Litigation 2019 Second Edition

Last Updated December 05, 2019

Germany

Law and Practice

Authors



Pfitzner Legal is a specialised dispute resolution law firm in the heart of Frankfurt's Westend district. Two lawyers, each with decades of experience, together with a team of associates, professional support lawyers and paralegals, offer enhanced expertise in the resolution of complex commercial, corporate and professional negligence disputes through a unique blend of litigation capabilities, international arbitration experience and conflict management skills spanning a wide range of sectors including financial services, energy, natural resources, construction, engineering, automotive, pharmaceutical, insurance and private equity. The firm, repeatedly mentioned in surveys as excelling in the quality of its services, is known for its capabilities in defending clients in class actions as well as in handling international arbitrations.

The Federal Republic of Germany consists of 16 federal states. Not only the Republic itself, but also every state has the constitutional right to regulate private procedural and substantive law. However, almost all areas of private law are exclusively governed by federal law.

Germany is a civil law country, founded on the Roman law tradition. Statutes are by far the most common source of law. The most important substantive rulesets are the Civil Code and the Commercial Code, both implemented, in their first form, prior to 1900. These two codes have undergone major changes over the years, and they have also been supplemented by a number of other statutes. In many cases the Civil Code and the Commercial Code can be regarded as the basic structure of a legal matter, while the additional statutes contain specific rules for certain legal issues.

Although being governed by a civil law doctrine, the German legal practice is heavily influenced by German and European case law. Judicial precedents of the Federal Court of Justice and higher regional courts are largely recognised by the lower courts when applying the relevant statutes. However, no doctrine of a binding precedent (stare decisis) exists in Germany. No German court is bound by a precedent from another case decided by a higher court. However, the longer there is a coherent line of precedents by higher courts, the less likely it is that a lower court will deviate from the established case law.

German civil law is strongly influenced by academics. Law scholars play an important role in the legal debates. With their critical voices, they strongly influence the development of the law. Handbooks and commentaries by legal scholars are available on basically all statutes and legal matters. Academics are often quoted in judgments and pleadings and are often consulted by the parliament when new statutes are drafted or existing statutes amended. 

In civil matters, the German judicial practice generally takes an adversarial approach. As a basic rule, courts will only consider the facts presented by the parties. The submission of evidence in a case is the responsibility of the parties and the court is strictly bound by what the parties submit to it. However, the taking of evidence is the task of the court only. In addition, the judge plays the leading role in defining issues and supervising the proceedings, which is more like an inquisitorial than an adversarial approach.

In recent decades, the adversarial approach has increasingly been reduced to a basic form. Nowadays, judges are often obliged to indicate whether a party has submitted sufficient evidence or to ask specific questions if a party has overlooked a certain aspect of a case. This development can be understood as an inquisitorial influence on the judicial practice in civil law.

In special legal matters, such as custody or marriage, the adversarial principle is completely replaced by an investigative model.

In general, a judgment can only be based on the facts presented orally at the hearing. However, procedural law allows the parties to refer to their written pleadings in the hearing. Therefore, in practice, court proceedings are mainly conducted by means of written submissions.

The German court system is divided into five different jurisdictional branches:

  • “ordinary” courts dealing with civil and commercial matters and with criminal matters;
  • labour courts;
  • administrative courts;
  • fiscal courts; and
  • social courts.

The courts in each of these jurisdictional branches have exclusive jurisdiction over disputes falling within their jurisdiction.

With a few exceptions, the court of entry for a civil dispute is either a local court or a regional court. Which court has jurisdiction as the entry court usually depends on the value of the dispute, while special rules apply to certain matters, eg, tenancy law or family law. The local courts decide on claims up to an amount of EUR5,000. These disputes are decided by a single professional judge. Cases exceeding EUR5,000, with some exceptions, are handled by a chamber of the regional court. Such a chamber consists of three professional judges. However, most non-complex disputes are decided by only one judge. The regional courts have special chambers for commercial matters. These chambers consist of one professional judge and two lay judges appointed from the business community. The dispute is decided either by the professional judge alone or by the entire chamber. In very rare cases, higher regional courts may act as entry courts. Cases before the higher regional courts are decided by a penal consisting of three professional judges.

An appeal may be lodged against decisions of the entry courts with the competent regional court if the entry court was a local court, or with the respective higher regional court if the regional court was the entry court.

Judgments handed down on first appeal may be appealed to the Federal Court of Justice. The Federal Court of Justice consists of panels with five professional judges each.

In pending proceedings, a German court may request an authoritative resolution by the European Court of Justice on unresolved questions of European law material to the outcome of the pending case. The European Court of Justice has jurisdiction only to answer the specific questions of European law and will not rule on the whole matter.

In theory, the Federal Constitutional Court can overrule any civil judgment for a violation of the fundamental guarantees on civil procedure and substantive law in the German Basic Law. Such extraordinary objections on grounds of constitutional rights are, however, rarely granted. 

As a rule, the German Basic Law requires that court proceedings are open to the public. Restrictions and exceptions may apply, in particular to the protection of trade secrets, other secrets, the safety of a person, or state interests.

Court records are not public. While any third party may apply to the court for access to certain court files, such a request will be granted only if the applicant has a legitimate legal interest in inspecting the files. Access to the files may be restricted to certain parts of the files. In many cases, the files will be redacted and anonymised before being disclosed.

Judgments of German courts are only published in an edited and anonymous form.

Only admitted attorneys to the German bar can represent a party before regional courts and higher regional courts. However, certain acts may be performed by the party itself at the court’s offices. Also, in cases where the Code of Civil Procedure does not require representation by lawyers, the parties may conduct the litigation themselves. With respect to the Federal Court of Justice, in civil cases only lawyers admitted to the specialised bar of this court may appear before it.

Foreign lawyers can conduct cases in German courts if they have been admitted to the German bar. A European lawyer can be admitted to the bar as a so-called Established European lawyer who is entitled to practice as an attorney in Germany under the professional title of his or her country of origin.

