Procedure for precedents at the Federal Court of Justice

Germany’s Federal Ministry of Justice has drafted a bill on introducing a procedure for precedents at the Federal Court of Justice, in collaboration with a working party consisting of federal and state representatives.

The aim of the bill is to bring about faster decisions by the highest court on legal issues that are relevant to a large number of individual legal disputes. This is to help to prevent a wave of many individual legal actions from arising in the first place.

As correct as the aim of achieving rapid decisions by the highest court may be, the intended procedure for precedents is unlikely to solve the existing problems. Although the ministerial draft stresses several times that it is only one element in combatting waves of lawsuits, the bill seems to fall short.

I. How precedents work

The bill states that in future the Federal Court of Justice (Bundesgerichtshof) may select one or more proceedings it considers suitable from among the pending appeal proceedings and designate them as precedents. According to the bill, appeal proceedings are suitable as precedents if the appeal on points of law raises legal questions on which the decision is important to a large number of other proceedings.

In principle, the proceedings for a precedent at the Federal Court of Justice are to be carried out in the same way as appeal proceedings to date.

What is new, however, is that the Federal Court of Justice will set a precedent by way of an order even if the proceedings that have been made into a precedent have been settled, for example by withdrawal of the appeal (due to an out-of-court settlement, for instance). This is intended to ensure that the appeal court can comment on fundamental legal questions even if a judgment on the appeal with substantive reasons can no longer be handed down.

The precedent is not intended to have a formal binding effect or an influence on the specific appeal proceedings.

If the Federal Court of Justice has designated certain proceedings as precedents, the lower-instance courts will in future be able to stay proceedings pending before them more easily if their decision depends on legal issues that are the subject of the precedent proceedings. However, this is only possible if the parties to the individual proceedings agree.

II. Efficiency of the planned precedent procedure is in doubt

The goal of relieving lower-instance courts by providing them with supreme-court guidelines as early as possible can probably only be achieved to a limited extent with the planned precedent procedure.

A precedent requires that the relevant proceedings make it to the Federal Court of Justice quickly. Experience to date shows that preventing supreme-court decisions for procedural reasons is already common practice at the stage of the first appeal on questions of fact and law. The introduction of the precedent proceedings is likely to intensify this trend.

What is remarkable about the bill is that the final appeal court is only supposed to determine proceedings for a precedent after receiving the response to the appeal or after the expiry of a time limit set for the response to the appeal. Until that time, the litigating parties remain in charge of the proceedings, which may prevent or delay clarification by the Federal Court of Justice of legal issues relevant to the decision.

The workload of the lower courts would be reduced more effectively if the lower courts themselves could designate proceedings as precedents at the end of the appeal process, rather than the Federal Court of Justice.

A referral procedure similar to referrals to the ECJ or the pooling of many individual proceedings as in the German Capital Investor Model Proceedings Act (KapMuG) would be worth considering. Lower courts are able to identify legal questions relevant to the decision for a large number of proceedings of the same type more quickly. They should be given the opportunity to submit key legal questions to the Federal Court of Justice for a decision. At the same time, there must be an option to stay other proceedings to which the same legal questions apply. This would allow mass proceedings to be managed more efficiently from the first court instance onwards and legal certainty to be achieved much faster.

Despite all the criticism, the bill now presented shows that the Federal Ministry of Justice places a high priority on new legal instruments to combat the phenomenon of mass actions and reduce the judiciary’s workload. Legislative activity is continuing with the capital investor model proceedings, model declaratory actions and representative actions currently in the legislative process.

Noerr is a pioneer in defending against class and mass actions of all kinds, and has successfully defended clients in four sets of capital investor model proceedings and the first model declaratory action in Germany.