Kapital­anleger­muster­verfahrens­gesetz: Looks as though it’s here to stay

Kapitalanlegermusterverfahrensgesetz, KapMuG for short, is the closest thing German law has to a class action. It is usually translated as the Capital Market Investors’ Model Proceeding Act. As you gather from the name, it deals with investor claims in capital market matters.

Essentially, it serves two purposes. First, the law was passed to prove that Mark Twain was right when he said that “some German words are so long that they have a perspective – these things are not words, they are alphabetical processions.”

Second, KapMuG is designed to bundle identical or similar cases in a streamlined process. On the one hand it makes sure that identical issues of law fact are decided swiftly and coherently, but on the other hand, it avoids the creation of a real class-action by keeping the cases brought be individual claimants separate. In very short form, essentially, this is how KapMuG works:

As soon as ten or more investors filed claims of identical nature –  against the same defendant based on same causes of action and identical or similar facts – the individual cases are suspended. The matter is transferred to a Court of Appeal (Oberlandesgericht), which decides the identical legal or factual issues with binding effect for all pending proceedings of that “class” – class being a word not to be found in KapMuG. A type of “lead plaintiff” is arguing the case at that stage on behalf of all claimants. Once the Oberlandesgericht has dealt with the issue, or,  following an appeal of its decision even the Federal Supreme Court (Bundesgerichtshof), the matter is transferred back to the originating courts. It is for them to decide the individual cases in the context of the binding decisions.

KapMuG was introduced in 2005. It originally came with a “best before” date of 30 October 2010, one of the first major pieces of legislation to have a fixed term. The idea was to evaluate its effectiveness and then decide whether to keep, amend or abolish it. At the time, there was some talk about extending the scope of KapMuG, if it worked, into a more general Model Procceding Act, and removing the limitation to capital market related claims.

KapMuG’s term was then extended for two years and it now expires on 31 October 2012. Over the summer, a revised draft has been presented by the Federal Ministry of Justice and comments were invited.

Last week, the German Bar Association (Deutscher Anwaltsverein) was the latest body to have published its comments.

Generally, the comments that have come in so far welcome the draft. One should expect KapMuG to remain largely unchanged in overall scope and approach. The only extension of scope that is contemplated is the inclusion of claims against certain intermediaries such as brokers and investment advisers (Anlageberater und Anlagevermittler). So in theory at least, brokers and investment advisers would be facing an increased litigation risk. The majority of the other proposed changes is technical in nature and is designed to streamline the process.

We will monitor KapMuG’s way through the legislative process, so watch this space.


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