New York State Bar Association International Section Seasonal Meeting 2014, Vienna, Austria. Program 27 Track Three Dispute Resolution

Transcription

1 New York State Bar Association International Section Seasonal Meeting 2014, Vienna, Austria Program 27 Track Three Dispute Resolution Recognition of Foreign Judgments The German Perspective Presented by Rudolf F. Coelle, Frankfurt am Main, Germany 1. General German procedural rules have since long (since legislation in 1898) recognized foreign court judgments under certain conditions, notably reciprocity- with respect to civil/commercial matters. Today, due to the enactment of EU Regulation 44/2001 recognition and enforcement is regulated specifically among EU members (special status of Denmark) so that national German (non-eu law) does no longer play a significant role in that respect. For Norway, Iceland and Switzerland the so-called similar - Lugano Treaty applies. There are a few countries where bilateral treaties play a major role (Israel, and Tunisia). But still with respect to court judgments of the many countries outside the EU and the other countries mentioned their recognition and enforcement in Germany are regulated by German national (non-eu law) law ( 328 ZPO German Civil Procedural Law- as to recognition, 722, 723 ZPO as to enforcement, these statutory provisions are attached as Annex I). Enforcement of a foreign judgment of these countries in Germany requires an enforcement judgment of a German court confirming that the enforcement is permissible. This requires that the foreign judgment is final according to the law applicable to that court and that the recognition is not precluded under 328 ZPO. Given that situation, the focus of this paper is on the recognition of foreign judgments under national German (non-eu law). 2. Recognition of Foreign Judgments The preconditions for the recognition are exhaustively laid down in 328 ZPO and have to be examined by the German court ex officio. If any of the preconditions is lacking, the foreign judgment will not be considered; at best, in these cases the foreign judgment can be considered and used as evidence. If all preconditions are met, the foreign judgment is equivalent to a

2 German judgment with its enforcement specifically regulated in 722, 723 ZPO (see# 3 below). Generally, the preconditions must be met at the time the foreign court s judgment in Germany is examined. Specifically, the following preconditions apply to a recognition: a) The international jurisdiction of the foreign court ( 328 para. 1 No. 1 ZPO). The foreign judgment will not be recognized if the foreign court did not have the international jurisdiction in the matter. This refers to the international jurisdiction of the courts in the foreign country not necessarily to the specific jurisdiction of the foreign court. The test is whether or not if German procedural law (ZPO) were to be applied to the case, German courts would have jurisdiction (BGH, judgment of December 3, 1992, NJW 1993, 1073). In other words, the procedural provisions which would establish the jurisdiction of the German courts would be mirrored into the foreign procedural rules. The rationale behind this is that the defendant should only be faced with the enforcement of a judgment whose jurisdiction is based on a jurisdiction which he would be faced with if the case were in Germany. In other words he would not be faced with an exorbitant jurisdiction. A binding agreement on the jurisdiction of the foreign court would be recognized, except in cases of exclusive jurisdiction (see below). An acceptance/appearance (Einlassung) to the foreign proceedings without reservation would suffice (according to the above cited BGH judgment) only if, without such acceptance/appearance, the foreign court would not have jurisdiction because, absent very special circumstances, it could not be presumed that the defendant would give up his defense of lack of international jurisdiction if it comes to an enforcement in Germany. If German or other foreign courts would have exclusive jurisdiction under their respective procedural rules, this would prevent the recognition. Examples would be rental/lease matters concerning premises/property located in Germany or certain unfair competition matters ( 13 UWG). In countries with multiple law systems such as the US, the majority of opinion holds that the elements of the jurisdictional precondition must have been met in the respective legal system (Federal or the respective US state). This is controversial and discussed in more detail in the US chapter of this paper. Facts determined by the foreign court as leading to its jurisdiction are not binding for the German court deciding on the recognition (BGH, judgment of March 2, 1969, NJW, 1969, 1536).

