11.3 The German Capital Markets Model Case Act and its binding effect

The German legislator adopted in 2005 the Capital Markets Model Case Act. Section 16(1) of the Capital Markets Model Case Act prescribes that the Higher Regional Court's judgment1 of the in the model case proceedings with respect to the facts and legal questions common to a group of claimants claiming damages from the same defendant is binding upon the lower courts where the individually initiated proceedings are pending. The German courts are bound to suspend ex officio all pending proceedings or any proceedings brought prior to the handing down of a model case ruling whose decision is contingent upon the rulings in the model case.2

The Higher Regional Court's rulings have binding and preclusive effect for and against all interested parties summoned, irrespective whether the interested party itself has expressly complained about the points of dispute decided in the model case judgment.3 This binding and preclusive effect also applies if the interested party has withdrawn its claim in the main proceedings.4 The main proceedings have to be restarted upon submission of the final and binding model case ruling by a party to the model case proceedings.5 If the Higher Regional Court rules that some common elements regarding the defendant's liability have not been established, the interested parties are precluded from making an identical claim in the resumed main proceedings.6 In fact, the main proceedings have been rendered ineffective by this ruling, because the damage claim can never been awarded if some elements of the defendant's liability can no longer be established in court. The inclusion of section 16 of the Capital Markets Model Case Act was necessary to achieve the binding and preclusive effect of the model case judgment, because on the basis of the applicable German civil procedure rules, court decisions establishing single elements of liability do not have binding effect.7

With respect to the (international) recognition of the model case judgment's binding effect, the German legislator, in the Explanatory Notes to the Capital Market Model Case Act, states explicitly that the ruling in the model case falls under the recognition rules laid down in the Brussels I regulation, because section 16 of the Capital Markets Model Case Act prescribes expressly that the model case ruling has binding effect in proceedings pending before German courts.8 Subsection 9.5 analysis whether the statements of the German government and German scholars that section 16 of the Capital Markets Model Case Act in fact ensure the recognition of the model case judgment onder the Brussels I regime and thereby its binding effect in the entire European Union.

Section 325a in the German Code of Civil Procedure referring to the Capital Markets Model Case Act for all legal effects of a model case ruling, ensures that the model case decision is recognised as a judgment in the sense of article 32 of the Brussels I regulation.9 Note that in the event a claimant who is not domiciled in Germany, but domiciled in another Member State, withdraws his damage claim brought before a German court (presumably against a defendant domiciled in Germany), is bound by the model case judgment on the basis of section 16(1) fourth sentence of the Capital Markets Model Case Act.10 Article 65 of the Brussels I regulation states that any person domiciled in another Member State may be sued in the courts of Germany pursuant to third party notices and judgments in these proceedings have to be recognised. Furthermore, if this claimant brings a claim before a court of another Member State on the basis of article 5(3) of the Brussels I regulation, this court may, on the basis of article 28 of the Brussels I regulation, suspend the proceedings, if there is a risk of irreconcilable judgments. Since the Capital Markets Model Case Act prescribes that the model case judgment has binding effect in regard to claimants withdrawing their claim during the model case proceedings, the foreign court has to stay proceedings and after the model case judgment has been given, apply its rulings in its own decision on the claim.11

In case a foreign court has to deal with a damage claim brought by a claimant who did not bring a claim against the defendant involved in the model case proceedings before a German court, this foreign court may nevertheless, ex officio, stay the proceedings on the basis of article 28 of the Brussels I regulation, if there is a risk of irreconcilable judgments. The European Court of Justice held in Tatry12 that claims for damages brought by different claimants against a single defendant on the basis of separate but identical contracts involve the risk of conflicting decisions, without necessarily involving the risk of giving rise to mutually exclusive legal consequences, and thus irreconcilable judgments.13 Therefore, the foreign court may stay its proceedings, until the decision in the model case proceedings is given by the Higher Regional Court and subsequently apply this decision in its own ruling on the claim.14 Unlike in the aforementioned case in which the claimant withdrew his claim during the model case proceedings, the court is not required to stay its proceedings: it is a discretionary power.15