Collective Redress & Class Actions 2023 Comparisons

Representative or collective actions are not traditionally recognised in Germany. German law generally presupposes the violation of one's own subjective rights (principle of individual rights protection) for the opening of legal recourse and the admissibility of an action. It is a fundamental principle of German civil procedural law that only the parties to civil proceedings are bound by the outcome of such proceedings. While the general rules of civil procedure allow groups of plaintiffs to combine their claims into a single action by way of joinder, there are no specific procedures for dealing with these combined claims.

In recent years, however, the legislature has created certain forms of collective actions in some areas.

Injunctions Act

The first form of collective redress has been the right of certain registered interest groups to bring an action for injunctive relief on behalf of their members and in the common interest, particularly in cases involving unfair business practices by companies towards consumers, invalid general terms and conditions or other practices that violate consumer protection law or copyright law. The Injunctions Act (Unterlassungsklagengesetz – UKlaG) was introduced in 2002 in the context of a major modernisation of the German law of obligations to strengthen consumer protection.

Model Proceedings in Capital Market Disputes

In the years that followed, parallel proceedings with essentially the same content became increasingly common, especially in capital markets law. During this time, more and more law firms specialised in this area and began to form a pool of plaintiff’s attorneys by professionally soliciting capital investors.

In 2005, the German legislature broke new procedural ground with the creation of a model procedure for the settlement of disputes concerning “mass damages” in the capital market (Capital Investors Model Proceedings Act, Kapitalanleger-Musterverfahrensgesetz – KapMuG). This was based on the empirical finding that incorrect ad hoc announcements, misrepresentations in stock exchange prospectuses and other “offences” on the capital market generally cause “scattered damages” for which the existing instruments of the Code of Civil Procedure were not suitable. The reform efforts were mainly triggered by the lawsuits in connection with the third IPO of Deutsche Telekom AG: In these lawsuits, a total of about 16,000 plaintiffs, represented by more than 600 attorneys, were pursuing claims based on allegedly false prospectus information against the company itself, the Federal Republic of Germany, several syndicate banks and against Telekom’s then CEO. The thousands of individual lawsuits formally “brought down” the 7th Chamber for Commercial Matters of the Frankfurt Regional Court, which had sole jurisdiction due to the provisions of the Stock Exchange Act at the time. The then newly introduced Capital Investors Model Proceedings Act provides that in case of false, misleading or incomplete capital market information, certain legal or factual issues relevant to many pending civil proceedings can be decided in model proceedings with binding effect for all pending lawsuits. The Act was reformed in 2012, mainly by broadening its scope of application. It applies until 31 August 2024 and is to be reformed again by then.

Since the Act came into force in 2005, 84 model proceedings had been registered as of October 2023, of which only a few have so far resulted in a decision on the merits. Recently, some more popular cases have emerged, including lawsuits dealing with Volkswagen AG and Mercedes-Benz Group investors’ share price losses in connection with the diesel emissions issue, the annual reports of the failed financial service provider Wirecard AG and following alleged breaches of Bayer AG of its potential disclosure obligations in relation to the financial risks caused by the acquisition of the US pharmaceutical company Monsanto.

Model Declaratory Action

In 2018, the legislature introduced a model declaratory action into the Code of Civil Procedure, combining elements of the Capital Investors Model Proceedings Act (KapMuG) and the Injunctions Act (UKlaG), to facilitate collective redress for consumers in cases of mass damages caused by large companies (Model Declaratory Action).

In the years before, it had become increasingly apparent that “scattered damages”, which affect many consumers, are not only found in the capital market sector but also in other business transactions, for example in the case of unlawful price clauses. In particular, the diesel emissions issue, in which various car manufacturers were accused of having carried out illegal manipulations to circumvent legally prescribed limits for car exhaust emissions, led to a large number of worldwide legal disputes. In Germany, this includes two types of civil lawsuits: on the one hand, actions brought by shareholders of car manufacturers who base their claims on capital investment regulations, and, on the other hand, by car buyers claiming damages based on liability for material defects and tort against the car manufacturers and car dealers. As a result, the courts were flooded with a large number of lawsuits. The lawsuits of the first type, filed by shareholders of car manufacturers, are being conducted as Model Proceedings in Capital Market Disputes. For the lawsuits of the second type, there was no possibility of collective redress until 2018, and this possibility was created with the Model Declaratory Action.

The Model Declaratory Action cannot be initiated by individual consumers, but only by certain qualified institutions – ie, consumer associations (Qualified Entity), subject to certain requirements. Once a Qualified Entity has filed such a claim, any individual consumer can decide to opt in and register their claim. The Model Declaratory Action ends with the determination of the (non-)existence of factual and legal conditions for the (non-)existence of a claim or legal relationship between the consumers and the defendant company. To obtain an enforceable judgment, each registered consumer must then bring an individual action in which they can benefit from the binding determinations of the model declaratory decision. 

On the day of the introduction of the Model Declaratory Action, the Federal Association of German Consumer Centres filed such an action against Volkswagen AG. The action ended in 2020 with a settlement, in which the parties negotiated compensation offers for more than 250,000 car buyers. In order to conclude the settlement, the car buyers could register on an online platform and submit the necessary documents. However, a large number of individual proceedings are still pending by car buyers who have not joined the Model Declaratory Action.

To date, the Model Declaratory Action has been used primarily in the diesel proceedings, in the banking and energy sectors and in tenancy law. As of October 2023, 35 cases have been registered.

