Joint proceedings against Volkswagen before German courts
This article examines the means by which investors might participate in joint proceedings in Germany.
In the last couple of days several news agencies have reported that the Norwegian Government Pension Fund (commonly referred to as “the Oil Fund”) intends to sue Volkswagen (VW) in Germany in the next weeks over losses caused by falling stock prices in the aftermath of the emissions scandal. The reports were very vague about details but most claimed the Oil Fund wants to join one of the several class-actions which have been initiated in Germany already. In other words, after evaluating the expertise and economics of each litigation group it would pick one of the law suits which have emerged so far.
The Oil Fund is one of VW’s largest shareholders and the largest independently managed wealth fund in the world. Its investment decisions have a significant impact on decisions of other investors all over the world. The Oil Fund’s argument is the same one heard in other law suits filed in the US and the Netherlands. It suspects that the technical manipulation of software in VW’s cars was not the work of some rogue employees but a management decision of which VW was aware all along. Additionally, VW’s strategy after the scandal ensued was responsible for more stock price losses for shareholders.
Class-action law suits are a concept which is foreign to the law of German civil procedure. The closest concept to class-actions which exists in German civil procedure is the procedure provided for by the Capital Markets Model Case Act (KapMuG), relating to actions for damages for incorrect or misleading information in relation to capital markets. It was originally designed for the sole purpose of coping with the huge number of proceedings (17,000) brought against Deutsche Telekom by small and medium sized investors, claiming they had used an incorrect assessment of value for their second phase of going public. The Act was initially planned to expire after a five year pilot stage. After evaluation of the first application phase it was extended for another five year period in 2007. In June 2012, the German Parliament adopted the reform bill for the KapMuG to adopt the findings of the last evaluation phase, extending the Act for another eight years until November 2020.
The KapMuG entitles investors to apply for a model (test) case where common questions of fact or law are being dealt with in multiple parallel proceedings. Provided that at least nine other claimants register their cases within a four month period after the test case register has been opened by the competent court, a decision will be sought for the test case. This decision then has a binding effect on all cases involved. While the decision in the test case is pending, the other parallel actions are stayed. After the decision, the parallel actions will be resumed again to deal with any points specific to those actions. After the reform act which was adopted in June 2012 claimants who have not registered their case will now have six months as of the opening of the case register to subscribe to the case in order to suspend the period of limitation for making their claims, without having to actually register for the test case proceedings. They then await the ruling and decide at that stage if they want to register their claim.
If the Oil Fund brings its own proceedings against VW in Germany and at least nine other claimants want to clarify questions of law or fact in one joint procedure the Oil Fund could open model case proceedings in Germany.
Besides joining other proceedings another way of influencing the outcome regarding common questions of fact or law in other proceedings which were filed prior to the Oil Fund’s law suit could be to join one of them as an intervening party to the proceedings. Third parties may join proceedings as intervening parties if they have a legal interest in the outcome. This may be the case if the third party’s legal interests otherwise would be negatively impacted if they were not allowed to join the proceedings. An example would be the precedent effect of prior proceedings on the question of whether a claim against the defendant exists. The decision in such cases does not have a binding effect on the intervening party. But the intervening party still has the right to be heard and to enter pleadings which will be considered by the court for the side of the proceedings on which they joined the case. Consequently, the Oil Fund could also intend to start its own proceedings and join another proceeding as an intervening party later on. As a result even though the concept of class-actions does not exist as such in German civil procedure law, the Oil Fund could still join other proceedings by way of opening or joining a model case proceeding according to the KapMuG or joining another proceeding as an intervening party.
In any case the Oil Fund’s press announcement may be seen as a starting signal for many other investors to actively consider joint proceedings against VW in Germany.
