This country-specific Q&A provides an overview of Litigation in Germany.
It will cover methods of resolving disputes, details of the process and the proceedings, the court and their jurisdiction, costs and appeals and opinions on future developments.
This Q&A is part of the global guide to Litigation. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/litigation-dispute-resolution/
What are the main methods of resolving commercial disputes?
In Germany, parties to commercial disputes mainly resort to litigation and arbitration. In some cases, mediation offers an appropriate means of ADR for the parties involved.
What are the main procedural rules governing commercial litigation?
The general procedural rules for commercial litigation in Germany are set forth in the Code of Civil Procedure (ZPO). Provisions governing the court’s structure and functioning are regulated in the Courts Constitution Act (GVG).
In addition, there exist a number of special statutes dealing with particular types of proceedings:
- The Family Procedure Act (FamFG), formerly Act on Non-Contentious Matters (FGG), regulates certain proceedings in company law matters (unternehmensrechtliche Verfahren).
- For disputes concerning compensations in connection with mergers or squeeze-outs, the Act on Appraisal Proceedings (SpruchG) and the FamFG govern appraisal proceedings (Spruchverfahren).
- For capital market-related disputes, the German Act on Model Case Proceedings in Disputes Regarding Capital Market Information (Kapitalanleger-Musterverfahrensgesetz/KapMuG) provides for collective redress in mass damages cases.
- Recently, the German legislature has introduced a new collective redress instrument for consumer disputes, the Musterfeststellungsklage (sec. 606 et seq. ZPO) (cf. Question 20)
What is the structure and organisation of local courts dealing with commercial claims? What is the final court of appeal?
Commercial disputes usually start in the civil division of the regional court (Landgericht); in small claim disputes (where the amount in disputes is EUR 5,000 or less), the local court (Amtsgericht) has jurisdiction.
In general, cases in the civil division of the regional courts are dealt with by chambers of three professional judges but the chamber usually hears a case by one of its members acting as a judge sitting alone (Einzelrichter). Upon request of one of the parties, cases can also be heard by a special chamber for commercial matters consisting of one professional judge and two lay judges acting as “commercial judges” (cf. sec. 96 (1), 98 (1) GVG).
The competent court of appeal is either the regional court in matters before the local court or the higher regional court (Oberlandesgericht) in matters before the regional court. The Federal Supreme Court (Bundesgerichtshof), as the final court of appeal, deals only with appeal proceedings on points of law.
Moreover, the Higher Regional Court of Cologne – as well as its associated Regional Courts in Aachen, Bonn and Cologne – and the Regional Court of Frankfurt on the Main have established special commercial law chambers allowing for oral hearings in English. A draft bill for a respective federal law has recently been submitted to Parliament.
How long does it typically take from commencing proceedings to get to trial?
As a rule of thumb, it usually takes from six to twelve months until the court holds the first oral hearing. In commercial cases, the judges often grant the parties at least two rounds of written submissions before the oral hearing starts. Only in exceptional cases will German judges schedule an “early first hearing” (früher erster Termin), usually with the intention of helping the parties to settle the dispute amicably.
Are hearings held in public and are documents filed at court available to the public? Are there any exceptions?
As a rule, court hearings are held in public (sec. 169 (1) GVG). However, sec.172 et seq. GVG provide for certain exceptions which allow the court to exclude the public from the oral hearing in order to protect important business and trade secrets, e.g. when documents containing confidential information needs to be read out loud and discussed in the hearing.
Written submissions of the parties (including exhibits) and other documents filed at court are in principle confidential since third parties do not have access to the court file. According to sec. 299 (1) ZPO, only the parties to the disputes and third party interveners (Nebenintervenient) may inspect the court records. Third parties are only allowed access to the court records if they can demonstrate a legitimate interest (sec. 299 (2) ZPO).
What, if any, are the relevant limitation periods?
Under German law, rules on limitation periods are part of the substantive law, i.e. they are not part of the procedural lex fori of the court.
