In recent years, Germany has become more claimant friendly to parties seeking redress by extending its version of class action law. The Kapitalanlegermusterverfahrensgesetz ‘ KapMug’ (Capital Market Investors’ Model Proceeding Act), was designed to adjudicate claims by large numbers of individual investors with closely related claims citing, for example, false, misleading or omitted information in capital markets.
In recent years, Germany has become more claimant friendly to parties seeking redress by extending its version of class action law. The Kapitalanlegermusterverfahrensgesetz ‘ KapMug’ (Capital Market Investors’ Model Proceeding Act), was designed to adjudicate claims by large numbers of individual investors with closely related claims citing, for example, false, misleading or omitted information in capital markets.
The KapMuG was first introduced in November 2005 as a five-year experiment, in response to approximately 17,000 investor claims filed against Deutsche Telekom AG. It was alleged that the company had withheld significant risks in its stock exchange prospectus. Its trial period has been extended to 1 November 2020, however it remains to be seen whether it will be incorporated into the Zivilprozessordung (ZPO), the German Code of Civil Procedure.
The effectiveness of the KapMuG in its original form was brought into question in 2012, when the court ruled in favour of Deutsche Telekom. The German system took twelve years to reach a judgement, however class action litigation brought in the United States for US investor losses, over the same offering, was settled for over $120 million back in 2005. In Germany, the ruling was greatly disappointing for claimants who, after many years, were frustrated at the length of the case, unaided by the fact that all claimants were entitled to file individual briefs and submissions.
Early rulings were substantially in favour of the defendant, however the KapMuG has undergone review and has arguably become more claimant friendly. Amendments have been made to the KapMuG to enforce more deadlines. The process is accelerated through the implementation of a deadline (six months) within which the application for a model case proceeding must be brought.
Following the revision of the KapMuG, claimants can now register a claim and apply to be included in a model case before deciding to formally bring a claim. The resulting decision is no longer binding for all claimants. As opposed to all claimants needing to be in agreement to reach a settlement, the Higher Regional Court now accepts the settlement. Claimants are bound unless they decide to opt-out, which allows for a quicker, more accessible process.
The very basics of the KapMuG is that if more than ten individuals issue a closely related claim, the KapMug allows the courts to make the claims collective. A general ‘loser pays’ principle applies, but should a model claimant lose, the cost of the model trial is divided between all registered claimants in relation to the value of each party’s alleged claim. Contingency fee arrangements for lawyers are only permitted in special circumstances. Third party funding can cover court and attorney fees, however, in exchange for a percentage of a successful claim settlement.
A model case is chosen from individual claims, and it allows for either the plaintiff or defendant to clarify and establish legal questions which will ultimately justify or wipe-out a claim. The model claimant is selected by the court for reasons such as the size of the claim, or if the court deems the claim to cover the majority of issues relevant to the dispute.
Germany has clearly recognised that allowing collective claims will enforce stronger corporate governance, and its dedication to developing the KapMuG and extending its trial period demonstrates belief in the act. There is also the chance for Germany to assert itself as a European centre for processing class actions, much like the Netherlands has. European jurisdictions are rapidly developing securities class action legislation in response to the opportunity to process cases following the 2010 US Morrison versus National Australia Bank ruling.
The result of the Morrison versus National Australia Bank case was that the Supreme Court placed a ban on non-US shareholders, whose stock was purchased on a non-US exchange, from suing a non-US company through a US court. This has therefore presented an opportunity to other jurisdictions to process the cases.
As securities class actions globalise, all investors and trustees must remain vigilant and monitor global opportunities to participate in class actions to reclaim rightful returns. All parties should acknowledge cross-border opportunities in legislatures such as Germany and reclaim damages to which they are legally entitled. Keeping track of international opportunities and the claims process can be daunting. However, there are now specialist service providers that can automate the complex process of class action participation across international legislatures.
