The German Capital Markets Model Case Act – A Functional Alternative to the US - Style Class Action for Investor Claims?

8 Pages Posted: 1 Feb 2017

See all articles by Harald Baum

Harald Baum

Max Planck Law Network - Max Planck Institute for Comparative and International Private Law; European Corporate Governance Institute (ECGI)

Date Written: February 1, 2017

Abstract

In 2005 the German legislature enacted the “Capital Markets Model Case Act” to provide a means for collective redress for investors, especially retail investors, who have suffered damages because of faulty capital markets information. The Act is an unique piece of legislation that tries to chart a middle way between the traditional German system of individual claims based on the principle of party disposition and the US-style class action. Simultaneously, it tries to provide an efficient means for the courts to handle cases of mass investor damages and in this way strengthen private law enforcement in the German capital markets.

The proceeding starts with individual lawsuits filed by aggrieved investors at the trial court level. These plaintiffs can make an application for the establishment of a model case proceeding at a Higher Regional Court. A minimum of ten applications is a necessary for opening a model case. Upon public announcement of the model case, the trial courts suspend ex officio all pending proceedings whose determination is dependent upon the ruling in the model case.

The Higher Regional Court designates a “model case plaintiff” from among the plaintiffs whose proceedings have been suspended. The Court decides those factual and legal questions that are of general relevance for all cases pending before the trial courts by way of a “model case ruling”. This ruling is binding on the courts trying those proceedings that have been suspended because of the model case proceeding. It has effect for and against all parties to the model case proceedings.

A central shortcoming of model case proceedings is their long duration.

Keywords: Capital Markets Model Case Act, collective redress for investors, suspension of proceedings, binding model case ruling, collectivization of claims

Suggested Citation

Baum, Harald, The German Capital Markets Model Case Act – A Functional Alternative to the US - Style Class Action for Investor Claims? (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2909545 or http://dx.doi.org/10.2139/ssrn.2909545

Harald Baum (Contact Author)

Max Planck Law Network - Max Planck Institute for Comparative and International Private Law ( email )

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D-20148 Hamburg
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

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