Kapitalanlegermusterverfahrensgesetz (Capital Market Investors’ Model Proceeding Act), or KapMuG for short, is the closest thing German law has to a class action. In its current form, the Act would have expired on October 30, 2012. Early on, there was consensus that the Act would be extended, and German parliament has now decided to do so, for another eight years, but with some modifications.
I have described the basic mechanics of the procedure in more detail in a previous post. To recap very briefly: KapMuG is designed to bundle identical or similar securities law suits in a streamlined process – securities law suits are capital market related actions, in German legal parlance. On the one hand, the model proceeding is designed to make sure that identical issues of law or fact are decided swiftly and coherently by a higher court, but on the other hand, it avoids the creation of a real class action by keeping the cases brought be individual claimants separate. Once the joint issues have been decided upon in a model order (Musterentscheid), the courts first seized decide the individual matters on the basis of model order, which is binding them.
Here’s in a nutshell what’s new in the law:
First, KapMuG now applies also to cases where capital market-related information has been used in the sale and distribution of financial products, and hence can apply to certain classes of misselling claims against banks and investment advisers. In widening the scope of the Act, the lawmakers overruled the restrictive interpretation adopted by the Federal Supreme Court (Bundesgerichtshof).
Secondly, claimants now can join a model proceeding in order to stop the limitation period, simply by filing their claim with the Court of Appeals (Oberlandesgericht) where the model procedure is pending, rather than having to commence fully-fledged proceedings as they currently must. Claimants can now wait for the outcome of the model action, and then decide whether to pursue their claim or not.
A third modification allows for the conclusion of a court-approved settlement between the defendant and the model claimant. The court-approved settlement becomes binding on all parties, unless they opt out. Previously, a settlement required consent of all parties, which made settlements next to impossible.
The other modifications are rather technical in nature. They are designed to streamline the model proceedings and make them faster and more efficient.
For those looking for an English-language analysis of the (old) KapMuG model of litigation and a discussion of reform proposals, I highly recommend a paper by Axel Halfmeier and Eberhard Feess, “The German Capital Markets Model Case Act (KapMuG) – A European Role Model For Increasing the Efficiency of Capital Markets? Analysis and Suggestions for Reform” (2012) (available via SSRN).
Axel Halfmeier is also the author of a detailed report commissioned by the German Ministry of Justice evaluating KapMuG ahead of its extension (in German) – and he is not too happy with the outcome of the reform: In today’s Legal Tribune Online, he writes that the “piecemeal reforms” (kleinteilige Bastelei) are short of what would have really been needed – investors would still be better of pursing their claims in New York or Amsterdam. Whether that is a good or a bad thing clearly depends what side of the bar you are on.