Collective redress and class actions have traditionally been alien to the German legal system. The German Civil Procedure Rules (“ZPO”), dating originally from 1877, but constantly revised, had until fairly recently contained nothing that would allow for collective redress.
That said, there is a longstanding German tradition of "association claims" (Verbandsklagen) for injunctive relief, ie, claims brought by consumer associations or professional associations in areas of consumer protection and unfair competition. Association claims can be brought by organisations that fulfil certain criteria. They aim to provide a corrective in the sense that, if successful, they make the defendant or defendant industry change course. However, such actions are not binding on individual potential claimants, and will not suspend or interrupt limitation periods.
Introduction of KapMuG
The bursting of the "dot-com bubble" in 2000 led to the introduction of the 2005 Act on Model Proceedings in Disputes under the Capital Markets Law ("KapMuG"). KapMuG is also called Lex Telekom, as around 16,000 claimants had filed claims against Deutsche Telekom alleging (eventually unsuccessfully) that misleading information in the company’s prospectus had led them to invest. KapMuG was meant as a temporary fix to allow the courts to manage the influx of shareholder claims in the wake of the stock market crash. However, it has undergone comprehensive revision and its application has been extended several times. It is currently set to expire on 31 December 2023.
Model Declaratory Actions
The reluctance to allow for collective redress mechanisms in other areas of law gave way to quick legislative action following the diesel emissions cases. In 2018, new Sections 606–614 ZPO were introduced into the Civil Procedure Rules. The provisions provide the framework for model declaratory actions. On the day of its coming into force, the first model declaratory action under the new regime was issued against the car manufacturer Volkswagen (VW).
The German model declaratory action is based on the German KapMuG rather than on any collective redress mechanism one might find in other jurisdictions. KapMuG’s objective, as set out in 1.1 History and Policy Drivers of the Legislative Regime, is to relieve pressure on courts faced with hundreds or thousands of near-identical claims.
To the extent that the model declaratory action under Sections 606 ff ZPO is also based upon European laws, it forms part of the so-called “New Deal for Consumers” and implements the Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the member states concerning violations of rights granted under EU Law (2013/396/EU).
As can be seen from the answers that follow, the model declaratory action, whether under KapMuG or ZPO, is not comparable to class actions.
The new regime under Sections 606 ff ZPO implements the key features of the Commission Recommendation of 11 June 2013, in that:
Other features recommended by the Commission required no specific implementation as they form part of existing German court procedure in any event, including:
Some recommendations made by the European Commission were implemented in Germany with some minor variation. For instance, the Commission recommended that claimants should be free to leave the claimant representative party group at any time before the final judgment is given or the case is otherwise validly settled. Pursuant to Section 608 ZPO, claimants are free to register and deregister their participation in the claimant party at any point before the end of the first day of trial, ie, earlier than the cut-off point envisaged by the Commission.
The ZPO regime precedes Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers, which Germany will need to implement and which will require significant amendments to the current regime (see 5.2 Legislative Reform).
The legislative framework for model declaratory actions is contained in KapMuG for shareholder/investor claims and in Sections 606 ff ZPO for consumer disputes.
Actions under KapMuG are only available for shareholder disputes, namely for:
The model declaratory action under Sections 606 ff ZPO is not restricted in terms of areas of law but is only available to decide questions arising in business-to-consumer relationships, so that the action will have a consumer law nexus. By way of example, under this new regime, actions have been brought in the areas of product liability, banking, and property law.
At the heart of both types of model declaratory action is “a declaration of the existence or non-existence of factual and legal preconditions for the existence or non-existence of claims or legal relationships (declaratory goals)”. These declaratory goals appear both in KapMuG and the ZPO.
Actions under KapMuG
Under KapMuG, a claimant or defendant to any suitable action may apply for the determination of declaratory goals and for registration of a matter as a model action. If the application is successful, the matter is transferred to a higher regional court and the court of origin will stay all actions before it which depend on determination of the same declaratory goals. It will advise the higher regional court of all such proceedings. It is then at the higher regional court’s discretion to determine which of the stayed actions should proceed as a model action.
Actions under Sections 606 ff ZPO
A model declaratory action under Sections 606 ff ZPO is issued as such by a "qualified entity".
First-instance jurisdiction lies with the higher regional courts. In some states, such as North-Rhine-Westphalia and Bavaria, only the higher regional courts have jurisdiction to hear model declaratory actions.
Once the model declaratory action has been admitted, registered and publicised as such, the procedure does not markedly differ from other civil proceedings. Section 11 KapMuG and Section 610(5) ZPO refer to the provisions governing civil procedure in general to clarify that these will apply with only a few exceptions. Key differences concern settlement mechanisms (see 4.12 Settlement and ADR Mechanisms) and a claimant’s waiver of the claim.
