Today, the German Federal Council (Bundesrat) passed the law already adopted by the German Parliament (Bundestag) to introduce a new leading decision procedure (Leitentscheidungsverfahren) at the Federal Court of Justice (FCJ). The law will enter into force shortly after it has been formally announced. In the following, we present the new procedure in detail and shed light on the effects that can be expected in practice.
Background of the new law
The heavy burden on the German judiciary from mass claims proceedings has been an issue that has occupied policymakers’ minds for quite some time. Without a real class action or group litigation in German civil procedure, each plaintiff usually files an individual claim, often leading to thousands of claims concerning the same facts. When it took office, the current federal government promised to implement measures to remedy the problem. The new amendment is intended to relieve the courts by enabling the FCJ to clarify the relevant legal issues in mass proceedings as leading decisions. In addition to the diesel cases, the explanatory memorandum cites inadmissible clauses in insurance or banking contracts as examples of mass proceedings. The government expects around 25 leading decisions a year and a reduction in the millions in the annual court and attorney fees paid. The driving force behind the law is the perception that the parties partially prevented the FCJ from being able to render precedent decisions in the past by terminating appeal proceedings shortly before a judgment of the FCJ.
The new leading decision proceedings
The new provisions for civil proceedings stipulate that the FCJ can select a suitable case from already pending appeals in mass proceedings and designate it as a leading decision procedure. In this procedure, the FCJ receives the power to identify and decide on all contentious legal issues. The decision to designate a case as a leading decision procedure may be made after the response to the statement of grounds of appeal to the FCJ has been received or one month after the statement of grounds of appeal to the FCJ has been served.
If the parties continue the leading decision proceedings, the case ends with a regular judgment on the appeal on points of law with substantive grounds. If, on the other hand, the proceedings are terminated by an alternative means, for example by withdrawal of the appeal or settlement, the FCJ decides in the form of a leading decision. This is issued as a decision without an oral hearing and is limited to clarification of the legal issues relevant to the mass proceedings.
What do clients have to expect?
Will the law lead to the desired relief for the courts?
First of all, it is very questionable whether the relief for the courts expected by the Federal Government will actually materialize in this form. For one, the procedure only takes effect at the federal appeal stage. Experience shows that it takes several years for a case to go through the instances and reach the FCJ. Thus, the new leading decision procedure cannot prevent a flood of individual lawsuits in the lower courts. Secondly, there is room for tactical considerations to avoid a leading decision, as the FCJ can only declare the proceedings to be a leading decision case after the response to the statement of grounds of appeal to the FCJ has been received or one month after the statement of grounds of appeal to the FCJ has been served. Both sides of a mass proceedings action will therefore consider at an early stage whether they want the case to make it to the FCJ at all.
The legislator has not opted for a preliminary ruling procedure that would shorten the number of instances – similar to the preliminary ruling procedure at the ECJ – or an extension of the leapfrog appeal. This means that a number of individual proceedings must continue to go through the ordinary court system until the FCJ can prioritize a procedure from the already pending appeals. Therefore, an acceleration of proceedings and relief for the courts is not intended until this point in time, which is likely to be several years after the flood of individual claims began.
Will a leading decision have a binding effect?
No, the FCJ's decision does not constitute a binding precedent for lower courts where similar proceedings are pending. Rather, the decision is intended to serve as a guideline and send a signal. The aim is to enable potential plaintiffs to better assess the prospects of success of a lawsuit by means of the leading decision. However, it is uncertain to what extent such a decision can actually clarify all legal issues relevant to the underlying facts of the mass claim case. After all, the parties and their legal counsel will often argue that their specific case differs from the scenario addressed in the leading decision and that a different decision is therefore required. In the context of the diesel emission cases, even after the so-called landmark decision of the FCJ on May 25, 2020 (VI ZR 252/19), a large number of further FCJ decisions were still required to clarify the divergent range of constellations.
What is worrying, however, is that a leading decision may be handed down without the respondent to the appeal obtaining the opportunity to be heard at all. If, for example, the appellant withdraws the appeal after filing the statement of grounds for appeal and thus terminates the initial proceedings, there is no express provision that allows for the respondent in the subsequent leading decision proceedings to submit a statement or for an oral hearing to take place. However, there is room to argue that the explanatory memorandum to the law indirectly suggests that the respondent must be given the opportunity to be heard in such circumstances.
Either way, oral proceedings do not take place in such a constellation. This is unfortunate, as it would enable the parties to present arguments that the FCJ has not considered in forming its preliminary legal opinion. Even if this may not always change the outcome of the proceedings, such an exchange in the oral hearing usually leads to a better reasoned decision.
How is a leading decision procedure likely to affect lower court proceedings?
The law provides for the possibility of suspending parallel lower court proceedings until the leading case proceedings have been concluded. The decision to suspend proceedings requires the parties to be heard beforehand, but is otherwise at the discretion of the lower court where the case is pending. It can be challenged by immediate appeal. Otherwise, the parties may only file a motion to continue the proceedings one year after the suspension.
What other recent legislative developments are of significance?
Another legislative measure for better handling mass claims is the redress action also introduced during this legislative period. This type of collective action mechanism already applies in the first instance and thus has greater potential to prevent mass claims by having a collective claim being pursued by qualified entities. Moreover, there is a general objective to make the conduct of proceedings more efficient overall. For example, policymakers are working on a bill that would enable online proceedings from January 2025 for disputes concerning payment actions within the jurisdiction of the district courts. In addition, the legislature has also significantly expanded the possibilities for virtual participation in oral proceedings and the hearing of evidence.
