Class actions in Germany

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Traditionally, mechanisms for class actions have not been a core part of German procedural law. To date, the German legislator has only allowed for collective redress under specific circumstances. There are other, although less powerful means for a group of claimants to join forces in order to reduce or share the costs of litigation and to increase their negotiation power, which will be described below.

However, in light of the diesel-related claims of Volkswagen (“VW”) customers, Germany in 2018 passed a law that provides for a model declaratory action (Musterfeststellungsklage). This law entered into force in November 2018, only weeks before most claims against VW would have become time-barred. Laid down in sections 606-614 of the German Code of Civil Procedure (Zivilprozessordnung, “ZPO”), the model declaratory action has been subject to intense debate.

Besides the prominent model declaratory action against VW, only 16 other model declaratory actions have been filed so far. This number falls notably short of the estimated 450 model declaratory actions which the German legislator expected to be filed in a single year.

Furthermore, in light of the recent Federal Election and the political road map of the new government formed by Social Democrats, Greens and Free Democrats, as well as the upcoming transposition of the Directive (EU) 2020/1828 on Representative Actions (“RA Directive”) collective redress mechanisms most likely going to play a more prominent role under German law in the future. In this light, the coalition agreement of three parties which are most likely to form Germany’s new government reads:

“We will expand collective redress mechanisms. We will modernize existing instruments, such as the Act on Exemplary Proceedings in Capital Market Disputes and examine the need for further mechanisms. We will implement the EU Directive on Representative Actions in advancement of the model declaratory action in a user-friendly way and will also provide small companies with these opportunities for legal recourse We are retaining the tried-and-tested requirements for associations entitled to sue.” [Coalition agreement of Social Democrats, Greens and Free Democrats of 24 November 2021, p. 106, working translation]

Until the implementation of new mechanisms or the transposition of the RA Directive, there are currently the following options for two ore more claimants to assert claims before a German civil court.

Simple joinder of parties

According to section 59 ZPO, two or more persons may jointly appear as claimants if they meet certain conditions. For a simple joinder of parties, claimants must either form an actual legal community (such as co-owners or joint creditors) or their rights and duties must result from similar circumstances or legal grounds.

Hence, within the framework of a simple joinder of parties, claimants may bring proceedings together if they have actions that are essentially based on the same factual and legal basis, so that a joint assessment of the case is warranted in order to avoid contradictory judgments.

The simple joinder of parties was introduced over 20 years ago for reasons of economy of procedure as well as legal certainty and in order to reduce costs for litigation.

Within a simple joinder of parties, several claims are being combined in joint proceedings as well as a joint taking of evidence. However, claimants still act independently from one another, so that, according to section 61 ZPO, the court must treat every step in the proceedings on an individual basis for each claimant. Therefore, a joint litigant’s actions may neither lead to advantages nor to disadvantages for the other claimants.

Further conditions for a simple joinder of parties are that the international, geographical and subject-matter jurisdiction over all claimants lay with the same court. Regularly, the court at the seat or residence of the respondent has jurisdiction over all claimants. Furthermore, the same type of legal proceedings needs to be permissible and there may not be a special prohibition for joint proceedings. The simple joinder of parties can be brought to an end when one single party replaces the joint parties, through separation of the actions in accordance with section 145 ZPO or when one of the joint parties terminates its individual action. Section 145 ZPO is applicable where several claims were brought within the same action and the court deems it objectively necessary to separate the claims, section 145 (1) ZPO. Moreover section 145 (2) ZPO orders a separation if the defendant cross-sues the claimant and there is no legal relationship between these two claims. The same applies to a set-off, section 145 (3) ZPO.

Additionally, the simple joinder of parties should not be confused with section 66 ZPO, which allows intervention by a third party to support one of the litigants if that third party has its own legal interest in the dispute. This third party does not itself become a party to the proceedings.

Necessary joinder of parties

The ZPO also provides for a necessary joinder of parties under section 62 ZPO. This mechanism is applied when a joint decision is strictly necessary either for procedural or substantive reasons.

As to procedural reasons, these occur where there are two separate proceedings for which the judgment in one would directly affect the legal validity or the legal relationship of the other case.

As to substantive reasons, the wording of section 62 ZPO is very wide. The law aims to cover all those cases in which joint proceedings are inevitable because the claimants bringing separate actions, or actions against only one defendant, would be inadmissible due to a lack of individual standing. The necessary joinder of parties is relevant especially when proceedings involve joint ownership.

In line with the simple joinder of parties, necessary joint parties in principle keep their independence, so that steps in the proceedings have to be taken individually. However, when one of the parties fails to appear in court, there is a legal fiction that the parties being present represent the absent party according to section 62 ZPO. Steps in the proceedings will in this case also affect the party being absent with the exception of settlements. If all of the joint parties fail to appear, this rule does not apply and the court may give judgment in default.