The Model Declaratory Action has been met with considerable criticism. It is argued, for example, that the right of consumer associations to sue is alien to civil law, which is characterised by private autonomy, and that the variety and number of possible legal actions in a Model Declaratory Action would overburden Qualified Entities, both financially and organisationally.

Legal Tech Online Platforms

Online platforms offer another way of bundling claims by giving consumers the possibility to assign their claims against a company to a plaintiff vehicle, thus mimicking class actions aimed directly at obtaining damages. The legal tech platform is typically financed by a litigation funding company, which assumes the risk of bearing a significant portion of the legal costs in the event of defeat. If the lawsuit is successful, a commission is payable by the consumer, which can be up to 35% and is partly passed on to the litigation funder. If the lawsuit fails, the consumers do not have to pay anything.

This business model has been objected to by defendant companies on the grounds of violation of the Legal Services Act. In this regard, the Federal Court of Justice ruled in several decisions from 2021 to 2023 that this business model is permissible.

Consumer Rights Enforcement Act

Regardless of the criticism, the legislature is sticking to the Model Declaratory Action introduced in 2018 and has moved it from the Code of Civil Procedure to the new Consumer Rights Enforcement Act (Verbandsklagenrichtlinienumsetzungsgesetz – VRUG) which entered into force on 13 October 2023. The Model Declaratory Action is now joined by a new type of Representative Action introduced by the implementation of Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (the “Representative Actions Directive”). Under the Directive, Qualified Entities may bring Representative Actions for injunctions and redress on behalf of a group of consumers against infringements of Union law harmful to consumers’ collective interests. Due to the possibility to obtain enforceable judgments, it offers a higher level of consumer protection compared to the Model Declaratory Action of 2018. The new German Consumer Rights Enforcement Act (VRUG) implements the requirements of the directive and introduces this new Representative Action for performance or damages applying to all disputes between consumers and businesses (Redress Action).

The Redress Action could become particularly important in data protection damages claims, product liability cases, antitrust damages claims, capital investment cases and the enforcement of the Digital Markets Act. The Federal Association of German Consumer Centres has already announced that it will use the new remedy action against energy suppliers, telecommunications providers and providers of financial services.

Model Proceedings in Capital Market Disputes

The Capital Investors Model Proceedings Act (KapMuG) introduced in 2005 is not modelled on another country’s regime but was developed independently.

Model Declaratory Action

European policy issues are crucial for the development of collective actions in Germany. The Model Declaratory Action introduced in 2018 was motivated, among other things, by European legal acts, in particular the Commission Recommendation of 11 June 2013 Common Principles on collective actions for injunctions and damages in the Member States concerning breaches of rights guaranteed by Union law (2013/396/EU) and the Commission Report on the implementation of that Recommendation, which are part of a comprehensive reorientation of European consumer protection (“New Deal for Consumers”).

Consumer Rights Enforcement Act/Redress Action

The strengthening of consumer protection will continue with the implementation of the European Representative Actions Directive (Directive (EU) 2020/1828). Here, a new chapter began in October 2023 with the introduction of a lawsuit by which Qualified Entities as representatives of affected consumers can sue companies directly for performance or damages.

With the new Consumer Rights Enforcement Act (VRUG), which entered into force on 13 October 2023, Germany implemented the European Representative Actions Directive (Directive (EU) 2020/1828) and introduced a new type of Representative Action for performance or damages applying to all disputes between consumers and businesses (Redress Action).

The scope of application is thus much broader than required by the Directive and extends not only to consumer protection provisions but also – eg, to general tort law.

Companies with less than ten employees and an annual turnover or annual balance sheet of no more than EUR2 million (“small companies”) are treated the same as consumers and can now also join Redress Actions. In this respect, too, the Consumer Rights Enforcement Act goes beyond the Directive.

Consumer Rights Enforcement Act/Redress Action/Model Declaratory Action

Since 13 October 2023, the Consumer Rights Enforcement Act (VRUG) has been the principal law governing collective redress. The Redress Action newly introduced by this Act complements the Model Declaratory Action from 2018, which has now been transferred to this Act.

Model Proceedings in Capital Market Disputes

The Capital Investors Model Proceedings Act (KapMuG), introduced in 2005, is currently valid until 31 August 2024 and is to be reformed by then.

Injunctions Act

Under the Injunctions Act (UKlaG), qualified representative organisations may seek injunctive relief against companies that use unlawful general terms and conditions or otherwise violate consumer protection or copyright law.

Consumer Rights Enforcement Act/Redress Action/Model Declaratory Action

Under the new Consumer Rights Enforcement Act (VRUG), which entered into force on 13 October 2023, all matters that could be litigated in an individual civil lawsuit can be litigated in the new type of representative action for performance or damages (Redress Action). The Redress Action applies to all disputes between consumers and businesses.

This also applies to the Model Declaratory Action, as well as to all claims or legal relationships between a consumer and a business. There are no restrictions on the areas or applicable laws. 

Model Proceedings in Capital Market Disputes

Model Proceedings in Capital Market Disputes can be initiated for false, misleading or omitted public capital market information – eg, in annual financial statements or stock exchange prospectuses. Since 2012, proceedings may also be initiated if such information is used or if a required disclosure is omitted. This law may also be applied in the case of claims for performance under a contract based on an offer under the Securities Acquisition and Takeover Act.

