Term and Definition: Extrajudicial Costs
In German law, extrajudicial costs refer to all expenses incurred in the pursuit or defense of legal rights outside of judicial proceedings. They regularly arise before formal court proceedings are initiated, such as during negotiations, in the assertion or defense of claims outside court, or in settlement discussions. Typical extrajudicial costs include, in particular, attorney fees, costs for expert opinions, as well as expenses for correspondence, travel, or necessary translations.
In a narrower legal sense, the term encompasses all costs incurred outside the judicial process and not counted as court costs under the Court Costs Act (GKG) or the respective procedural cost statutes.
Components of Extrajudicial Costs
Attorney Fees
The largest proportion of extrajudicial costs generally consists of fees for legal services (§§ 2 ff. Rechtsanwaltsvergütungsgesetz – RVG). These include in particular:
- Consultation Fees: For initial consultations or further legal advice.
- Transaction Fees: For extrajudicial representation of a client against third parties, such as correspondence or conducting settlement negotiations.
- Settlement Fees: Upon conclusion of an out-of-court settlement.
Costs of Other Legal Service Providers
In addition to attorney fees, costs may also arise for notaries, patent attorneys, or other persons authorized to provide legal services, provided their involvement is necessary outside of court proceedings.
Other Types of Costs
Extrajudicial costs also include:
- Expert Costs: For example, for obtaining private expert opinions to support one’s own position.
- Translation Costs: Insofar as documents in other languages must be translated for the enforcement of claims.
- Travel Costs and Expenses: For necessary travel in connection with extrajudicial protection of rights, such as meetings with the opposing party.
- Postage, Telephone, and Copying Costs: In the context of correspondence with parties, authorities, or insurance companies.
Distinction from Court Costs and Procedural Costs
Extrajudicial costs must be strictly distinguished from court costs and the costs of court proceedings. Court costs comprise the fees and expenses triggered by court actions (e.g., file transmission fees, court fees according to GKG, FamGKG, ArbGG, etc.). The totality of judicial and extrajudicial costs is often summarized under the umbrella term procedural costs or litigation costs (especially in the area of legal aid according to §§ 114 ff. ZPO).
Reimbursement of Extrajudicial Costs
Contractual or Statutory Right
The obligation to reimburse extrajudicial costs may arise contractually or by law. In civil law, as a rule, there is no statutory claim by the creditor to recover pre-litigation costs from the debtor, unless the debtor is in default or another specific legal basis exists.
Claim Arising from Default (§§ 280, 286 BGB)
If a debtor is in default with a claim, the creditor may, pursuant to §§ 280, 286 BGB, generally demand reimbursement of necessary legal enforcement costs. Extrajudicial action is always considered necessary if, from the perspective of a reasonable person seeking legal protection, engaging a lawyer was objectively required.
Reimbursability Under Cost-Bearing Obligations
Extrajudicial costs are most frequently reimbursed in the following scenarios:
- Tort Law: Reimbursable are those expenses that were necessary and appropriate for enforcing the claim.
- Contract Law: In the case of breach of contract and associated legal enforcement.
- Tort Law: In the event of unlawful acts.
- Competition Law and Intellectual Property Law: The law frequently provides express claims for reimbursement, e.g., § 97a (3) UrhG (warning costs).
Amount and Limitation of Reimbursable Costs
As a matter of principle, the reimbursability of extrajudicial costs is limited to necessary and reasonable expenses. Reimbursement is excluded if costs are disproportionate in the individual case. The amount is typically based on the rates prescribed by the RVG; in individual cases, the specific circumstances apply.
Relationship to Litigation Costs and Their Reimbursement
Once court proceedings are initiated, the extrajudicial costs incurred beforehand regularly become part of the litigation costs that the prevailing party can claim (§ 91 ZPO). The standard scenario: pre-litigation attorney fees are claimed in the cost assessment proceedings before the court.
Cost Assessment Proceedings
In civil litigation, the prevailing party may apply for reimbursement of extrajudicial costs, particularly pre-litigation attorney fees, as reimbursable in the cost assessment proceedings before the court under §§ 103 ff. ZPO. The prerequisite is that these costs were necessary for the appropriate legal prosecution and are directly related to the subject matter of the dispute.
The cost assessment authority reviews whether the asserted extrajudicial costs were necessary and reasonable. Unnecessary or excessive cost elements are not determined and therefore cannot be claimed from the opponent.
Extrajudicial Costs in Public Law
In administrative, social, and fiscal court proceedings, the respective rules on cost reimbursement apply (e.g., § 162 VwGO, § 193 SGG, § 139 FGO). Here, too, it is regularly possible to claim extrajudicially incurred costs within the framework of cost reimbursement, each according to the relevant statutory provisions.
Extrajudicial Costs in Criminal Proceedings
In criminal procedure law, upon acquittal, the defendant may have necessary expenses, including pre-trial attorney fees, reimbursed from the state treasury in accordance with § 467 StPO. Comparable regulations exist for joint plaintiffs or private plaintiffs under certain conditions.