According to sec. 195, 199 of the German Civil Code (BGB), the general limitation period for civil claims is three years starting from the end of the year the plaintiff became aware of the relevant prerequisites constituting the respective claim. However, there are numerous special provisions (in the BGB as well as in other statutes) with different limitation periods or substantive cut-off periods (e.g. sec. 626 (2) BGB: two weeks for the extraordinary termination of employment or service contracts; sec. 246 (1) Stock Corporation Act (AktG): one month for actions for avoidance of resolutions adopted in shareholder meetings).
What, if any, are the pre-action conduct requirements in your jurisdiction and what, if any, are the consequences of non-compliance?
Under German law, there are no general mandatory requirements for a specific pre-action conduct. However, plaintiffs should be aware of certain procedural rules to avoid cost sanctions or other disadvantages during the proceedings:
- A debtor should always be given prior notice to perform the obligation before an action is filed with the court. Otherwise, the debtor might immediately acknowledge the claim upon the filing, thereby imposing the costs of the proceedings solely on the plaintiff, sec. 93 ZPO.
- Declaratory relief is admissible only if the plaintiff has a legitimate interest in the legal action. As a general rule, actions for performance have priority over actions for declaratory judgments, i.e. a plaintiff lacks the required legitimate interest for declaratory relief if it could request performance of the obligation.
- Furthermore, escalation clauses (e.g. in a company’s articles of association) requiring preliminary alternative dispute resolution efforts (e.g. negotiations at the level of the managing directors or mediation proceedings) have practical importance since any court action that is initiated before the requirements of the escalation clause are fulfilled will be dismissed as inadmissible.
How are commercial proceedings commenced? Is service necessary and, if so, is this done by the court (or its agent) or by the parties?
Civil law proceedings are commenced by the plaintiff filing the complaint. The complaint needs to contain, apart from the names of the parties and the competent court, a specific request for relief (bestimmter Klageantrag) and a concise statement of the facts of the case (Klagegegenstand), sec. 253 (2) ZPO.
Service of process is necessary and is effected by the court ex officio if service is required by law upon the court’s order. Sec. 195 ZPO also allows for attorney-to-attorney service if both parties are represented by attorneys.
How does the court determine whether it has jurisdiction over a claim?
In domestic cases, the (territorial) jurisdiction (örtliche Zuständigkeit) of the German courts is regulated in sec. 12 et seq. ZPO. In international cases, the EU Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Brussels Ia Regulation) applies.
Under both regimes, the general jurisdiction of the court depends on the place of residence of the defendant (sec. 12, 13 ZPO; Art. 4 Brussels Ia Regulation). Legal persons such as companies and associations can be sued at the place of their registered seat or the place of their central administration (sec. 17 ZPO, Art. 4, 63 Brussels Ia Regulation). In corporate and commercial litigation, defendants can also be sued on the basis of special jurisdiction (besondere Gerichtsstände), such as special jurisdiction at the place of performance in contractual matters (sec. 29 ZPO, Art. 7 no. 1 lit. a Brussels Ia Regulation), special jurisdiction at the seat of a corporation for certain corporate matters (sec. 22 ZPO) and special jurisdiction in tort (sec. 32 ZPO, Art. 7 no. 2 Brussels Ia Regulation). In capital market-related disputes, German domestic law provides for exclusive tort-based jurisdiction of the courts at the registered seat of the company that issued the security instrument in question.
Parties may also derogate from the general or special jurisdiction of the court by concluding a jurisdiction agreement. However, under domestic German law, such agreements are valid only if both parties are merchants, unless the jurisdiction agreement is concluded after the dispute has arisen (sec. 38 ZPO). Art. 25 Brussels Ia Regulation does not contain such a requirement but provides for special jurisdiction in consumer disputes at the place of residence of the consumer. As a consequence, in cross-border cases consumer can always sue the defendant before their “home court” and do not need to rely on jurisdiction agreements.
If a court lacks jurisdiction, it either dismisses the complaint or, upon the plaintiff’s request, refers the dispute to the competent court (sec. 281 (1) ZPO).
How does the court determine what law will apply to the claims?
In contractual and tort matters, German courts are bound to apply the Rome I and Rome II Regulations. Both Regulations also apply as loi uniforme in litigations with parties from non-EU states. In general, the parties are free to choose the applicable law in contractual matters (Art. 3 (1) Rome I). If such an agreement does not exist, Art. 4 of the Rome I Regulation provides for different connecting factors such as the seller’s or service provider’s residence. In tort cases, the applicable law is usually the law of the country in which the damage occurs (Art. 4 (1) Rome II Regulation).
