil Code (Bürgerliches Gesetzbuch (“BGB”)). This model is sometimes used to enforce mass damage claims and often involves third-party funders. The idea is that the claims vehicle, usually a German limited liability company, files the lawsuit in its own name, having been assigned the damage claims by the individual claimants.
This is admissible if the use of the claims vehicle does not conflict with the rules of the German Legal Services Act (Rechtsdienstleistungsgesetz (“RDG”)), that is aimed to protect both clients seeking legal advice and the legal profession from unqualified legal services. To be allowed to pursue the claims that have been assigned to them, the claims vehicles are obliged to obtain a licence for debt collection (Inkassolizenz).
Most prominently, this strategy has been used by claimants and acknowledged by the courts in cartel damages cases. However, a recent judgement of the Regional Court of Munich relating to the trucks cartel put a severe dampener on this practice. While earlier decisions had been concerned with more formal aspects, such as the lack of the necessary licence for debt collection, the Munich Court considered the “core” of the business model. It held that it violates the RDG and that the assignment of claims is thus null and void.
The Regional Court of Braunschweig is dealing with a Diesel case involving a similar model. The Court has not yet rendered a final decision but indicated in a preliminary ruling that it was inclined to disagree with the Regional Court of Munich and to find that this business model is in line with the RDG.
It remains to be seen how this debate plays out once these cases and/or similar ones reach the German Federal Court of Justice.
Collective redress mechanisms under procedural law
The ZPO allows for the procedural bundling of claims under certain circumstances. For instance, individual proceedings initiated by multiple claimants against the same defendant may be heard at the same time by the same court under sections 59 to 62 ZPO (so-called Streitgenossenschaft). Moreover, the court may direct pursuant to section 147 ZPO that proceedings be consolidated in order to be heard and decided at the same time, if the claims forming several pending proceedings have legal connections between them or could have been asserted in one single complaint. In addition, collective actions may be brought by consumer protection associations under section 79 ZPO in certain circumstances (Einziehungsklage).
Who may bring them?
As a general rule, all claims have to be brought individually in Germany. This includes cases under the KapMuG, which must be commenced by individual claimants who are then bound by the ruling in the lead case. However, as mentioned above, some collective actions and, in particular, the ones under the MFKG, may only be brought by certain qualified institutions such as consumer associations.
Opt in or opt out?
German civil procedure law does not permit claims to be brought in the name of an uncertain group of claimants. All collective actions are therefore generally subject to the “opting in” of each claimant. For instance, under the MFKG, all consumers wishing to benefit from the binding effect of the declaratory proceedings have to register on a claims register, although they may withdraw their registration at any time up until the first day of the oral hearing in the model case proceedings.
As mentioned above, most collective actions are limited to specific areas of law:
- The MFKG only applies to consumer-related disputes and only consumers may benefit from the binding effect of the model case proceedings in subsequent individual proceedings. However, where the outcome of a B2B dispute depends on declaratory objectives which are the subject of a pending model case proceeding, a court may, at the request of an applicant company, order that the hearing be suspended until the declaratory judgment is rendered.
- The KapMuG applies to certain disputes under capital markets law, in particular to claims for damages caused by allegedly inaccurate public investment information, e.g. in cases of prospectus liability. Since 2012, the KapMuG has also applied to cases of inaccurate individual investment advice.
- Actions commenced under the UKlaG are limited, as their name indicates, to injunctions and do not apply to employment matters (section 15 UKlaG).
- Actions commenced under the UWG and the GWB are limited to the recovery of improper gains obtained by parties intentionally contravening competition law.
Judge or jury?
Civil actions are tried by one or more judges in Germany.
What relief may be obtained?
See above. Punitive damages are not obtainable under German law.
How are such actions funded?
The usual rule is that the losing party bears the costs of the law suit, including the costs of the successful party. Legal protection insurance is available to finance litigation and claimants can generally apply for legal aid under section 114 ZPO. This will only be granted if the claim appears likely to succeed.
Contingency fees were introduced into German law on 1 July 2008. They are, however, only permissible in individual cases and only where the client would, due to his economic situation and from a reasonable perspective, be deterred from pursuing his rights without a contingency fee agreement. In addition, in the case of court proceedings, attorneys may only agree on no/lower remuneration for losing a case if they are entitled to higher remuneration than the statutory fees should they be successful (section 4a Attorney Remuneration Act) (Rechtsanwaltsvergütungsgesetz).
Professional third-party funding organisations are becoming more popular, particularly in the area of competition and consumer law. However, there are special provisions on funding regarding qualified entities that are entitled to submit model cases under the MFKG.
Is pre-trial disclosure available?
There is no procedure for pre-trial disclosure of documents. Pre-trial witness depositions may be taken, provided that the other party consents or there is a threat that the evidence would otherwise be lost or unobtainable at trial (section 485 ZPO). In addition, section 142 ZPO grants the right to request the production of specific documents or narrow categories of documents if the requesting party can substantiate its main content and its relevance to the outcome of the case. “Fishing expeditions” are not allowed.
Likewise, there is generally only a limited substantive right of disclosure, resulting from the duty to perform obligations in good faith according to section 242 BGB. For competition litigation, however, the legislator introduced disclosure mechanisms as part of the implementation of the EU Cartel Damages Directive and made use of the wide discretion provided by the Directive to introduce a substantive rather than a procedural right to disclosure from cartel members, as well as from third parties, upon a substantiated request (section 33g GWB). The effects of the new rules in practice are still to be evaluated as they were only introduced in mid-2017.