Brexit will likely not impact UK's German security for costs exemption

Out-Law Analysis | 28 Aug 2019 | 2:23 pm | 3 min. read

A 59 year old treaty between the UK and Germany will ensure UK businesses avoid having to provide security for costs when litigating in Germany after Brexit.

The treaty, which concerns reciprocal recognition and enforcement of judgments, meets the requirements of an exception to German rules on security for costs which businesses or individuals with their seat in the UK will benefit from post-Brexit, including in the scenario that the UK leaves the EU without a withdrawal agreement.

Security for costs – the rules in Germany

Germany's Code of Civil Procedure (the Code) requires that plaintiffs bringing legal proceedings in the country must provide security for the costs of those proceedings if they have their "habitual place of abode" in a country outside of the EU or wider European Economic Area and where defendants in those proceedings so demand.

The purpose of this provision is to protect EU-based defendants from the difficulties that can arise in obtaining recognition and enforcement of a judgment in other jurisdictions around the world, including in relation to their potential claims for reimbursement of costs.

In the worst case scenario, non-EEA companies litigating in Germany can be required to provide security that amounts to the entire legal costs for the proceedings – this includes court fees and those of the defendant's attorneys for the first instance proceedings and both appeal stages. It is at the court's sole discretion what exact amount of security to set in each individual case. The court will order security for costs via an interlocutory judgment which will impose a deadline by which the security deposits are to be provided.

In cases where the deadline has elapsed and security for costs has not been paid, defendants can apply for the case against them to be declared as having been withdrawn. Similarly, if the non-EEA litigator has raised appeal proceedings, those appeals can be thrown out where security for costs has not been provided by the court-set deadline.

As the UK is currently a member of the EU, UK businesses litigating in Germany do not have to provide security for costs. However, with the UK set to leave the EU on 31 October 2019 and with no withdrawal agreement having yet been reached, there have been some defendants in Germany enquiring whether UK companies litigating against them need to provide security for costs for cases due to begin after the UK has left the EU.

However, any such requests by defendants or orders by the German courts would be without merit.

According to paragraph two of section 110 of the German Code of Civil Procedure, the obligation of providing security for costs should not be imposed where the decision as to the defendant's reimbursement of the costs of the proceedings would be enforced based on international treaties.

The 1968 Brussels Convention

In the EU, the recast Brussels Regulation from 2012 currently regulates the enforcement of judgements in other EU member states. When the UK leaves the EU, however, it will cease to apply in respect of the UK. According to the prevailing opinion in Germany, the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (the 1968 Brussels Convention) would automatically revive. However, the UK government has now passed the Civil Jurisdiction and Judgments Act (Amendment) (EU Exit) Regulations 2019 according to which the 1968 Brussels Convention would cease to be recognised in the event of a no deal Brexit.   

Hence, the 1968 Brussels Convention could then not be considered an international treaty under paragraph two of section 110 of the Code.

The German-British Convention of 1960

Even if the 1968 Brussels Convention does not apply, the bilateral Convention between the United Kingdom and the Federal Republic of Germany for the reciprocal recognition and enforcement of judgments in civil and commercial matters from 1960 (the German-British Convention of 1960) would be applicable. This bilateral Convention is not affected by the Civil Jurisdiction and Judgments Act (Amendment) (EU Exit) Regulations 2019.

According to Article 5 of the German-British Convention of 1960, decisions issued by a German regional court (Landgericht), higher regional court (Oberlandesgericht) or the Federal Supreme Court (Bundesgerichtshof) are to be enforced by the courts of the other contracting state. A sub-section of that article expressly refers to decisions on costs as well as decisions on the determination of costs.

The German-British Convention of 1960 would therefore also be considered an international treaty for the purposes of Section 110 para.2 of the German Code of Civil Procedure.

Whether English courts would take a similar view if asked to consider the 1960 Convention remains to be seen.

As a result, even if the UK leaves the EU without a deal, and although the recast Brussels Regulation would not apply, UK businesses contemplating litigation in Germany would not have to provide security for costs.

Sibylle Schumacher and Benita von Fritsch are litigation experts at Pinsent Masons, the law firm behind Out-Law.