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“And We’ll Have the Brits Pay for that Litigation” – But Will We Really?

This post was written by Paul Lorenz Eichmüller, University of Vienna.


Austrian civil procedure law contains a provision that requires foreign nationals bringing a claim in Austrian courts to provide security for the legal costs incurred by the defendant in case the claim should not be successful. However, as this would clearly violate the non-discrimination principle of what is today Article 18 of the TFEU, the CJEU considered a similar provision under German Law inapplicable as early as 1997 (C-323/95, Hayes/Kronenberger GmbH). Now that the UK is not a Member State of the EU anymore, Article 18 TFEU can no longer be applied in that respect. After this issue has already arisen in Germany (which has also been discussed on this blog), there has also been another case in Austria – yet, with a different outcome.

The Duty to Provide Security for Costs

Pursuant to § 57 of the Austrian Civil Procedure Code (ACPC), any foreign claimant is required to provide security for the costs in civil proceedings brought before Austrian courts if the defendant asks for the payment of such a security. While these rules have become irrelevant within Europe due to EU law, they hit with full force when defendants from third countries are concerned – at least as long as there is no international treaty prohibiting security deposits for costs.

However, in accordance with the ratio behind this rule – which is to prevent that the defendant wins the case in Austria but, due to a lack of enforceability, cannot even recover their own legal costs – there are further exceptions in which a foreign claimant is not obliged to provide security for costs contained in para 2 of the provision. These are: the claimant’s habitual residence is in Austria, the Austrian (cost) decision is enforceable in the state of the claimant’s habitual residence, or the claimant has (sufficient) immovable property in Austria to cover the costs.

International Treaties Prohibiting Security Deposits

There is no international treaty prescribing that a security deposit may not be required that was applicable in the present case. One might in this regard think e.g., of the Hague Convention on Civil Procedure, which, however, the UK has never signed. For those remembering the previous German decision, the European Convention on Establishment might come to mind. After all, the application of its Article 9 – prohibiting cost deposits from member state nationals – only failed because the rules of the convention only apply to natural and not to legal persons. As the Austrian case concerned a natural person as a claimant, this could have seemed like a solution – however, Austria has only signed, but not ratified said convention and therefore, its application also fails.

Finally, there is also a bilateral Austro-British Convention regarding proceedings in Civil and Commercial Matters from 1931, Article 11 of which prescribes that British citizens resident in Austria “shall not be compelled to give security for costs in any case where a subject of [Austria] would not be so compelled”. As the claimant did not reside in Austria, this convention was inapplicable in the present case as well.

Recognition of the Austrian (Cost) Decision as a Way Out

As there is no prohibition on security deposits in international treaties, the issue was whether any of the exceptions of § 57 para 2 ACPC apply. As the other exceptions were clearly not applicable, the only question that remained was whether there is an international treaty providing for the recognition of a possible Austrian cost decision in the UK (the claimant’s habitual residence).

With the UK having left the EU, the core legal acts on the recognition and enforcement of Austrian judgments in the UK, namely the Brussels Ibis Regulation and the Lugano Convention, are no longer applicable. Similarly, the UK government does not consider itself bound by the Brussels Convention anymore (there has been considerable discussion about this matter on this blog). It might therefore seem that there is no legal basis that would guarantee the enforcement of an Austrian cost award in the UK.

However, as rightly identified by the Austrian Supreme Court, the parties had concluded an exclusive choice-of-court agreement in favour of the Austrian courts, which would make a judgment (including its cost award) enforceable by the means of the Hague Choice of Court Convention. While the UK is no longer bound by the Convention by virtue of being an EU Member State, it acceded to the Convention on 28 September 2020 in its own right, providing that the convention would apply without interruption (see here).

As a judgment with a cost award would be enforceable in the UK due to the applicability of the Hague Choice of Court Convention, there was thus no need to demand a security deposit for the costs from the British claimant. While the defendant submitted that there was no precedent in the UK on the application of the convention and that it was therefore unsure whether a cost award would be enforced, the Supreme Court considered that there was no indication that UK courts would breach their obligation under public international law. Thus, no security deposit for costs was required.

Conclusion

After many cases seen so far, the case decided by the Austrian Supreme Court shows once more how Brexit has made international litigation in relation to the UK so much more difficult. While the Hague Choice of Court Convention provided for a solution in the case at hand, this will only apply if there is an exclusive choice of court agreement. In all other cases, British claimants not resident in Austria will have to provide a security deposit if they want to bring a claim in Austrian courts – making cross-border litigation again somewhat more tedious. It remains to be seen whether the Hague Judgments Convention will at a later point in time alleviate this problem, but as neither the UK nor the EU have even signed the convention yet, it is still a long way until we will experience any of its effects.

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