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Author: Eva Lein

I. Overview

There is no general collective redress mechanism in the German legal system. The German Code of Civil Procedure (ZPO) is focused on two party claims. It only contains 'traditional' rules on disputes with more than one party on either side such as the joinder of parties - Streitgenossenschaft, Art. 59 ff ZPO or, on the consolidation of proceedings, Art 147 ZPO. The Code's rules are not tailored to actions brought by large groups of plaintiffs and no attempt has been made by the legislator to introduce a general collective redress mechanism.

However, German law does have different types of sectoral collective redress mechanisms. In the area of competition law and consumer protection, representative actions allow consumer organisations or organisations promoting commercial or independent professional interests to act in court on behalf of a group of harmed individuals. In the financial market sector, test case proceedings simplify mass investor claim scenarios. The Capital Market Model Claims Act (Kapitalanleger - Musterverfahrensgesetz (KapMuG)) enables a more effective treatment of investor's claims involving identical issues of law or fact through model case proceedings on particular questions (such as whether a statement in a prospectus was wrong). The findings of these test case proceedings have binding effect on the other claims, but the individual cases are kept separate.

The remedies that can be achieved with such claims vary according to the issue at stake. In case of representative actions under the Act on Unfair Competition (UWG), the result of an action can either be an injunction or the skimming off of profits that have been made though unfair practices of the defendant. These profits are not distributed amongst concerned consumers but go to the Treasury. Similarly, representative actions brought by consumer associations on the basis of unfair commercial terms or other practices that infringe consumer protection law mainly aim at stopping the defendant from using unfair methods and preventing future abuse. Proceedings under the KapMuG, although ultimately aimed at compensation of damages, are limited to a declaratory judgment on certain preliminary questions relating to the potential liability of e.g. the issuer of a financial product, which is binding for all claimants. The amount of damages is then to be determined in each individual case, once the test case has been successfully heard.

It is important to note that an opt-out settlement system was inserted into the KapMuG, although German law is generally reluctant with respect to opt-out mechanisms due to constitutional concerns. However, this mechanism differs from systems such as the Dutch WCAM: it allows an opt-out within the context of pending test case proceedings in which the plaintiffs are all known as they have opted-in at the first stage.

There is no general certification process for collective actions. However, in cases under the KapMuG, a minimum of 10 claimants who request such proceedings is required to get model case proceedings started. Once the court seized with the first of these requests has approved the model case proceedings, the case is submitted to the Higher Regional Court and additional claimants are then joined automatically.

As to evidence, there is no pre-trial discovery under the German law of procedure. Yet, in some cases, findings of authorities are used as a basis for a trial, e.g. in antitrust law. Here, the final decision of the national cartel authority, the European Commission or another Member State's competition authority plays a major role in subsequent lawsuits. The publication of measures and other information by public authorities is an important source of information for litigants. Also other public authorities such as the Financial Services Supervision Authority (Finanzmarktaufsicht - BaFin) have a duty of disclosure of information within certain limits.

As to costs, Germany follows the 'loser pays' principle. Depending on the sector in which collective redress is sought, specific rules allow for splitting (Sec. 24 KapMuG) or reimbursement of costs (Sec 10 (4) UWG). It also has to be stated that contingency fees for lawyers are no longer generally excluded. The former prohibition has been considered as unconstitutional. Contingency fees are now permissible, though only under exceptional circumstances, e.g. if due to lack of financial means, the victim can only pursue his claim on the basis of a contingency fees arrangement. However, costs are generally not a major issue, due to a functioning legal aid system.

As to reforms, Germany has recently revised the Capital Market Model Claims Act (Kapitalanleger - Musterverfahrensgesetz (KapMuG)) to make test case proceedings more efficient. In its revised and slightly extended version, the act has been effective from 1 November 2012. The scope of the act has been extended to cases where capital market-related information is used in the sale and distribution of financial products. Also, plaintiffs can now join the model case to stop the limitation period of their claims and await the outcome of the test case proceedings before deciding to pursue an individual claim. The new act also provides a court-approved settlements agreed upon by model claimant and defendant with binding effect on all plaintiffs unless they opt out (for details see below).

There are no ongoing reforms of collective redress in the areas of consumer protection or competition law, and neither is there any concrete attempt to introduce a general collective redress mechanism. Although there is no mechanism for mass torts such as mass product liability cases, no urgent need to introduce a mechanism has been perceived by the legislator, as physical harm of victims is compensated through a system of social insurance. It is then up to the insurers to bring actions against the tortfeasor on the basis of the victim's claims that have been transferred to them by means of legal subrogation. However, further reforms are discussed amongst authors and associations. For instance, a very large percentage of consumer associations and associations promoting professional interests would welcome the introduction of general declaratory test case proceedings.

The topic might be reconsidered though in light of the European Commission Recommendation on Collective Redress.

1. BVerfG, 12.12.2006, BvR 2576/04, BVerfGE 117, 163


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