The incoming coalition of Social Democrats, Greens and Liberals has pledged to improve access to justice, modernise civil procedure, and strengthen collective redress mechanisms.
On 24 November 2021, Germany’s incoming government, led by Olaf Scholz and the Social Democrats, together with the Green Party and the Liberals, has presented its Coalition Treaty, laying out its political agenda for the next four years.
The 170 page paper [Download the pdf here] includes a number of rather specific plans to modernize civil court proceedings, and, in particular, collective enforcement mechanisms – usually not a core topic of interest in such rather high-level action plans for government.
While it must be noted that historically, not all items from a coalition agenda are fully implemented, the new government’s plans certainly warrant a closer look.
The coalition wants civil proceedings to become faster and more efficient. In the following, we introduce and annotate the reform plans in the field of collective redress (1.), and in the broader area of general civil and commercial disputes (2.):
1. Specific Plans for Collective Redress Mechanisms:
Expansion of collective redress mechanisms.
The coalition, faced with civil courts on the brink of collapse under their increasing load of mostly identical claims (e.g. Diesel warranties, Life insurance revocation litigation, or the newest wave, Wirecard/Bafin damages claims), wants to strengthen collective redress mechanisms. This will be essential in order to achieve the goal of more efficient and faster civil proceedings as a whole. If the reforms succeed, civil courts will be able again to devote more time to the intricacies of individual cases, instead of working their way through endless identical briefs often created from predefined text blocks.
Modernise existing mechanisms, such as the Investment model proceedings (KapMuG).
The pending KapMuG cases are living proof that there is urgent need for reform. These model proceedings for capital market misconduct are, above all, complicated, lengthy and expensive. The longest-pending model proceedings, dealing with potential prospectus deficiencies in a Deutsche Telekom IPO, which has been continuing for almost 20 years now, and will hopefully soon come to an end by means of a settlement. If it continues, the court estimates another 5 years of proceedings until there is a final judgment. There are plenty of suggestions on the table as to what can be done to improve those model proceedings, coming from judges, associations, and attorneys. The coalition will need to pick and choose what it will implement.
Implement the EU directive on representative actions for consumers in a user-friendly way. Develop further the model declaratory action (Musterfeststellungsklage or MuFeKl) and open it for small enterprises. Maintain the system of limited circle of associations entitled to sue.
The EU directive on representative actions for consumers is required to be implemented into national law by the member states by June 2023. It certainly makes sense to realize this through a reform of the existing mechanisms instead of creating yet another collective redress framework with limited scope, and adding it next to the MuFeKl and the KapMuG.
It seems prudent to extend the scope of potential applicants beyond consumers. Often, small businesses do not pursue the enforcement of rather minor scattered individual damages for the very same reasons that consumers remain passive: It is too costly and takes too long to file an individual claim, and the merits of a case are often highly complicated.
From an enforcement of justice perspective, the extremely restricted “club” of entities, who have standing to sue, is a significant bottleneck which has already prevented several collective actions from being filed because none of the eligible consumer protection associations had the time and/or capacity to serve as plaintiff. The coalition explicitly wants to remain with this system. The rationale of this restriction is heavily disputed: while policy makers have strongly relied on a narrative of consumer protection and the prevention of frivolous lawsuits and an excessive plaintiffs’ bar, critics also suspect successful lobbying from major German companies and industry groups, in an attempt to shield themselves from of collective actions (as far as possible).
2. Reform Plans for all Civil and Commercial Disputes:
Enable online oral hearings.
Online oral hearings in civil disputes have already been viable for years, and have certainly gotten a boost due to the ongoing COVID-19 pandemic, but application in practice differs immensely from case to case and often fails due to insufficient technical capacities in court. If the new government wants this trend to increase, this will cost money: courts desperately need modern video-conferencing systems, secure servers, and staff who can operate the technology.
Online-proceedings for small claims.
The coalition wants to improve access to justice for members of the public with smaller claims, as currently it is often viewed as too burdensome and complicated to file a lawsuit. The web portal for the online-based dunning procedure is hopelessly outdated and overstrains even the nerves of those familiar with the subject. Therefore, many small claims are not instigated as a result of rational apathy, which, in turn, can have detrimental effects on the general public’s trust in the public authorities and the legal system. In an age of private online conflict resolution mechanisms, operated by payment services (e.g. PayPal) or sellers and platforms (e.g. Amazon), the state needs to catch up and show that it wants to provide jurisprudence to everyone, regardless of the claim size.
Taking of evidence to be recorded.
This plan is nothing short of a small revolution in German civil procedure. Until now, it has been explicitly prohibited to record or broadcast any element of oral court hearings, even in case of trials that were held online. Many practitioners, attorneys as well as judges, have long demanded a change of the law, but were faced with strong opposition in the past.
More highly specialized Judges panels.
In an increasingly complicated legal system, especially in the broader area of commercial and corporate law, it is almost undisputable that high-quality jurisprudence, especially at the higher instance courts, requires judges who – like the attorneys litigating in front of them – specialize in certain areas of the law. As the complexity of cases and applicable legal sources increases, such cases need to be overseen by judges who have the necessary expertise to understand and assess the fine nuances of the relevant statutes and case law. Therefore, specialisation of judges and the creation more specialised panels should be welcomed and encouraged.
English language proceedings for commercial disputes.
This measure, designed to present German courts with a more attractive option for complex international commercial disputes (which increasingly go to Arbitration or are litigated in English speaking countries), has been discussed for years. Some federal states have enacted legislation accordingly, but the implementation has not gained any genuine momentum. For this additional service to succeed, several practical issues will need to be dealt with, such as the provision of sufficient English language training to the administrative staff and the judges, combined with the possibility to write a judgment in English without the need for a certified translation.
Court decisions to be made accessible and searchable in an online database.
In the field of online access to case law, Germany is significantly lacking behind other countries. Most court decisions can only be researched and studied on privately operated legal databases behind a costly paywall – and those collections are far from comprehensive, as they mostly depend on the court or the parties to make decisions known to them. With a modern understanding of transparent justice and access to justice, it should go without saying that (anonymised) decisions are stored online for everyone to access. This is the consequent transposition of the fundamental principle of publicity in court into the digital age.
The incoming coalition has presented an ambitious agenda on how it wants to transform Germany’s somewhat outdated civil and commercial courts into the digital age. On several of the topics raised, many will scratch their heads and ask themselves:
“Wait, is this meant to be implemented NOW?”
It remains to be seen how much priority those projects will receive, and importantly, how much money the new government is willing to spend. High-quality e-justice does not come for free: court rooms must be equipped with streaming technology, databases must be securely created and operated, and for the digital case file to work in practice, judges need functioning laptops and/or tablets.
In the field of collective enforcement, the new government shows that it wants to take a leap forward, but it also seems reluctant to be too courageous. It is, of course, too early to build a final opinion as the proposals in the Coalition Treaty still being mostly rather abstract and undefined, however, the future of collective redress mechanisms in Germany will, therefore, depend on how those plans will translate into proposals and, in the end of the day, the law.
Written on November 29, 2021 by
Dr. Malte Stübinger is Senior Legal Counsel, Felix von Zwehl is Manager & Legal Counsel at Deminor Recovery Services.