Third-party litigation funding is becoming increasingly common in Germany. There are no legal regulations that deal directly with such funding. Its framework derives from statutes such as the Legal Services Act, the Federal Lawyers' Act and the Lawyers' Fees Act. It emerges from them, for example, that the funder is prohibited from providing legal advice to their client. In general, the funder concludes the financing agreement with their client, and the client instructs an attorney so that the funder and the attorney have no contractual relationship with each other. There is no obligation to disclose a funding arrangement in court.

The market is currently in a state of upheaval, partly due to legal technology companies such as online platforms and service providers that do not finance legal disputes in the conventional sense, but instead have the claims of their customers assigned to them and then assert them in court in their own name and at their own risk. In the event of success, the customers receive a certain percentage of the sum awarded.

The Federal Court of Justice has classified the profit sharing of litigation funders in profit absorption actions as an abuse of law. Otherwise, there are currently no restrictions on third-party funding in Germany. Therefore, in general, all types of lawsuits are available for third-party funding.

Third-party funding is available to both plaintiffs and defendants.

There is no limit on the amount a third-party funder can provide.

As a rule, third-party funding covers all fees and expenses, including costs of legal representations and court fees. In addition, the agreements usually include any costs of the other party to be borne by the funded party if it loses the case.

Under German law, a contingency fee that transfers part of the proceeds to the attorney may only be agreed in individual cases and only if the client’s financial circumstances prevent them from litigating without agreeing a contingency fee. Agreements by which the attorney undertakes to bear court costs or costs of other parties are inadmissible.

There are no restrictions on when a party may obtain the services of a third-party funder.

In general, there are no specific rules on pre-action conduct before commencing court proceedings. However, in some federal states, under certain procedural conditions, the parties are required to seek alternative dispute resolution, such as mediation or conciliation, before initiating court proceedings.

It is nevertheless common practice to send a warning letter, a request for payment or a notification to the opponent or to initiate collection proceedings prior to the commencement of court proceedings. This can avoid potential cost disadvantages because the court can instruct the plaintiff to pay the court fees and their own legal costs if the other party complies with the claim immediately or does not contest it. Some pre-trial measures can already at this early stage trigger legal consequences favourable to the plaintiff, such as the suspension of the limitation period or the initiation of the debtor’s default, which leads to an interest claim.

Statutes of limitations are considered part of German substantive law. The limitation periods applicable to civil actions are therefore contained in the Civil Code. The general limitation period for the assertion of a claim is three years and begins at the end of the year in which a claim arises and the plaintiff is aware of the claim or at least should have known that a claim exists. For this purpose, the plaintiff does not need to know all facets of its claim but at least the circumstances giving rise to the claim and the identity of the debtor. Depending on the subject matter, special limitation periods may apply, ranging from a few days to 30 years. The 30-year limitation period applies only in exceptional cases, in particular with respect to the enforcement of judgments or other enforceable documents or the return of property.

The limitation period may be suspended by various events, most importantly negotiations, the filing of a statement of claim or the initiation of proceedings with a registered conciliation institution. The parties may also conclude a waiver of limitation agreement. 

The plea of limitation is subject to party autonomy. A court may dismiss a claim based on statute of limitations only if the defendant invokes the statute of limitations. If such a statement is not made by the defendant, the court will not take the limitation aspect into account in the decision, even if the claim is obviously time-barred.

When a claim is filed in a German court, the court determines on its own whether an international, subject matter, local and functional jurisdiction exists based on the facts and law pleaded at the time the claim became legally pending.

The determination of international jurisdiction is based either on EU law, in particular the Recast Brussels Regulation or the Lugano Convention 2007, or on the provisions on local jurisdiction contained in the Code of Civil Procedure.

In principle, a defendant must have its domicile or registered seat of business in Germany to be sued in Germany. In addition, other factors, such as the location of a branch, or the place of performance of the contract, the occurrence of damage or the commission of an unlawful act, may establish the jurisdiction of German courts. Actions for monetary claims against a person not domiciled in Germany will fall within the jurisdiction of the German court in whose district that person’s property is located, if the subject matter of the dispute has a sufficient domestic connection with Germany.

Agreements made between the parties regarding the choice of place of jurisdiction are generally accepted under both EU law and German law; under German procedural law, however, such agreements may be invalid if a consumer is a contracting party.

The appearance of a defendant in court without objecting to the jurisdiction of the court generally gives the court international and local jurisdiction.

If the circumstances determining the jurisdiction of the court change later, the court does not lose its jurisdiction (perpetuatio fori).

German court proceedings are initiated by filing a statement of claim with the court. This statement of claim can be filed by letter or facsimile or via the special electronic attorney mailbox. From 1 January 2022 (earlier in some federal states), documents may only be filed electronically. 

The statement of claim must meet certain mandatory requirements. It must be filed in German and must be signed, and it must specify the court to which the action is addressed, the plaintiff(s) and defendant(s), the relief sought and the facts on which the relief sought is based. The motion for relief and the facts on which it is based are essential for determining the subject matter of the lawsuit.

A statement of claim may refer to exhibits but must set out the relevance of the exhibits and explain their content in the statement of claim itself. It is at the discretion of the court to allow exhibits in a foreign language, provided that the court has sufficient command of the respective language. If a court does not permit foreign-language exhibits, the party relying on them must, at the request of the court, prepare translations in whole or at least of the relevant passages.

There is no procedural rule requiring the plaintiff to include a legal analysis of the case, but this is common practice and advisable.

The plaintiff may amend the statement of claim in subsequent submissions or add additional claims to the proceedings if the defendant gives its consent or the court deems the amendments appropriate. However, specific types of amendments are not subject to these limitations and may be made at any time, such as the correction, extension or restriction of the original motions or the addition or correction of the original factual statements.

Once the statement of claim has been filed, the plaintiff is required to make an advance payment of the full court costs. As long as this mandatory requirement is not fulfilled, the court will not serve the statement of claim on the defendant.

While subsequent submissions may be served directly between the party ‘s attorneys, the statement of claim can only be served by the court.