In accordance with the principle of iura novit curia, the parties do not need to plead questions of law but can limit their submissions to the facts of the case (although counsel also address questions of law in practice). With respect to conflict-of-laws rules, it is therefore up to court to establish the applicable law. Yet if a foreign law applies, sec. 293 ZPO provides for an exception to this rule by stipulating that the parties must demonstrate and prove provisions of the applicable foreign law to the extent that the court is not aware of them. However, the court is not bound by the parties’ submissions but may also resort to other sources of reference. In practice, foreign law issues are often delegated to comparative law experts such as university professors or researchers at the Max Planck Institute for Comparative and International Private Law in Hamburg, acting as court-appointed legal experts.
In what circumstances, if any, can claims be disposed of without a full trial?
A full trial can be avoided if the parties settle the case amicably during the proceedings, which is often the case in German litigation because judges are required to promote the parties’ efforts to reach a settlement agreement. Sec. 278 (6) ZPO even obliges the judge to schedule a “conciliation hearing” (Güteverhandlung) before the oral hearing starts. Furthermore, German procedural law provides for a number of special proceedings that allow the courts and the parties to dispose of claims without a full trial:
- The plaintiff may initiate a warning procedure for an order for payment (Mahnverfahren). If the debtor does not object to the court’s order within two weeks after service, the order is enforceable. If the debtor raises an objection, upon request of the plaintiff, the matter is referred to the competent court which continues to manage the case in accordance with the general rules (sec. 688 et seq. ZPO).
- The plaintiff can also apply for a provisional judgment (Vorbehaltsurteil) in a documentary process (Urkundsprozess) pursuant to sec. 592 et seq. ZPO, which is available in cases where the claim can be demonstrated and proven based solely on documentary evidence. Objections by the defendant in a documentary process are admissible only if they are supported by documentary evidence. Other means of evidence can be introduced only in the second stage of the proceedings (Nachverfahren).
- Furthermore, the plaintiff can also apply for a judgment by default (Versäumnisurteil) if the defendant does not appear at the oral hearing or does not notify its willingness to defend itself in writing prior to the oral hearing (sec. 331 et seq. ZPO).
What, if any, are the main types of interim remedies available?
The German Code of Civil Procedure provides for different kinds of interim remedies. The most relevant measures of interim relief are:
- seizure to preserve the property in dispute, sec. 916 et seq. ZPO
- personal arrest, sec. 918 ZPO,
- interim injunctions in cases of a claim for non-pecuniary performance or, in exceptional cases, for specific performance of the obligation in dispute, sec. 935 et seq. ZPO, and
In practice, interim relief is often granted in corporate law disputes, e.g. if a shareholder of a company wishes to prevent the other shareholder from adopting a specific resolution at the general shareholder meeting. Also in IP disputes, parties regularly apply for interim measures to prevent or stop the violation of their IP rights.
In line with international practice, German courts are also empowered to grant interim relief in arbitration matters (sec. 1033 ZPO). Also parties to foreign arbitrations may resort to the German courts for such measures, provided the respective court has jurisdiction with respect to the requested interim order.
After a claim has been commenced, what written documents must (or can) the parties submit and what is the usual timetable?
As a general rule, parties can submit any kind of documents to the court at any time of the proceedings, subject to the general rules of preclusion in sec. 296 et seq. ZPO. According to sec. 131 (1) ZPO, the parties shall submit as exhibits all documents to which they refer in the written submissions. Furthermore, parties are generally required to file their submissions in due time in order to advance the proceedings (sec. 282 ZPO).
Prior to the oral hearing, the parties must file any preparatory written pleading setting out new facts in such due time that it may be served upon the other party at least one week prior to the hearing. The party responding to such new facts must, in turn, submit its brief in such due time that it can be served at least three days before the hearing. In practice, counsel usually resort to attorney-to-attorney service in order to comply with these procedural deadlines.
What, if any, are the rules for disclosure of documents? Are there any exceptions (e.g. on grounds of privilege, confidentiality or public interest)?
