According to a decision by the BGH, applicants in proceedings for the recognition of foreign arbitration awards must provide security for legal costs upon the request of the opposing party.
In litigation involving plaintiffs residing abroad, the issue of security for legal costs (‘foreigner’s security’) must be considered. According to § 110 ZPO (German Code of Civil Procedure), plaintiffs who do not have their usual residence in the EU or in a contracting state of the European Economic Area Agreement must provide security for legal costs at the request of the defendants, as advised by the commercial law firm MTR Legal Rechtsanwälte, which advises its clients on litigation and represents them both out of court and in court proceedings or arbitration.
The BGH has now decided with its decision dated January 12, 2023, that the provisions of § 110 ZPO also apply accordingly to the enforcement of both domestic and foreign arbitration awards (Case No. I ZB 33/22). This means that the respondents can demand security for legal costs when enforcing a foreign arbitration award in Germany.
In the underlying case, a German entrepreneur who had been active in the Russian Federation for decades won an arbitration against the respondents, who were jointly and severally ordered by an arbitration court in Moscow to pay damages amounting to nearly 50 million euros.
The respondents filed a negative declaratory action to deny recognition of the foreign arbitration award at the Higher Regional Court (OLG) Koblenz. The applicant demanded the recognition of the arbitration award with his counterclaim. When the applicant relocated his residence to Dubai, the respondents demanded security for legal costs.
The BGH determined that, in principle, security for legal costs could also be requested for applications for the recognition of foreign arbitration awards according to § 110 ZPO. However, this was excluded due to the peculiarities of the present case. This is because the respondents who lost in the arbitration in Moscow had first filed a negative declaratory action before the Higher Regional Court (OLG) Koblenz. The entrepreneur with residence in Dubai had only reacted with his counterclaim for the recognition of the arbitration award. Therefore, he is regarded as a counterclaimant, and under § 110 ZPO paragraph 4, there is no entitlement to security for legal costs in counterclaims, according to the Karlsruhe judges.
In litigation and the enforcement or defense against arbitration awards, many factors must be considered. MTR Legal Rechtsanwälte advises.
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