Foreign Claimants' Security For Costs Under German Law: A Hurdle On The Way To Justice

• Law Firm: Omni Bridgeway
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Author: Dr. Martin Metz
• Published date: 17 January 2023

Foreign claimants might be confronted with a duty to provide security for costs if they commence court proceedings in Germany. For example, claimants from countries such as the UK, the US, Canada or China are generally under an obligation to provide security. If security is ordered (I), the amount of the security can go into the millions (II). Therefore, in practice, this can be an important hurdle for claimants to jump in their pursuit of justice.

I. Foreign claimants' obligation to provide security for costs

A. Rule: General duty to provide security upon defendant's request

Under German law, there is a general duty for foreign claimants to provide security for the costs of court proceedings when requested by the defendant (section 110 para. 1 German Civil Code (ZPO)). Foreign claimants are all claimants who do not have their habitual place of residence in a Member State of the European Union or in a signatory state of the Agreement on the European Economic Area (section 110 para. 1 ZPO).

The purpose of the provision of security is to protect German defendants against arbitrary litigation by foreign claimants. If there was no duty to provide security for costs, German defendants would have to bear the risk that they may be unable to recover their costs against foreign claimants if their defense is successful and the complaint dismissed. This purpose also explains the exclusion of claimants from European Union member states given the Brussels I Regulation simplified the recovery of costs within the European Union.

The defendant's request to provide security, must, in principle, be made prior to the first oral hearing. Exceptions apply, however, if the preconditions for providing security for costs only develop in the course of the litigation (section 111 ZPO). It is settled case law, that the request can also be made at a later stage if there was no fault by the defendant that it had not been made earlier. If a claimant fails to provide the security within the deadline set by the court, the court can, depending on the defendant's request, declare that the complaint has been withdrawn or dismiss a pending appeal (section 112 ZPO).

The duty to provide security for costs is generally limited to complaint proceedings. For example, the duty is not applicable to summary proceedings because, in those cases, the applicant has a special interest in speedy proceedings which would be tempered by a request for security for costs. However, the Higher Regional Court of...