Insights in commercial claims management in Germany
Pursuing commercial payment or supply claims in Germany may appear risky and gruesome, in particular if the applicant is located in a different jurisdiction and has little or no experience with claims management in Germany, in particular German court. Procedural nitty-gritty, costs, time, and an imbalance in information may deter you and your company from going after what is rightfully yours. Your payment claim may originate from parts or components you and your company delivered to your German contractual partner or from services you provided like software programming, engineering, or rent. If you are a merchant and dealing with companies in Germany you may find the following insights useful to follow-up on payment claims or supply claims under German law.
Any payment claim requires the performance of the contract on your part and a respective invoice which needs to be sent to the attention of your contractual partner. The first part of your claims management should be a due preparation according to the following thoughts:
- One of the first steps you should take is to check your contractual basis. Your agreement will provide you with valuable information on the applicable law, in particular the CISG (UN convention on international sales), the payment terms, required documentation, or the competent court. If there is no written agreement as is often the case then the applicable law needs to be determined pursuant to EU regulations, international conventions, or further documentation you and your customer exchanged.
- Therefore, please also check whether there are any general terms and conditions of sale or of service – typically used by you – or general terms and conditions of purchase – typically used by your customer. If there is no written agreement, general terms and conditions may be referenced in offers, counter offers, order, order confirmations or any other communication which is exchanged between you and your customer. These general terms and conditions will also provide useful information.
- Under German law, general terms and conditions will only apply if they are made part of the contract at the time the parties reach an agreement. Therefore, it is vital to check orders, confirmations and e-mail which relate to the conclusion of the contract and respective references to general terms and conditions. Any first-time reference to general terms and conditions after the contract conclusion, in particular in invoices etc., will not be sufficient for their applicability. If general terms and conditions of sale and purchase are incorporated into a contract but contradict each other statutory German law will apply. However, agreements on price lists which also reference general terms and conditions during the term of an agreement may result in their applicability.
Out of court assertion of the claim – Default
It is commercial prudence to first contact your contractual partner if he missed payment or delivery deadlines. If things can be sorted out this way, even better. If you receive no reaction you may want to opt to send a payment or delivery reminder which needs to state a specific deadline for your customer or supplier to comply with its contractual obligations. If your contractual partner misses this deadline he will be in default. Default means that in case of payment claims you are entitled to 9 percent interest above the base interest rate which is adapted periodically to the ever current interest level. Please note that if the contract set a payment deadline or a payment date you will be entitled to interest without default if you and your contractual partner are both merchants (maturity interest).
Furthermore, once your contractual partner is in default all costs you incur onwards in pursuing your claim will be subject to damages payable by your customer. It is vital to understand that your damages claim, in particular lawyer fees, require default. Accordingly, costs for your lawyer’s payment reminder are not recoverable. The costs of a claims letter from you lawyer after default are recoverable. It goes without saying that your damages claims arising from default of the debtor leave your initial claims unaffected.
You should also make sure to check for agreed penalties in case of default. German law can become tricky regarding penalties. Under current case law, penalties among merchants for default may not exceed 5% of the default value. Furthermore, when claiming the penalty in particular in case of default of delivery you should also assert your claim for the delivery of the products unless such delivery is not in your commercial interest any longer. Feel free to reach out for details.
Preparation of court action
If out-of-court measures prove unsuccessful you may want to consider going to court in Germany. But before doing that you may opt to take the following preparative steps:
- Check the German insolvency register for entries. Once insolvency proceedings have been initiated court actions are excluded. You would incur unnecessary costs if going to court anyway. Please get in touch if you need assistance.
- Check the commercial register to detect any changes in the corporate structure of your contractual partner. Any amendments, in particular to its statutory seat, have an impact on your procedural position in court so you want avoid bad surprises.
- Check for completeness of documentation and evidence. In Germany, civil and commercial courts do not have any investigative power. All material facts which support the claim must be presented in detail by the applicant. Also, all evidence, in particular documents and witnesses, must be submitted by the party relying on it.