There is no statutory definition of what constitutes a collective redress. The guiding principles of the German legislature can only be read indirectly from the laws dealing with collective redress and the legislative history. The Consumer Rights Enforcement Act (VRUG) provides that in civil disputes involving claims and legal relationships of a large number of consumers against a company, Representative Actions may be brought.

General Requirements for Bringing a Civil Action

Court proceedings are initiated by filing a statement of claim. Since 2022, documents may only be filed via the special electronic attorney mailbox. The statement of claim must meet certain mandatory requirements, such as being written in German and signed, and setting out the facts on which the relief sought is based. It may refer to exhibits. It is at the discretion of the court to allow exhibits in a foreign language, provided that the court has sufficient command of the respective language. If a court does not permit foreign-language exhibits, the party relying on them must, at the request of the court, prepare translations in whole or at least of the relevant passages. There is no procedural rule requiring the plaintiff to include a legal analysis of the case, but this is common practice and advisable. Once the statement of claim has been filed, the plaintiff is required to make an advance payment of the full court costs. As long as this mandatory requirement is not fulfilled, the court will not serve the statement of claim on the defendant. While subsequent submissions may be served directly between the parties’ attorneys, the statement of claim can only be served by the court.

Redress Action/Model Declaratory Action

The new Redress Action and the Model Declaratory Action can only be brought by a Qualified Entity which has to plausibly set out in its statement of claim that at least 50 consumers are affected and that the consumer’s claims present substantially similar questions of law or fact. An action is inadmissible if it is financed by a third party who is a competitor of the defendant company or in any way dependent on the defendant company, who is promised an economic share in the compensation to be rendered by the defendant company of more than 10% or who can be expected to influence the conduct of the lawsuit by the Qualified Entity to the detriment of the consumers. The Qualified Entity plaintiff is obliged to disclose the origin of the funds to finance the Representative Action as well as any agreements with the third-party funder. In addition, the general requirements for bringing a civil action set out above apply. The Higher Regional Court in whose district the general place of jurisdiction of the defendant company is located has exclusive jurisdiction for these kinds of actions.

Once a Qualified Entity has filed such a Representative Action, another Qualified Entity may not bring another Representative Action against the same defendant company involving the same facts and claims or the same determination objectives.

Each individual consumer or small business entitled to sue (see 4.4 Class Members, Size and Mechanism (Opt In/Out)) can decide to opt in and register their claims in the internet-based Register of Representative Actions maintained at the Federal Office of Justice. This is possible until three weeks after the conclusion of the oral hearing. The registration, which is subject to certain requirements regarding the specific presentation of the claim, suspends the limitation period for the consumer’s claims and is without financial expense or litigation risk. In the registration procedure, no substantive examination of the claim is carried out.

If, prior to the notification of the Representative Action in the Register of Representative Actions, a consumer has brought an action against the defendant company relating to the claims, legal relations or determination objectives and the subject matter of the Representative Action and registers their claim, the origin proceedings are stayed pending the final decision or other settlement of the Representative Action or the effective withdrawal of the registration. During the pendency of the Representative Action, a registered consumer may not bring an action against the defendant company whose cause of action relates to the same facts, claims or determination objectives.

However, non-registered consumers are not prevented by a Representative Action involving the same facts, claims or determination objectives from bringing an individual action and continuing the proceedings during the term of the Representative Action.

Model Proceedings in Capital Market Disputes

The law on Model Proceedings in Capital Market Disputes permits plaintiffs or defendants to apply in their pending lawsuits for a collective action regarding common factual and legal issues before a Higher Regional Court. This means that first normal court proceedings must be initiated with the court of first instance, which is usually a regional court.

Insofar as model proceedings are desired in ongoing proceedings, the plaintiff or defendant requesting this must show that the decision in the model case may be of significance for other similar legal disputes over and above the individual legal dispute. The court of origin then publishes the model case applications in the internet-based Register of Representative Actions.

If there are at least ten applications of the same kind within a period of six months, the court first seized will issue an order for reference to the Higher Regional Court (Reference Order). This order summarises the common issues common to all proceedings (determination objectives) and contains a concise statement of the underlying identical facts of the applications. The order is submitted to the Higher Regional Court. All pending legal proceedings whose decision depends on the asserted determination objectives are then stayed by the courts. Applicants in parallel proceedings as well as persons who have not yet brought an action for the same claim are entitled to file an application. The applicant must be represented by a lawyer. The application may suspend the limitation period for the applicant’s claims until the conclusion of the model proceedings without the applicant having to file an action.

The Higher Regional Court selects, at its equitable discretion, a model plaintiff from one of the suspended proceedings and publishes it – together with the defendant(s) and the reference number of the proceedings – in the register of actions of the electronic Federal Gazette. The selection shall take into account the suitability of the plaintiff to conduct the model action in an appropriate manner, taking into account the interests of the defendants, an agreement of several plaintiffs on one model plaintiff and the amount of the claim, insofar as it is affected by the determination objectives of the model proceedings.

After publication of the model plaintiff, persons who have not yet filed an action for the same kind of claim may register their claim. Applicants must be represented by a lawyer, and the application must be filed within six months of the date of publication. By filing the application, the limitation period of the applicant’s claims is suspended until the conclusion of the model proceedings, without the applicant having to file a lawsuit. However, the mere registration of a claim does not constitute participation in the model proceedings. Applicants who have not filed an individual lawsuit will also not be included in a possible settlement in the model proceedings.

