Plans to strengthen Germany as place of jurisdiction
The majority of international commercial disputes are decided by arbitral tribunals. There are many reasons for this. In some cases, however, it may be advisable or, in the absence of an arbitration agreement, mandatory to have the dispute heard by state courts. In order for German state courts to be able to meet the requirements of international disputes even better, a number of measures are required which are addressed in the key issues paper of the Federal Ministry of Justice from January 2023 (BMJ | Pressemitteilungen | Eckpunkte des Bundesministeriums der Justiz zur Stärkung der Gerichte in Wirtschaftsstreitigkeiten und zur Einführung von Commercial Courts).
In recent years, there have already been some efforts to strengthen Germany as place of jurisdiction by introducing so called Commercial Courts. These were selective measures taken by the individual federal states (see Litigating in Germany - Noerr). The Commercial Courts set up by the federal states have so far been accepted to varying degrees. Some have already recorded a three-digit number of proceedings, while others have so far handled no proceedings at all or only a single-digit number.
A major point of criticism to date has been that although oral hearings can be held in English pursuant to Section 185 (2) of the Courts Constitutions Act (“GVG”), according to Section 184 GVG, German remains the language of the court. Therefore submissions and judgments must be written in German. Three draft bills introduced by the Bundesrat to allow English as an additional language of proceedings in special procedural constellations have so far failed.
This is where the key issues paper of the Federal Ministry of Justice comes in.
II. Content of the key issues paper
The key issues paper proposes five measures to make proceedings before German Commercial Courts more attractive for international commercial disputes:
- English language
The central point of the proposal is the introduction of the possibility to conduct proceedings entirely in English. That is, if the parties agree and there is a factual reason for doing so, then pleadings and annexes will be filed in English, the hearing will be conducted in English, and the decisions to be rendered by the court will be written in English. This shall apply to all instances.
In order to support the further development of the law also through the English-language decisions and to enable enforcement (in German-speaking countries), the English-language decisions are to be translated into German.
- Possibility of establishing Commercial Courts at the Higher Regional Courts
The system of instances shall remain unchanged in principle (first instance: Regional Court, second instance/appeal: Higher Regional Court, third instance/appeal: Federal Court of Justice). However, the federal states are to be allowed to set up specialized senates at the Higher Regional Courts ("Commercial Courts"), which would then already have first-instance jurisdiction for certain commercial disputes, in order to enable concentration and specialization. This would mean that the level of the Regional Courts would be skipped in certain cases.
The jurisdiction of these first-instance Commercial Courts at the Higher Regional Courts is to depend on the amount in dispute. The key issues paper cites the example of EUR 1 million as the threshold value. Furthermore, there should be the possibility - as is customary in international arbitration proceedings - for a verbatim record of the hearing.
The Commercial Courts shall be staffed with specialized judges who have very good language skills and access to modern technical equipment (see also point 5. - Online hearings).
- Appeal to the Federal Court of Justice
Appeals against the decisions of the Commercial Courts of first instance at the Higher Regional Courts are to be possible to the Federal Court of Justice. This will reduce the number of instances to two in the interests of procedural efficiency.
In contrast to arbitration proceedings, in which there is generally only one instance, it is still possible to have the decision reviewed by appeal to the Federal Court of Justice.
- Trade secrets
In contrast to arbitration proceedings, proceedings before state courts are generally public. For companies, this often has the disadvantage that trade secrets cannot be adequately protected. The key issues paper also addresses this dilemma. In future, the protection of trade secrets is to be brought forward to the time at which the action is filed. Information classified as confidential should not be used or disclosed outside of legal proceedings.
- Online hearing
It is already possible under Section 128a of the German Code of Civil Procedure (“ZPO”) to hold oral proceedings by means of video and audio transmission (i.e. by video conference). In practice, however, this option is used with varying frequency. Higher Regional Courts in particular have been rather reluctant to make use of this option. This is partly due to the inadequate technical equipment of the courts.
The key issues paper provides for the use of video conferencing technology in proceedings before the Commercial Courts to be strengthened. In doing so, it refers to the draft bill of the Federal Ministry of Justice to promote the use of video conferencing technology (see (Wieder) mehr Video-Verhandlungen an deutschen Gerichten? - Noerr).
In order not to lose touch with other jurisdictions for international dispute resolution (e.g. Amsterdam/London/Paris/Singapore) or rather to catch up, measures are necessary to increase the attractiveness of Germany as a place of jurisdiction.
The key issues paper lists a number of important points here (English as the language of proceedings, protection of trade secrets). Not mentioned in the key issues paper, but very desirable, would be the introduction of a mandatory case management conference in proceedings before the Commercial Courts, as is also customary in arbitration proceedings. Here, for example, the deadlines and dates would be set after consultation with the parties, which would lead to greater procedural efficiency. Admittedly, such an approach is not ruled out at present either. However, if it is formally provided for, implementation is assured.
It remains the case that internationally active companies in particular must weigh up which jurisdiction should be sensibly agreed for the settlement of a legal dispute.
Noerr is one of the leading law firms in the field of litigation and arbitration. The more than 130 lawyers throughout Europe advise and represent clients in all forms of dispute resolution - before state courts, cross-border in several jurisdictions, in arbitration proceedings as well as in alternative dispute resolution proceedings.
Any questions? Please contact: Manuela Kreuzeder
Practice groups: Arbitration, Class & Mass Action Defence