- Check for arbitration or other alternative dispute resolution clauses. If the parties agreed on arbitration whether in a contract or in general terms and conditions, state jurisdiction is incompetent to rule on a claim. A court case may be dismissed simply for the breach of an arbitration clause.
Going to court
Going to court in a different country is not appealing to everyone. The following information may help to remove some of your misgivings on German court proceedings. Court proceedings in district courts roughly take six to eight months, in second instance (Upper regional courts) another six to twelve months. In comparison to other jurisdiction, German courts have proven to be quite efficient.
If your claim has value of more than EUR5,000 you will need to file your legal action with the district court depending on contractual agreement on the territorial jurisdiction. District courts have specialized commercial court chambers which exclusively decide on conflicts between merchants. You are advised to file your case with such chamber to safeguard that the court „understands“ your case. It is mandatory that a registered lawyer represents you and your claim before the district court. The district court will not hear your case without your lawyer. You cannot represent yourself. The court language is German though some German district courts have set up English speaking chambers so please reach out to find out whether this applies to you.
Court proceedings are initiated with a legal action which is a written document and summarizes all facts which are relevant to support your claim. As an applicant you are advised to present all material facts of your case at a very early stage of the proceedings. Firstly, courts are authorized to set deadlines to present facts. If such deadlines are missed the respective party may be precluded from submitting material facts after lapse of this deadline. Furthermore, judges tend to make up their mind on a case very early so it is advisable to give a judge a full picture early in the proceedings. Delaying court proceedings by withholding facts, evidence, or other information may have proven successful in the past but nowadays is not good idea.
Once the legal action is submitted you as the applicant will be requested to make an advance payment of court fees. The court fees will depend on the amount of the claim and follow a statutory fee assessment scheme. Once the fees are paid, the court – not you as the applicant – will forward the written court writ to the defendant and set a deadline of about two to four weeks to respond to the presented facts. Please note that there is no pre-trial phase during which the facts are presented.
The defendant is equally obligated to summarize his objections to the claim within the set deadline. The court usually sets a new deadline for you as the applicant to counter-respond and also sets a specific date for the first court hearing, usually within two to four months. The first court hearing is designed to try an amicable solution with guidance from the court. Yet, neither is a German court authorized to force the parties into a settlement nor is any party obligated to accept a proposed settlement. If no settlement is reached, the judge will continue to discuss the case with, and give instructions, to the parties, in particular regarding any ambiguities in the facts presented and his preliminary legal view on the case. Both parties may then request further deadlines to respond to instructions.
If required, the court will set another date for a court hearing in which witnesses will be heard. After that the parties are given the chance to discuss the witness statements whereupon the proceedings are closed – and further facts are permitted only under exceptional circumstances – and the court will produce its judgment which is then officially submitted to both parties. The losing party is entitled to appeal against the judgment to the upper regional court within one month after submission of the judgment. The appeal is restricted to show flaws in the judgment whereas the presentation of new facts is only permitted if such facts could not be presented before the district court.
If no party appeals against the judgment the judgment becomes binding and is the basis for foreclosure. Furthermore, the losing party is obligated to compensate the winning party for all incurred legal fees, ie statutory court fees and statutory attorney fees. The losing party is not obligated to compensate for further attorney fees, in particular hourly rates which exceed statutory attorney fees.
Acknowledgment of court rulings of other EU member states
Court decisions of EU member states are subject to formal acknowledgment in Germany. They are then recognized as equivalent to rulings of a German court and the winning applicant may start foreclosure proceedings against the German defendant based on this acknowledged court ruling. Therefore, if several courts in various member states are available please reach out to assess which jurisdiction and court may serve your needs best, in particular regarding the general application of law, in-court fact finding, rules on burden of proof, duration of court proceedings, and reimbursement of costs.
Proceedings before German courts tend to be quite efficient regarding duration. Another upside is the statutory claim for reimbursement of court fees and attorney fees. The burden of proof rests with party which benefits from the respective fact. However, German courts tend to have a somewhat strict view on interpreting general terms and conditions in b2b situations, in particular regarding penalties for default, claims for defects, restrictions of liability, or statutes of limitations.
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