The most common method of service by the court is registered mail with return receipt or a form for returning service. The statement of claim may be served on representatives of the defendant such as attorneys or other legal representatives. If a defendant refuses service, or if the defendant cannot be reached at their domicile or place of business, the statement of claim may be left in these premises or deposited at the post office or the competent local court with a notice to the defendant, in lieu of service itself.

If the defendant is domiciled outside Germany within the EU, service of process is governed by the Brussels Service Regulation 2007. Service in other countries may be affected in accordance with the provisions of the Hague Civil Procedure Convention, the Hague Service Convention or one of the bilateral treaties to which Germany has acceded. In the absence of a treaty, service of process will be affected in accordance with the international principles relating to reciprocity in granting judicial assistance. The technical details of the execution of the service of process abroad are laid down in the Regulation on Judicial Assistance in Civil Matters, which sets out the particularities of service of process on the basis of the above-mentioned legal provisions for almost all countries of the world.

If service of process is not possible in Germany or abroad, the court may order service by public notice, ie, by displaying a summary of the statement of claim and a notice where the statement of claim can be inspected on the notice board of the court and by publication in the Federal Gazette and, if appropriate, in daily newspapers. The statement of claim is deemed to have been served one month after the date of the last of these publications.

If the defendant fails to respond to the statement of claim or does not appear before the court at the hearing, the court may, at the request of the plaintiff, issue a default judgment granting the plaintiff’s claim(s). Usually, such request is already contained in the statement of claim. A failure to appear at the hearing is also deemed to have occurred if the defendant is physically present at the hearing but either decides not to plead or is not represented by an attorney admitted to the court if representation by an attorney is mandatory (which is usually the case for all claims exceeding EUR5,000).

If a judgment by default has been delivered, the defendant may lodge an objection within two weeks of service of the judgment. The proceedings are then restored to the state in which they were before the defendant’s default. In any event, the defendant must bear all costs arising from their default.

The German civil law system does not traditionally recognise representative or collective actions. It is a fundamental principle of German civil procedural law that only the parties to civil proceedings are bound by the outcome of such proceedings.

In recent years, however, the legislator has created certain forms of collective actions in some areas.

These include false, misleading or incomplete capital market information, where certain legal or factual issues relevant to many pending civil proceedings can be decided in model proceedings with binding effect for all. Such model proceedings take place if at least ten plaintiffs file a corresponding petition in individual civil proceedings. The model proceedings are then conducted before the competent higher regional court and, on appeal, before the Federal Court of Justice. After the final model decision, the courts of the individual proceedings resume their proceedings. The issues established in the model decision are binding for the parties in these proceedings. All other aspects of the respective cases, eg, causal connection, contributory negligence or amount of damage, must, however, be decided by the courts of the individual proceedings.

The most important form of collective proceedings has been the right of certain registered interest groups to bring an action for injunctive relief on behalf of their members and in the common interest, in particular in cases involving unfair business practices by companies towards consumers, invalid general terms and conditions or other practices that violate consumer protection law or copyright law. 

With new legislation which came into force in November 2018, the legislator has continued on this path. This new model declaratory action, introduced in the 6th Book of the Code of Civil Procedure, is intended to facilitate collective redress for consumers in cases of mass damages caused by large companies. The model declaratory action cannot be initiated by individual consumers, but only by certain qualified institutions. Once a qualified institution has filed such a claim, each individual consumer can decide to opt in and apply for registration if they wish to benefit from the effects of the action. Consumers who opted in are not directly involved in the conduct of the action. The model declaratory action does not end with an enforceable judgment, but with the determination of the (non-)existence of factual and legal conditions for the (non-)existence of a claim or legal relationship between a consumer and a company. In order to obtain an enforceable judgment, each individual consumer must then bring an individual action in which they can benefit from the binding determinations of the model declaratory decision.

On the basis of initiatives by EU authorities, other instruments of representative or collective action may be introduced into the German legal market in the future.

German attorneys are required under the rules of professional conduct to inform their clients of the estimated costs that may arise in the course of legal proceedings. There is no specific form by which an attorney may discharge such duty. The standard of advice is that the client must be able to decide, on an informed basis about the potential costs and cost risk, whether to file an action.

German civil procedural law provides for a number of interim applications a party may file before the commencement of proceedings. These applications are not limited to case management issues.

These applications include, in particular, interim injunctions to ensure the enforceability of a claim or to protect a party from irreparable harm. Further interim applications are motions for the preservation of evidence and security for costs.

German courts have a legal obligation to expedite the proceedings. German procedural law does not provide for a general form of “early judgment”, but specific types of judgments are available that are comparable to the concept of early judgment. In practice, early judgments are rare and rarely save time in the overall view.

If a court is convinced that liability and at least some damage has been incurred, it can make an interlocutory judgment on the basis of the claim, leaving the quantification of the claim open. Such judgments often motivate the parties to settle the amount of damages. A court may also issue an interlocutory judgment on certain contentious procedural issues. Such judgments are at the sole discretion of the court.

A court may also, at its discretion, decide on only part of the claims or counterclaims when a part of the claim or counterclaim is ripe for a final decision.

Early judgments can also be declaratory in nature and cover basic legal issues underlying the dispute, eg, if a plaintiff claiming complex damages as a shareholder of a company is actually a shareholder at all. The court must decide on such an application of a party, which usually delays the proceedings.

Another special form of early judgment is the judgment under reservation. Such an early decision may be made at the discretion of the court in cases where the defendant has declared the set-off against the claim. If the claim is fully heard but the circumstances of the set-off are not, the court may decide on the claim subject to the judgment being later adjusted on the basis of the set-off. A special form of this judgment under reservation is the judgment in the summary proceedings based on documentary evidence or on a bill of exchange. In these proceedings, the parties may rely only on documents and party testimony for evidence. All other means of evidence are excluded, and counteractions are not permitted. However, even after a judgment under reservation has been rendered, the proceedings remain pending and the defendant may raise objections and submit evidence at a later stage of the proceedings, without the limitations of the evidentiary means. Such expeditious proceedings therefore entail a risk for the plaintiff that the judgment under reservation will be set aside at a later stage. If the plaintiff has enforced the judgment under reservation, it is liable to the defendant for all damages resulting from such enforcement on a no-fault basis.

