Two recently published German court decisions deliver guidance on the current legal situation regarding a potential obligation of plaintiffs based in the United Kingdom to provide a security deposit for the costs of civil proceedings according to Sec. 110 of the German Code of Civil Procedure (“ZPO”).
In principle, according to Sec. 110 para. 1 ZPO, plaintiffs which are not habitually residing in a Member State of the European Union or a Contracting State to the Agreement on the European Economic Area are required to provide security for the costs of proceedings at the request of the defendant. This rule intends to protect the defendant with regard to their potential claim for reimbursement of costs arising from the typical difficulties associated with recognition and enforcement proceedings abroad. In addition, Sec. 110 para. 1 ZPO constitutes a procedural defense and thus a condition of admissibility. In case the plaintiff thereupon does not pay the security for proceedings, the claim is already inadmissible (unzulässig). However, according to Sec. 110 para. 2 no. 1 ZPO, the plaintiff is not obliged to provide security if it is not required on the basis of international law (i.e. in particular under the European rules described above).
After Brexit from the European Union on 31 January 2020 and the expiry of the temporary regulations pursuant to Sec. 1 of the German Brexit Transition Act (BrexitÜG) which provided for the regulations being applicable until 31 December 2020, the question arose if Sec.110 para. 2 no. 1 ZPO is still applicable and, if not, whether British based plaintiffs are obliged to provide security. In particular, the situation has been unclear regarding proceedings which had been initiated before Brexit.
In its decision dated 1 March 2021, the Federal Court of Justice (Bundesgerichtshof – file no. X ZR 54/19) decided – without further reasoning – that an exceptional circumstance under Sec. 110 para. 2 ZPO, i.e. a contract under international law exempting (British) plaintiffs from the obligation to provide security, is not applicable. Further, the Federal Court of Justice clarified that – pursuant to Sec. 111 ZPO, this procedural defense of the defendant is also applicable in case the statutory requirements only become relevant once the proceedings are already pending, which happened in the case at hand due to Brexit coming into full effect.
The Federal Patent Court (Bundespatentgericht – file no. 3 Ni 20/20 (EP)) explained in its decision dated 15 March 2021 in further detail why an exemption according to Sec. 110 para. 2 ZPO is not applicable in such cases. The court stated that the Hague Convention on Civil Procedure dated 1 March 1954 provides for an exemption of the obligation to provide security for proceedings in Art. 17 but it has not entered into effect in relation to UK due to lack of ratification. Further, the German-British Agreement on Legal Relations dated 20 March 1928 is only applicable to parties based in Germany. The European Convention on Establishment dated 13 December 1955 also applies in relation to Great Britain, but provides for an exemption solely regarding private individuals. Also, the Trade and Cooperation Agreement between the European Union and the United Kingdom, in which Art. IP. 6 para. 2 provides for national treatment in the maintenance and enforcement of intellectual property rights, is generally not considered as being sufficient to exempt the provision of security for proceedings pursuant to Sec. 110 para. 2 no. 1 ZPO.
In summary, the two highest instance court decisions clarify that plaintiffs based in the United Kingdom can be required to provide security in German court proceedings according to Sec. 110 ZPO even if the respective proceedings have been initiated before Brexit.
As a consequence, the advance costs potentially arising in this context should be taken into consideration when it comes to cross-border litigation between Germany and the UK.