Bringing a claim - initial considerations

Key issues to consider

What key issues should a party consider before bringing a claim?

The two cornerstones for deciding whether or not to litigate are prospects of success and costs. The assessment of the prospect of success should not only encompass the legal assessment of the case, including questions of jurisdiction and absence of compulsory document production, but also aspects of strategy or other not strictly legal aspects of litigation, such as lack of confidentiality of court hearings and the impact of litigation on the party’s business. The evaluation of the cost concerns legal fees for lawyers, court fees and also cost reimbursement obligations in case of defeat. Furthermore, it encompasses expenses for technical experts, witnesses and other means of evidence.

Establishing jurisdiction

How is jurisdiction established?

In most cases, jurisdiction of the German courts is established through the place of residence of the defendant in Germany because it is the only case in which a jurisdictional challenge by the defendant is categorically excluded. The most important examples in which German courts assume jurisdiction over foreign parties are tort cases if the tort took place in Germany, cases of joint liability if one of the jointly liable parties has its residence in Germany and contract-related cases in which Germany was the place of performance of the contract. In business-to-business cases the jurisdiction of the German courts can also generally be stipulated by agreement of the parties; in business to consumer cases there are many rules on jurisdiction and venue of the German and EU law that cannot be set aside by agreement.

The defendant should raise jurisdictional challenges as early in the litigation as possible and before the conclusion of the hearing. In complex cases, the court has discretion to hear and pass judgment on jurisdictional challenges before the case proceeds to the merits stage. In the European Union (plus Norway, Iceland and Switzerland) EU Regulation No. 1215/2012 or treaties with similar content provide rules against parallel litigation. In cases involving parties beyond the borders of these countries, and unless the issue of parallel litigation is addressed in a treaty, no binding rules keep the German courts from assuming jurisdiction. The German courts do not apply the forum non conveniens doctrine.

Preclusion

Res judicata: is preclusion applicable, and if so how?

Rules on preclusion are codified in the German Code of Civil Procedure. Judgments passed by courts in other countries have res judicata effect in Germany if they are recognised. Judgements of EU-countries are recognised in Germany without the requirement of any special procedure. Other foreign judgments are recognised in an expedited procedure unless recognition is excluded for one of the reasons set out in section 328 of the German Code of Civil Procedure.

Applicability of foreign laws

In what circumstances will the courts apply foreign laws to determine issues being litigated before them?

German courts apply foreign material law if the foreign law is applicable to the merits of the dispute according to the German international private law (including by stipulation of the parties).

The application of foreign laws can make litigation more complex and costly because there is an increased obligation of the parties to substantiate their claims also in relation to the foreign legal implications. Furthermore, the courts have discretion to obtain expert opinions on the relevant foreign legal issues. The increased cost risk and typically decreased certainty about the chance of success can work to a party’s tactical advantage. Whether a tactical advantage can be derived from the application of foreign law has to be assessed case by case.

Initial steps

What initial steps should a claimant consider to ensure that any eventual judgment is satisfied? Can a defendant take steps to make themselves ‘judgment proof’?

If there is reason to believe that the defendant will remove assets or take other forms of action to elude enforcement of a later judgment, interim reliefs to ensure the enforceability of the claim are available to the claimant. In extreme cases, it is possible to pierce the corporate veil of German companies. Financial insolvency is the only legal way to become judgment proof, provided that the insolvency was not caused deliberately.

Freezing assets

When is it appropriate for a claimant to consider obtaining an order freezing a defendant’s assets? What are the preconditions and other considerations?

If there are indications that the defendant will remove assets in order to elude enforcement, the claimant may apply for a freezing injunction. The claimant must assert and provide:

  • prima facie evidence to the court - typically, by way of an affidavit;
  • that it has a claim against the defendant; and
  • that a reason of urgency for securing the future defendant’s assets exists.
Pre-action conduct requirements

Are there requirements for pre-action conduct and what are the consequences of non-compliance?

There are no specific requirements for pre-action conduct in Germany.

Other interim relief

What other forms of interim relief can be sought?

There are two forms of interim relief:

  • freezing injunctions, which serve to secure the enforcement of a monetary claim (eg, by way of seizure of a movable property or the registration of a mortgage). As the purpose of an interim relief is confined to the purpose of securing the enforcement of the claim, the exploitation of the seized property is not possible. The debtor may also be taken into personal custody, but this rarely happens in practice; and
  • preliminary injunctions, which serve to secure non-monetary claims. The court may, for example, order the surrender of an object.

Both forms of interim relief require a reason of urgency, as they constitute exceptions to the general rule that the defendant is not affected by an alleged claim prior to the rendering of a legally binding and enforceable court decision. The application for an interim relief must therefore convince the court that enforcement of the applicant’s claim is endangered or jeopardised without the issuance of the interim relief.

Alternative dispute resolution

Does the court require or expect parties to engage in ADR at the pre-action stage or later in the case? What are the consequences of failing to engage in ADR at these stages?

By law, the courts are obliged to work towards an amicable dispute settlement. Therefore, the courts frequently take part more proactively in exploring options for amicable solutions than in other countries. A settlement reached before a civil court constitutes a title of execution and may be enforced by means of public enforcement proceedings.

The courts do not require or expect parties to engage in alternative dispute resolution (ADR). However, most courts offer mediation free of additional court fees. The mediator is typically a judge of the court who is not associated with the case.

Claims against natural persons versus corporations

Are there different considerations for claims against natural persons as opposed to corporations?

Before bringing a claim against a corporation, it is advisable to obtain an excerpt from the commercial register in order to verify the identities of the legal representatives and the residence of the corporation. If the defendant is a general partnership, the claim can also be directed against its managing directors based on their accessory liability for the company’s debts.

Class actions

Are any of the considerations different for class actions, multi-party or group litigations?

No class actions comparable to class actions in, for example, the United States are currently available in Germany. All the above considerations apply to litigation with more than one claimant and more than one defendant. But see also the Update and trends section.

Third-party funding

What restrictions are there on third parties funding the costs of the litigation or agreeing to pay adverse costs?

Restrictions apply in relation to the identity of the funder. Law firms are not eligible as litigation funders. The professional laws allow German lawyers to enter into success-based fee arrangements in exceptional cases only.