3 b) No acceptance/appearance (Einlassung) of foreign procedure or lack of proper service of process ( 328 para. 1 No. 2 ZPO). The foreign judgment will not be recognized if the defendant in the foreign proceedings did not accept the proceedings. Acceptance (Einlassung) is interpreted broadly as any procedural act in the foreign proceedings attributable to the defendant seen as recognizing or approving the foreign proceedings. Even the notion denying the jurisdiction of the foreign court has been seen as acceptance (and of course the nomination of agents for acceptance of service of process). The defendant in the recognition proceedings must invoke his nonacceptance. In addition, the service of process must be proper applying German procedural rules. Compliance with these preconditions was particularly controversial in case of a service of process in a punitive damages complaint which is discussed below in the chapter # 4 dealing with the recognition of US judgments. The service of process in the foreign proceedings must be accompanied by a German translation of sufficient correctness (BGH, judgment of December 2, 1992, NJW 1993, 598). The service of process must have been made in due time so as to give the defendant in the foreign proceedings the necessary time to defend himself against the law suit. Whether this precondition is met will be considered by weighing all relevant circumstances. Obviously this is quite a discretionary element in the recognition which again is decided by the German court without being bound by the determination of the foreign court. For instance, the BGH has considered a 20 days deadline with extension possibility to defend against a complaint before a US Federal Court as sufficient time (BGH, judgment of April 29, 1999, NJW 1999, 3198 (3200)). c) Irreconcilable conflict with a German judgment or a prior foreign judgment or a prior pending German proceeding ( 328 para. 1 No.3 ZPO) These cases concern primarily the conflict with a German or a prior foreign judgment as well as the conflict with a prior pending German proceeding. The priority of a German judgment, regardless of whether or not it was prior pending or issued prior to the foreign judgment and even if it did not recognize a prior foreign proceeding or judgment, has been much criticized, but it is German law enacted following the provision in Art. 34 no. 3 of EU Regulation 44/2001.

4 In most cases the German or foreign judgment which leads to the irreconcilability will be final but that is not a requirement. However, it is required that the foreign judgment must be recognized or recognizable in Germany. The German court will decide on the basis of all relevant facts in its judiciary free opinion whether the foreign judgment to be recognized is so irreconcilable with the German or prior foreign judgment. The irreconcilability must concern the pinnacle of the judgment. The same is true if there is a conflict with German proceedings which were pending (rechtshängig) prior to the proceedings which lead to the foreign judgment (which is now to be recognized in Germany). An example would be that the foreign court overlooked (or simply did not know of) a prior German proceeding. d) The recognition of the foreign judgment leads to a result which is obviously irreconcilable with material principles of German law in particular irreconcilable with German Basic Rights (so-called Ordre Public Clause)- 328 para.1 No.4 ZPO) The above definition in the German procedural law differs somewhat from the classic definition, but is not necessarily more precise. Evidently, discretion is left to the German court. The German Supreme Court (BGH) is distinguishing between a substantive and a procedural ordre public conflict. Procedural ordre public is violated if the foreign decision is based on a procedure which deviates so much from German procedural law that it cannot be considered as having been rendered in a proper, law state proceeding (BGH, decision of May 20, 2010, NJW RR 2010, 1221). Substantive ordre public is violated if the result of the recognition, in the concrete case, would be opposing the fundamentals of the governmental, economic or social life in Germany (BGH, decision of February 24, 1999, ZIP 1999, 483) or if the result of the recognition is in such a stark opposition to the fundamentals of German law and its ideas of justice that recognition would be considered intolerable in Germany (BGH, judgment of September 18, 2000, NJW 2002, 960). The irreconcilability must be obvious that is striking, without doubt and auf der Hand liegend (manifest). The burden of proof is with the party who wishes to prevent recognition (BGH, decision of October 6, 2005, NJW 2006, 701). Procedural errors in the foreign proceedings will not be considered by the German court unless the defendant had attempted with all means to