Overall, this means that the procedure will follow that of any other civil action. Broadly, this means: exchange of pleadings, early hearing, taking of evidence by the court of any witness evidence at trial hearings and/or of any expert evidence required, and judgment. Note that there is no discovery phase in German civil litigation.
Actions under KapMuG
As set out under 4.1 Mechanisms for Bringing Collective Redress/Class Actions, any claimant or defendant of a shareholder or investor claim has the ability to apply for model action status.
Actions under Sections 606 ff ZPO
Under Sections 606 ff ZPO, only "qualified entities" can issue model declaratory actions to seek a declaration on the existence or non-existence of factual and legal preconditions for the existence or non-existence of claims or legal relationships (declaratory goals) between consumers and an enterprise.
Qualified entities are those bodies designated in Section 4 (2) of the Act on Injunctive Relief ("UKlaG"), currently some 78 bodies, and those in the listing of the European Commission pursuant to Article 4 of Directive 2009/22/EC (now repealed).
The entity must have been registered for at least four years. In addition, special requirements regarding the membership structure must be met – the association must have at least 350 natural persons or more than ten associations as members active in the same area of activity (see Section 606 (1) sentence 2 No 1 ZPO). The association must also, in the fulfilment of its statutory tasks, protect consumer interests largely through non-commercial informative or advisory activities. Finally, the association may not obtain more than 5% of its financial resources through donations from businesses.
Given the list of requirements and the fact that the relevant information is not publicly available, it is not possible to reliably say which associations have standing to bring an action and can thus permissibly bring a model declaratory action.
The entity filing the action must prove that it has standing. There is however a presumption that consumer centres (Verbraucherzentralen), and other consumer associations that are predominantly publicly funded, fulfil the requirements for standing (see Section 606 (1) sentence 4 ZPO).
Actions under KapMuG
Once the model action has been registered and published, potential claimants have six months to opt in by registering their claim with the higher regional court hearing the model action. The action will only proceed as a model declaratory action if at least nine further claimants register.
Actions under Sections 606 ff ZPO
For a model declaratory action to be permissible, the claimant entity must initially show that at least ten consumers are affected and, two months after the public announcement of the model declaratory action, at least 50 consumers must have entered their claims or legal relationships in the register of actions.
While the action is pending, a registered consumer may not bring a separate action against the defendant based on the same facts.
Consumers can register and deregister at any time before the end of the first day of the trial.
Normal rules around joinder of parties also apply to model declaratory actions with one exception, and that is in relation to the joinder and role of registered consumers/claimants: consumers who have registered their claim cannot become interveners to the model declaratory action. By contrast, registered claimants in proceedings under KapMuG are "summonsed" to the model action, meaning they can undertake all relevant procedural acts, as long as their statements and actions are not contrary to the statements and actions of the model claimant.
Beyond this peculiarity affecting the role of the consumers and claimants in the actions, there is no restriction on joinder. That said, the formulation of the declaratory goals itself is likely to determine the final cast list.
As set out in 4.1 Mechanisms for Bringing Collective Redress/Class Actions, the higher regional court hearing the case has discretion in determining which case should be heard as the model case for the purposes of the model declaratory action. Apart from this management power very specific to the running of model declaratory actions, the case management powers are those a court has at its disposal in any civil action. As German civil procedure is court led, those powers are comprehensive.
Experience with the regime under Sections 606 ff ZPO is still limited. Some of the proceedings brought at the outset were resolved by way of settlement or final judgment within some two years.
Actions under KapMuG do add considerably to the time needed to bring individual matters to a resolution. This is not least because of the initial need to publicise the action and give time for potential claimants to register.
There are no specific provisions for the length or timetable of disposal of proceedings other than those set out elsewhere in this chapter.
German costs law follows the principle of scaled costs, meaning that court and lawyers’ fees are calculated in relation to the value of the claim. It also follows the principle of "loser pays".
While a client can agree higher fees with their lawyers, if they are successful, only scaled fees will be recoverable from the opponent.
By way of example, if the value of a claim is EUR250,000, the court fee will be EUR6,951 and the total lawyers’ fees recoverable at the time of first instance judgment will be EUR7,410.72.
This system also applies to model declaratory actions with only minor modifications.
Actions under KapMuG
Section 24 KapMuG provides that the cost of the model action forms part of first instance costs. The defendant's costs in the model action are to be allocated pro rata across the registered claims.