German procedural law offers specific objections a defendant can raise to prevent the court from hearing a case at all, for example, if a valid arbitration clause covers the matter in dispute, the court must dismiss the claim without looking at the substantive facts of the dispute. If the plaintiff is not domiciled in Germany, the EU or the European Economic Area, the defendant can demand sufficient security for their costs. If the foreign plaintiff does not provide such security, the action must be dismissed.

If a new plaintiff wishes to join a pending lawsuit, the existing plaintiff, and possibly also the defendant, must declare their consent to the joining. Subsequent participation in an action as a defendant is only possible if the plaintiff expressly sues the other defendant. 

A person who is not a party to the original lawsuit may intervene in the proceedings to support the position of one of the parties whose success or defeat will legally affect the interests of the intervener. Such a third-party intervention is made by filing a written pleading in the lawsuit, setting out the intervener’s legal interest in supporting one of the parties. This pleading can be filed at any stage of the proceedings before the judgment becomes final. An intervener does not become a formal party to the proceedings but may act only in the interest of the party whom it assists. The intervener is not legally bound by the judgment. However, in a subsequent action between the intervener and the party it supports, the intervener is largely prohibited from arguing that the judgment is incorrect.

In cases where the plaintiff is domiciled outside Germany, the EU or the European Economic Area, the defendant may require the court to order the plaintiff to provide security for the defendant’s costs, unless an international convention provides otherwise. If a plaintiff who is obliged to provide a security refuses to do so, the action will be dismissed. In proceedings for interim injunctions, the defendant is generally unable to claim such security of costs.

In Germany, the general principle is that the unsuccessful party bears the costs of the proceedings. The costs of an action are allocated between the parties according to the outcome of the case. This general rule also applies to the costs of interim applications/motions.

The timeframe for the processing of an application by the court depends on the quantity and complexity of the issue to be examined. However, German courts have the general obligation to expedite the proceedings by law. If possible, the court should close the case within one single oral hearing. The court is then generally obliged to give a final judgment within three weeks of the conclusion of the oral hearing. This period may be extended for valid reasons and at the discretion of the court. If proceedings are significantly delayed by the court without sufficient cause, and if the delay has caused damage, a party may claim damages. In practice, however, such applications are very rare.

The concept of discovery does not exist in German civil cases. A court will reject a motion to take evidence with the sole purpose of clarifying certain aspects of the case. In Germany, each party usually bears the burden of proof for the facts on which the party’s claim or defence is based. In certain circumstances the burden of proof lies with the other party. Each party decides for itself which facts and documents are submitted to the court. No rule obliges a party to disclose all available information that might be relevant to the case. However, the information provided to the court must be true and correct.

Consequently, German law does not provide tools for discovery. However, there are some disclosure obligations to which a party may be subject; for example, if the opposing party is in possession of a certain relevant document, a court may instruct that party to disclose it. In the case of documents in a foreign language, the party may even be ordered to translate the document. Such court orders are very rare.

German substantive law or contractual agreements may also grant a party a legal claim against the opposing party for disclosure of certain information that is not otherwise available. Such a claim may be asserted in court. A special form of such proceedings is the action by stages. Such an action is divided into two phases: first, the court decides on the claim for disclosure of information, and second, on the request related to this information, eg, a payment claim.

Third parties are not subject to discovery. However, a court may, in very limited circumstances, order a third party to provide a particular document in its possession. A third party may object to the court’s order on the grounds that the order imposes an unreasonable burden on it. A third party may also be subject to substantive or contractual claims for disclosure of information, eg, an insurer of a party.

German law does not recognise a common-law-style discovery. Under certain circumstances, however, a court may order a party to produce a document.

Before filing a statement of claim, a plaintiff usually has to collect most of the relevant facts for its case. Generally, the preparation of a case starts with a review of all available documents and interviews with persons who have direct knowledge of the facts. In addition, professional databases offer a pool of relevant information, especially in commercial cases. In complex cases a party can also consult a certified expert to clarify technical or commercial issues relevant to the case. Other sources of information are public registers. Germany provides for multiple public registers that can be consulted on request, eg, the Commercial Register, the Debtor Register, the Register of Associations, the Land Register, the Register of Residents and the public announcements in insolvency matters. With some registers, a party wishing to inspect the register must show a reasonable interest. In addition, any citizen may by law require that information held by a public authority be disclosed. Such a request is only rejected if the public interest does not permit disclosure, eg, to protect secret information.

German law recognises the concept of attorney-client privilege. Attorneys may not testify before authorities in relation to their mandates without the prior consent of their client. The fact that an attorney refuses to testify does not allow the courts to draw conclusions. The attorney-client privilege also covers work products, including attorneys’ files and correspondence between an attorney and their client. Disclosure of client information without consent is a criminal offence.

Whether the in-house counsel can invoke legal privilege has not yet been conclusively clarified. Regarding in-house counsel admitted to the bar, the prevailing view seems to be that their position and status within the company is comparable to those of an independent external attorney, so that in-house counsel may invoke legal privilege.

In principle, neither party is obliged to disclose all available information to the extent that all submissions are correct and true. If a party or a third party is nevertheless ordered to disclose certain information, the party may decline to disclose it for the following reasons:

  • professional secrecy, eg, attorney-client, tax consultant, doctor privilege;
  • civil servant privilege;
  • family privilege;
  • subject matter privilege, eg, trade secrets;
  • the information is not available; or
  • the disclosure represents an unreasonable burden for the party.

A party may claim for injunctive relief if the substantive law grants the injunctive relief. Due to their urgency, injunctive relief claims are often combined with interim proceedings such as preliminary injunctions and attachments. Both remedies serve to secure a possible future judgment or the temporary regulation of a legal relationship before a final judgment can be issued. The type of interim injunction available depends on the nature of the claim. An attachment secures monetary claims, while preliminary injunctions can secure all other types of claims.