Withdrawal of an action by one of the joint parties generally leads to the inadmissibility of the claims brought by the other parties. When it comes to the right of appeal, this is only excluded when the judgment is valid in relation to all of the joint parties.

Consolidation of claims

According to section 147 ZPO, the consolidation of claims aims to increase economy of procedure by consolidating proceedings where separate cases are based on identical facts. There are some circumstances under which consolidation is legally required, but in others it falls within the judge’s discretion whether to consolidate several cases. Where consolidation leads to the change of the competent judge, the parties’ approval is required.

Prerequisites for a consolidation include that the cases are pending within the same court and the same instance (e.g., the trial, appellate or supreme court) and that they underly the same type of proceedings (e.g., action for performance or declaratory action). Additionally, consolidation requires a legal relationship meaning that the claims could have been brought by only one action (just as for the simple and necessary joinder of parties, the claims need to be based on the same facts). Consolidation will then lead to one single trial, one hearing of evidence and the same judgment, so that only one proceeding remains. Steps in proceedings which have already been taken before consolidation usually continue to have effect for the consolidated proceedings.

Legal proceedings concerning compensation in corporate law

German civil law provides for a special type of proceedings, known as Spruchverfahren, in corporate law in cases where minority shareholders need to be compensated for structural changes within the company which are being decided by majority shareholders. The Spruchverfahren is intended to protect minority rights, while at the same time ensuring a fair balance of interests between minority and majority shareholders and protecting the company’s interests by implementing a mechanism that rules out actions brought by minority shareholders to unwind decisions made by majority shareholders.

Bringing proceedings under the Spruchverfahrensgesetz (SpruchG) concerning compensation are separate from the question of whether the structural changes are legitimate and therefore avoids any delays in the implementation of changes. A special characteristic is the fact that the judgment will be binding for all of the shareholders affected by the majority shareholders’ decision, even those who have already left the company due to any other compensation they agreed on. In this sense, the Spruchverfahren leads to an exemption of the inter partes principle that judgments are only binding upon the parties to a specific case.

Exemplary proceedings in capital market disputes

Implemented in 2005, the Act on Exemplary Proceedings in Capital Market Disputes  (Kapitalanleger-Musterverfahrensgesetz) entitles investors to claim damages arising from false or misleading capital market information through exemplary proceedings (Musterverfahren).

By making use of exemplary proceedings, complex legal questions as well as facts only need to be determined once and will be binding on all investors. Consequently, evidence will not have to be taken in every single case and diverging judicial decisions. Moreover, the risk of very high court costs is significantly reduced, and a decision will be reached in less time, providing legal certainty to all parties involved and reducing the burden on the courts.

An exemplary proceeding is only admissible in situations where there are at least ten individual claims for damages brought by investors which all have the same legal and factual basis. Where an exemplary proceeding is permitted, the courts will suspend all other proceedings until a judgment in the exemplary proceedings is given. This judgment has a binding effect relating to  the main issues on all other cases based on the same facts. However, unique features of the individual actions will still have to be decided by the courts.

Model declaratory action

Implemented following the diesel-related claims of VW consumers, the model declaratory action (Musterfeststellungsklage) aims to promote the enforcement of consumer rights.

The model declaratory action is a declaratory action which is brought by “qualified entities” (qualifizierte Einrichtungen) such as consumer protection organisations. The consumers themselves do not have standing to bring these proceedings. Subject matters may be of a wider scope than in regular declaratory actions. Not only does the court have the competence to answer legal questions, but it may also clarify factual questions having relevance for claims of individual consumers.

Consumers can join a model declaratory action by an opt-in mechanism which gives them the possibility to sign up for a claim register (Klageregister). The claim register can be accessed online and provides information on all pending model declaratory actions including a summary of the facts and the course of the proceedings.

As soon as a model declaratory action is pending before a court, no other model declaratory action may be brought based on the same facts. The same applies to individual proceedings of consumers which have joined the action through the opt-in mechanism.

The entry court for a model declaratory action is the Higher Regional Court with a possible appeal to the Federal Supreme Court (Bundesgerichtshof, “BGH”).

According to section 613 I ZPO, judgments in model declaratory actions are binding on the parties who joined the action as far as an identical legal and factual basis is given. Conversely, consumers who have not opted-in are not bound in any way by the decision. Even those consumers for whom the judgment is legally binding, will regularly have to bring further individual proceedings to claim individual damages since the model action simply aims at a declaration of the facts and legal basis of the case.

Group actions in environmental law

Federal and regional state laws enable group actions in limited fields of law, such as laws on the prevention of cruelty against animals and environmental protection and conservation. While, according to German administrative law, parties in general only have standing when claiming a violation of their own rights, these special laws provide for the possibility of groups, e.g., the nature conservancy association, bringing claims on behalf of the general public.