5 correct these errors in the foreign proceedings (BGH, judgment of January 21, 1997, NJW 1997, 2051). The irreconcilability with the German basic rights is specifically provided in the law. These are the constitutional rights in the German Constitution (Grundgesetz) and in the Constitution of the German states, of the European Human Rights Convention and of the EU Charta of Fundamental Rights. Cases where German courts have held that the foreign judgment violated those basic/constitutional rights (procedural or substantive) were: the opportunity to be heard was not granted (however, the defendant has to do all in his power to defend himself in the foreign proceedings); the recognition would violate EU antitrust law (Art. 81 EU Treaty, now Art. 101 EU Treaty); punitive damages as a rule (see below under the chapter Recognition of US Judgments ); premeditated deceit of the foreign court, unless the defendant could have raised, but failed to raise, this defense in the foreign proceedings (BGH, decision of May 6, 2004,, NJW 2004, 2386); the exclusion of the defendant due to his contempt of court if the exclusion was disproportionate and not necessary in the case at hand (cf. BGH, judgment of September 2, 2009, NJW 2010, 153). Cases where it was held that the foreign judgment did not violate German basic rights were: non-recognition of the defense of betting with respect to stock exchange transactions (BGH, judgment of January 25, 2005, NJW 2005, 423); pre-trial discovery (BGH, NJW 1992, 3099); the court also held in that decision that a judgment which did not provide for cost reimbursement of the prevailing party did not violate the ordre public; failure to consider a claim for set off (appeals Court Frankfurt, judgment of November 11, 1998, IPRax 1999, 460); payment of a success fee to a foreign lawyer (BGH NJW 1992, at the time of the judgment is was illegal for a German lawyer to agree or claim a success fee). e) Reciprocity ( 328 para. 1 No. 5 ZPO) Reciprocity must be guarantied. This means that the foreign country's recognition practice (if no practice can be established, its recognition law) must meet German conditions for the enforcement of a judgment in ways that are equal or of equal value when it comes to the enforcement of a German judgment. Since a complete similarity of the conditions cannot be expected, the German Federal Supreme Court applies a generous (großzügige) standard, not a formalistic or petty standard. German courts have also held that though generally reciprocity can be established but not in relation to an aspect specific to the foreign judgment in question, recognition can be denied. If a treaty exists, of course, that treaty prevails and of

6 course the EU Regulation/Lugano Treaty mentioned. It is interesting to note that there are not many German judgments accepting or damaging recognition so that in many cases one has to rely on the commentators. This means that it is often uncertain whether or not reciprocity exists. Examples of reciprocity/non-reciprocity that may be of interest are the following. Recognition regarding Egypt, Argentina, Australia for most Territories, Brazil, China (but disputed), Canada (but doubtful for certain Provinces), Hong Kong, India, Israel, Japan (Japan has procedural rules which correspond to 328 ZPO), Jordan, South Korea, Mexico, Nigeria, Qatar, Russia, Singapore (but doubtful), South Africa (partly), Syria (doubtful), Turkey, Tunisia, United States (will be discussed in the US Chapter below). Non-reciprocity regarding: Belarus, Chile, Cuba (doubtful), Indonesia (doubtful), Iraq, Iran, Kazakhstan, Kenya (partly), Malaysia (partly), Morocco (doubtful), New Zealand (but treaty in process), Pakistan, Philippines (partly), Saudi Arabia, Thailand, Ukraine, United Arab Emirates. The recognition requirement does not apply to judgments concerning non-monetary claims (nichtvermögensrechtliche Ansprüche) where German law does not provide for a German venue ( 328 para. 2). The requirement of reciprocity is seen by a number of authors as antiquated or outdated. It would lead to severe problems in the legal business among nations and complicate recognition unduly. But still it seems that reciprocity is universally required. The 1971 Hague Convention on the Recognition and Enforcement of Judgments does away with the reciprocity requirement, but so far this very laudable initiative has only found a few countries to subscribe to the Convention (Cyprus, The Netherlands, Portugal, Kuwait and Albania). 3. Enforcement of Foreign Judgments The enforcement is regulated in 722, 723, ZPO; it requires an enforcement judgment (decision). Its principal requirement is that recognition of the foreign judgment is not excluded under 328 ZPO (as discussed in #2). In addition, the foreign judgment must be final in accordance with the laws applicable to the foreign court. It is expressly provided in 723 para. 1 ZPO that the enforcement decision is to be rendered without examining the legality of the foreign court's decision. The enforcement is not limited to judgments of a foreign court, but extends also to court decision the tenor of which is enforceable (providing for a payment, performance or liability). Settlements, including settlements before the foreign court or

