According to a judgment of Germany’s highest civil court – the Bundesgerichtshof (BGH) – claimants in proceedings to obtain a declaration of enforceability for foreign arbitration rulings must provide security for the costs of the proceedings if this is requested by the defendant.
In proceedings where the claimant is resident abroad, it is important to consider the issue of security for litigation costs, notes MTR Legal Rechtsanwälte, a commercial law firm that advises its clients on litigation matters, representing them both inside and outside of court, including in arbitration proceedings. Section 110 of the German Code of Civil Procedure (ZPO) stipulates that claimants whose habitual residence is not located in the EU, or a signatory state to the Agreement on the European Economic Area, are required to provide security for the costs of the proceedings if asked to do so by the defendant.
And it has recently been confirmed by the BGH in a ruling from January 12, 2023, that the provisions set out in Section 110 ZPO also apply to the enforcement of domestic and foreign arbitration rulings (case ref.: I ZB 33/22). This means that the defendants can demand security for litigation costs in the context of a foreign arbitration ruling being enforced in Germany.
The claimant in the case in question was a German entrepreneur who had been operating in the Russian Federation for decades and who came out on top in arbitration proceedings presided over by an arbitration panel in Moscow, which concluded that the defendants were jointly and severally liable to pay just under 50 million euros in compensation.
The defendants subsequently called on the Oberlandesgericht (OLG) [Higher Regional Court of] Koblenz to issue a negative declaratory judgment refusing to recognize the foreign arbitration ruling, to which the claimant responded by requesting a declaration of enforceability for the ruling. When the claimant then moved to Dubai, the defendants demanded security for the costs of the proceedings.
Despite confirming that it is equally possible in principle to invoke Section 110 ZPO to demand security for litigation costs in connection with applications for recognition of foreign arbitration rulings, the BGH found that this was not possible in this instance due to the particularities of the case. The court clarified that it was the defendants – who had been on the losing side in the arbitration proceedings in Moscow – who had filed for a negative declaratory judgment to be issued by the OLG Koblenz in the first place, whereas the counterclaim brought by the entrepreneur based in Dubai for a declaration of enforceability for the arbitration ruling was simply a reaction to this. He ought, therefore, to be treated as a counterclaimant, and Section 110(4) ZPO states that there is no right to request security for costs in cases involving counterclaims.
When it comes to litigation and enforcing or fending off arbitration rulings, there are a number of factors that need to be taken into account. MTR Legal Rechtsanwälte can provide counsel.
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