In general, there are no procedures concerning opt-out class actions in Germany. Although, we note that in the context of the model declaratory action, where the parties to the proceedings reach a settlement, consumers who previously opted-in have one month to declare their withdrawal from the settlement (section 611 IV ZPO). 

Focussing on model declaratory actions, these may be filed by “qualified entities” only. Under section 606 I 4 ZPO, there is an irrefutable presumption that consumer advice centres (Verbraucherzentrale) qualify as “qualified entities” but standing is not limited to these centres. Section 606 I ZPO points to a set of criteria which enables other entities to bring actions as model declaratory actions. For example, entities must prove a certain size, experience in the support of consumer rights and independence of funding. 

Additionally, model declaratory actions are only permissible when the qualified entity can substantiate in the statement of claim that the rights of at least ten consumers depend on the action and when, within two months of public announcement of the action, no fewer than 50 consumers have opted-in.

Since the possibilities for class actions are very limited under German law, class actions are rarely brought and those mechanisms provided for by the law are used only occasionally. However, by introducing the model declaratory actions in November 2018, there is potential for increasing use of class actions, especially in proceedings involving a vast number of consumers.

One well-known example of this are the proceedings brought against Volkswagen in 2018 by the Verbraucherzentrale Bundesverband which were joined by more than 240,000 consumers and finally settled in April 2020, granting consumers an overall amount of EUR 750 million in damages.

As pointed out under question 1, class actions are only possible to a very limited extent under German law and only in certain fields of law, which the types of claims correspond to, e.g., the model declaratory action can only be brought as a declaratory action.

See answers to question 1.

Except for compensation claims in corporate disputes, there is no mechanism for class actions under German law which directly grants damages.  Generally, damages are calculated on a compensatory basis, so that the claimant is granted a situation that is neither advantageous nor disadvantages compared to the situation before the harm was done. 

In proceedings involving minority shareholders’ compensation, it is for the court to determine if the compensation offered is reasonable and fair. The assessment is based on different criteria, including the value of the company and the stock exchange price.

No.

Yes, because the current legal framework in Germany does not fulfil the minimum requirements of the directive.

In general, class actions are not permitted under German law. Therefore, the are no particular provisions in this respect. However, there are special provisions in respect of model declaratory actions, including: (i) where consumers have the option to opt-out of a settlement (section614 IV 1 ZPO); (ii) the competent court must approve the settlement which it will only do if it deems it reasonable and fair, given the circumstances of the proceedings. In accordance with section 611 ZPO, the settlement must contain arrangements regarding performances, due date and allocation of costs.

In general, class actions are not permitted under German law. Therefore, the are no particular provisions in this respect.

In general, class actions are not permitted under German law. Therefore, the are no particular provisions in this respect.

No.

In general, class actions are not permitted under German law. Therefore, the are no particular provisions in this respect.

In general, class actions are not permitted under German law. Therefore, the are no particular provisions in this respect.

In general, class actions are not permitted under German law. Therefore, the are no particular provisions in this respect.

Agreements purely on contingency fees are permissible under German law only in exceptional circumstances. Generally, for court proceedings there are statutory legal fees which may not be undercut, whereas the parties are free to agree on higher fees. Concerning contingency fees, those may only be agreed upon in an individual case if the client, in light of the circumstances and its financial situation, would otherwise have to refrain from appropriately pursuing its rights. 

In general, the “loser pays” principle applies in Germany. Hence the losing party is liable for the court costs and must pay party compensation to the other party.

Court costs consist of fixed charges which vary according to the sum in dispute and of actual expenses such as the costs of witnesses, experts or translators. Regularly, bringing an action requires an advance of legal fees. 

Party compensation includes compensation for professional representation and reimbursement of necessary expenses. The compensation is laid down in a special law. 

In respect of model declaratory actions, the qualified entity will be obliged to cover the costs when losing a case not the consumers themselves. An exemption from the “loser pays” principle applies to minority shareholders’ compensation claims in corporate disputes. According to the applicable law, minority shareholders cannot in any case be required to pay for party compensation, while court costs may only be imposed on them in exceptional circumstances when another arrangement would be unreasonable or unfair. Moreover, arrangements deviate from the general principle under sample proceedings in capital market disputes.

Litigation funding is generally permitted under German civil procedural law, but it is prohibited for lawyers as well as tax consultants and accountants to offer such funding. However, in the context of a model declaratory action, there is very little scope for litigation funding as in accordance with section 606 I ZPO qualified entities are obliged to be financially independent, may not act on the intent to realise profits and may receive funding from companies only up to a limit of 5%.

Moreover, litigation funding is of rather limited popularity which may derive from the fact that, among other things, it is available for actions with a relatively high sum of dispute only (beginning at 20,000-50,000 EUR) and is dependent on the case’s prospects of success. Additionally, the possibility of legal costs (or after-the-event) insurance may appear to be more attractive than litigation funding.

See the Overview of the Representative Actions Directive >>

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