DRRT's Global Loss Recovery Blog

New “Class Action” Law in Germany. A Critical Outlook

Posted by Erick Stern on Oct 3, 2018 5:24:06 PM

When on March 14, 2018, after almost 6 months without a government, the two biggest parties in Germany signed their coalition agreement (“Koalitionsvertrag”) and formed the 24th and current government of the Federal Republic of Germany (“Bundesregierung”). Most people paid little attention to a half-page proposal buried on page 124. According to the proposal, the new government would be committed to establishing a class action system in Germany. On May 9, 2018, and with the biggest scandal in German automobile history still fresh in everyone’s mind, the federal government met to discuss a draft proposal leading to a definite law on November 1, a particularly sensitive deadline, seeing as most claims against Volkswagen based on the Dieselgate scandal will expire on December 31, 2018. On June 14, Parliament approved the proposal after very little debate and news agencies have been booming ever since with stories and explanations about the proposed class action system. Sadly, for those familiar with the U.S. model, the current developments from Germany will prove greatly disappointing.


The model declaratory action (Musterfeststellungsklage):


The Musterfestellungsklage act recently passed by Parliament (subsequently referred to as “MK Act”) is only eight articles long and delineates a system set up strictly for the benefit of “consumers,” which would enable them to join their claims and move for a declaratory judgment against “businesses” whose misconduct has harmed them. According to § 13 and 14 of the German Civil Code (“Burgerliches Gesetzbuch” or BGB), only natural persons can be consumers; the term “business” (“Unternehmen”) on the other hand, can refer to both legal entities and natural persons conducting business activities.


The MK Act is exclusively available to preexisting qualified entities  (proposed § 606 Code of Civil Procedure or ZPO), duly registered in accordance with German or European law (according to article 3 of Directive 2009/22/EC) and representing at least either 10 consumer associations or 350 individuals. Any one of the preexisting consumer protection institutions may bring suit before the competent court by a simple complaint, stating the cause of action and describing the alleged wrongdoings of the potential defendant. If the court is satisfied with the prima facie correctness of the lawsuit, it will order the opening of a public registry under control of the Federal Ministry of Justice, where individual consumers may sign up for free and without the need of retaining a lawyer, until a particular court-established cut-off date is reached (once a claim is registered, its statute of limitation is suspended in accordance with § 204 of BGB).


After the cut-off date, if at least 50 consumers have signed up, the list is closed and a trial on the general facts commences before the competent trial court.  All further model declaratory actions are barred (§610(1)), but consumers may still file individual claims that will not be affected by the MK. The MK may culminate in a judgment (which is subject to all regular appeals) or a settlement. In both cases, a prevailing claimant would still have to argue its damages individually, be it through a claims filing process or by filing a subsequent lawsuit. Settlements must ultimately be approved by the court to become binding and unsatisfied plaintiffs are given one month to opt out and bring a suit on their own.




Ever since the European Commission issued its 2013 Recommendation on collective redress, the 28 member states have been busy setting up different mechanisms, the most well-known of which is the Dutch WCAM. Other countries have adopted similar procedures: Italy in 2007; France in 2014. Germany has several procedures to handle collective actions, some contained in the ZPO and some in special legislation, such as the Verbandsklage, meant to protect public interest rights and the common good, or the Kapitalanleger-Musterverfahrengesetz (KapMuG) which applies exclusively to securities cases. These procedures offer piecemeal approaches, tailored to individual categories of damages are available only to special kinds of plaintiffs. Additionally, they often require parties to file individual lawsuits with the purpose of combining them later. Consequently, they were considered inadequate to combat the “rational disinterest” of consumers with only minor losses (MK Act, page 1), whose rights the MK is supposed to protect. At the same time, the procedure has also been presented as a solution for defendants, who would not need to worry about countless lawsuits anymore, as has been the case for Volkswagen, against whom the number of lawsuits currently exceeds 16,000, and the plaintiffs could reach up to 50,000 according to Handelsblatt.


Similarities with the KapMuG


Despite their reputation for efficiency, Germans have a tradition of adopting reactive, short–sighted solutions to their legal problems. The massive amount of prospectus liability lawsuits filed against Deutsche Telekom in 2005 led to the emergency adoption of the KapMuG. It now seems that the diesel scandal will lead to the adoption of a new made-for-purpose law, which will allow only particular associations to bring a lawsuit against a particular defendant.


Both procedures share similarities: both are limited solely to declaratory judgments on the general facts and both procedures require successful plaintiffs to argue their damages individually in an additional proceeding. Nonetheless, core differences between the two make it unlikely that the experience acquired with the KapMuG will be of any help for German judges.


The KapMuG, which deals exclusively with claims arising from violations of securities laws, is not a representative action. Each plaintiff has to file a full-fledged lawsuit and when at least 10 such lawsuits are pending, the competent trial court may decide to stay such proceedings and send a list of common questions to be decided by the competent appellate court. The plaintiff with the highest damages and who best represents the mass of claimants will be selected “model plaintiff,” but all other claimants are given “interested party” status and are allowed to participate in the model proceedings, provided they do not contradict the model plaintiff. If no settlement is reached, a final judgment is rendered by the appellate court (appealable to the Supreme Court). The trial court restarts the stayed cases and adjudicates individually on the basis of the KapMuG judgment.


The MK, for its part, is a representative lawsuit for all claimants who decide to opt-in. The proceedings are completely controlled by the first consumer institution that files and no measures are foreseen for the active participation of consumers.


Remaining questions


To any lawyer familiar with collective redress mechanisms, many questions spring to mind on topics such as financing, remuneration, the selection of counsel, representativeness of plaintiff, etc.  Once a MK has been filed, no further actions can be brought against the same defendant on the same facts. These issues are not currently dealt with by the MK Act and no procedural mechanisms are in place to resolve them once they inevitably arise.


Consequently, opposition parties have voiced strong criticism of the draft, deploring issues such as the lack of third party financing possibilities, the monopoly of consumer protection associations (as opposed to other associations, such as environmental ones) and the control the first movant would have over a process potentially affecting all consumers.




One can only wonder why Germany is proposing such a limited approach to collective redress. Surprisingly enough, German lawmakers have specifically sought to avoid the U.S. model due to fears of starting a class action industry, that would be controlled by U.S. based international law firms. This shows not only ignorance of the U.S. legal system, but even of German law, where contingency fees are limited and punitive damages are prohibited altogether.  


Furthermore, even if the MK is effectively enforced starting November 1, two months before the expiration of statute of limitations against VW, it’s doubtful that it could be of any use for aggrieved consumers. When the KapMuG was passed in 2005, it was made retroactively applicable to the Deutsche Telekom case, but in the absence of such a provision, even if the MK were better designed, it would still only be available to plaintiffs that had not already filed their claims.


In light of the late, limited, two-tiered, easily disrupted approach taken by the German Federal Government and Parliament, the future of consumers in Germany seems mired in bleak uncertainty.

Topics: Global Loss Recovery, Class Action