Commercial Litigation and Dispute Resolution
EDIFICIA Lawyers have a professional understanding how to advise clients on the best way of settling disputes and negotiate a settlement in court or out of court. We have experienced commercial litigation lawyers who represent particularly clients with an Anglo-American background (former Commonwealth Countries) in literally all cross-border matters. We offer to our clients an International Network of experienced lawyers. Our international commercial clients come from European countries, the United States, Canada, Latin America, Australia, and the Middle East and Asian countries. The working language is German and English which are spoken by all lawyers and support staff.
The traditional form of Dispute Resolution in Germany is through litigation in the German court system.
Depending on the nature of the case, a company would either lodge the matter before the Ordinary (Civil) Courts or the Labour Courts (equivalent to the English Industrial Tribunal). The vast majority of commercial disputes between private parties in Germany are decided by the ordinary courts (“Ordentliche Zivilgerichte”).
The court system consists of four hierarchical levels:
- the Local Courts (“Amtsgerichte”),
- the District Courts (“Landgerichte”),
- the Regional Courts (“Oberlandesgerichte”), usually concerned with appeal cases, and
- the Federal Court of Justice (“Bundesgerichtshof”), usually concerned with a further appeal and judicial review
In Local Courts, civil cases are being heard by a single judge. In District Courts, ordinary cases are being heard by a single judge, whilst complex cases are being presided over by a panel of three judges. The courts have a reasonable discretion in this matter but usually ask the parties for consent. In purely commercial matters, usually disputes between two companies, the case is heard before the Commercial Division, i.e. a panel of three judges annexed to the District Court (“Kammer für Handelssachen”). The panel consists of one professional, usually a senior and experienced judge, and two laypersons with a commercial background (vita). In the Regional Courts, cases are usually heard by three judges, but may also be referred to one judge only.
Unless there is a verbal or written agreement on jurisdiction of a German or foreign Court between the parties, the criteria for the right court, to entertain the action, are laid down in the Brussels I Regulation (Brussels Convention) and binding upon European Member States, otherwise in the German Code of Civil Procedure. International Jurisdiction does not necessarily follow the choice of (substantive) law agreed between the parties.
The territorial jurisdiction
Often, some agreement exists on which court to address in which town or city. In the absence of any agreement, the criteria are laid down in the German Code of Civil Procedure. As a general guideline, it is the defendant’s court, which would entertain the action. However, there are several exceptions to this rule.
Jurisdiction generally relating to the value in action
The value in action usually decides upon, whether a local court or a district would entertain the action in first instance. Local Courts enjoy jurisdiction up to a value in action of EUR 5.000,–, (‘small claims court’). But they also deal with any family and landlord-tenancy disputes and some other special areas of law (without value limitations) as local courts are considered to be more familiar with local circumstances. Regional Courts have jurisdiction over disputes with a value in action in excess of EUR 5.000,– as these cases are usually being heard by a panel of three judges presided over by an experienced judge. Companies usually need to lodge an action before the District Court.
Questions of Law and Questions of Fact
Parties need to present to the court in first instance all relevant facts supporting their claim well in advance of a hearing. This is largely achieved by way of written pleadings by practicing lawyers rather than oral submissions during any court hearing. Although not absolutely required, it is recommended to also guide the court in writing on any legal aspect supporting one’s case.
The appeal court, usually the Regional Court, is, however, nowadays confined to hearing, and deciding on, questions of law rather than questions of fact (judicial review). They rely on the facts as presented to the court of first instance. There are, however, several exceptions. The Federal Court of Justice is – without exception – restricted to judicial review (on questions of law only)
Dispute Resolution: Court Action & Court Procedure
The procedure guiding Civil Courts is set out in the German Code of Civil Procedure. It is complex and not easy to understand as a foreign company. In contrast to Anglo-American practice, there are usually two if not more hearings before the case is closed. The first hearing is usually intended to be more conciliatory to pave the way for an amicable settlement with the help of the Court. In view of the complexity of the court procedure, it is thus recommended to choose an experienced German litigation lawyer, who acts similarly to that of an English barrister.