7 arbitration awards cannot be enforced pursuant to 722, 723 ZPO. The plaintiff is also precluded to commence a suit for payment or performance as 722, 723 ZPO have priority (res judicata may apply as well), but if recognition is doubtful, it may be legitimate to commence a law suit in Germany. It should be noted that in the enforcement proceedings, the defendant may raise as a defense 767 para. 2 ZPO, that is the defendant can raise objections against the claim(s) in the foreign judgment but only insofar as the grounds on which the objections are based arose only after they could have raised in the foreign court. The enforcement decision is then, if so decided in connection with the foreign judgment, the basis to enforce the judgment in Germany. 4. Recognition of US (US State) court judgments a) Practically all money judgments of US/US State courts are recognized under the requirement of reciprocity with the exception of judgments of a Mississippi State court. Recognition has been expressly confirmed for California (BGH, judgment of June 4, 1992 NJW 1992, 3100) and Florida (Appeals Court Hamm, judgment of November 8, 1993, NJW-RR 1995, 510) for example. Nevertheless, in each case, reciprocity will be examined. b) However, it is still much disputed whether the requirement of international jurisdiction (discussed above under #2 a) must be fulfilled in the US state where the judgment to be recognized is rendered or whether it is sufficient if the international jurisdiction exists in the US (any US state) and further when a judgment of a US Federal Court is concerned whether the US Federal Court must have international jurisdiction limited to the State where the court is seated or whether it suffices that international jurisdiction exists in the US (any US state). The latter question has come before the BGH (judgment of April 29, 1999, NJW 1999, 3198) concerning a default judgment of the US District Court, Eastern Division of Wisconsin. Overruling the decision of the Appeals Court (which held that international jurisdiction was to determined limited to the US state), the BGH held that international jurisdiction of US Federal Courts would have to be determined for the entire US territory. The provision of 328 para. 1 No. 1 ZPO would not justify the division of jurisdiction into regional partial jurisdiction. It pointed out that the legislation purpose of the ZPO provision was to make sure that the procedural rules of the foreign country would take account of internationally recognized

8 principles, but also to protect the defendant from defending himself before foreign courts which under German principles would have no sufficient relation or closeness to the matter in litigation. This legislature purpose would not refer (or be limited) to the local jurisdiction within the US State but refer to the US at large. Any other view would much restrict the recognition of judgments of foreign federal states and could not be justified by the subject matter nor justified internationally. It is also noteworthy that in the case at hand international jurisdiction over the defendant was accepted by the BGH because the defendant had assets (property) in the US not in Wisconsin- which assets would have constituted jurisdiction if the case had come before a German court ( 23 ZPO) and therefore international jurisdiction could not be given to the US district court (regardless of the fact whether indeed the Wisconsin court had properly assumed its own jurisdiction). The BGH also examined the question whether enforcement of the default judgment of the US Federal Court should be denied because of lack of recognition as to jurisdiction but left it to the lower court to determine the relevant facts. The German Supreme Court did not decide the question (rather left it unanswered) whether the international jurisdiction of a US state court would have to be determined restricted by reference to that US state exclusively (this is the prevailing opinion in the German literature) or whether jurisdiction in any US state would suffice. It is obvious that a certain forum shopping is advisable (having in mind subsequent enforcement in Germany) by lodging the complaint in a US Federal court. c) Another much debated issue is the recognition/enforcement of US (State) judgments which award punitive damages. In its decision of June 4, 1992 (BGH, NJW 1992, 3096) the Federal Supreme Court discussed at length the issue of punitive damages and held that a US judgment in a not insubstantial amount (in addition to tangible and intangible damages) by way of lump sum, cannot to this extent as a rule be declared enforceable. The case before the court was a bad case because plaintiff sued for having been abused sexually as a juvenile by defendant (the California court had awarded in its judgment a small amount for past medical damages, USD for future medical costs, USD for cost of placement, USD for anxiety, pain, suffering and general damages of that nature and lastly USD as exemplary and punitive damages (also 40% of all moneys which plaintiff's lawyer would receive from the defendant on behalf of plaintiff were awarded to the lawyer). The abuse happened in California, both, plaintiff and defendant were at the time US citizens. Defendant was sentenced to a prison term, but fled the US for Germany. The Federal

9 Supreme Court examined at length whether the California judgment had violated essential procedural requirement holding that a pre-trial discovery as such would not be a violation of ordre public. Likewise German ordre public would not be violated by the US procedural law and not awarding cost reimbursement to the party prevailing in the litigation ( American rule of costs ). The Court also accepted reciprocity with respect to California. The Court discussed then the various damages which were awarded and though it saw significant difference to the German damage compensation system it did not see German ordre public violated intolerably. Punitive damages, the Court held, would be awarded in most US states, including California, in addition to compensatory damages if the defendant was culpable in addition to his general liability for damages for a deliberate, malicious or reckless action (also grossly negligent action could lead to punitive damages). The purpose of the punitive damages would be to penalize raw conduct, thus eliminating revenge by the victim, preventing future costs, remunerating the plaintiff for enforcement of the law by his own initiative and adding compensation to compensatory damages which could be considered as insufficient. On that basis, the Court comes to the conclusion that from a procedural point of view punitive damages did not have the character of a criminal penalty, but would be part of the civil law (as would be the qualification in the US). However, from a substantive law point of view, punitive damages could not be declared enforceable under German law because its enforcement would violate German public order ( 328 para. No. 4 ZPO). The Court reasoned that German law did not provide for individuals to claim damages in addition to compensatory damages, in particular not for damages, which had a penalizing (punitive) character. Punitive damages would have the effect of a criminal penalty foreign to German law. German law would leave penalties of this kind to criminal law and the criminal courts. The Court then considered whether punitive damages could nevertheless have a compensatory character such as in effect reimbursing costs or compensating pain and suffering. But in the absence of any reference to these elements in the California judgment and lack of factual knowledge, it did not find a basis to review and possibly recognize these elements. It is interesting to note that the Court more or less encouraged US Courts to specify in the judgment awarding punitive damages the various elements for which they were awarded (such as compensation for legal costs, additional compensation for pain and suffering and the like) indicating the respective amounts so as to enable the German court to have a reasonable basis for a review of punitive damages. This has to be seen in the context that the Court affirmed in principle that the recognition of the foreign judgment could be divided into