Actions under Sections 606 ff ZPO
The value of an action under Sections 606 ff ZPO is capped at EUR250,000, irrespective of the number of registered consumers. The "qualified entity" issuing the claim will have to fund the associated court and lawyers’ fees. If the action is unsuccessful, the entity is liable for the defendant’s scaled costs.
In light of the above, the public discussion around costs in Germany is typically not so much one of funding, as affordability for the parties. The main criticism that has been raised by commentators is that it will be difficult – for claimants in particular – to find lawyers willing to take on model declaratory actions. If the legal team is paid in line with the scaled fees regime, it is bound to make a loss. If it agrees higher fees with its clients, the balance will not be recoverable. This conundrum is reported to have caused considerable difficulties in the settlement discussions in the VW model declaratory action when the claimant’s team sought costs beyond EUR7,410.72 on the basis that the legal team was in fact acting for all registered consumers (albeit without retainer) and any costs settlement should therefore recognise the value of those individual consumer cases.
There are no specific rules in relation to disclosure for model declaratory actions under either KapMuG or the ZPO. This is not surprising, as Germany does not have a system of discovery as many common law jurisdictions do. Documentation that a party to litigation wishes to rely on will be appended to the pleadings. There is otherwise no duty to disclose and very limited means of applying for disclosure of specific documents in the possession of the opponent.
The remedy available is a determination by the court of the specific question(s) put before it; the "declaratory goals".
The court’s finding is binding on the parties and registered consumers/claimants, and of persuasive authority vis-à-vis other parties. However, because the judgment is declaratory in nature and only deals with specific elements of a claim, a successful outcome does not mean resolution of the claim. Rather, individual consumers/claimants will then need to pursue their individual cases further to prove their claim and obtain an appropriate remedy, such as damages. For the purpose of the relevant limitation period, registration of the claim time will have stopped time running for the duration of the model declaratory action.
There are specific provisions in the ZPO and KapMuG for settlement of model declaratory actions that displace all but one provision in the general procedural rules on settlements. The rule that is not displaced is the judges’ express duty to explore settlement options with the parties throughout the proceedings. A German court will test the parties’ preparedness to settle and to with that intention, may also share its view on the strengths and weaknesses of the parties’ cases at any given point.
In model declaratory actions, whether under KapMuG or Sections 606 ff ZPO, any settlement requires approval by the court, which will approve the settlement if it considers it to be an appropriate settlement, taking into account the evidence and arguments presented at that stage.
A settlement may be concluded with effect for and against the registered consumers/claimants and must contain provisions on:
The court’s approval is not appealable.
The registered consumers/claimants are notified of the approved settlement with instructions as to its effect. Any consumer/claimant may withdraw from the settlement within a period of one month after service of the approved settlement.
The approved settlement becomes effective if less than 30% of the registered consumers/claimants have declared their withdrawal from it.
Only those persons who registered their claim and did not withdraw from the settlement will then be bound by the terms of the settlement.
The final judgment or determination is binding between a registered claimant and the defendant.
If the higher regional court’s findings are favourable to the consumers/claimants, the individual claimant must then bring the legal dispute to a conclusion in the lower courts in relation to damages.
The German legal profession has for some time lobbied for a redress mechanism that would go further than the model declaratory action regime and has supported the concept of group actions, not least because of the difficulties in relation to the costs provisions (see 4.9 Funding and Costs).
However, such proposals were not taken up by the legislator when Sections 606 ff ZPO were enacted in 2018. Instead, the new provisions in the ZPO borrow from those in KapMuG and fall far short of group or class action regimes. The key reason cited for this publicly is that German lawmakers want to prevent a so-called “class action industry”, where it appears law firms share in profits.
KapMuG is again under review, to be completed in time for its expiry at the end of 2023.
Any amendment is unlikely to bring the collective redress mechanism closer to class actions. However, it is hoped that some of the criticisms will be addressed, namely that a model declaratory action extends the length of proceedings considerably and does not give the courts the desired relief, as each claimant is still required to pursue each claim separately following a ruling on the "declaratory goal".
EU Representative Action
Germany will also need to implement Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers by 25 December 2022.
The scope and available remedies of the EU representative action go beyond those of the model declaratory action under Sections 606 ff ZPO. The EU collective action is not limited to an action for a declaratory judgment but extends to claims for damages, repair, replacement, price reduction, termination of the contract or reimbursement of the price paid. The requirements for "qualified entities" entitled to bring an EU representative action are significantly lower than those for a model declaratory action. The EU representative action does not provide for a minimum number of registered consumers, nor for a complaints register. Overall, therefore, it seems inevitable that Sections 606 ff ZPO will be significantly overhauled.
Brexit has had no noticeable impact on the matters outlined above.
COVID-19 has had no noticeable impact on the matters listed above.