Redress Action

The Redress Action proceedings are structured in three phases. First, the judicial redress procedure is carried out between the Qualified Entity – ie the consumer association, and the defendant company. This phase encompasses the basic redress judgment on the merits of the case, a settlement evaluation phase and, if no settlement can be reached between the Qualified Entity and the defendant company, the final redress judgment including the total compensation amount. This is followed by the implementation phase, where compensation is distributed by a court-appointed administrator who decides on eligibility and the individual amount of compensation for each registered consumer. The administrator’s decision is subject to judicial review. Finally, any potential follow-on proceedings are carried out – eg if the administrator has refused to fulfil a claim asserted by a consumer in full or in part in the implementation phase, or if the defendant company raises objections, provided that this claim or this objection could not have been raised during the previous phases.

Model Declaratory Action

The Model Declaratory Action proceedings are structured in two phases. First, the Model Declaratory Action is conducted between the Qualified Entity – ie the consumer association, and the defendant company. Consumers who opted in are not involved in the conduct of the action, which is solely conducted by the Qualified Entity. In the proceedings, all factual and legal questions relevant to all claims of the consumers concerned can be examined and clarified – eg whether the defendant company has acted unlawfully or not. The consumer association and the defendant company can reach a (court) settlement in favour of the registered consumers and thereby end the proceedings. If no settlement is reached, the Model Declaratory Action does not end with an enforceable judgment, but with the judicial determination of the (non-)existence of factual and legal conditions for the (non-)existence of a claim or legal relationship between the consumers and the defendant company. This model declaratory decision may be appealed to the Federal Court of Justice. To obtain an enforceable judgment, each individual consumer must then bring in a second phase an individual action in which they can benefit from the binding determinations of the model declaratory decision. All other aspects of the individual cases – eg causal connection or amount of damage, are decided by the courts of the respective proceedings.

Model Proceedings in Capital Market Disputes

In the Model Proceedings in Capital Market Disputes, the proceedings are conducted between the model plaintiff and the defendant companies. All other plaintiffs do not become direct parties to the model proceedings and are barred from pursuing their individual claims while the model proceedings are pending. They have a type of third-party standing and may file briefs in the model proceedings but are not allowed to contradict the model plaintiff’s submissions. In practice, most plaintiffs remain passive in the model proceedings phase. Based on the model plaintiff’s and the defendant(s)’ submissions, the Higher Regional Court will rule on the common issues of fact or law set out in the Reference Order. The Model Order can be appealed to the Federal Court of Justice. When the Model Order is final and res judicata, it binds the courts in all individual actions stayed due to the model proceedings.

Redress Action/Model Declaratory Action

The new Redress Action and the Model Declaratory Action can only be brought by Qualified Entities – ie, qualified consumer associations which (i) have been registered in the list pursuant to the Injunctions Act or in the list of the European Commission pursuant to Article 5(1) sentence 4 of Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of and repealing Directive 2009/22/EC (OJ L 409, 4.12.2020, p. 1, and (ii) do not receive more than 5% of their financial resources from private companies. If there are serious doubts as to whether this condition is met, the court shall require the plaintiff to disclose its financial resources. It is irrefutably presumed that consumer centres and other consumer associations that are predominantly funded with public funds fulfil this requirement.

Model Proceedings in Capital Market Disputes

Under the Capital Investors Model Proceedings Act (KapMuG), applications for model proceedings can be brought by capital investors who are entitled to bring securities actions – ie, private individuals and institutional investors as well as the defendant companies. Groups, interest groups or qualified entities are not entitled to file applications under the Act. If model proceedings are initiated, the Higher Regional Court responsible for the model proceedings selects a model plaintiff from the list.

Redress Action/Model Declaratory Action

Both the new Redress Action and the Model Declaratory Action are generally based on an “opt-in” mechanism. Consumers and small businesses (ie, companies with less than 50 employees and an annual turnover of no more than EUR10 million), who are often affected in the same way as consumers, can only benefit from these actions if they opt in by registering their claims in the Register of Representative Actions up to three weeks after the conclusion of the oral hearing. Until that time, it is also possible for registered consumers to withdraw their registration. Another opt-out element in these Representative Actions is the ability of registered consumers to opt out of a collective settlement within one month after the announcement of the settlement in the Register of Representative Actions.

If the Model Declaratory Action is successful, consumers may have to do another “opt-in” by bringing an individual action to enforce their individual claims endorsing the findings of the model decision. This is not required in the Redress Action.

Model Proceedings in Capital Market Disputes

The Model Proceedings in Capital Market Disputes combine elements of “opt-in” and “opt-out”. Once the court of first instance has submitted the Reference Order with the common issues of fact or law to the Higher Regional Court for adjudication, all actions brought by individual plaintiffs affected by the common issues of fact or law are stayed. All plaintiffs in the stayed individual actions – including those who have not applied for model proceedings – are bound by the Model Order. Affected plaintiffs are only granted the right to withdraw, and thereby essentially waive their claims, within one month of the stay of their actions. Once the common issues have been decided, the individual actions are resumed to adjudicate the remaining individual issues of fact or law.

The revised Capital Investors Model Proceedings Act (KapMuG) enables the model plaintiff to negotiate a settlement with the defendant(s) in the model proceedings (see 4.12 Settlement and ADR Mechanisms), which is, after approval by the Higher Regional Court, binding on all parties in the stayed individual actions, provided that no more than 30% of the plaintiffs opt out.

