Breach Of Jurisdiction Clause May Give Rise To Damages Claim

Author:Ms Patricia Nacimiento, Mathias Wittinghofer and Tilmann Hertel
Profession:Herbert Smith Freehills
 
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Non-compliance with a contract's jurisdiction clause may expose a claimant to a claim for damages in Germany. This has been decided by Germany's highest civil court, the German Federal Court of Justice (Bundesgerichtshof), in what can be considered a landmark decision. Where the parties agree on German law and opt for the exclusive jurisdiction of the German courts, commencing proceedings in a foreign jurisdiction may expose the claimant to liability for its opponent's legal expenses in fighting the claim in the foreign proceedings: German Federal Court of Justice, Decision of 17 October 2019, III ZR 42/19.

This is broadly in line with the position taken by the English courts, which have also recognised the potential availability of damages for breach of an exclusive jurisdiction agreement, even where the non-designated court was in another EU Member State and the jurisdictional position was governed by the Brussels regulation regime (for example in Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG [2014] EWCA Civ 1010).

Dr Patricia Nacimiento, Dr Mathias Wittinghofer and Tilmann Hertel of our Frankfurt office consider the recent German decision below.

Background

A German and a US telecoms company had entered into a contract with the following clause on applicable law and jurisdiction: "This Agreement shall be subject to the law of the Federal Republic of Germany. Bonn shall be the place of jurisdiction". When a dispute arose, the US telecoms company commenced proceedings against its German counterparty in the US courts. Based on the jurisdiction clause cited above, the US courts dismissed the claim for lack of jurisdiction.

The US company then filed suit before the German court stipulated in the jurisdiction clause. In that litigation, the German party filed a counterclaim and sought damages of approximately USD 200,000 in respect of legal expenses it had incurred in defending the claim in the US. (In accordance with its own rules on costs, the US court had not made an order for costs when it dismissed the claim).

While the first instance court had granted the defendant's counterclaim and awarded damages in respect of costs, the court of appeals revoked the judgment and dismissed the claim.

Decision

As can be taken from a press release issued by the Bundesgerichtshof, the highest civil court reinstated the decision of the first instance court and held that in principle the US company is liable for damages for breach...

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