According to a decision by the Federal Court of Justice, applicants must provide security for legal costs upon the respondent’s request in proceedings for the declaration of enforceability of foreign arbitral awards.
In litigation with parties located abroad, the question of security for legal costs (‘foreigner security’) must be considered. According to § 110 of the Code of Civil Procedure, plaintiffs who do not have their habitual residence in the EU or in a contracting state of the Agreement on the European Economic Area must provide security for costs upon the defendant’s request, explains the commercial law firm MTR Legal Rechtsanwälte, which advises its clients in litigation and represents them both out of court and in court or arbitration proceedings.
The Federal Court of Justice decided on January 12, 2023, that the provisions of § 110 of the Code of Civil Procedure also apply accordingly to the enforcement of domestic and foreign arbitral awards (Case No. I ZB 33/22). This means that respondents can demand security for costs when enforcing a foreign arbitral award in Germany.
In the underlying case, a German entrepreneur, who had been active in the Russian Federation for decades, won arbitration proceedings against the respondents, who were jointly and severally condemned by an arbitration court in Moscow to pay damages of nearly 50 million euros.
The respondents filed a negative declaratory action for the refusal of the recognition of the foreign arbitral award at the Higher Regional Court of Koblenz. The applicant requested the declaration of enforceability of the arbitral award with his statement of defense. When the applicant moved his residence to Dubai, the respondents demanded security for costs.
The Federal Court of Justice determined that, in principle, security for costs could also be demanded for applications for the recognition of foreign arbitral awards pursuant to § 110 of the Code of Civil Procedure. However, due to the peculiarities of the present case, this was excluded. Since the respondents who lost in the arbitration proceedings in Moscow had first filed a negative declaratory action before the Higher Regional Court of Koblenz, the entrepreneur residing in Dubai only reacted with his counterclaim for the declaration of enforceability of the arbitral award. Thus, he is to be seen as a counterclaimant, and according to § 110 paragraph 4 of the Code of Civil Procedure, there is no claim for security for costs in the case of counterclaims, as stated by the Karlsruhe judges.
In the conduct of litigation and the enforcement or defense of arbitral awards, many factors must be considered. MTR Legal Rechtsanwälte advises.
Get in touch now!➤ Lawyer for Litigation – learn more now!