General Requirements for Joining a Civil Action

In German procedural law, it is traditionally possible for several persons to be on the plaintiff’s side and assert their individual claims in a joint action. A particular risk of this approach is the danger of a separation of proceedings. The court can order that several claims asserted in one action be heard in separate proceedings if this is justified for objective reasons – eg, if the court finds that the assessment of causality requires individual proceedings.

Another option for bundling claims is the assignment of individual claims to one plaintiff vehicle.

If a new plaintiff wishes to join a pending lawsuit, the existing plaintiff, and possibly also the defendant, must declare their consent to the joining. Subsequent participation in an action as a defendant is only possible if the plaintiff expressly sues the other defendant. 

A person who is not a party to the original lawsuit may intervene in the proceedings to support the position of one of the parties whose success or defeat will legally affect the interests of the intervener. Such a third-party intervention can be filed at any stage of the proceedings before the judgment becomes final. An intervener does not become a formal party to the proceedings but may act only in the interest of the party whom it assists. The intervener is not legally bound by the judgment. However, in a subsequent action between the intervener and the party it supports, the intervener is largely prohibited from arguing that the judgment is incorrect.

Redress Action/Model Declaratory Action

It is permissible for several Qualified Entities to sue jointly against one or more companies. For subsequent participation in the action the general requirements set out above apply. Third-party intervention is not possible in the relationship between the parties to the Representative Action and the registered consumers or such consumers who assert to have a claim against the defendant company or to be claimed against by it or to have a legal relationship with it.

Model Proceedings in Capital Market Disputes

According to the Federal Court of Justice, the Model Proceedings in Capital Market Disputes before the Higher Regional Court – and on appeal the Federal Court of Justice – are not capable of intervention. However, this principle does not change the fact that interventions are possible in the origin proceedings so that an intervention can be made there. The intervening parties in the origin proceedings are then also not prevented from exercising their rights in the model proceedings within the statutory framework.

The court and the parties are under an obligation to conduct the proceedings as expediently as possible and to limit the number of hearings to a minimum. Therefore, generally only one hearing takes place if no taking of evidence is necessary. If evidentiary proceedings are necessary, these usually take place on a separate date.

Based on the introduction of the case and the discussion with the parties and their attorneys, the court will usually try to settle the case. This applies at every stage of the proceedings.

German procedural law does not expressly provide for case management hearings. In practice, the court mainly structures the proceedings through written court orders, in which the court sets deadlines for written pleadings and prepares the oral hearing. The court also has the option of ordering an early first hearing in which it discusses the case with the parties at an early stage and, on basis of these discussions, can decide on the further course of action.

In mass proceedings that are not bundled in a model case, courts are often willing to co-ordinate the management of numerous parallel cases with the litigants – eg, by agreeing on filing deadlines and schedules or focusing on cases that are considered representative. While these selected cases only lead to persuasive precedents that are technically non-binding, experience has shown that such an approach by a court can be very efficient.

German civil trials, particularly in complex cases, are usually extensively prepared by written submissions of the parties. Hence, a first hearing can, on average, be expected after six to 12 months. However, the scheduling of hearings also depends on the workload of the court and varies significantly between courts. 

In proceedings under the Capital Investors Model Proceedings Act (KapMuG), a hearing of the Higher Regional Court may only occur after a considerably longer period of time, and also the total length of the proceedings has been far longer so far. In the Telekom case, which led to the introduction of the KapMuG in 2005 (see 1.1 History and Policy Drivers of the Legislative Regime), the model decision was issued in 2012. After a successful appeal decided by the Federal Court of Justice in 2014, the case was referred back to the Higher Regional Court for a new hearing and was concluded with a settlement in 2021. The proceedings against Volkswagen AG for the share price losses of shareholders in connection with the diesel emissions issue, with a current amount in dispute of approximately EUR4.4 billion, began in 2018 on behalf of approximately 1,600 individual lawsuits (see 1.1 History and Policy Drivers of the Legislative Regime). Here, the extensive taking of evidence started in September 2023, which, inter alia, provides for the examination of 86 witnesses.

Courts have a legal obligation to expedite the proceedings. German procedural law does not provide for a general form of “early judgment”, but specific types of judgments are available that are comparable to the concept of early judgment.

If a court is convinced that liability and at least some damage has been incurred, it can make an interlocutory judgment based on the claim, leaving the quantification of the claim open. Such judgments often motivate the parties to settle the amount of damages. A court may also issue an interlocutory judgment on certain contentious procedural issues. Such judgments are at the sole discretion of the court. A court may also, at its discretion, decide on only part of the claims or counterclaims when this part is ripe for a final decision before a decision can be made on the remaining parts.

Early judgments can also be declaratory in nature and cover basic legal issues underlying the dispute – eg, if a plaintiff claiming complex damages as a shareholder of a company is a shareholder at all. The court must decide on such an application of a party.

A special form of this judgment under reservation is the judgment in summary proceedings based on documentary evidence or on a bill of exchange. In these proceedings, the parties may rely only on documents and party testimony for evidence. All other means of evidence are excluded, and counteractions are not permitted. However, even after a judgment under reservation has been rendered, the proceedings remain pending and the defendant may raise objections and submit evidence at a later stage of the proceedings, without the limitations of the evidentiary means. Such expeditious proceedings therefore entail a risk for the plaintiff that the judgment under reservation will be set aside at a later stage. If the plaintiff has enforced the judgment under reservation, it is liable to the defendant for all damages resulting from such enforcement on a no-fault basis.

