U.S. Plaintiffs must post security for the other party’s legal costs when suing in Germany
The German Code of Civil Procedure (Zivilprozessordnung) rules in section 110, that any claimant (plaintiff) from outside the European Union (EU) or the European Economic Area (EEA) who initiates a civil lawsuit in Germany, must not only pay in the court fees (details here), but must also provide security (Sicherheitsleistung) for the legal fees of the defendant. Depending on the value of the lawsuit, these costs can be steep. The idea behind this is, of course, that a foreign claimant shall not be able to file a lawsuit against someone in Germany and then, later, after having lost the case, dodge the defendant’s legal cost refund claim.
Who must post security for costs in German civil litigation cases?
According to section 110 para. (1) ZPO, plaintiffs who do not have their habitual residence (or business seat in case of the plaintiff is a company or corporation) within an EU or EEA member state, must provide a security deposit — if the German defendant in the lawsuit so demands. Sometimes the German defendant’s lawyer is not even aware of this statute, especially if the defendant’s lawyer does not carry out much international work. But if the defendant is represented by a German counsel worth his or her salt, that request for the plaintiff to provide security will be the first thing the defendant’s lawyer will submit to the court.
Section 110 Para. (2) ZPO grants some exceptions to this rule of having to provide security, e.g. if the foreign plaintiff owns real estate within Germany or if there are certain international treaties in place which grant foreign plaintiffs an exemption from this obligation. Now, one would hope that there is such an agreement between the USA and Germany. And there is: the Treaty of Friendship, Commerce and Consular Relations between Germany and the United States of America from 1954.
However, that agreement does not help to get rid of the obligation to pay legal cost security. In principle, the 1954 Treaty does guarantee U.S. nationals and U.S. companies fair and equal access to German courts, and vice versa, see article VI para. (1) of the Treaty:
Nationals and companies of either Party shall be accorded national treatment with respect to access to the courts of justice and to administrative tribunals and agencies within the territories of the other Party, in all degrees of jurisdiction, both in pursuit and in defense of their rights. It is understood that companies of either Party not engaged in activities within the territories of the other Party shall enjoy such access therein without any requirement of registration or domestication.
Sound promising. However, the protocol annexed to the Treaty clarifies in section 6 that this article VI of the Treaty does not grant a full exemption from the obligation to post security for legal costs of the other party. This is the complete wording of section 6 of the protocol, which is rather similar to section 110 para. (1) of the German Civil Procedure Code:
With reference to Article VI, paragraph 1, nationals and companies of either Party appearing as plaintiff or intervening party bevor the courts of the other Party shall be exempt from obligation to post security for costs in such instances as nationals or companies of the other Party would be exempt; exemption, however, is only granted if: (a) the nationals have their permanent residence or the companies their establishment (main or branch), or (b) the nationals or the companies have sufficient real property to cover costs, in the territory of that Party before the courts of which the suit is pending.
The complete Treaty with protocol in a bilingual (English-German) version is available for download here: Friendship Treaty USA Germany (Bundesgesetzblatt)
So, when it comes to the obligation of having to post security, there is no exception for U.S. plaintiffs in Germany, nor for German plaintiffs in the USA.
How is the security deposit calculated?
As we have explained in the post “How expensive is a German Lawsuit?”, legal fees in Germany are based on the value of the specific lawsuit. Thus, the actual amount of the security to be posted, depends on the claim itself. Section 112 para. (1) German Civil Procedure Code gives wide discretion to the court.
How is the security made?
In most cases, the plaintiff will either transfer the amount set by the German court onto the court’s fiduciary account or will arrange for a first class bank guarantee issued by a German bank. The requirements are detailed in section 108 ZPO.
Related posts:
- German Laws relating to Civil Litigation
- Know Your Way around German Civil Courts
- Pre-Action Requirements in German Civil Litigation
For legal advice on German civil procedure and how to successfully litigate in Germany, contact the international litigation experts and trial lawyers of GrafLegal.
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