A state court action offers some benefits:
- State court judgments are enforceable in many countries.
State court judgments are recognized and enforceable in Germany as well as in all other EU member states by virtue of the Brussels-I Regulation. Outside the ambit of the Brussels-I Regulation, the parties may rely on international, bilateral agreements between Germany and the country concerned, providing mutual recognition and enforcement of state court judgments.
- The costs of State Court proceedings are usually lower and more predictable than in alternative dispute resolution proceedings.
The cost of the proceedings depends upon the value in dispute, on which the court fees are based by statute. The court fees are not increased even if three judges hear the case. There is a cost incentive if the parties settle the case amicably.
- State Court proceedings in first instance can be relatively quick.
According to recent statistics, the average time in Germany for a District Court to render a judgment is 13 months. Nonetheless, the length of proceedings depends on the behavior of the parties, the complexity of the case, and work-load of the court as well staff fluctuations at the court. In adverse circumstances, a court decision in first instance may take up to 24 months.
The right to Appeal
As judges are prone to human failure, the parties usually have the right to appeal against a judgement of a court of first instance. Any party being aggrieved gets a second bite of the Cherry on appeal.
- State court proceedings offer efficient protection.
In court proceedings, parties can apply for efficient court protection by way of interim and summary relief (e.g. interlocutory injunctions and freezing orders).
A State Court action has some draw-backs:
- State court proceedings in Germany must be held in German.
Any submissions must be made in German. The Court may require any relevant document, even those written in understandable English, to be translated into German by a sworn-in translator
- State court proceedings may take longer due to appeal and review proceedings.
State court decisions are subject to appeal and – more restrictively – to further appeal (judicial review) proceedings. Thus, even if a judgment of a court in first instance is rendered after a reasonably short period, the case may be heard on appeal and further appeal (judicial review) if a party wishes to do so. This course of events may significantly increase the time and cost factor
Unless the Parties have agreed on international arbitration rules (notably ICC or ICSID), the German Code of Civil Procedure sets out similar statutory rules governing arbitration in Germany. Edificia Rechtsanwälte have, on various occasions, represented parties in such arbitration proceedings. The main benefits are that the proceedings may be held in English and documents in English may be submitted to the Arbitration Tribunal. As there is usually no appeal, the dispute is normally settled more quickly. However, there is no second bite of the cherry as there is usually no appeal allowed. The decision of the arbitrator(s) can usually not be reviewed by a state court. It is thus recommended to choose an experienced lawyer who would act in the best interest of a client in such arbitration proceedings.
The benefit of mediation – as opposed to arbitration – is its openness to court action if mediation fails. As a more recent phenomenon, German Courts encourage parties in certain circumstances to stay, i.e. interrupt court action and to opt for mediation as a means of settling a case amicably. The mediator is usually a specially trained judge, who must not have been involved with the case or the parties and thus act independently and impartially. If – upon the decision of either party – arbitration fails, the parties are entitled to proceed with the dispute in court. Apart from court mediation, the parties may voluntarily agree on mediation as a means settling the case amicably. Such option is particularly recommended if the parties wish to continue their trade relations in the future. So it is an additional option rather than a substitute to court action.
It is a form of temporarily or finally settling a dispute particularly in connection with long-term infrastructure projects and construction developments where time is of the essence. Disputes regularly occur during such long-term projects, which need to be resolved on the spot for avoiding any project interruption. Building Contracts sometimes provide for such ad-hoc dispute settlement through previously appointed adjudicators. The adjudicator’s decision may just be temporary and subject to review by court at a later time. It may also be final, if the parties agree. The main benefit seems to be that the project concerned does not come to a complete standstill while the dispute is pending. Although such form of ‘temporary’ dispute resolution is not very common, it is highly recommended in the described circumstances.