Interim proceedings in Germany are very fast and therefore considered effective. If required, an interim injunction can be obtained within a few hours. The content of an application for an interim injunction is subject to lower standards than the content of a statement of claim. In particular, the applicant does not have to provide complete evidence, the presentation of prima facie evidence is sufficient.

An application for an interim injunction does not necessarily have to be served on the opposing party so that the order can be issued ex parte without a hearing. Such ex parte decisions are common practice. However, a potential opponent can ensure that its arguments are heard from the outset by filing a protective brief beforehand. The court will then take into account the opposing party’s arguments set out in the protective brief when issuing the injunctive order.

If the court deems it necessary before issuing an injunctive order or upon protest by the opposing party after the order was issued, the court will schedule a hearing. After this hearing, the order may be set aside or confirmed by a judgment.

The applicant seeking an interim injunction is exposed to the risk of comprehensive strict liability. Such liability is triggered when an interim order executed by the applicant is thereafter set aside upon protest or appeal by the opposing party. The applicant will be held liable on a no-fault basis for any damage suffered by the opponent in connection with the execution of the order. Such liability will not be recognised automatically but only upon request of the opposing party in regular court proceedings.

In general, the applicant is not obliged to provide security for such possible claim for damages by the opposing party. The opponent may, however, arrange for an interim injunction of its own regarding such costs.

German courts may issue interim orders and judgments concerning worldwide assets, at least if the court of the main action has international jurisdiction, eg, through international treaties.

If the German courts do not have jurisdiction to hear the main action because the main action falls within the jurisdiction of a foreign court, the German courts nevertheless have jurisdiction to issue injunctive orders if the assets covered by the order lie within the German jurisdiction.

In general, injunctive orders and judgments of German courts can be enforced abroad under international conventions. However, conventions such as the Recast Brussels Regulation or the Lugano Convention 2007 often do not allow ex parte orders to be enforced or at least impose an additional burden on the applicant if the order was issued ex parte.

An applicant may apply for an injunctive order against any party. It is not necessary that the opponent is a party to the main action. However, an injunctive order is only granted if the applicant has its own claim against the third party. The latter is the case, for example, if a third party can be held liable vis-à-vis a party for the negative outcome of the main action.

A party that does not comply with the provisions of an injunction faces the same consequences as a party that does not comply with a regular judgment. In addition, if a party violates an injunctive order, the other party may request a fine of up to EUR250,000 or, in rare cases, arrest.

In German civil proceedings usually an oral hearing takes place. A purely written procedure is the exception. In the oral hearing, the presiding judge will open the proceedings with a summary of the view of the court regarding the factual and legal issues of the case, pointing out the strengths and weaknesses of both parties’ arguments. The introduction is generally followed by a discussion with the parties and their attorneys. Since the oral hearing is prepared to a large extent by the written pleadings of the parties, generally the discussion will focus on the points raised by the court. The essentials of the hearing are recorded by the presiding judge in the presence of the parties. It is not a verbatim transcript but a summary of the key elements of the oral hearing.

Under German civil procedural law, the court and the parties are under an obligation to conduct the proceedings as expediently as possible and to limit the number of hearings to a minimum. Therefore, generally only one hearing takes place if no taking of evidence is necessary. If evidentiary proceedings are necessary, these usually take place on a separate date.

Based on the introduction of the case and the discussion with the parties and their attorneys, the court will usually try to settle the case. This applies at every stage of the proceedings. It is not uncommon for the court to even propose the content of a possible settlement.

German procedural law does not provide for case management hearings. In practice, the court mainly structures the proceedings through written court orders, in which the court sets deadlines for written pleadings and prepares the oral hearing. However, the court also has the option of ordering an early first hearing in which it discusses the case with the parties at an early stage and, on basis of these discussions, can decide on the further course of action.

There are no jury trials in civil cases in Germany.

In German civil proceedings, each party is responsible for presenting the evidence in support of its case. The court will only consider evidence submitted by the parties and will not investigate the facts themselves. Therefore, the initial written pleadings of the parties must already contain detailed factual statements and specify the evidence on which the party intends to rely. There are five types of evidence under German civil procedural law, namely evidence by documents, inspection by the court, witness testimony, expert opinions and party testimonies.

In order to streamline the proceedings, the court will only take evidence relevant to the decision on the case. By applying the method of “comparative analysis”, the court determines which facts are relevant for the resolution of the case and which of those facts are undisputed and which are contested. The court then determines which party bears the burden of proving the facts in question and which evidence is offered by that party. Documents are by far the most important evidentiary means in German litigation. In practice, copies of the original documents are attached to the written pleadings. If the authenticity of these copies is not contested by the other party, the court will examine these documents and form an opinion on them. If the court concludes that facts must be proved by hearing witnesses or obtaining an expert opinion, it will list the facts in question together with an indication of which party bears the burden of proof for the disputed fact in a procedural order, order the witnesses to appear before the court, and/or select an appropriate expert and instruct them to draw up a written expert opinion and then appear before the court for questioning. The order usually makes the summoning of a witness or the drawing up of an expert opinion conditional on the party bearing the burden of proof paying an advance on the estimated costs of hearing the witness or obtaining the expert opinion.

The court evaluates the evidence obtained and then makes a factual determination based on that evidence. It may evaluate most forms of evidence according to its sound judgment and common sense, without being bound by rules for the evaluation of evidence. Therefore, with a few legal exceptions, both the admission and the assessment of evidence are at the discretion of the court. However, the court is obliged to review all facts presented by the parties and all factual evidence comprehensively when making a decision. It will consider not only the formal taking of evidence, but everything that was subject of the hearing, including the written pleadings. The standard of proof in civil cases is strict in that the court must be “fully convinced” that a particular disputed fact is true in order to base the judgment on that fact. This means that the court must be sure, with a practically viable level of certainty that silences doubt without completely eliminating it. A lower standard or proof may apply to damage and the causation of damage.