Common law discovery or document production does not exist in German civil procedure. There is neither a specific phase during the proceedings in which the parties have to collect their evidentiary material nor a general duty to disclose comprehensively all relevant facts and evidence. Rather, the fundamental rule is that each party must offer the evidence and eventually prove all the asserted facts which are necessary to justify its claim or defence. Similarly, the parties do not have a general procedural right to obtain the relevant information from the other party. To the contrary, the main principle underlying the German rules for establishing the facts of a case is based on the nemo tenetur rule: “A party is not obliged to put the weapons into the other party’s hands.” However, the parties are obligated to make true and complete submissions of fact (sec. 138 (1) and (2) ZPO).
As a result, the ZPO provides for only very few procedural disclosure rights. The most important one is sec. 142 ZPO. It allows the competent German court to order a party or a non-party to produce specific documents if one of the parties refers to it in its submissions. The court has discretion whether to issue the order or not. When exercising this discretion, the court has to balance the interest of the requesting party to prove a relevant fact of its case against the other party’s interest in confidentiality. Completely arbitrary or unspecified submissions “out of the blue” are not sufficient to meet the obligation of establishing an interest in disclosure. In particular, “fishing” for evidence that is not directly relevant to the requesting party’s claim or defence is not permitted under German law.
How is witness evidence dealt with in commercial litigation (and, in particular, do witnesses give oral and/or written evidence and what, if any, are the rules on cross-examination)? Are depositions permitted?
Witness evidence is vital to commercial litigation although documentary evidence is often more reliable. As a rule, witness statements are to be given orally (sec. 377 et seq. ZPO). Only in rare cases may courts allow a witness to submit a written statement (sec. 377 (3) ZPO).
Cross-examination does not exist in German litigation. The court is in charge of the examination of the witness. The parties and their counsel may only request the court to ask additional questions (sec. 397 ZPO). In practice, however, the court usually allows the parties and is obligated (upon request) to allow their counsel to put such additional questions directly to the witness, subject to the condition that the questions are limited to the evidential issue upon which the witness is examined.
Witness may refuse to testify in court on personal grounds as well as for factual reasons (sec. 385 et seq. ZPO), e.g. in cases where their testimony could entail prosecution for a criminal offence or disclose technical or trade secrets.
Depositions are not admitted in German commercial litigation.
Is expert evidence permitted and how is it dealt with? Is the expert appointed by the court or the parties and what duties do they owe?
German procedural law allows for expert evidence. Especially in corporate and commercial cases, courts and parties often rely on experts to establish their case, e.g. with respect to the calculation of damages.
Experts are appointed by the court in consultation with the parties, sec. 404 (2) ZPO. Thus, the court-appointed expert serves as a prolonged arm of the judge. As a result, the expert must be impartial and independent of the parties and act diligently and apply the required duty of care. In case of a culpable breach of said duties, the expert may be liable (sec. 839a BGB). Court-appointed experts can also act as a party witness if they indeed witnessed facts that need to be proved by that party.
Expert reports are subject to the same evidentiary rules as other means of evidence, i.e. the principle of free assessment of evidence at the court’s discretion and conviction (freie Beweiswürdigung) also applies to expert evidence. However, the courts usually rely entirely on the expert report and oral testimony, especially where the issues in dispute are highly technical or require a specific knowledge that only the expert has.
In complex or important litigation cases, parties often engage their own private expert so as to support their written submissions with an expert report. In many cases, such expert reports serve the purpose of assisting the court-appointed expert in examining the relevant issues properly and comprehensively. Sometimes, they are also submitted in order to challenge an already existing report authored by the court-appointed expert. The court is bound to take such submissions and report into account when assessing the content and evidentiary value of the report of the court-appointed expert. Reports by party-appointed experts are characterised as “substantiated” party submissions, i.e. they are subject to the same procedural rules as any other submission or pleading by the parties.
Can final and interim decisions be appealed? If so, to which court(s) and within what timescale?
