Germany: Multi-Party Litigation In Germany: The KapMuG In Action

Last Updated: 10 January 2012

Published in Class Actions, by Federated Press, Spring, 2008

Article by Louise Moher and Lynda Morgan*

The North American-style class action has largely been rejected throughout Europe. In the past 10 years, however, many European countries have developed unique approaches to collective redress. This article is the fourth in a series of articles that examine the development of multi-party litigation in specific jurisdictions outside North America1.

Until recently, German law granted very little in terms of collective redress. 2 The notion of a class action conflicts with Germany's fundamental right to be heard and right to court access by an individual to plead his or her case individually, all of which are constitutionally protected.3 However, when thousands of individual securities claims were filed against Deutsche Telekom, the German legislature was forced to reconsider its conservative position on collective redress. The product of this reflection is The Act on the Initiation of Model Case Proceedings in respect of investors in the Capital Markets (the "KapMuG"4).

The KapMuG is a particularly unique approach to the collective litigation of securities claims. In theory, the KapMuG strikes a balance between the right to be heard and judicial economy and access to justice. Upon closer examination, however, the KapMuG's potential as an effective alternative to the class action is questionable at best.

The Genesis of the KapMuG: the Deutsche Telekom Litigation

In 1999, Deutsche Telekom AG, one of the world's leading telecommunications com.- panies, went public in Germany. In its prospectus issued at the initial public offers, the company valuedits real property holdings en bloc rather than on an individual basis.5 In 2001, these valuations proved to be grossly overstated and Deutsche Telekom wrote down the land values by 2 billion euros. As a result, the stock's value plummeted by 92%. 6

The response of shareholders was overwhelming. Between 2001 and 2003, over 13,000 individual claims against Deutsche Telekom alleging misrepresentation were filed with the Regional Court Frankfurt am Main, involving 754 different attorneys. 7 Even more overwhelming was the fact that a single judge had exclusive jurisdiction over every claim. It was estimated that the resolution of these cases would take at least 15 years. 8

Between 2001 and 2004, the individual claims idled as new claims continued to stream in.. Frustrated with the delay, 11 plaintiffs filed a complaint with the Federal Constitutional Court alleging that the delay constituted a denial of justice. The Court rejected the complaint but demanded an expedited hearing of the cases. 9

The Statutory Regime Under the KapMuG

In response, the German legislature enacted the KapMuG, 10 a test project of model case proceedings. The KapMuG came into effect on November 1, 2005 and will expire by its sunset clause on November 1, 2010, unless incorporated into the Zivilprozessordung (ZPO), the German Code of Civil Procedure. The legislation applies strictly to: (1) claims for compensation of damages due to false, misleading or omitted public capital markets information; and (2) claims to fulfilment of contract, which are based on an offer under the Securities Acquisition and Takeover Act. 11 The KapMuG applies to the Deutsche Telekom claims even though it was enacted after the individual claims were filed.

The basic premise of the KapMuG is that a model case is chosen from individual claims, the similar issues-are decided and the outcome is then applied to all registered individual cases. The KapMuG contemplates three procedural stages: an application by the parties to use the procedure; the trial of the model case questions; and the application of the model case decision to the other individual cases.

The first stage .is essentially the threshold requirement. Either a plaintiff who has filed an individual claim, or a defendant, applies for the model case proceeding to the court of first instance by proposing model questions, which are similar to common issues in a North American class action. 12 The applicant must show that the proposed model questions "may have significance for other similar cases beyond the individual dispute concerned. ''13 Cases are considered "similar" if they relate to the "same underlying circumstances. ''14 Admissible applications are entered into the Complaint Registry, 15 which is accessible to the public online. 16 An application may be inadmissible if, for example, it has been made. for the purpose of delaying proceedings or the evidence described in the application is unsuitable. 17 At least nine other applications relating to the same subject matter must be filed within four months.

If the threshold is met, then the second stage begins, in which the model questions are submitted to the Court of Appeals and determined by a trial of the model claimant's action. The Court selects the model claimant by considering the amount of each plaintiff's claim as well as any agreement that has been reached between the claimants. TM

In the Deutsche Telekom litigation, for example, the Court selected the model claimant based on the large size of his claim (1.65 million euros), and the fact that his claim covered the majority of issues relevant to the dispute. 19 This provision is intended to prevent the "race to the courtroom." The determination of the model claimant may not be appealed.

During the .trial of the model questions, all other proceedings are stayed pending resolution of the model proceeding, 20 However, individual claimants not already in the registry may opt in to the proceeding at any time during, the trial of the model questions.

Once a decision on the model questions is rendered, those claimants who have opted in to theprocedure are bound by the decision. 21 It has been suggested, however, that parties are bound by the decision only to the extent that they were able to participate in the model proceeding. Therefore, a claimant who opted in late into the trial may theoretically not be bound by the decision. 22

With regards to costs, the general "loser pays" principle applies. If the model claimant loses, however, costs of the model trial are shared pro rata by all claimantsin the registry in relation to the value of each party' s alleged claim. 23 An interested party who withdraws his or her claim after the model case proceedings have started is bound bythe decision but is not required to share in the costs.