If the determination or the assessment of certain facts requires particular expertise, the court may appoint an independent expert. It is in the discretion of the court to decide whether it has the expertise to assess the issue itself or whether to appoint an expert. In German litigation, the expert serves as the court’s objective and impartial assistant. If the parties themselves submit written expert opinions, which is often the case in German litigation, these opinions are not treated as expert evidence but as part of the submitting party’s pleadings. To prove the factual assertion made in such an expert opinion, the respective party must therefore submit a request to the court to appoint an independent expert to confirm the assertion. Only the evidence submitted by a court-appointed expert constitutes evidence by expert testimony.

As a rule, experts submit their expert opinions in writing. The parties will then have the opportunity to comment on the expert’s findings, request that additional questions be put to the expert and apply to the court to summon the expert to an oral hearing to be questioned on their written opinion. The court has discretion to evaluate the expert testimony. In practice, it is very rare for a court to deviate from an opinion rendered by a court-appointed expert.

Oral hearings are open to the public. In exceptional cases, the court may order the exclusion of the public at the request of one of the parties. In commercial matters, the discussion of business or trade secrets may be a reason for this exclusion. The court may also formally order all persons who participate in the hearing to maintain strict confidentiality. While the principle of public proceedings allows the public to be physically present at hearings, it does not extend to photographs, recordings or public transmissions from the courtroom.

Although the parties govern the course of the proceedings according to the principle of party autonomy, the judge plays an active role in German civil proceedings. The judge leads through the proceedings, gives indications and directs the taking of evidence. Judges will ask the parties, their attorneys, witnesses or experts questions at any time during the hearing. A German judge has a prominent role in the investigation of the facts. It is normal for a German judge to give a preliminary opinion on the factual and legal issues of the dispute right at the beginning of a hearing, which often leads to a settlement between the parties.

Procedural decisions, such as the rejection of a procedural motion, are often made immediately.

Sometimes the judge renders the judgment immediately after the end of the hearing. In general, the court sets a special date on which the judgment is to be rendered, usually three weeks after the conclusion of the oral hearing. This period may be extended for valid reasons and at the discretion of the court.

Due to the general duty of the courts to expedite proceedings, German proceedings are considered to be fast. However, there is no general rule as to how long a particular dispute might take. The timeframe depends on factors of complexity and efficiency. German court proceedings can last from a few weeks, in the case of preliminary injunctions even just a few hours, up to several years in very complex matters. Usually, proceedings take about one year per court instance if the parties are willing to present their case quickly and efficiently.

German civil proceedings often end with a settlement between the parties. Generally, court approval is not required to settle a lawsuit. Exceptions apply, for example, to settlements in collective actions where the approval of the court is required.

A settlement under German law has the legal nature of a contract between the parties to the settlement, even if it is recorded by the court which is understood to be a contract and a procedural instrument. Therefore, settlements can be kept confidential if the parties so agree. However, settlements recorded by the court may become public because of the principle that hearings are generally public. If the parties wish to ensure confidentiality, it is advisable to negotiate the settlement out of court and include a confidentiality clause. However, the parties must take into account that an out-of-court settlement is not enforceable per se, but only under certain conditions, as described in 8.3 Enforcement of Settlement Agreements.

The way in which settlement agreements are enforced depends on whether the settlement was reached in or out of court. A settlement recorded by the court is an execution title and can be enforced in the same way as a final judgment. An out-of-court settlement is not enforceable per se. A party claiming a breach of an out-of-court settlement usually has to file a new civil action to enforce the settlement agreement. Out-of-court settlements may be enforceable if they are notarised by a notary public or if they are signed by the attorneys of the parties on the condition that the debtor expressly submits to immediate enforcement and if they are filed with the local court where one of the parties is domiciled.

Since a settlement is a contractual agreement, it is generally binding due to the rule of pacta sunt servanda. However, an out-of-court settlement can be set aside like any other contract, eg, on the grounds of exceptio doli.

A settlement recorded by the court is more difficult to set aside. In general, a party has no right to withdraw from a recorded settlement and continue the proceedings. For this reason, the parties often conclude a settlement proposed by the court under the condition precedent that the settlement becomes final unless one of the parties formally objects to it in writing to the court within an agreed period of time. Such a conditional settlement is advisable, for example, if a party needs the consent of internal corporate bodies or third parties such as an insurer. 

German procedural law provides for three main categories of judgments:

  • judgments for affirmative relief, eg, performance, payment, omission, or compensation;
  • declaratory judgments in which the court confirms if a specific legal relationship exists or not under the condition that the plaintiff can show a certain interest as regards the declaration; and
  • judgments directly altering a legal relationship, eg, the exclusion of a shareholder.

Judgments directly altering a legal relationship are very uncommon and only available to specific cases provided expressly by law.

With a few exceptions, German courts only award damages to the extent expressly claimed and quantified by the plaintiff (ne ultra petita).

What can be claimed as damages and to what extent is subject to substantive law. In principle, German law understands damage as an involuntary loss of property. If such loss occurs, the damaged party can in principle demand the natural restoration of the status before the harmful conduct or event. In theory, monetary relief for a loss is treated as an exception to this principle of natural restoration. However, if damage occurs to a person or an object, the injured party may alternatively claim the amount of money, including VAT, necessary for the restoration. Furthermore, if the restoration of the status prior to the occurrence of the harmful conduct or event is not possible or sufficient from the outset, the injured party may in any event immediately claim the sum of money necessary for the restoration. In practice, financial compensation for loss or damage is the common practice.

In addition to this form of financial compensation for the loss suffered, an injured party may claim compensation for future losses due to loss of profit. The courts, however, apply strict rules with regard to the substantiation of the profits that would have accrued in the absence of the harmful conduct or event.

Furthermore, a plaintiff may claim compensation for immaterial losses, such as pain or damage to reputation. Such compensation is usually granted only if expressly provided for by law. In recent years, however, the higher courts in Germany have increasingly recognised immaterial damages in tort law.

Punitive damages are not awarded under German substantive law, as German law is in general bound by the principle of restoring the status prior to the harmful conduct or event. Punitive damages do not contribute to this principle, but instead add a penalty element. However, punitive damages are awarded if the parties of the dispute agreed on a contractual penalty. Such punitive damages are well known in competition law.