In general, German court decisions are subject to appeal or some other form of judicial review. The applicable timescale depends on the form of the decision:
- The judgment (Urteil) is the main format for a binding decision in German litigation proceedings (sec. 300 ZPO). Other forms of decision are admissible only if the law explicitly provides for an express legal basis. Judgments of a Regional Court can be appealed to the competent Higher Regional Court on questions of fact and law, sec. 511 ZPO (Berufung). The appeal needs to be filed within one month upon service of judgment, sec. 517 ZPO. Decisions of the Higher Regional Court in the appellate proceedings can be further appealed to the Federal Supreme Court (Bundesgerichtshof) on points of law only, sec. 542 ZPO (Revision). The Revision needs to be filed within one month upon the service of the appeal judgment (sec. 548 ZPO).
- A court order (Beschluss) is a decision that, as a rule, is rendered without an oral hearing. Court orders can be challenged by a complaint on points of law according to sec. 574 ZPO (Rechtsbeschwerde). The complaint needs to be filed within one month following service of the order (sec. 575 ZPO).
- Court decisions dismissing a party’s petition concerning the proceedings can be challenged with an immediate complaint (sofortige Beschwerde) pursuant to sec. 567 ZPO, which needs to be filed within two weeks upon service of the decision.
- A court decree (Verfügung) is usually issued on case-management matter and other procedural issues relating to the proceedings. They are rendered by the presiding judge and not appealable.
An interlocutory judgment (Zwischenurteil), which is not final and binding but merely deals with a preliminary question, can be appealed only if the law expressly provides so, e.g. if the admissibility of the action is assessed in a separate hearing pursuant to sec. 280 ZPO.
What are the rules governing enforcement of foreign judgments?
Under domestic law, foreign judgments are recognised and enforced on the basis of sec. 328 ZPO. The general rule is that foreign judgments are enforced unless at least one of the following exceptions applies:
- The foreign court lacked jurisdiction (from the point of view of German law).
- The defendant who has not entered an appearance in the foreign proceedings and who takes recourse to this fact, has not duly been served the document by which the proceedings were initiated, or not in such time to allow him to defend himself.
- The foreign judgment is not compatible with a judgment delivered by a German court, or with an earlier judgment handed down abroad that is to be recognised, or if the proceedings on which such judgment is based are incompatible with proceedings that have become pending earlier in Germany.
- The recognition and enforcement of the judgment would violate the (procedural or substantive) German ordre public, i.e. the essential principles of German law, in particular the fundamental rights set out in the German constitution (Grundgesetz).
- Reciprocity is not warranted.
With respect to foreign judgments rendered by courts of EU Member States, the Brussels Ia Regulation applies in civil and commercial matters as defined in Art. 1. In principle, judgments given in an EU Member State shall be recognised in the other Member States without any special procedure being required (Art. 36 Brussels Ia Regulation). Recognition and enforcement of EU judgments can be refused only on the narrow grounds set forth in Art. 45 of the Brussels Ia Regulation.
Can the costs of litigation (e.g. court costs, as well as the parties’ costs of instructing lawyers, experts and other professionals) be recovered from the other side?
There is no “American Rule” in German litigation. Thus, in principle, the costs of litigation can be recovered from the other side if the party prevails in the proceedings. However, the recovery of costs is limited to the statutory court and attorney fees, i.e. fees paid to the parties’ attorneys on the basis of hourly rates which exceed the statutory fees are not recoverable.
The litigation costs paid to the court consist of the court fees, which are regulated in the Court Fees Act (GKG), and other expenses such as costs for service, expert reports and the reimbursements of witness expenses. Attorney fees are regulated in the Attorney Remuneration Act (RVG).
The plaintiff is required to pay all court fees in advance. Each party bears its own costs during the proceedings. After the proceedings, the prevailing party may seek reimbursement of the (statutory) fees it paid to the court and its attorney for the purpose of enforcing its claim (sec. 91 (1) ZPO). In the event the plaintiff prevails only partially, the court may split the costs proportionately (sec. 92 ZPO).
What, if any, are the collective redress (e.g. class action) mechanisms?
German law provides for only a few collective redress instruments in mass damages cases. Since 2005, the Capital Markets Model Case Act (KapMuG) facilitates the management of investor-related mass litigation.
