Security for Costs Post-Brexit: Federal Supreme Court Provides Further Guidance

In a recent decision, the Federal Supreme Court (Bundesgerichtshof) had an opportunity to provide further guidance regarding the obligation of UK claimants to provide security for costs in German proceedings.The Federal Supreme Court and the Federal Patent Court (Bundespatentgericht) had already held in 2021 that corporate claimants have to post security for costs pursuant to Sec. 110 German Code of Civil Procedure (ZPO), as there is no surviving treaty that would fill the gap left by Brexit.

In the recent case before the Federal Supreme Court, however, the claimant was an individual who resided in the UK when proceedings started. The defendants were too late in filing their request for security and hence, the issue whether a UK claimant who is an individual is exempt or not had from the obligation to provide security become moot. The Federal Supreme Court nevertheless took the opportunity to clarify the position in an obiter dictum:

Individual Claimants

Individual claimants can rely on Article 9 of the 1955 European Convention on Establishment, which reads as follows:

  1. No security or deposit of any kind may be required, by reason of their status as aliens or of lack of domicile or residence in the country, from nationals of any Contracting Party, having their domicile or normal residence in the territory of a Party, who may be plaintiffs or third parties before the Courts of any other Party.
  2. The same rule shall apply to the payment which may be required of plaintiffs or third parties to guarantee legal costs.
  3. Orders to pay the costs and expenses of a trial imposed upon a plaintiff or third party who is exempted from such security, deposit or payment in pursuance either of the preceding paragraphs of this article or of the law of the country in which the proceedings are taken, shall without charge, upon a request made through the diplomatic channel, be rendered enforceable by the competent authority in the territory of any other Contracting Party.

Corporate Claimants

So thanks to that obiter, we now have clarity: Corporate claimants must provide security for costs in German proceedings, individual claimants are exempt. For the time being, this situation is unlikely to change, as there is no deal in sight in the field of judicial assistance. Corporate claimants from Lugano member states are exempt from the obligation to provide security for costs, but the EU has vetoed the United Kingdom’s application to become a Lugano member.

(No) Reciprocity

It should be noted that an individual residing in Germany would not be able to rely on Article 9 of the Convention as a party to litigation in the United Kingdom: The United Kingdom has made a reservation regarding Article 9 to the extent it covers parties who „lack (…) domicile or residence in the country.“ However, as the Federal Supreme Court notes, Sec. 110 ZPO no longer requires fore there to be reciprocity with the UK as the country of residence of the foreign claimant in question. German law is, for once, more liberal.

Federal Supreme Court (Bundesgerichtshof), order dated 27 September 2022; file no. VI ZR 68/21

Photo:  Banksy



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