In mass proceedings that are not bundled in a model case, courts may opt to focus on cases that are considered representative and formally or de facto suspend the other proceedings until a final decision is rendered in the selected cases.

Funding

There is no general rule for the funding of these actions. The lawsuits can be financed by the plaintiffs themselves. Consumer lawsuits are often also financed by legal expenses insurance, which many Germans have taken out. This insurance covers court costs, the insured person’s own attorney’s fees and also the reimbursable opponent’s costs if the insured person loses the case.

A party may also apply to the court for legal aid if they are unable to pay all or part of the costs of the proceedings due to their personal or economic circumstances, provided that the intended legal action has a reasonable chance of success and does not appear frivolous. The legal aid, if granted, covers the court costs and the plaintiff’s own attorney’s fees, but not the costs of the opponent, which the plaintiff must bear if they lose.

Third-party litigation funding, whereby a private or commercial third party advances the funds required for litigation and bears the risk of an adverse cost order in return for a fixed percentage of any judgment or settlement, is becoming increasingly common. There are no legal regulations that deal directly with such funding. Its framework derives from statutes such as the Legal Services Act, the Federal Lawyers’ Act and the Lawyers’ Fees Act. It emerges from them – eg, that the funder is prohibited from providing legal advice to their client. In general, the funder concludes the financing agreement with their client and the client instructs an attorney so that the funder and the attorney have no contractual relationship with each other. Third-party funding can cover all fees and expenses, including costs of legal representations and court fees. In addition, the agreements can include any costs of the opponent to be borne by the funded party if it loses the case. There is no limit on the amount a third-party funder can provide. De facto, however, some litigation funders only provide funding above a certain minimum amount in dispute.

The third-party funding market is in a state of upheaval, partly due to legal technology companies such as online platforms and service providers that do not finance legal disputes in the conventional sense, but instead have the claims of their customers assigned to them and then assert them in court in their own name and at their own risk (see 1.1 History and Policy Drivers of the Legislative Regime). In the event of success, the customers receive a certain percentage of the sum awarded.

Generally, there is no obligation to disclose a funding arrangement in court. However, this is different with the new Redress Action and the Model Declaratory Action. The new law allows third-party funding for the Redress Action and the Model Declaratory Action but sets rather strict requirements. If the requirements are not met, the Representative Action will be dismissed. The Qualified Entity plaintiff is obliged to disclose the origin of the funds to finance the Representative Action as well as any agreements with the third-party funder who must not be a competitor of, or in any way dependent on, the defendant company. In addition, the third-party funder’s share must not exceed 10% of the compensation awarded. It is likely that these rules will discourage litigation funders, at least for less substantial claims.

Another type of funding, contingency fee arrangements where part of the proceeds is transferred to the attorney, are still rare in Germany. A contingency fee in litigation was prohibited until recently and may now only be agreed on a case-by case basis if the client’s financial circumstances do not permit litigation without a contingency fee agreement.

Costs

As a rule, the party losing the case must bear all the costs of the proceedings. If both parties lose parts of the dispute, the costs will be allocated between the parties in proportion to win and loss.

In principle, the costs of the court and the attorneys are strictly linked to the amount in dispute. In relation to this amount, statutory law provides for specific fixed rates. A party can agree much higher billing rates with its attorney, which is common in complex commercial matters. However, in litigation, the winning party can only demand payment from the losing party of the sums calculated based on the fixed statutory rates. Upon request, the judicial officer orders interest on the reimbursable costs at a rate of five percentage points above the base rate from the date on which the cost application is submitted.

The cost risks for Qualified Entity plaintiffs in Redress Actions and Model Declaratory Actions are limited: the amount in dispute, on the basis of which the court costs and statutory lawyers’ fees are calculated, is capped at EUR300,000 (Redress Action) respectively EUR250,000 (Model Declaratory Action), regardless of the actual economic importance of the case. With an amount in dispute of EUR300,000, this currently means court costs of EUR8,139.00 and, in terms of attorneys’ fees, a statutory fee for the conduct of the proceedings of EUR3,571.10, a statutory fee for the oral hearing(s) of EUR3,296.40 and, in the event of a settlement, a statutory settlement fee of EUR2,747.00. In the individual proceedings of the individual consumer, which follow the Model Declaratory Action, there is no restriction with respect to the amount in dispute, and the normal cost regulations apply.

In proceedings under the Capital Investors Model Proceedings Act (KapMuG), the costs incurred by the model plaintiff and the defendants in the model proceedings are part of all stayed individual actions. The final judgment in each individual proceedings contains a decision on the costs of both the origin proceedings and the model proceedings.

Pre-trial and Trial Disclosure

The concept of pre-trial and trial disclosure does not exist in German civil cases. Each party usually bears the burden of proof for the facts on which the party’s claim or defence is based. In certain circumstances the burden of proof lies with the other party. Each party decides for itself which facts and documents are submitted to the court. No rule obliges a party to disclose all available information that might be relevant to the case. However, the information provided to the court must be true and correct.

Before filing a statement of claim, a plaintiff usually must collect most of the relevant facts for its case. Generally, the preparation of a case starts with a review of all available documents and interviews with persons who have direct knowledge of the facts. In complex cases, a party can also consult a certified expert to clarify technical or commercial issues relevant to the case.

