Litigation Funding and Class-Actions

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1. Introduction

Since the so-called diesel emissions scandal, almost everyone in Germany has become familiar with the term “class-action”. Once regarded as a distinctly American phenomenon, often met with a degree of scepticism and incomprehension, it became relevant to many car buyers and entered German courtrooms through numerous damages claims.

This article explains how collective actions operate within the German legal system and examines recent case law. The focus is, naturally, on litigation funding: the two are closely connected.

2. Class Actions in the United States

When collective actions are discussed in Germany, many people assume that this form of enforcing claims was simply adopted from the United States. That is only partly true.

In the United States, class actions exist at both federal and state level, with the individual states applying different rules. What they have in common is the aim of making the justice system more efficient: first, by combining identical or similar claims; second, by resolving legal and factual issues affecting many people as comprehensively as possible.

For this reason, most US class actions follow an “opt-out model”. A judgment can therefore affect not only the parties formally involved in the proceedings, but also all persons concerned, even if they do not actively participate in the litigation. Typical cases include consumer claims, employment-related claims, product liability claims and antitrust damages claims.

Unlike in Germany and much of Europe, lawyers and specialised businesses in the United States may initiate, organise and finance such proceedings on a commercial basis. Financing is often based entirely on a share of the proceeds in the event of success. In some cases, law firms or companies bear all costs for the affected individuals.

Many proceedings end in settlements. Defendant companies, often financially strong industrial groups, may agree to settle to limit reputational damage and the associated impact on sales. Highly specialised law firms can run large-scale campaigns that create public attention and place pressure on defendants to negotiate. This model is controversial, but often effective. The litigation against Bayer in connection with the herbicide product “Monsanto” is one prominent example.

3. The German Starting Point

Traditionally, Germany did not have a “class action” in the US sense. Since its inception, the German Code of Civil Procedure (Zivilprozessordnung, or ZPO) has been based on the individual claimant bringing an individual action. Compensation is therefore generally determined case by case.

This principle is not fundamentally changed by procedural mechanisms such as the joinder of claimants, where several injured parties bring proceedings together or by a legal community of claimants, for example several heirs bringing a claim against an executor.

The first attempt to introduce a form of collective procedure was the Capital Markets Model Case Act (Kapitalanleger-Musterverfahrensgesetz, or KapMuG). It was intended to bundle claims brought by harmed capital-market investors. Looking back, however, the legislation did not meet expectations for several reasons, and only a limited number of such proceedings were initiated.

The diesel emissions scandal then left hundreds of thousands of car buyers with potential claims. Some pursued them individually; others did so through lawyers and litigation funders. As the court system faced, and in many cases experienced, significant pressure, the German government sought a solution. Since September 2018, the model declaratory action (Musterfeststellungsklage) has been available.

4. The Model Declaratory Action

Concerned about creating “American-style conditions”, the German legislature limited standing to bring a model declaratory action to registered consumer associations.

The purpose of the action is limited to obtaining a declaration based on liability. The number of damages is not decided in the collective proceeding; it must generally be pursued individually after a favourable ruling on the underlying issues.

The Federation of German Consumer Organisations (Verbraucherzentrale Bundesverband, or vzbv) brought such an action against Volkswagen. Around 400,000 claimants registered, and after several years the proceedings ended in a settlement for the majority of participants.

Since then, consumer associations have filed roughly a dozen further model declaratory actions. Their limited number highlights the central problem: associations often lack both the financial resources and the personnel required to conduct complex mass proceedings. Commercial litigation funders were deliberately excluded by the legislature. In addition, the procedure contains a significant structural weakness: it does not allow for a direct claim for damages.

For that reason, the model declaratory action can be described as a blunt instrument.

5. The Representative Action for Redress

Ultimately, the model declaratory action neither substantially reduced the burden on the courts nor adequately satisfied consumer interests. Across Europe, specialised lawyers, supported by litigation funders and debt collection service providers, continue to bundle hundreds or thousands of claims relating to flight delays, excessive rents and similar issues, adding further pressure to the courts.

The European Commission responded with the Representative Actions Directive (EU) 2020/1828. Germany implemented the Directive in October 2023 through the Consumer Rights Enforcement Act (Verbraucherrechtedurchsetzungsgesetz, or VDuG) and the related representative action for redress (Abhilfeklage).

In contrast to the US system, this is an opt-in procedure: affected consumers must actively register to participate. The new procedure does, however, permit a direct claim for performance, typically damages.

Standing remains limited to qualified entities, such as consumer associations. Commercial providers are therefore still excluded. The financing problem remains unresolved. To continue the earlier metaphor: the instrument now has a point, but its blade remains blunt. Whether the representative action for redress will truly provide effective relief remains to be seen.

6. The Federal Court of Justice on the Limits of Collective Claims Enforcement

Because commercial litigation funding has been excluded from the collective procedures described above, many bundled claims continue to be pursued through other procedural routes. Claims arising from diesel emissions, rent, interest charges or flight delays are still brought together in significant numbers.

German courts remain bound by the case-by-case structure of the Code of Civil Procedure and are often not technically equipped to process mass proceedings efficiently. This can place a substantial (and sometimes excessive) burden on the judiciary.

In its judgment of 12 May 2026, the German Federal Court of Justice (Bundesgerichtshof, or BGH) addressed the admissibility of a bundled antitrust damages action arising from established price-fixing by leading European truck manufacturers.

The BGH confirmed that such bundled actions are generally permissible. However, litigation funding agreements must in future be disclosed. In addition, where the effective administration of justice can no longer be ensured because of the court’s own workload, courts may require the claimant to split the bundled proceedings into separate actions.

If the claimant does not comply with such an order, the action may be considered abusive and dismissed as inadmissible.

7. Conclusion

The BGH’s recent decision gives courts a new option: in the name of ensuring effective legal protection, they can require collective claimants to split their bundled actions.

This creates a tension. An instrument designed to make legal enforcement more effective (and to improve access to justice for individuals by joining similar claims) may lose precisely that effectiveness because of structural weaknesses in the system: insufficient digital administration, inadequate technical capacity for mass proceedings and outdated civil procedure rules.

It remains to be seen how frequently courts will make use of this power. For commercial litigation funding, however, the decision may create additional obstacles that call into question the viability of certain collective-claims models. Effective consumer protection should look different.

8.AEQUIFIN Supports Affected BAYWA Shareholders

 AEQUIFIN primarily lists individual claims on its marketplace and connects claim holders with sponsors who wish to support the enforcement of those claims. This provides claim holders with an opportunity to pursue their legal rights while allowing sponsors to participate in successful outcomes.

There is currently one exception: BAYWA shareholders seeking damages following the sharp decline in the share price (down 83% over the past three years) can already register their interest without obligation on the AEQUIFIN platform (https://www.aequifin.com/de/baywa).

As of August 2026, it remains unclear whether the agricultural group’s restructuring will succeed and whether its share price will recover. In due course, AEQUIFIN’s team, together with Munich-based investor law firm Bergdolt (https://www.ra-bergdolt.de), which specialises in banking and capital markets law, will assess the prospects of success. Registered affected shareholders will then be informed about their options and potential next steps.

Should claims be bundled in this matter, the scale is likely to remain well below that of the BGH case. That case involved approximately 3,000 claimants, total damages claims exceeding €500 million and more than 70,000 individual transactions.

AEQUIFIN provides a digital marketplace for litigation funding, creating a direct and transparent route for claim holders, law firms and sponsors to connect around legal claims and rights-clarification projects.