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 claimants, 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 …

… individual lawsuitapplication for leaf of representative action conduct of representative action completion of individual lawsuit with binding effect from lead case 10 lawsuits in 4 months by plaintiff or defendant limited participation rights of non-lead- plaintiffs no effect for non plaintiffs (i.e. opt-in- concept) stay of individual case commonality of issue(s) notification of application in register lead case (amount, agreement between plaintiffs) 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: –c–currently no future –t–tendency to extend representative type action beyond security litigation, security representative action law regarded as test law, limited in time for 5 years