According to the basic principle of ne ultra petita, interest is granted only if the plaintiff has expressly claimed that interest. For monetary claims, the plaintiff generally claims interest from the date of service of the statement of claim at five percentage points above the base rate, or nine percentage points above the base rate for certain disputes with non-consumers.

In addition, if the defendant is in default of payment, the plaintiff may claim interest before service of the statement of claim. Such delay usually requires that the claim has become due and the plaintiff has requested performance before filing the statement of claim.

If the court grants interest, it will be calculated until the date of payment of the claim.

The means of enforcement depend on the judgment to be enforced and the nature of the assets against which enforcement is sought. In the case of pecuniary claims, the garnishment of monetary claims or other proprietary interests, the execution against real property or tangible personal property are typical means of enforcing judgments. Execution titles for specific performance can be enforced by eviction, substitute performance or the imposition of penalties.

Foreign judgments are enforceable in Germany under international treaties and conventions and, in the absence of such treaties, under German procedural law.

Within the European Union, foreign judgments in commercial and civil matters are enforced in accordance with the Recast Brussels Regulation. The enforcement of judgments from another EU member state is uncomplicated as it does not require a separate declaration of enforceability and is subject to the same conditions as German judgments. The same applies to judgments rendered in Switzerland, Norway or Iceland under the Lugano Convention 2007.

If German procedural law applies to the enforcement of a foreign judgment, a formal declaration of enforceability (exequatur) is necessary. In exequator proceedings, the debtor may invoke grounds of defence against enforcement such as satisfaction of the judgment or the following grounds for non-recognition or non-enforcement of the foreign judgment:

  • the foreign court had no international jurisdiction under German law over the subject matter and the parties to the dispute;
  • there was no service of process;
  • other proceedings take precedence;
  • German public policy is violated, eg, in case of judgments of US courts for punitive damages; and
  • reciprocity was not granted.

In principle, all acts of the court and its officers may be appealed by the aggrieved party. German procedural law essentially offers three types of remedies: the first appeal against judgments of the courts of first instance, the second appeal against judgments of the courts of appeal, and the complaint against procedural, minor and/or interlocutory decisions of the courts. In addition, a number of other remedies, such as protest or objection, are available against other decisions of the court or its officers.

In general, all appeals suspend the effect of the judgment, order or decision under appeal.

The first appeal is the remedy against judgments of the courts of first instance and is always heard by a higher court. If the entry court is a local court, the regional court is the competent court. Judgments of the regional courts are appealed to the higher regional courts.

Appeal judgments are subject to a second appeal. Second appeals are, however, not admissible against appellate judgments in interim proceedings for injunctive relief. If a party appeals only on legal grounds, a judgment of the entry court can be appealed directly at the second level of appeal, skipping the first appeal. The competent court for a second appeal is always the Federal Court of Justice.

The first appeal is only available to a party that is burdened by a judgment. It is only admissible if the value of the appeal exceeds EUR600. Otherwise, the entry court may allow an appeal by certifying its judgment for appeal. A first appeal is lodged with the appellate court by submitting a statement of appeal within one month of service of the full version of the judgment. The grounds for appeal are generally set out in a subsequent written pleading, which must be filed no later than two months after service of the judgment. This period may be extended by the court up to one more month. Any further extension requires the consent of the appellee. The statement of grounds for appeal must contain a motion stating the precise amendments in the judgment sought and describing the reasons why the judgment is erroneous and the significance of the errors for the judgment under appeal. The appellee may then submit a written pleading defending the judgment appealed. If the appeal is inadmissible or if the appellate court finds that the appeal has no chance of success on the merits and that an appellate judgment is not relevant for similar cases or for the development of the law in a certain area, the appellate court dismisses the appeal by court order without an oral hearing. Otherwise, it will render a judgment after an oral hearing. 

A second appeal is admissible if the appellate court expressly admits a second appeal in its judgment. Otherwise, the appellant may file a complaint against the refusal to grant leave for the second appeal within one month of service of the appellate judgment. Both the second appeal and the complaint are admissible only if the value of the second appeal exceeds EUR20,000. Complaints against the refusal to grant leave for the second appeal are usually unsuccessful.

The purpose of the first appeal is the review of the judgment and the correction of any errors of law and fact made by the entry court. The appellate court is in principle bound by the factual findings of the lower court, unless these are erroneous. The appellant may base its appeal on concrete indications which cast doubt on the correctness and completeness of the factual findings in the judgment of the entry court, on a violation of procedural or substantive law, or – in very limited circumstances – on new evidence, if such evidence could not have been provided in the first instance.

The second appeal is a review only on points of law. It is designed primarily not to obtain correct judgments in individual cases, but to render decisions on issues of law which are important for the entire German system of justice. The Federal Court of Justice has to accept the factual findings of the lower courts as correct in principle and will examine only whether the contested judgment is based on a violation of procedural or substantive law.

The entry court cannot impose conditions on granting an appeal. A second appeal is only admissible if the appellate court expressly admits a second appeal in its judgment. An appeal on points of law is to be admitted if the legal matter is of fundamental importance for the further development of the law, or if the maintenance of consistency in court rulings requires a decision of the Federal Court of Justice. The appellate court cannot impose any additional conditions for the granting of a second appeal.

The appellate court may dismiss or grant the appeal. If the appeal is granted, the appellate court will usually replace the judgment of the lower court by its own judgment. At the request of one of the parties, the appellate court may also remit the case to the court of first instance for further proceedings.

The Federal Court of Justice may decide the case itself if no additional fact-finding is necessary. In many cases, however, the proper application of the law will require further factual findings by the lower courts. The Federal Court of Justice will then remit the case back to the lower court, which is bound by the legal analysis of the Federal Court of Justice on the legal issues which have been subject of the second appeal. 