The Appeals Court's decision on the model questions may be appealed by all parties, including the claimants in the stayed actions. 24 While the appeal is pending, all other claims remain stayed.

At the third stage, the decision of the Appeals Court is applied by the trial courts to the stayed individual actions. Each case is determined on an individual basis.

The Devil Is in the Details

At first glance, the model proceedings approach bears some resemblance to an opt-in version of the North American class action. Upon closer examination, however, several details of the KapMuG pose significant challenges to its success.

A principal challenge is the active role played by "interested parties" in the model proceedings. In order to preserve the claimant's right to be heard, each claimant in the stayed actions is granted "interested party" status, which entitles them to produce materials and make submissions at the model case .trial, provided their statements and actions are not contrary to those of the model claimant. 25

Interested parties may also expand the subject matter of.the model proceedings if the court finds that the additional issues are relevant to the model questions. 26 This means that each and every claimant- over 17,000 in the Telekom litigation- have the right to file written materials and make submissions at each stage of the model trial. This special statushas the potential to lengthen and complicate the model trial interminably.

Another significant challenge is that settlement, which is the end result of most North American class actions, is virtually impossible under the KapMuG. Subsection 14(3) of the KapMuG provides that "if all interested parties do not consent to the settlement, conclusion of model case proceedings by way of settlement shall be inadmissible. ''27 The power of the representative plaintiff to settle a class action in North America has prevented many a lengthy common issues trial and individual issues trials. The KapMuG's requirement that all claimants must agree to a settlement renders protracted litigation inevitable.

Finally, there is little financial incentive for lawyers to take on the important role as counsel for the model claimant. The KapMuG makes no provision for contingency fee arrangements, which are prohibited under section 49b of the German Act on Lawyers' Remuneration. While the Federal Supreme Court found in March of 2007 that this prohibition violated German constitutional law and gave the legislature one year to amend the law, 28 it appears that contingency fee arrangements will only be permitted in extremely limited circumstances. Note that third party funding is available in Germany, in which specialized litigation financing entities pay court and attorney fees in exchange for up to 50% of the award received if the client is successful. 29 However, in the absence of special provision for contingency fee arrangements, the only financial incentive for plaintiff counsel-to engage the KapMuG is to recover fees.

The KapMuG in Practice

In light of the aforementioned "quirks" of the KapMuG, it is no surprise that the implementation of this legislation has encountered significant obstacles. The lack of progress in the Deutsche Telekom litigation is demonstrative. This litigation is ongoing, with 17,000 shareholders more than 800 lawyers, and claims totalling an estimated 80 million euros. 30 The Regional Appellate Court in Frankfurt must decide a total of 33 issues relating to the model question. 31 The trial of these issues began on April 7, 2008, and was the biggest trial of its kind in German history. The first week of the trial was held in a city hall that seated 800 people. 32 It is estimated that the model trial may take several years. This is particularly striking when compared to the American experience, where Telekom has already settled a class action with American investors for $120 million. 33

An abundance of other model case proceedings under the KapMuG does not appear forthcoming. As of 2007, only 53 applications had been registered in the electronic register of claims and the majority of these related to the Deutsche Telekom litigation. 34 Among the other registered claims, many did not proceed because nine similar cases were not filed within the four-month limitation period. 35

The KapMuG has proved to be more useful where the case weighed in favour of the defendant. The first case to be decided under the KapMuG involved DaimlerChrysler AG. The plaintiff investors alleged that the company had breached its disclosure obligations by failing to inform them immediately of the resignation of its CEO, the announcement of which triggered a dramatic change in the stock price.

On February 15, 2007, the Regional court in Stuttgart held that no such breach had occurred. 36 As a result, the court of first instance dismissed, the claims of all the individual investor claimants. This case is an example where the KapMuG has successfully resolved a multitude of claims in one trial, but it is a rare exception to the overall experience.

Conclusion" the Sun Will Likely Set on the KapMuG

The KapMuG, created by the German legislature in response to the overwhelming Deutsche Telekom litigation, is an attractive concept. In broad strokes, the determination of common issues and the subsequent application of that decision to individual cases bear some resemblance to a North American class action. However, the devil is in the details. The unanimous consent requirement for settlement, the role of the claimants as "interested parties" and the prohibition on contingency fees provide little incentive for would-be model claimant lawyers to utilize the KapMuG.

Practitioner opinion is that "the KapMuG will only be relevant in a limited number of exceptional cases ''37 and the ability of the model case proceeding to save time and money is viewed with skepticism. 38 This opinion appears to be well-founded, given the lack of progress in the Deutsche Telekom model trial and the lack of a groundswell of other model proceeding cases seeking to utilize the KapMuG.

In light of the fact that the European Commission in its 2008 White Paper has strongly advocated for European Union-wide legislation permitting opt-in securities class actions that more resemble North American class actions, 39 the sun will likely set on the KapMuG in 2010.

*The authors gratefully acknowledge the assistance of Dr. Thomas Kreifels of Freshfields Bruckhaus Deringer, who provided background information on German law and the KapMuG.


