On 4 July 2024, the German parliament passed the “Act to Strengthen the Jurisdiction of Germany”, which introduced Commercial Courts into the civil justice system in Germany. The act will come into force on 1 April 2025 and will permit the federal states to establish Commercial Courts at the higher regional courts.
Many consider this legal reform as desperately needed: that Germany's civil justice system has offered few modern procedural options for major commercial disputes. Hence, parties to international commercial disputes regularly resort to other jurisdictions or arbitration. In particular, disputes over M&A transactions are regularly and exclusively handled by arbitral tribunals rather than the courts. Parties in international disputes have tended to avoid the German civil justice system because of the lack of confidentiality of information in German court proceedings, which are generally held in public, and because proceedings before German courts are conducted in German only.
With the introduction of Commercial Courts, parliament is attempting to turn Germany into a more attractive jurisdiction for commercial disputes and prevent further shifts to arbitration and other jurisdictions.
Commercial Courts for commercial disputes
The Commercial Courts will be established as specialised senates of the Higher Regional Courts and will therefore remain part of the German judicial system. Unlike in “ordinary” civil disputes, the Higher Regional Court will not act as a court of appeal but rather the court of first instance. A decision of the Commercial Court can only be appealed to the Federal Court of Justice. This significantly streamlines the appeal process. As a further deviation from the “ordinary” civil process, the appeal to the Federal Court of Justice is always admissible (i.e. unlike in ordinary German civil proceedings, the Federal Court of Justice does not have to first decide on the admissibility of an appeal, rather upon appeal, any award of the Commercial Court can be reviewed by the Federal Supreme Court).
When the amount in dispute is equal to or exceeds EUR 500,000, the Commercial Courts will have jurisdiction over:
- civil disputes between companies (except those related to industrial property rights, copyrights and claims under the Act on Unfair Competition);
- disputes arising out of or in connection with the acquisition of a company or shares in a company (including where consumers are involved); and
- disputes between a company and its members of the management or supervisory board.
However, the federal states are permitted to limit the jurisdiction of the Commercial Courts to certain areas of law. The aim here is to allow for a high level of specialisation and expertise within the respective Commercial Courts. For example, certain Commercial Courts could specialise in commercial or antitrust disputes between companies, in M&A disputes, or other of the areas outlined in the bullet points above.
In addition to the requirements mentioned above, the Commercial Courts will only have jurisdiction if the parties have expressly or implicitly agreed to refer their dispute to a Commercial Court. Thus, an agreement similar to an arbitration agreement will be required. But even in the absence of such an agreement prior to a dispute, the Commercial Courts will have jurisdiction if the requirements are met, the claimant requests a decision by the Commercial Court in its statement of claim, and the respondent does not object to this request in the statement of defence.
Arbitration as role model
As to how proceedings before a Commercial Court might look, common standards in arbitration are intended to serve as a framework. For example, similar to a case management conference, at an early stage of the proceedings an organisational hearing shall be held. During the hearing the Commercial Court and the parties shall agree on the course of the proceedings, such as deadlines for written submissions or the date of the oral hearing. This intends to prevent the proceedings from dragging on without significant progress as is a not uncommon complaint in regular German proceedings (and which larger disputes would be more vulnerable to).
Another key element of the reform is that the proceedings can be conducted in English if the parties agree either explicitly or implicitly. Such an implicit agreement is inter alia given if the defendant responds in English (without an objection) to a statement of claim submitted in English.
Finally, the confidentiality of information which might otherwise be revealed during the course of proceedings can be maintained. At the request of at least one party, the commercial court may classify information as confidential. Once the proceedings have commenced, the parties are obliged to treat the information as confidential and not use or disclose it outside the proceedings. In addition, the Commercial Court may exclude the public from the hearing.
Implementation underway
Precisely how each of the federal states will establish Commercial Courts remains to be seen.
So far, Hamburg has announced that it will set up a Commercial Court with three senates. Each will focus on corporate law and M&A disputes. The federal states Hessen and Nordrhein-Westfalen plan to establish Commercial Courts at the Higher Regional Court in Frankfurt am Main and Düsseldorf. The federal states will also have the right to establish a joint Commercial Court with cross-border jurisdiction.
Conclusion and outlook
The introduction of Commercial Courts represents a large step taken by the legislature towards strengthening Germany as a jurisdiction for commercial parties to resolve their complex and international commercial disputes. With specialised senates for commercial disputes, the judicial system will be better equipped to meet the demands of sophisticated parties. That starts with the proceedings being conducted in first instance by highly experienced and well-trained German judges from the Higher Regional Courts
It is now for each of the federal states to seize the opportunity presented to them, and establish a presence in this area.
Whether parties will agree on the Commercial Court as a dispute resolution forum (and thus opt against arbitration, or litigation in another jurisdiction) remains to be seen. One major hinderance relates to the enforceability of German awards, particularly outside the EU. In contrast to the enforcement of arbitral awards, the globally recognised New York Convention does not apply to awards from the Commercial Courts. Particularly in non-European countries, the enforceability of arbitral awards depends on the requirements of the state the award will be enforced in, which can lead to uncertainty in the enforcement of a possible German award that the Commercial Court has rendered.
Finally, the substantive law in Germany will remain unchanged. To avoid the risks associated with the “AGB review” (i.e. the restrictive review of general terms and conditions under German law), many parties might refrain from agreeing on the jurisdiction of the Commercial Courts.
Given these uncertainties, arbitration will remain a valid alternative to proceedings in the Commercial Courts. A decision should be determined on a case-by-case basis to determine which of the two options better serves a party’s interests.
