One of the reservations against using German state courts for resolving international disputes has always been the mandatory use of German as court language. As a result, many international disputes are being dealt with in other jurisdictions or through arbitration. In order to change this, the Federal Ministry of Justice published a draft bill to strengthen Germany as a place of jurisdiction by introducing so called Commercial Courts and English as the (second) court language in civil proceedings between companies.
In this post we outline the key innovations of the bill and its advantages for Germany as a place of jurisdiction:
Establishment of Commercial Chambers at Regional Courts – English as court language
According to the draft bill, the state governments of the 16 German federal states shall be authorised to establish so-called Commercial Chambers at Regional Courts where proceedings can be conducted entirely in English – i.e., the oral hearing, the written submissions and the judgment can be in English. This is a major step. To date, oral hearings can be conducted in English if both parties agree to do so and waive their right to involve an interpreter whereas all written submissions and the judgment must be in German. In addition, any appeal proceedings had to be in German. Due to these restrictions, there were only a few cases in which parties made use of this option in practice. The draft bill aims to change that. In case a decision of a Commercial Chamber is appealed against, the second instance proceeding before the Appellate Court will also be conducted in English.
Establishment of Commercial Courts at Higher Regional Courts – A real innovation
A particular innovation of the draft bill is that the governments shall also be authorised to establish so-called Commercial Courts as special senates at Higher Regional Courts (Oberlandesgerichte) or Supreme Regional Courts (Oberste Landesgerichte, e.g., available in Bavaria). These senates are to have first-instance jurisdiction over civil disputes between companies if the amount in dispute exceeds EUR 1 million and provided that the parties in dispute have expressly agreed to refer the matter to such a Commercial Court. The language of the proceedings shall be either German or English, depending on the individual agreement of the parties. The same applies to written submissions and the judgment.
First instance decisions of Commercial Courts can be appealed to the Federal Court of Justice (FCJ). However, in contrast to “conventional” civil litigation, a proceeding that has gone through the Commercial Courts does not require an express admission to the FCJ. According to the draft bill, the FCJ becomes the regular second instance. With the consent of the competent senate of the FCJ, the language of the appeal proceeding may also be English.
In addition, the draft bill provides for certain procedural particularities which are already common in arbitration proceedings but an innovation to German procedural law:
- Similar to arbitration, a so called case management meeting shall be held in the beginning of a case in order to agree with the parties on administrative points of the commercial court proceeding such as the procedural calendar.
- Another similarity to arbitration proceedings is that the parties are given the opportunity to jointly request a verbatim transcript of the hearing (including for the taking of evidence in expert or witness hearings) – in contrast to the otherwise common more high-level summary from the judge using a dictaphone.
Higher Confidentiality
In order to achieve further convergence with arbitration, all parties in civil proceedings shall be given the possibility to exclude the public when business secrets are subject of the proceedings and to impose stricter confidentiality requirements on the opposing party to keep the information obtained during the proceedings secret. In case of violation a fine can be imposed. This meets the parties' desire for increased confidentiality: The present protection standards only apply from the point in time of the oral hearing whereas the draft bill extends the protection of business secrets to the point in time when the statement of claim is filed.
Next Steps Down the Road
The draft bill will now enter the consultation process. However, specific dates have not been set yet. Therefore, the legislative process is not expected to be completed before the end of 2023.
In order to give state governments sufficient time to prepare for the implementation of these provisions, the draft bill is scheduled to come into force on the first day of the second quarter following promulgation, i.e., probably not before the beginning of 2024.
A Good Step Forward
If the draft bill comes into force in its current form, it will significantly enhance the attractiveness of Germany as a place of jurisdiction. By removing the language barrier for international parties, commercial courts/commercial chambers can be a good alternative to arbitration which international parties wishing to conduct proceedings in English have had to resort to in the past. This is particularly the case in circumstances where utmost confidentiality of the matters in dispute is not required so that the (now possible limited) publicity that applies before these Commercial Courts/Commercial Chambers is not a disadvantage compared to the strict confidentiality of arbitral proceedings. Given the significantly lower costs of proceedings before German state courts and the possibility of appealing judgments – in contrast to being limited to annulment proceedings in arbitration – German jurisdiction may become more attractive to international parties. It does not change, however, the fear of some international parties of the German case law on general terms and conditions.