10 parts that could be and could not be recognized. In concluding the Court held that despite the non-recognition of punitive damages in the present case, the remainder of the awarded damages could and would be recognized, i.e. the enforcement would be denied merely regarding the punitive damages. d) However, it has to be noted that also EU antitrust/competition law allows a plaintiff damaged by for instance an illegal cartel to claim damages in excess of compensatory damages. Also, it must be noted that the US Supreme Court tends to limit excessive damage awards by the US courts. These are developments which may lead to the German Supreme Court towards looking more favorably at the enforcement of punitive damages awarded by US courts. e) Though not yet decided by the German Supreme Court, the same rationale would seem to apply also with respect to treble damages and damages awarded under Rico statute, i.e. it is likely that recognition would be denied. f) The enforcement of class action judgments by US courts is unclear in the absence of leading German court decisions. The German Supreme Court has not yet decided on this issue. The commentators consider generally, with some exception, the enforcement of class action to violate German ordre public principally because the defendant would not have be granted due process in respect of the (unknown) members of the class action. The German Federal Constitutional Court (Bundesverfassungsgericht BVerfG) in its decision of July 25, 2003 (ZIP 2003, 1625) had to rule in a case where Bertelsmann AG, then the leading German media company, requested the BVerfG to issue an injunction against service of process of a complaint before the District Court for the Southern District of New York (US SD New York 03 CV 1093) in which music authors and publishers in a class action sued Bertelsmann for damages of USD 17 billion (claiming that Bertelsmann participated in fraudulent actions of the (insolvent) Napster). Process was to be served in Germany pursuant to the Hague Convention. It provides in its Art. 13 para. 1 that service of process can be denied if the state (Germany) would consider its rights of sovereignty or its security as endangered. The BVerfG considered that a service of a class action could be so infringing on fundamental rights if the foreign claim raised in a law suit would have obviously not substantial basis and if that law suit would be a misuse of the law. In the case at hand, the Court left open whether the

11 service of the complaint would be so violating German sovereignty but granted the injunction by weighing the interests of the parties and decided the interests of Bertelsmann in preventing a service outweighed those of the class action plaintiffs. The language of the Hague Convention's Art. 13 para. 1 is clearly more rigid than that of 328 para. 1 No. 4 ZPO (public order) so it can be concluded from the decision of Germany's highest court that the enforcement of US class action suits in Germany is likely not to be successful. However, it has also to be noted that meanwhile within the European Union there are efforts to introduce a class action system in consumer protection and competition matters and that Germany itself is working on some equivalent to a class action system and has introduced a system which provides for a model procedure regarding claims based on false information in stock exchange/capital market matters which is binding on the class of damaged parties. It is fair to conclude that the enforcement of US judgments in Germany is generally possible with the exception of punitive damage or similar judgments and class action judgments. However, also in these exceptional cases, matters are in flux and it can be expected that over time the rigid stance of German courts will soften. ******* ANNEX I

12 Unofficial Translation of the German Code of Civil Procedure (excerpts) Section 328 Recognition of foreign judgments (1) Recognition of a judgment handed down by a foreign court shall be ruled out if: 1. The courts of the state to which the foreign court belongs do not have jurisdiction according to German law; 2. The defendant, who has not entered an appearance in the proceedings and who takes recourse to this fact, has not duly been served the document by which the proceedings were initiated, or not in such time to allow him to defend himself; 3. The judgment is incompatible with a judgment delivered in Germany, or with an earlier judgment handed down abroad that is to be recognized, or if the proceedings on which such judgment is based are incompatible with proceedings that have become pending earlier in Germany; 4. The recognition of the judgment would lead to a result that is obviously incompatible with essential principles of German law, and in particular if the recognition is not compatible with fundamental rights; 5. Reciprocity has not been granted (2) The rule set out in number 5 does not contravene the judgments being recognized if the judgment concerns a non-pecuniary claim and if, according to the laws of Germany, no place of jurisdiction was established in Germany. Section 722 Enforceability of foreign judgments (1) Compulsory enforcement may be pursued under the judgment of a foreign court if such compulsory enforcement is ruled admissible by a judgment for enforcement.

13 (2) That local court (Amtsgericht, AG) or regional court (Landgericht, LG) shall be competent for entering the judgment on the complaint filed for such judgment with which the debtor has his general venue, an d in all other cases, that local or regional court shall be competent with which a complaint may be filed against the debtor pursuant to section 23. Section 723 Judgment for enforcement (1) The judgment for enforcement is to be delivered without a review being performed of the decision's legality. (2) The judgment for enforcement is to be delivered only once the judgment handed down by the foreign court has attained legal validity pursuant to the laws applicable to that court. The judgment for enforcement is not to be delivered if the recognition of the judgment is ruled out pursuant to section 328.