1 See James M. Newland, Brian P. Moher and Donna A. Polgar, "Group Litigation in the United Kingdom: a Sheep in 'Woolf's' Clothing" (2006) 5 Class Action 310; James M. Newland, Brian P. Moher and Jason W. Reynar, "A Touch of Dutch: Group Actions in the Netherlands" (2007) 2 Class Action 394; and James M. Newland, Brian P. Moher and Rosie J. Kogan, "Group Actions in France and Current Initiatives for Reform" (2007) 5 Class Action 338.

2 The German Code of Civil Procedure allows for the joinder of claims, and the Verbandsklage allows for group complaints to be brought by an association or interest group in particular areas, such as consumer protection and unfair business practices. Claimants may also assign their rights to a third party, who then pursues the claim on behalf of all those who have assigned claims. Further information on collective redress in Germany may be found in Dietmar Baetge, "Class Actions, Group Litigation & Other Forms of Collective Litigation Germany" online at National_Report.pdf, at 4-12 (hereinafter "Class Actions, Group Litigation & Other Forms of Collective Litigation"].

3 The right to be heard is called "Recht auf rechtliches Gehor," in German, under Article 20, Section 3 of the German ConstitUtion. See, also, Hanno Merkt "Managing Investor Mass Claims in Germany: Group Litigation under the new Investor-Sampel-Proceeding- Law (KapMuG)" (2006) 17 Journal of Interdisciplinary Economics 117, at 121 (hereinafter "Managing Investor Claims").

4 The KapMuG's full German name is "Kapitalanleger- Musterverfahrensgesetz."

5 Moritz Balz and Felix Blobel, "Collective Litigation German Style: The Act on Model Proceedings in Capital Market Disputes" in Eckart Gottschalk et al., ed., Conflict of Law in a Globalized World (Cambridge University Press, 2007) 126, at 132 (hereinafter "Collective Litigation German Style").

6 "Managing Investor Claims," supra note 3 at 117.

7,,Collective Litigation German Style," supra note 5 at 132.

8 Michael Stfirner, "Model Case Proceedings in the Capital Markets Tentative Steps Towards Group Litigation in Germany" (2007) 26 C.J.Q. 250 at 253. [hereinafter "Model Case Proceedings"].

9 "Class Actions, Group Litigation & Other Forms of Collective Litigation," supra note 2 at 9.

10 The English version of this legislation can be found online at

11 The Act on the Initiation of Model Case Proceedings in respect of investors in the Capital Markets (Gesetz zur Einfiihrung yon Kapitalanleger-Musterverfahren- KapMuG, published in the Federal Law Gazette, BGBI 2005 I, at 2437) ss. 1(1) and 1(2) (hereinafter "KapMuG").

12 Ibid., s. 1.

13 Ibid., s. 1(2).

14 Ibid., ss. 2(1), 5.

15 Ibid., s. 2.

16 (in German only).

17 KapMuG, supra note 11 at ss. 1(3)1-5.

18 Ibid., ss. 8(2)(1) and 8(2)(2).

19 "Class Actions, Group Litigation & Other Forms of Collective Litigation," supra note 2 at 16.

20 KapMuG, supra note 11 at s. 7.

21 Ibid., ss. 16(1)3 and 16(2).

22 "Class Actions, Group Litigation & Other Forms of Collective Litigation," supra note 2 at 20.

23 KapMuG, supra note 11 at s. 17(3).

24 "Model Case Proceedings," supra note 8 at 263.

25 KapMuG, supra note at s. 12.

26 Ibid., s. 13.

27 Ibid., s. 14(3).

28 "Class Actions and Third Party Funding of Litigation: An Analysis Across Europe," June 2007, online at 2007/junl 8/18825.pdf, at 31.

29 Ibid. at 31.

30 David Gow, "17,000 Shareholders Begin Action against Deutsche Telekom," The Guardian (Wednesday April 9, 2008), online at uk/business/2008/apr/09/deutschetelekom.europe/print [hereinafter "17,000 Shareholders Begin Action against Deutsche Telekom"].

31 "Model Case Proceedings," supra note 8 at 253.

32 "17,000 Shareholders Begin Action against Deutsche Telekom," supra note 30.

33 The U.S. certification decision may be found at Deutsche Telekom A G Securities Litigation, 229 F. Supp. 2d 277 (N.Y. 2002).

34,,Collective Litigation German Style," supra note 5 at 147.

35 Klaus Braunig and Thomas Lfibbig, "Private Enforcement in the European Union Pitfalls and Opportunities," online at private_enforcement/, at 20 [hereinafter "Private Enforcement"].

36 Mark C. Hilgard and Jan Kraayvanger, "Class Actions and Mass Actions in Germany," Litigation Committee Newsletter, IBA Legal Practice Division, September 2007.

37 "Private Enforcement," supra note 35 at 50.

38 "Managing Investor Claims," supra note 3 at 126.

39 Commission of the European Communities, Damages Actions for Breach of the EC Antitrust Rules COM (2008) 165 and Commission Staff Working Paper accompanying the White Paper, SEC (2008)404 at 4.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions