In general, German courts are not legally required to follow the rulings of other courts and there is no legal rule that establishes the legally binding effect of case law or precedent.¹ According to article 20(3) of the Basic Law (Grundgesetz), courts are solely bound by ‘law and justice’. The term ‘law’ refers to statutory laws enacted by the legislature (materielle Gesetze). This reflects the democratic principle according to which principal decisions on the matter of material justice are to be taken by Parliament and not by the judiciary.² It follows that courts have no legislative capacity strictu sensu and – in general – no court has the capacity to authoritatively interpret statutory laws in a way that would be legally binding on other courts. In the domain of civil law, this is a consequence of paragraphs 322 and 705 of the Code of Civil Procedure (Zivilprozessordnung), which strictly limit the legal effect of a judgment to the case at hand. Accordingly, civil judgments are applicable only inter partes. This rule also applies in other areas of law and there are few exemptions to it, the most prominent being paragraph 31 of the Act on the Federal Constitutional Court (Bundesverfassungsgerichtsgesetz). According to this provision, rulings of the Federal Constitutional Court (Bundesverfassungsgericht) apply erga omnes and in certain cases have the same legal force as statutory law.

Thus, precedent is in general not legally binding. Nonetheless, it is of utmost importance in legal practice. Empirical studies in the field of civil law have demonstrated that in 95 % of its decisions the Federal Court of Justice (Bundesgerichtshof) decides on matters with reference to its previous judgments, and in most cases such reference is used as a main argument. In addition, the courts of first and second instance commonly refer to the judgments of the Federal Court of Justice without any further scrutiny of those decisions or attention to (potential) counterarguments.³ It is commonplace that the lower courts, which institutionally belong to the Bundesländer, are de facto bound by the Federal Courts’ interpretation of statutory law,⁴ and this can be explained by procedural arrangements. According to paragraphs 511(4)(No 1) and 543(2)(No 2) of the Code of Civil Procedure (Zivilprozessordnung), an appeal (on a point of law) is admissible if the decision of the higher court is necessary to ensure uniform adjudication. Under this rubric, leave for appeal is given if a judgment departs from the legal reasoning of a decision of a higher court, in particular a Federal Court. Therefore, on the one hand, the courts of first and second instance are free to dissent from the legal reasoning of the Federal Courts; on the other hand, the applicable procedural rules provide that the dissenting judgment can be appealed to a higher court. Of course, it is highly probable that the judgment will be overturned if an appeal is lodged. Similar procedural rules apply in the judicial branches of the other four Highest Federal Courts, ie the Federal Administrative Court (Bundesverwaltungsgericht),⁵ the Federal Fiscal Court (Bundesfinanzhof),⁶ the Federal Labour Court (Bundesarbeitsgericht),⁷ and the Federal Social Court (Bundessozialgericht).⁸ However, different procedural rules apply to the Federal Court of Justice in the area of criminal law.

Whereas the aforementioned procedural rules provide for uniformity in the individual branches of the judiciary, further rules applicable to the Federal Courts are intended to secure a uniform interpretation of statutory law at the federal level. First, each of the five Highest Federal Courts consists of several senates. If a senate intends to diverge from a ruling of another senate of the same court, it has to refer the matter – after a reference to the respective senate – to a Grand Panel (Großer Senat). A Grand Panel will then rule on the interpretation of statutory law, but not decide the case. This interpretative decision – one might say its ratio decidendi – will then be binding on all senates of the Federal Court in question. Its senates are not allowed to depart from the reasoning of the Grand Panel without a further reference to the Grand Panel.⁹ In other words, only a Grand Panel is allowed to revise and eventually overturn its own decisions. Second, if a Federal Court intends to dissent from the interpretation of statutory law given by another Federal Court, it has to refer to the Joint Panel of the Highest Federal Courts (Gemeinsamer Senat der obersten Gerichtshöfe des Bundes). This is rare, but the procedure is set out in article 95(4) of the Basic Law and aims at securing the uniformity of legal practice¹⁰; the details of the procedure are governed by the Act on the Uniformity of the Jurisdiction of the Highest Federal Courts (Gesetz zur Wahrung der Einheitlichkeit der Rechtsprechung der obersten Gerichtshöfe des Bundes). Obviously, the establishment of Grand Panels at the Federal Courts and a Joint Panel of the Highest Federal Courts is to secure the uniform interpretation of statutory law at the level of the Federal Courts. However, the underlying premise is that the courts of first and second instance will follow the Federal Courts’ (uniform) interpretation of statutory law.

In addition, each of the five Grand Panels is entitled to further develop the law by judicial interpretation (Rechtsfortbildung).¹¹ This method of interpreting statutory law is available to all courts, including the courts of first and second instance, but in practice it is primarily used by the Federal Courts. It enables them to fill lacunae in statutory law and to substantiate blanket clauses. The Federal Constitutional Court acknowledged that in this context the courts create the principles and rules of law according to which they decide the relevant case at hand.¹² The Constitutional Court deems this particular function of the judiciary to be ‘virtually indispensable’ in a modern state.¹³ Judgments of the Federal Courts that further develop the law by way of interpretation and the legal rules evolving therefrom can – in a broader material sense – be called ‘judge-made law’ (Richterrecht). The relevance of this type of ‘rule-making’ in German legal practice cannot be overestimated. For example, the absence in statutory law of any substantive rules on industrial action means that this area of law is almost entirely governed by decisions of the Federal Labour Court. Hence, the topical decisions of the Federal Labour Court substitute statutory laws regulating industrial action (gesetzesvertretendes Richterrecht).¹⁴ Consequently, in the field of collective action the German legal system very much operates like a case law system and supports the finding of the European Court of Human Rights (ECtHR) that ‘case-law has traditionally played a major role in Continental countries, to such an extent that whole branches of positive law are largely the outcome of decisions by the courts’.¹⁵ Another example of this is the award of damages in case of fault in conclusion of a contract (culpa in contrahendo). The relevant provision in paragraph 311 of the Civil Code (Bürgerliches Gesetzbuch) came into effect on 1 January 2002. It merely contains a general acknowledgement of the longstanding legal practice of the Federal Court of Justice after 1945¹⁶ and the former Imperial Court (Reichsgericht), which, since the early twentieth century, adjudicated on culpa in contrahendo.¹⁷ In addition, the intention of the drafters of paragraph 311 of the Civil Code was to leave further development of the law to the judicature.¹⁸ As a consequence, the substantive rules are made by the courts and not by the legislature.

Finally, a solicitor is in general under a contractual obligation to advise clients on the basis of the legal practice of the Federal Courts even if he or she holds a different opinion.¹⁹

In absence of a better term, in the remainder of this report the standing body of Federal Courts’ judgments will be referred to as ‘case law’, although the term ‘law’ is slightly incorrect because, in general, the judgments have a mere factual, practical, or procedural, but not legally binding effect on the lower courts. In a 1973 landmark decision the Federal Constitutional Court stated:

Traditionally judges are bound to statutory law and this is a constituent component of the principle of separation of powers and the rule of law [Rechtsstaatsprinzip]. The Basic Law, however, stipulates that the judiciary is bound to ‘law and justice’ – article 20(3) of the Basic Law. According to a universally held view, this is incompatible with strict legal positivism. The formulation reflects that the ‘law’ de facto and in general is in accordance with justice; however, this is not necessarily and not always the case. The law is not identical with the entirety of written statutory law. There may be more laws than the positive rules set by the public authorities as the law has its roots in the constitutional order taken as a whole which can have the effect of correcting written law. It is the task of the judiciary to find and to apply such law. According to the Basic Law, judges are not limited to applying the rules of the legislature in their literal sense to each individual case. This would presuppose the principal absence of any lacunae in the positive legal order, a condition that might be defensible with regard to the principle of legal certainty, but is unattainable in practice. The task of the judges is not limited to finding and pronouncing the decisions of the legislature. It can include shedding light on and applying the ideals of justice which are imminent to the constitutional order but which are not or merely imperfectly reflected in written statutory law; this task requires a critical assessment which is not free of voluntative elements.²⁰

This Federal Constitutional Court decision received criticism for its tacit acknowledgement of (higher) natural law and its reference to an undefined constitutional principle of material justice which as a consequence granted judges the power to overcome the boundaries of statutory law. However, in accordance with the ruling of the Federal Constitutional Court, it is universally accepted that the courts are not restricted to a literal interpretation of statutory laws; the courts are not merely ‘la bouche qui pronounce les paroles de la loi’.²¹ Their function implies a certain aspect of rule-setting. Nonetheless, the legal status of case law is a fundamental, yet dubious and highly contested matter. The academic debate, however, focuses on the methodological boundaries of the interpretation of statutory law and the constitutional limitations to judicial powers vis-à-vis the legislature.

The orthodox opinion in German legal theory rejects the idea that case law has in and of itself any kind of normative quality. According to this view, statute and custom are the sole sources of law and, due to the constitutional principle of separation of powers, judicial decisions cannot assume legislative character and cannot be legally binding.²² Consequently, case law is held not to be a source of law, but a source of legal reasoning (Rechtserkenntnisquelle)²³ and must have an adequate legal basis in statutory law.²⁴ Other authors have argued that longstanding case law could evolve into legally binding customary law (Gewohnheitsrecht). This opinion rests on the assumption that judge-made rules could over time become universally accepted legal practice with normative power. However, even authors who argue that every judicial decision creates an individual rule and reject the idea that there is a bright-line distinction between legislation and adjudication, argue that case law has no legally binding effect whatsoever.²⁵

A minority opinion refers to the de facto legal quality of case law and the procedural rules that secure the uniform application of statutory law. Accordingly, it qualifies case law as an autonomous legal source.²⁶ Numerous authors favour a ‘presumptive binding force’ of case law which has to be rebutted if a lower court wants to dissent from case law.²⁷ Furthermore, some contemporary authors go even further and object to the idea that courts could, in effect, be bound by statutory law because of their authority to determine its content by interpretation, a position that culminates in a rather radical conclusion coined by Walter Grasnick: ‘There is no law. There are only judges.’²⁸

The aforementioned debate reflects a more general discussion in legal theory on the interpretation and application of law.²⁹ The so-called Interessenjurisprudenz ³⁰ understands all norms of statutory law as deliberate decisions of the legislators intended to balance and to reconcile conflicts of interests. Accordingly, judges shall not only be bound by written statutory law, but also by the principles that underlie the legal order and reflect the importance the legislator attributed to particular interests. The so-called Wertungsjurisprudenz ³¹ introduces a more stringent differentiation between individual interests and their evaluation by the legislator. In addition, it suggests that the content and the purpose of legal norms are not determined by the will of the legislator. Instead, and in accordance with Hegelian legal philosophy, legal norms are held to have an immanent, objective meaning that is independent of the intentions of the persons who participated in the legislative process. The objective meaning of statutory laws follows, in particular, from their systematic context within the legal order and the idea of material justice (Rechtsidee). Despite the differences in their theoretical groundwork, both Interessenjurisprudenz and Wertungsjurisprudenz are underpinned by the idea that general principles of law can be derived from the structural order of all statutory law and that in every individual case those principles enable the evaluation of competing interests.

If one accepts the assumption of a holistic legal order, it follows that the function of judges is principally limited to the reproduction and reconstruction of assessments deriving from the will of the legislator or the entirety of the written legal order. In any case, judges must not be influenced by their personal evaluation of competing interests. Hence, ideally, a judge should be restricted to a purely cognitive act without any voluntative element. In addition, such cognitive act can only result in one right answer, which truly and accurately reflects the legislators’ assessment of competing interests.³² In this particular regard, Interessenjurisprudenz and Wertungsjurisprudenz exhibit striking similarities to the declaratory theory and the ‘one-right-answer doctrine’. On the issue of temporal effect of judgments, both doctrines submit that judges should be limited to pronouncing decisions based on the assessments of the legislator or the legal order taken as a whole; consequently, any change in the case law is tantamount to the mere correction of a previous error. In this context, the Federal Constitutional Court deviated from its 1973 ruling and described the interpretation and application of the law as a cognitive process, which in general is prone to error.³³ Of course, from this perspective it follows naturally that any error should be reversed immediately and retrospectively.

A rival opinion³⁴ argues that the written legal order is necessarily fragmented. It therefore challenges the idea that the legal order provides a coherent system that determines the outcome of every possible case. Rather, with reference to Gadamer’s hermeneutics, this opinion submits that judges read provisions of written law in accordance with a preconception that reflects their personal conviction of material justice (Vorverständnis).³⁵ In the absence of legal rules on how to interpret statutory law, judges will choose the method of interpretation that corresponds with their preconceptions. Thus, the interpretation and application of law is a rhetoric and decision-making process that is influenced by statutory law, the methods of its interpretation, existing case law, and legal literature. As a consequence, judicial decisions are functionally comparable to the creation of legal rules, although they operate on a lower level in the hierarchy of norms when compared to statutory law enacted by the legislature. It follows that, on the basis of this opinion, the issue of temporal effect of judgments would have to be resolved in accordance with, or at least be similar to, the (constitutional) principles restricting the retrospective effect of statutory laws.

In general, a court’s decision is based on its interpretation of statutory law. It will apply its interpretation from the date the statutory law entered into force. In this sense, any judicial decision has retrospective effect because it interprets and applies the relevant legal rules to cases where the facts occurred in the past. Against this background, the retrospective effect of judicial decisions is the natural state of affairs. In addition, as precedent is, strictu sensu, not legally binding, there is no common legal rule that binds the courts to previous case law. In general, any court is therefore free to depart from previous case law and apply a new position to any case even if the case under consideration would have been decided differently under previous case law. However, there are some vague limitations to a retrospective change in the case law, deriving, in particular, from the constitutional principle of legitimate expectation (Vertrauensschutz), which follows from the rule of law (Rechtsstaatsprinzip). In 2010 the Federal Constitutional Court summarized its relevant case law as follows:

Although decisions of specialized courts [Fachgerichte] affect only the individual case at hand and are legally binding only inter partes, they can clarify contested legal issues and can be of some value as precedent for future cases. This function of case law is reflected in the procedural rules applicable to the Federal Courts and follows in particular from the provision on the appeal on a point of law [Revision] according to which the harmonization of the case law is one of the tasks of the Federal Courts. However, as the courts of first and second instance are not legally bound by the case law of the Federal Courts, except for the individual cases which the Federal Courts have decided, acts of the judiciary can only to a limited extent be a source of legitimate expectation comparable to statutory law, which is of universal binding force. For constitutional reasons the administration of justice is not homogeneous because article 97 [of the] Basic Law guarantees the independence of the judges. No party can rely on the expectation that a judge will continuously adhere to a particular point of view as laid down in previous case law. Accordingly, if the legal situation is uncertain, the case law of the Federal Courts is less suitable as a basis for legitimate expectations than clarifying statutory law. The case law of the Federal Courts has not the legal status of statutory law and it does not produce a binding force comparable to statutory law. Apart from the individual cases that the Federal Courts have themselves decided, the applicability of their case law solely rests on the persuasive power of their arguments and the authority and competence of the Federal Courts. Legitimate expectations may only evolve from longstanding and settled case law.³⁶

In another judgment, the Constitutional Court added that judicial decisions would not alter the legal situation, but merely declare what the legal situation is.³⁷ This, of course, reflects the principle of the declaratory theory, according to which the courts do not create legal rules. Against this background, a change in the case law does not violate the constitutional principle of legitimate expectations if the court gives adequate reasons for its new opinion and this new opinion does not exceed the confines of a ‘foreseeable evolution’ of the case law. However, the Constitutional Court explicitly stated that due regard to the principle of legitimate expectation could be paid if a court on a case-by-case basis restricts the temporal effect of a decision that departs from earlier case law.³⁸

Some authors maintain that the fundamental right of equality before the law according to article 3(1) of the Basic Law restricts the authority of the courts to change their case law.³⁹ However, the Federal Constitutional Court decided that article 3(1) of the Basic Law does not grant an individual entitlement to the continuation of a line of case law that the courts no longer hold to be correct.⁴⁰ Indeed, the general principle of equality (allgemeiner Gleichheitssatz) requires that like cases are decided in the same way. However, with regard to overturning earlier case law, it merely prohibits arbitrary changes in the case law.⁴¹ Such changes will not be deemed arbitrary and thus will not violate the general principle of equality if they are justified by objective reasons. This is a rather low threshold as the court is merely required to base its new case law on objective reasons. Nonetheless, a recent opinion in legal literature argues that objective reasons should be the exclusive test for a change in the case law because acts of the judiciary are by their very nature retrospective.⁴² This opinion challenges the idea that judgments create legitimate expectation, because courts are unable to legally bind themselves to their earlier case law. The principle of legitimate expectation, however, requires that a state authority is able to create legal rules that it is bound by in future cases. As the courts are unable to bind themselves to a particular interpretation of statutory law, there cannot be any legally relevant expectation that a court will follow its previous case law in the future.⁴³

Only a small number of cases that concern the issue of legitimate expectation in the context of a change of case law have been decided by the Federal Constitutional Court. In the vast majority of those cases, the Court did not find a breach of the Basic Law. It accepted a change in the case law where it was reasonable to expect such a change due to significant changes in factual or legal circumstances.⁴⁴ In several decisions the Court found that the relevant change did not exceed the confines of a foreseeable evolution of the case law.⁴⁵ For example, it held a change in the case law to be foreseeable if its aim was to correct scarcely tolerable discrepancies between the case law of the administrative courts and the employment courts. If two branches of the specialized courts decided similar cases differently it was, according to the Constitutional Court, to be expected that such differences would be abolished at some point in time.⁴⁶ However, the Federal Constitutional Court held a decision of a Chamber of a Regional Court (Landgericht) to violate the constitutional principle of legitimate expectation. Without prior announcement, the Regional Court had departed from its practice of accepting illegible signatures on written submissions. On the basis of its new practice, the Chamber dismissed an appeal. However, the Constitutional Court referred not only to the constitutional principle of legitimate expectation, but also to the fundamental right to a fair trial:

No litigant can rely on the expectation that the judge will come to or adhere to a particular legal opinion. This would run counter to the principle of independence of the courts (article 97 of the Basic Law) because of which the case law is necessarily inhomogeneous. The claimant could therefore not expect that the Regional Court would follow the case law of the Federal Courts that expressed a rather generous approach to the formal requirements for the signature in written submissions to the courts. However, the Chamber [of the Regional Court] was not allowed to abruptly depart from its longstanding previous practice according to which the signatures of the claimant were sufficiently clear. This departure precluded the claimant from adapting to the new procedural practice of the Chamber. However, a procedural practice that is in conformity with the rule of law does not require that litigants be notified of intended changes in the case law. In addition, the judge has to pay attention to the formal requirements as enshrined in the procedural codes. Otherwise legal proceedings cannot operate in an orderly manner. However, in order to achieve this aim, judges and litigants have to cooperate on the basis of mutual consideration. This aim will not be achieved if a court accepts a particular signature over many years, with the result that a legal representative of the party concerned will legitimately expect that this signature is valid, but then the court departs from its practice without prior warning. This applies in particular where an appeal is dismissed as a result of a change in the procedural practice. It would have been possible to the Chamber to inform claimants, in general, that the formal requirements for a proper signature would change in the future. Under these circumstances, and if the signature had then not been amended, the dismissal of the appeal would not have come into conflict with constitutional law in case.⁴⁷

The reasoning of the Federal Constitutional Court illustrates that there is no general obligation of the lower courts to adhere to the case law of the Federal Courts. Instead, the Regional Court was bound to its own procedural practice, which it was not allowed to modify without prior notification to litigants. However, it does not follow from the decision of the Constitutional Court that constitutional law would oblige the specialized courts to announce intended changes to their case law or to generally restrict the retrospective effect of their judgments. Although the Constitutional Court refers to a possible announcement of the Regional Court, it has to be noted that such announcement would not have required a final judgment. It would have sufficed to inform the parties during the course of the proceedings that the Chamber intended to change the formal requirements for signatures on written submissions. The reasoning of the Constitutional Court focuses on the matter of procedural practice rather than on changes in the interpretation of substantive law.

Nonetheless, the Federal Constitutional Court itself has a longstanding and extensive tradition of restricting the retrospective effect of its own judgments. In numerous cases the Court set a time limit that precluded the retrospective application of the decision in question and granted a notice period within which the legislature or other state authorities could remedy the breach of constitutional law.⁴⁸ For example, in 2008 the Federal Constitutional Court quashed a provision of the Federal Election Act (Bundeswahlgesetz) that, in certain complex situations, could have had a peculiar effect in that, after having obtained a specific number of votes, a political party would lose seats in Parliament if it obtained any more votes. The Constitutional Court found that the relevant provisions of the Federal Election Act violated the Basic Law, but granted the legislature a period of about 3 years to remedy the violation of constitutional law because it would require a substantial revision of the said Act.⁴⁹

A rather academic debate concerns the question of whether the courts are, in addition to the principle of legitimate expectation, bound by the more restrictive constitutional rules that apply to the retrospective effect of statutory law. The Federal Constitutional Court has rejected this proposition in general and stated that its case law on the retrospective effect of statutory laws should not be applied to judicial decisions.⁵⁰ Some authors argue that the courts may not change their case law retrospectively in a way that the legislature would not be entitled to because a change in the case law could have the same effect as the enactment of new statutory law. In this regard, the powers of the courts could not exceed those of the legislature.⁵¹ The prevalent opinion, however, opposes this proposition as it would result in a rigid continuity of standing case law and discourage litigants from seeking a change in the case law.⁵² Also, the Federal Constitutional Court has drawn a clear distinction between statutory law and case law, emphasizing that case law does not have a legally binding effect comparable to statutory law.⁵³

Another question is whether constitutional law prevents a court from restricting the retrospective effect of its new case law in the sense that it will be applicable only to future cases (pro futuro). This issue has not yet been explicitly addressed by the Federal Constitutional Court and has not been subject to a wider debate in legal literature. On the basis of the declaratory theory it has been argued that each party has a constitutional right to the ‘correct’ application of statutory laws to their case even if this is contrary to previous case law. Restrictions on the retrospective effect of judgments would be tantamount to an incorrect interpretation of statutory law.⁵⁴ Such restrictions would also be contrary to the constitutional principle that courts are bound by statutory law. This principle obliges courts to apply the ‘correct’ interpretation of statutory law immediately.⁵⁵ Furthermore, applying new case law only pro futuro would violate the constitutional principle of separation of powers because the power to change the law is reserved to the legislature.⁵⁶ However, this view is contested.⁵⁷ Critics, first, call the declaratory theory into question because in their eyes it underestimates the impact of changes in societal circumstances on the case law. Second, it is argued that there is not merely one correct interpretation of statutory law. Instead, the ‘correct’ interpretation and application of statutory law requires consideration of when the relevant facts took place. Thus, the principle of legitimate expectation could have the result that the application of the former and now ‘incorrect’ interpretation of statutory law is the ‘correct’ judicial decision.⁵⁸ Third, the restriction of the temporal effect of judicial decisions pro futuro would not usurp powers of the legislature because the courts are undoubtedly entitled to change their case law (with retrospective effect). Therefore, they must, a fortiori, be entitled to make mere prospective changes to their case law, which are less far-reaching than changes with retrospective effect.⁵⁹ Fourth, the critics propose a distinction between two functions of Federal Courts decisions. The Federal Courts are, on the one hand, meant to decide individual cases; on the other hand, they give guidance to the lower courts on the interpretation of statutory law. Hence, the Federal Courts may make a distinction between deciding the case at hand and the mere announcement of a new point of view as a reference for future cases and as guidance for lower courts. Strictly speaking, such an announcement could be understood as a mere obiter dictum provided it does not affect the decision of the case at hand.⁶⁰ Fifth, by restricting the temporal effect of new case law pro futuro, the courts would interpret statutory law differently at different points in time. This is, nonetheless, still a mere interpretation of statutory law not comparable to the enactment of statutory law. If the courts were entitled to change their case law at all – which they undoubtedly are – they must also be entitled to determine at what point in time the change will come into effect.

Before drawing some general conclusions, the remainder of this paper provides an overview of the judgments of the Federal Courts on the issue of temporal effect. Of course, such overview will be highly selective and not exhaustive due to the extent of existing case law. It will focus on rulings that, according to the relevant court, should only be applied to future cases as this is the exception to the general rule of the retrospective effect of judicial decisions.