As a rule, the party losing the case must bear all the costs of the proceedings. If both parties lose parts of the dispute, the costs will be allocated between the parties in proportion of win and loss. The court determines the total cost allocation in the judgment. The specific amount of the costs to be reimbursed is determined by a judicial officer in an order fixing the costs at the request of the recovering party. 

In principle, the costs of the court and the costs of the attorneys are strictly linked to the amount in dispute. In relation to this amount, statutory law provides for specific fixed rates. A party can agree much higher billing rates with its attorney, which is common in complex commercial matters. However, in litigation, the winning party can only demand payment from the losing party of the sums calculated based on the fixed statutory rates. In arbitration proceedings, deviating agreements generally apply.

The general allocation of costs is linked to the proportion of win and loss between the parties. However, if one party caused additional costs, it will usually have to bear them. For equity reasons, certain exceptions may apply.

At the request of the party requesting reimbursement, the judicial officer orders interest on the reimbursable costs at a rate of five percentage points above the base rate from the date on which the cost application is submitted.

In recent years, ADR has increasingly gained acceptance in the German business community, and there is a refined legal framework for ADR procedures under German law. The number of mediations in Germany may be positively influenced by the fact that more and more insurance companies include mediation in their legal expenses insurance. The recognition of mediation procedures is reflected, among other things, in the fact that mediation procedures suspend the limitation period.

The Mediation Act regulates the main features of the mediation procedure for private, out-of-court mediation such as the general procedure and the tasks of the mediator, the conflicts of interest of the mediator, the duty of confidentiality as well as the training and further education of mediators.

As a rule, ADR proceedings are only conducted on a voluntary basis in Germany. In civil proceedings, the trial judge may refer the parties to a conciliation judge appointed for this purpose; however, if the parties do not give their consent, the conciliation hearing is conducted before the trial judge as part of the normal civil proceedings.

There are several German institutions which promote ADR or offer a platform on which various forms of ADR can be pursued, eg, the European Insitute for Conflict Management (EUCON) or the Munich Centre for Dispute Resolution.

The leading German arbitral institution, the German Institution of Arbitration (DIS) provides for a procedural framework in its Mediation Rules. The DIS also provides a service infrastructure for mediation procedures.

The German arbitration law is set out in the Tenth Book of the Code of Civil Procedure, which is modelled after the UNCITRAL Model Law with the goal to create an arbitration-friendly jurisdiction that is also attractive for foreign parties. The arbitration law is based on the key principles of a successful arbitration, ie, party autonomy, and fair and efficient arbitral proceedings.

Parties can contractually agree that any institutional or other rules may also apply to the conduct of the arbitration. In this regard, the German Institution of Arbitration (DIS) offers a set of rules (DIS Rules) recognising and implementing internationally developed standards.

Germany is a member state to the New York Convention 1958, the ICSID Convention, and other important international treaties. Especially the New York Convention 1958 allows for easy and efficient recognition and enforcement of foreign arbitral awards within the German legal system. 

In general, any claim involving an economic interest (direct or indirect) is arbitrable under German law, even non-economic claims if the subject matter of the dispute can be settled. Only few subject matters cannot be referred to arbitration, such as criminal law matters, employment law disputes, certain aspects of family law such as divorce or the custody of minors, and disputes regarding tenancy relationships for residential accommodation in Germany.

An arbitral award generally has the same final effect as a court judgment (res judicata). It can only be challenged under certain circumstances, which resemble Article V of the New York Convention and Article 34 of the UNCITRAL Model Law. These grounds for challenge are:

  • a party’s incapacity to conclude an arbitration agreement;
  • the invalidity of arbitration agreement;
  • a violation of the right to be heard;
  • the subject matter is beyond the scope of the arbitration agreement;
  • a failure in the composition of the arbitral tribunal;
  • the subject matter is not arbitrable (see 13.2 Subject Matters not Referred to Arbitration); and
  • the recognition or enforcement of the award would lead to a result contrary to public policy (ordre public).

The party seeking to challenge the arbitral award must file its request within a period of three months after having received the award, or within the time limit agreed by the parties. The court deciding on the challenge of the arbitral award cannot modify the award but can only set it aside or dismiss the request. Under appropriate circumstances the court can remit the case to the same arbitral tribunal for a new decision.

Domestic arbitral awards can be enforced under the Code of Civil Procedure upon application to the competent higher regional court. The request is not bound to any specific time limit, but to certain formal requirements. In principle the court decides upon the enforceability without an oral hearing by order. However, if the opposing party challenges the award, either by raising grounds for setting aside the award or objections that came into existence after the arbitral proceedings had been closed, eg, a set-off situation, an oral hearing must be held.

Foreign arbitral awards are to be recognised and enforced according to the New York Convention 1958, however the formal requirements of the New York Convention, such as submitting a certified translation of the arbitration agreement and the award, need not be fulfilled. To facilitate the work of the competent higher regional court it is however recommended to provide the court with a certified translation of the arbitration agreement and the award if they are not drafted in German. The requesting party bears the burden of proof as to the existence of a valid arbitration agreement, and the court will rule on that question without being bound by the finding of the foreign arbitral tribunal. If the court denies enforcement, it cannot set aside the award but can only declare that it cannot be recognised in Germany. If the denial is based on a procedural defect which is subsequently remedied, a further application for recognition and enforcement is possible.

Pfitzner Legal

Kettenhofweg 98
60325 Frankfurt am Main

+49 69 87 000 2900

+49 69 87 000 2999

pfitzner@pfitznerlegal.com www.pfitzner.legal
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Pfitzner Legal is a specialised dispute resolution law firm in the heart of Frankfurt's Westend district. Two lawyers, each with decades of experience, together with a team of associates, professional support lawyers and paralegals, offer enhanced expertise in the resolution of complex commercial, corporate and professional negligence disputes through a unique blend of litigation capabilities, international arbitration experience and conflict management skills spanning a wide range of sectors including financial services, energy, natural resources, construction, engineering, automotive, pharmaceutical, insurance and private equity. The firm, repeatedly mentioned in surveys as excelling in the quality of its services, is known for its capabilities in defending clients in class actions as well as in handling international arbitrations.

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