Recently, the German legislature passed a bill that introduces a general Model Case Proceedings Act (Musterfeststellungsklage). The new law will enter into force on 1 November 2018. It is limited to consumer matters and should assist consumers in enforcing small claims for damages. The bill does not provide for a class action but merely gives consumer protection associations the right to request a model declaratory judgment (Musterfeststellungsurteil) of the Higher Regional Court on points of facts and law that are common to all consumer claims. The consumer may preserve its rights by registering the claims for damages with the court. Once the court has handed down the model declaratory judgment, each consumer who has registered its claim can initiate individual court proceedings on the basis of this judgment, which has binding effect for both the consumer and the defendant.
What, if any, are the mechanisms for joining third parties to ongoing proceedings and/or consolidating two sets of proceedings?
Parties may join ongoing litigation mainly in two ways:
- Third-party intervention (Nebenintervention) in support of a party to the dispute pursuant to sec. 66 ZPO, allows a party who has a legitimate interest to the proceedings to join the proceedings.
- A party may also file a third-party notice (Streitverkündung) to a third party if the party believes that it will be able to assert a warranty claim or a claim of indemnification against that third party in the event the legal dispute’s outcome is not in its favour. Similarly, a party concerned that such a claim may be brought against it by a third party may also file third-party notice to that third party.
Alternatively, a plaintiff can also sue two or more defendants on the basis of the same complaint, thereby joining two procedural matters in the same proceedings. The court may separate the proceedings pursuant to sec. 145 ZPO if this is required to promote the efficiency of the proceedings.
Finally, a consolidation of proceedings may also be directed by the court on the basis of sec. 147 ZPO if the claims asserted by the respective plaintiffs are legally closely connected or could have been brought in one single complaint.
Are third parties allowed to fund litigation? If so, are there any restrictions on this and can third party funders be made liable for the costs incurred by the other side?
In principle, third-party funding is permitted. Since third party funders are not characterised as banks or insurers, the respective legislative or regulatory frameworks for financial institutions do not apply.
The agreement between the litigation party and the third-party funder is usually considered as a partnership. There is no legal statute that would require the third-party funders to reimburse the other party in case the funded party loses the trial. However, the funding agreement typically obliges the third-party funder to cover the party’s litigation costs to the extent that the court has imposed them upon that party.
In recent years, funders have also started to use separate legal entities as a “litigation vehicle” that files the complaint in its own name, whereas the persons that suffered damages assign their claims to that entity (typically at a considerable discount). However, such a scheme could be declared null and void under sec. 138 BGB if the assignments are contrary to German public policy. This is usually the case if the litigation vehicle has considerable less financial means than the assignors since the prevailing defendant might then not be able to recover its litigation costs from the litigation vehicle.
What, in your opinion, is the main advantage and the main disadvantage of litigating international commercial disputes?
German courts and legal practitioners have continuously demonstrated pronounced legal expertise and have, therefore, built up a strong reputation in the international legal community. German courts are neutral and independent and, in almost all cases, administer the proceedings highly efficiently, in particular in comparison with certain other European and non-European legal systems. Moreover, the litigation costs are predictable due to the caps provided for by the respective statutes on court and attorney fees.
From an international perspective, the main disadvantage is probably that the official language of court proceedings is German, although there have been attempts in several federal states to establish specialised English-speaking chambers for commercial matters (cf. Question 3).
What, in your opinion, is the most likely growth area for disputes for the next five years?
In the realm of competition law, the 9th amendment to the Competition Act (GWB) has recently implemented numerous changes to facilitate the enforcement of cartel damages claims. The new regime also provides for “discovery light” proceedings in order to grant the parties access to information and documents in the possession of the other party. These rules are likely to lead to new “satellite litigations” for documentary disclosure in matters of competition law.
The new bill introducing a general Model Case Proceedings Act (Musterfeststellungsklage) could lead to a growing case-load of consumer disputes, in particular with respect to investor-related disputes (including, but not limited to, those covered by the KapMuG), cartel follow-on damages cases or banking law disputes.
What, in your opinion, will be the impact of technology on commercial litigation in the next five years?
We expect that new technologies will first and foremost facilitate electronic communication between the parties and the court. Courts will move forward with the introduction of electronic dockets. Attorneys will be obligated to communicate through an electronic mailbox (Besonderes elektronisches Anwaltspostfach) in the very near future.