Other sources of information are public registers. Germany provides for multiple public registers that can be consulted on request – eg, the Commercial Register, the Debtor Register, the Register of Associations, the Land Register, the Register of Residents and the public announcements in insolvency matters. In addition, any citizen may by law require that information held by a public authority be disclosed. Such a request is only rejected if the public interest does not permit disclosure – eg, to protect secret information.

Although the German law does not provide for pre-trial disclosure tools, there are some disclosure obligations to which a party may be subject – eg, if the opposing party is in possession of a certain relevant document.

German substantive law or contractual agreements may also grant a party a legal claim against the opposing party for disclosure of certain information that is not otherwise available. Such a claim may be asserted in court. A special form of such proceedings is the action by stages. Such an action is divided into two phases: first, the court decides on the claim for disclosure of information, and second, on the request related to this information – eg, a payment claim.

In very limited circumstances, a court may also order a third party to provide a particular document in its possession. The third party may object to the court’s order on the grounds that the order imposes an unreasonable burden on it. A third party may also be subject to substantive or contractual claims for disclosure of information – eg, an insurer of a party.

Privilege

German law recognises the concept of attorney-client privilege. Attorneys may not testify before authorities in relation to their mandates without the prior consent of their client. The fact that an attorney refuses to testify does not allow the courts to draw conclusions. The attorney-client privilege also covers work products, including attorneys’ files and correspondence between an attorney and their client. Disclosure of client information without consent is a criminal offence. In-house counsel admitted to the bar may also invoke legal privilege.

Redress Action

The new Redress Action provides a way for qualified institutions to obtain a decision obliging the defendant company to provide remedy to consumers in the form of monetary compensation, repair, replacement, price reduction, termination of the contract, or a refund of the price paid.

Should damages be claimed, whether arising out of contract, tort or other statutory actions, the regulations of the Civil Code apply. The Civil Code understands damage as an involuntary loss of property. If such loss occurs, the damaged party can, in principle, demand the natural restoration of the status before the harmful conduct/event. In theory, monetary relief for a loss is treated as an exception to this principle of natural restoration. However, if damage occurs to a person/an object, the injured party may alternatively claim the amount of money necessary for the restoration. Furthermore, if the restoration of the status prior to the occurrence of the harmful conduct/event is not possible or sufficient, the injured party may immediately claim the sum of money necessary for the restoration. The common practice is financial compensation for loss or damage.

In addition, an injured party may claim compensation for future losses due to loss of profit. The courts apply strict rules regarding the substantiation of the profits that would have accrued in the absence of the harmful conduct/event.

Under the general concept of damages under German law, damages must always be compensatory and generally compensate for all losses. However, certain laws set limits on recoverable damages; for instance, the German Product Liability Act (ProdHaftG) limits liability arising from one defective product to EUR85 million.

Punitive damages that add a penalty element are generally not awarded under German substantive law due to the principle of restoring the situation prior to the harmful conduct/event. However, punitive damages are awarded if the parties to the dispute agreed on a contractual penalty. Such punitive damages are well known in competition law.

Model Declaratory Action

The Model Declaratory Action does not determine remedies but, by way of a declaratory judgment, determines liability and the existence or non-existence of claims or rights, as well as of legal relationships. The individual plaintiff’s remedy will then be determined in separate follow-up proceedings in which the plaintiff can benefit from the binding determinations of the model declaratory decision.

Model Proceedings in Capital Market Disputes

The Model Proceedings in Capital Markets disputes are not about remedies, but only about deciding common questions of fact or law. In actions under the Capital Investors Model Proceedings Act (KapMuG), various forms of statutory claims are usually asserted – eg prospectus liability, breach of advisory contracts or tort, where damages are primarily sought.

German law normally permits the settlement of claims between the parties without court approval. Settlements reached while litigation is pending and recorded by the judge terminate the proceedings and are enforceable in lieu of a judgment.

Model Proceedings in Capital Market Disputes

The revised Capital Investors Model Proceedings Act (KapMuG) of 2012 introduced the possibility of a “collective settlement”, which facilitates the conclusion of a settlement in model proceedings. Before the amendment of the Act, each plaintiff in a particular model case had to expressly consent to a settlement. However, unanimous consent is difficult to achieve in model proceedings with numerous plaintiffs. Since the amendment, it has been possible for the model plaintiff to negotiate a settlement with the defendant(s) which, once approved by the Higher Regional Court, is binding on all parties unless at least 30% of the plaintiffs choose to opt out.

Redress Action/Model Declaratory Action

The new Redress Action and the Model Declaratory Action provide for a similar collective settlement procedure. The Qualified Entity plaintiff – ie, consumer association, and the defendant company can reach a (court) settlement in favour of the registered consumers and thereby end the proceedings. The collective settlement can only bind registered consumers who do not opt out, which is possible within one month after the announcement of the settlement in the Register of Representative Actions.

Since consumers can opt in until three weeks after the conclusion of the oral proceedings, it will regularly be very difficult for defendant companies to conduct meaningful settlement negotiations prior to the basic redress judgment because there is no certainty as to which and how many persons have joined the Representative Action.

Redress Action

The new Redress Action can be concluded with a judgment for affirmative relief – eg, performance, payment, omission, or compensation, depending on which relief the plaintiffs have sought.

This judgment is binding on a court called upon to rule on a dispute between a registered consumer and the defendant company to the extent that its decision relates to the facts and claim of the Redress Action.