Insurance Coverage for Extrajudicial Costs
Most legal expenses insurances provide—depending on the coverage and occurrence of the insured event—cost coverage for extrajudicial matters. The benefits are generally based on statutory fee schedules (especially RVG) and may be contractually limited.
Extrajudicial Costs – Tips and Advice
- Before engaging legal counsel, the prospects of success and reasonableness regarding potential reimbursement should be carefully assessed.
- The necessity of the costs is always a prerequisite for reimbursement. Unnecessary, excessive, or clearly hopeless actions generally do not result in reimbursement.
- Reimbursement of extrajudicial costs should be expressly demanded and substantiated in correspondence with the opposing party.
Literature and Sources
- Rechtsanwaltsvergütungsgesetz (RVG)
- Civil Procedure Code (ZPO)
- Civil Code (BGB)
- Court Costs Act (GKG)
- VwGO, SGG, FGO
- Palandt, BGB, current edition
- Mayer/Kroiß, Rechtsanwaltsvergütungsgesetz, commentary
Note: This presentation provides a comprehensive overview of extrajudicial costs in German law and covers the most important legal principles, definitions, and practice-relevant aspects regarding reimbursement and enforcement.
Frequently Asked Questions
Can extrajudicial costs also be claimed in civil proceedings?
Extrajudicial costs can generally be claimed in civil proceedings through the so-called cost assessment procedure, provided they were necessary for legal prosecution or defense. This includes, in particular, necessary attorney fees, costs for expert opinions, and pre-litigation correspondence. The decisive factor is whether the costs were necessary for appropriate legal prosecution by objective standards (§ 91 ZPO). The extent of reimbursement is determined by the court in the cost assessment order pursuant to § 104 ZPO. It should be noted that not all pre-litigation costs are automatically to be reimbursed by the opposing party, for example, if they are due to excessive efforts or voluntary services.
Who bears the extrajudicial costs in legal proceedings?
As a rule, each party initially bears their own extrajudicial costs. However, a cost decision by the court can result in an obligation to reimburse these costs. If a party fully wins the civil case, it can generally require the losing party to pay the necessary extrajudicial costs pursuant to § 91 ZPO. If costs are split or a settlement is reached, a different arrangement can be made regarding cost-sharing. If a party is responsible for incurring unnecessary costs, these may also be imposed on that party according to § 95 ZPO.
What is meant by the ‘necessity’ of extrajudicial costs for reimbursement?
The reimbursability of extrajudicial costs depends on their necessity, meaning it is examined whether a reasonable participant could consider the expenses necessary to protect their legal interests from their relevant perspective. The mere incurrence of costs does not give rise to a claim for reimbursement; in particular, measures later deemed superfluous (e.g., duplicate legal representation or excessive expert fees) cannot be claimed. The assessment is always case-specific and carried out by the court, which, for example, may find that engaging a lawyer in minor matters was not necessary.
Can extrajudicial costs also be reimbursed in the event of an amicable settlement or agreement?
If an amicable settlement or a judicial agreement is reached, the parties can explicitly agree on how to allocate the extrajudicial costs incurred up to that point. In the absence of such an agreement, the statutory principle applies that each party bears its own extrajudicial costs. However, the parties have the option to lay down a different cost arrangement in the settlement or in a side agreement in writing, which is especially advisable in cases of high pre-litigation costs. If the settlement does not contain such a provision, there will be no reimbursement from the opposing party.
What role do extrajudicial costs play in legal expenses insurance?
Legal expenses insurance generally covers both judicial and extrajudicial costs within the scope of the insured risk. This in particular includes attorney fees for legal advice, out-of-court representation, and, where applicable, costs for conciliation procedures. However, the obligation to indemnify is often limited to certain maximum amounts (sum insured, excess, etc.) and is subject to the specific terms of the legal expenses policy. Reimbursement of extrajudicial costs is limited to matters contractually covered by the insurance; disputes outside the insured scope and unnecessary expenses are not covered by the insurance.
Can extrajudicial costs also be claimed in administrative or family law matters?
Even in administrative, social, and family law matters, necessary expenses incurred outside a main court proceeding (e.g., attorney fees or necessary outlays) can be reimbursable as extrajudicial costs. In these areas of law, special provisions govern the extent, manner, and conditions for cost reimbursement, such as § 162 VwGO in administrative proceedings or § 81 FamFG in family proceedings. Recognition of reimbursability by the court also depends here on necessity and equitable discretion, with additional consideration given to the particular procedural type and legal specifics (e.g., in custody matters).
Are there tax aspects regarding extrajudicial costs?
Extrajudicial costs can, under certain conditions, be deductible for tax purposes as extraordinary expenses or business expenses. According to current rulings by the Federal Fiscal Court, legal enforcement costs are generally no longer considered extraordinary expenses unless they serve subsistence purposes or relate to essential life matters. However, business-related or work-related extrajudicial expenses, such as consulting fees incurred in connection with the generation of income, may reduce taxable income. The tax recognition depends largely on the specific reason for the expenditure and the respective documentation and substantiation requirements.
