As the dust settles, the consequences of the British departure from the EU are becoming clearer, including those for British parties litigating on the Continent. Two of Germany’s highest courts have recently ordered litigants with a habitual residence in the UK to provide security for the likely costs of the defendants, which the claimants would have to pay under the German loser pays-system. The decision was taken by both the Federal Supreme Court on 1 March 2021 and by the Federal Patent Court on 15 March 2021. Both rulings have been discussed on the Dispute Resolution Germany blog by Peter Bert here and here.
Duty to Provide Security for Costs under German Procedural Law
Although German procedural law in principle envisages the possibility of an obligation to provide security if demanded by the defendant (see e.g. sec. 110 of the German Code of Civil Procedure and sec. 81(6) of the German Patent Code), the requirement for a UK resident claimant to post security for costs had been illegal as long as the UK was part of the EU. Already in 1997, the ECJ outlawed such demands by German courts in case C-323/95, David Charles Hayes and Jeannette Karen Hayes v Kronenberger GmbH. This decision was based on the prohibition of discrimination on the grounds of nationality (today Art 18 TFEU, ex Art 12 TEC).
As a consequence, litigants with a residence in the EU or the wider EEA have been exempted from the requirement to provide security for costs under sec. 110 of the German Code of Civil Procedure. With Britain now having left the EU and the the transition period having expired, it is reasonably clear the exemption no longer covers UK based claimants, who as of 1 January 2021 may need to provide security for costs upfront.
Exceptions to the Obligation to Provide Security for Legal Costs
Sec. 110(2) no 1 of the German Code of Civil Procedure and by reference also sec. 81(6) 1 German Patent Code provides an exception from the claimant’s obligation to post security for costs where “due to international Treaties, no such security deposit may be demanded”. This exception caused the Federal Patent Court to examine more deeply the legal relations between the UK and Germany post-Brexit.
The Court first analyses the Hague Convention on Civil Procedure 1954, which bans security for costs in Art. 17. This Convention has however not been signed by the UK.
Next, the Federal Patent Court mentions the 1928 Convention Between His Majesty and the President of the German Reich regarding Legal Proceedings in Civil and Commercial Matters. Besides matters such as cross-border service and taking of evidence, the Convention also provides in its Art. 14 that the subjects or citizens of one contracting party “shall not be compelled to give security for costs in any case where a subject or citizen of such other Contracting Party would not be so compelled”. Yet this clause applies only under the proviso “that they are resident in any such territory”, which means the territory of the contracting party where a claim is brought. Since the British claimants in the cases at hand were not resident in Germany, they could not rely on this clause.
The Court further analyses the European Convention on Establishment, which was concluded under the auspices of the Council of Europe in 1955 and binds a number of states, including Germany and the UK. Its Art. 9 and 30 set out exceptions from the requirement to post security for costs. Yet these provisions are limited to natural persons, whereas the claimant in the case discussed was a corporation.
Finally, the Federal Patent Court also discusses the Trade and Corporation Agreement concluded between the EU and the UK on Christmas Eve 2020. Its Art. IP.6 provides for some special rules with regard to the protection of IP rights. But they only cover the “availability, acquisition, scope, maintenance, and enforcement of intellectual property rights” as well as matters affecting the use of intellectual property rights specifically addressed in the TCA. Security for costs is not among them.
Since there was thus no international treaty in the sense of sec. 110(2) no 1 of the German Code of Civil Procedure, the Federal Patent Court decided that the British claimant had to provide security for costs.
The Relevance of the Brussels Convention 1968
Peter Bert discusses in the Dispute Resolution Germany Blog whether the continued applicability of the Brussels Convention 1968, which has been debated various times in this blog, might change the outcome. From my point of view, this is not the case, as the Convention does not address the issue of security for costs but is focused on issues of jurisdiction as well as recognition and enforcement of judgments.
The two German court decisions illustrate the complexity of international litigation post-Brexit. Courts and parties need to deal with a plethora of often dated international conventions concluded before the UK’s accession to the EU. The decisions clearly show the weaknesses of the lack of international agreements and the disadvantages of Brexit for claimants in Germany who are habitually resident in the UK. The situation in other Member States might well be different from Germany’s, possibly giving rise to even further complications.
Thanks for continiung the discussion on this topic, which is both of a highly pratical nature and raised interesting conceptional issues of international (private) law.
When I mendtioned the 1968 Brussels Convention, I did have another exemption in mind, under Section 110 para 2 no 2 ZPO:
“Where the decision as to the defendant’s reimbursement of the costs it has incurred in the proceedings would be enforced based on international treaties.”
Arguably, if the Brussels Convention were to apply, then a German cost order could be recognized and enforced in the UK on that basis. While politically, neither the UK nor the EU want the 1968 Brussels Convention back, it has never formally been discontinued in line with the Vienna Treaty Convention, so the argument goes (see for example Ungerer, NJW 2021, 1270, #8.)
Dear Bert, you are of course right to point to sec. 110(2) no 2 ZPO. The courts could well have used that provision to free British claimants from the need to post security for costs provided that the Brussels Convention 1968 continued to apply. I would however not read the courts’ neglect of this provision as an implicit ruling on the continuance or non-continuance of the Convention. They seem just to have overlooked the issue.