8.4.4 Binding effect of the model case

The model case ruling of the Higher Regional Court is binding on the courts whose judgments depend on the establishment of the common element of liability and/or the answer to the common legal question1 ruled upon in the model case judgment.2 The common elements/questions (objective scope) regarding prospectus liability claims that can be ruled upon by the Higher Regional Court are:

As a result of the two statutory presumptions laid down in the Stock Exchange Act with respect to causation, the Higher Regional Court can rule on the existence of an investment market sentiment for non-professional investors and the extent to which the fall in the securities price was due to the misleading information in the prospectus and not due to a general fall in securities market prices. If the Higher Regional Court is willing to consider these issues as common, the individual non-professional investor's burden of proof is alleviated considerably in the resumed individual proceedings. The Higher Regional Court's ruling is defined as taking final and binding effect to the extent that a ruling has been handed down in regard to the subject matter of the model case.4 The model case ruling has effect for and against all interested parties summoned, irrespective of whether the interested party itself has expressly complained of the points of dispute (subjective scope). This binding effect also applies if the interested party has withdrawn its complaint in the main proceedings. After submission of the final and binding model case ruling, the main proceedings have to be resumed.5

In the main proceedings, the court has to rule upon the individual circumstances of the claimant that were not ruled upon by the Higher Regional Court, e.g. the knowledge of the individual investor with respect to the misleading nature of the prospectus, the amount of losses incurred by the investor and the defendant's claim that the investor did not in fact rely on the prospectus when making his investment decision6(s. 45(2)(1) SEA).7 Even though there is no case law yet on this issue, German legal scholars have defended that common legal questions with respect to the computation of losses that are condicio sine qua non-connected to and attributable to the issuer and/or the lead manager may be decided upon by the court in the model case proceedings and for that reason the answers will have binding effect on the lower courts deciding on the individual damage claims.8

The Capital Markets Model Case Act does not provide for a binding effect or res judicata of the model case ruling in procedures initiated after the model case ruling took final and binding effect even though these judgments also depend on the model case ruling with respect to the establishment of the common element of liability and/or the answer to the common legal question made in the model case. For that reason, the model case ruling has no binding effect in those proceedings. However, the courts will be inclined to adopt the establishment of the common element and/or the answer to the common legal question. Furthermore, it is not very likely that claimants will initiate prospectus liability proceedings based on the Stock Exchange Act after the model case proceedings because their claims will expire one year9 after the claimant became aware of the falseness or incompleteness of the information in the prospectus.10