Group Action in Germany?

Group Action in Germany? Representative Action in Security Litigation and Plans to expand this Model

Preview • Current Approach in mass litigation cases • Aims of law maker • Representative Action Model for Securities Litigation • Plans to expand for consumer litigation including Tort and Product Liability

Current Approach Deutsche Telekom Case • more than 14.000 claimants, 2.200 court cases • venue in Frankfurt only • overall value est. € 100 million • more than 750 plaintiff lawyers • case: • overstatement of property valuation in IPO prospectus • misrepresentation of voice stream acquisition and UMTS auction in prospectus …

… German Civil Procedural Code (ZPO) • designed for pursuit of single claims, bilateral disputes • no mass litigation feature Claimants • assign claims to SPV (assignment at risk of nullity) • instruct one lawyer • enter into representative action agreements • with all models having little effect on practicability …

… Effect • costs of litigation exceed value of individual claim, no use of evidence from parallel proceedings • no unified venue for tort claims: Risk of conflicting judgements • many claims not pursued: effect on standard in product safety? Effect on standard in capital market information? • workload for courts …

… Constitutional regime: due process • right of claimant and defendant to have individual case heard • day in court • no binding effect of parallel cases

Aims of lawmaker • to enhance effectiveness of court system for mass litigation • to reduce workload of courts • to improve • effectiveness of capital markets • consumer protection • influence of EU Commission (White Book), German Lawyers Association (DAV; Dt. Juristentag)

Representative Action Model for Securities Litigation • approved draft law • draft introduced in April 2004 • critique for limitation to securities litigation • approved by parliament on 16 June 2005 • publication expected soon • general election in autumn should not have any effect …

… Scope • misstatement of information for capital markets in stock exchange prospectus, statements in general shareholder meetings of listed companies, financial accounts, ad-hoc-announcements …

… Defendants • company • management • supervisory board • auditors Venue • exclusive venue at registered office of issuer • for lawsuit against all defendants …

… Procedure

… Funding • no contingency fee • legal aid • no extra court or attorney fees • cost of evidence are shared by all parties • no advance fee for court appointed expert …

… Potential effect on practise • no reduction of number of individual claims • incentive for more litigation resulting from cost reduction • limited reduction of workload of courts • no extra fees / costs for lead case …

Proposal for Consumer Litigation • draft law on „Action of Associations, Representative and Group Action“ • dated 17 January 2005 • introduced by Ministry of agriculture and consumer protection • scope: product liability, consumer protection • no immediate future: discontinuity of parliament after general election

Outlook • draft representative action for security litigation likely to become effective prior to general election • immediate effect on Telekom case • some general progress on effectiveness • draft consumer litigation statute: • currently no future • tendency to extend representative type action beyond security litigation, security representative action law regarded as test law, limited in time for 5 years

Group Action in Germany?

Group Action in Germany?

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