Model Declaratory Action

The Model Declaratory Action does not end with an enforceable judgment but with the determination of the (non-)existence of factual and legal conditions for the (non-)existence of a claim or legal relationship between the consumers and a defendant company. To obtain an enforceable judgment, each registered consumer must then bring an individual action in which they can benefit from the binding determinations of the model declaratory decision. The judgment obtained in these individual proceedings can be appealed on points of law and is enforceable under the normal enforcement conditions that apply in Germany.

A model declaratory judgment has no effect for consumers who are not registered in the Register of Representative Actions.

Model Proceedings in Capital Market Disputes

The Model Proceedings in Capital Market Disputes also do not end with an enforceable judgment but with a Model Order of the Higher Regional Court. The issues established in this Model Order – possibly confirmed on appeal by the Federal Court of Justice (BGH) – are binding for the parties in the individual proceedings. All other aspects of the respective cases – eg, causal connection or amount of damage, are decided by the courts of the individual proceedings. The judgment obtained in these individual proceedings can be appealed on grounds that were not the subject of the model proceedings and is enforceable under the normal enforcement conditions in Germany.

The legal market is currently being driven primarily by the rapid development in the areas of legal technology (Legal Tech) and Artificial Intelligence (AI). Legal Tech has found its way into everyday legal work, and AI will be used more and more very quickly. In the next few years, we can expect numerous innovations in the field of AI, which will put pressure on established standard procedure, and it will very likely also change the structure of law firms and the work of the courts. A change in the legal market has already become apparent in recent years, in which Legal Tech companies in particular have created technical possibilities for handling mass actions and third-party litigation funders have come more and more into play. Digitalisation is therefore a huge topic in this area, and it remains to be seen how the German legislature and the German courts will continue to deal with this rapid development.

Digitalisation

Several mass proceedings in recent years, as well as the COVID-19 pandemic, have challenged the traditional practice of individual paper file processing in court and face-to-face hearings in the courtroom. The digitalisation of the judiciary is therefore at the forefront of the reform discussions. For example, an online litigation tool is being discussed for small claims with similar facts, in which the parties and the court only meet online. However, such online proceedings are highly controversial from a constitutional point of view. Furthermore, the possibility of recording the facts of a case in a structured manner in a basic online document, which is completed by both parties, is currently tested.

Video Hearings

A bill is currently being debated in the legislature that aims to strengthen video hearings when all parties are located in Germany. Video hearings shall become standard. The bill also provides that the court does not have to be present in the courtroom anymore, and that the hearing may be recorded audiovisually.

Lead Decision Proceedings

In August 2023, the federal government presented a bill to introduce lead decision proceedings at the Federal Court of Justice. The bill provides that the Federal Court of Justice may decide on fundamental legal questions in the form of a leading decision even if the parties withdraw the appeal or the appeal proceedings are settled in another way. The leading decision, which has no formal binding effect, is to serve as a guideline and orientation for the courts of instance and the public as to what the decision of the legal questions would have been. This law is intended to strengthen legal certainty and to relieve the courts of further mass individual actions.

Commercial Courts

In the next few years, more commercial courts will be set up where commercial disputes can be conducted comprehensively in English. Currently, this is already possible at some courts such as Stuttgart, Mannheim, Frankfurt and Hamburg.

Modernisation of Civil Procedure

Further reforms are being intensively discussed at various levels, including by a working group on the “Modernisation of Civil Procedure” commissioned by the Federal Court of Justice and the Higher Regional Courts.

If at all, Brexit had, at best, indirect significance for the matters outlined in the above sections.

ESG has arrived in the field of collective actions at the latest since the diesel proceedings. There is an emerging trend that companies will increasingly be held accountable for ESG violations in the coming years.

Private companies are already facing climate lawsuits. There have been a few lawsuits mainly against car manufacturers aimed at compelling these companies to comply with certain standards or to refrain from certain actions. These claims have been unsuccessful so far, with some of the claims still on appeal. Plaintiffs also sue for monetary payments to themselves. In a first widely reported case, a Peruvian farmer is seeking a declaration that the energy supply company RWE – in accordance with its share of global CO₂ emissions – must bear 0.47% of the costs for any protective measures against the possible flooding of a dam due to global warming. After the court of first instance dismissed the claim, essentially on the grounds that the impairment was not adequately causally attributable to RWE, the Higher Regional Court stated in 2017 that it considered a civil claim against the energy company RWE to be possible in principle and decided to enter into the taking of evidence. The evidence-taking was delayed due to the COVID-19 pandemic and is still ongoing.

Not only industrial groups, but also the financial sector, are becoming the focus of attention. The problem goes far beyond greenwashing, which has already led to financial services companies being investigated by financial regulators.

A further increase in ESG related claims is to be expected in the future, in particular against the background of the EU’s Proposal for a Directive on substantiation and communication of explicit environmental claims (Green Claims Directive) which has to be implemented by the member states within two years after the vote in the European Parliament and the Council. Litigation funders are increasingly receiving requests from the ESG sector. This is mainly due to the fact that activist investors, who also see their role as monitoring the companies they hold in the form of shares and holding them accountable, if necessary, as well as consumer or environmental protection organisations are increasingly willing to enforce their rights in court, and often rely on third-party funding to do so. The new Redress Action, which gives environmental associations the right to sue for performance and payment, will most likely lead to a sharp increase in ESG claims, taking into account the legislative initiatives to restrict greenwashing and the increasing possibility of third-party litigation funding.