Debt Collection in Germany: A Practical Guide

Schmeilzl
April 17, 2013

So a German person or company owes you money. And you find that German courts have jurisdiction. Well, that may seem unfortunate but it is no reason at all to abandon your claim. In fact, to sue for and collect a debt in Germany is easier and cheaper than you might expect, especially if you are from Britain or the United States where lawsuits are much more costly and tedious. German civil court procedure, regulated by the Code of Civil Procedure (Zivilprozessordnung), knows no jury, no pre-trial discovery and no pre-trial witness statements. Furthermore, German civil courts work fairly swift, on average a lawsuit takes less than six months to be decided (for details see this chart by the Federal Statistical Office; Labour Courts are the fastest, Tax Courts the slowest). Let me explain the basics of such German civil action and subsequent enforced collection.

German Civil Courts

If you sue someone for money (no matter if based on a contractual claim or on tort) you will in most cases have to address the civil court in the town where the defendant lives or – if it is a company – where it has its legal seat or a branch. Depending on the amount in dispute the competent court of first instance is either the Amtsgericht (Local Court), i.e. for claims up to 5,000 Euros, or the Landgericht (District Court), i.e. for claims above 5,000 Euros. There are some exceptions to this rule: e.g. the Amtsgericht is always in charge of any disputes between landlords and residential tenants, even if the amount is above 5,000 Euros. [Side note: For disputes between employer and employee the Labour Courts (Arbeitsgerichte) are in charge; they apply different rules regarding procedure and costs.]

At the Amtsgericht level a single judge decides the case, whereas at the Landgericht you find a tribunal of three professional judges. At least in theory. In practice, nowadays, the first thing the Landgericht tribunal usually does is to take a vote that the case shall be referred to one of the three judges. Thus, most first instance civil cases in Germany are decided by a single judge. An exception to this rule is the Tribunal for Commercial Matters (Kammer für Handelssachen) which is composed of one professional judge and two honorary assessors who must be merchants or company managers. The idea is to bring some real life experience to the court room.

Lawyers and Writs

Litigation is started by submitting a writ (Klageschrift) to the competent court (for details see Sec 253 Code of Civil Procedure). At the Landgericht (and higher courts) this must be done by a German Rechtsanwalt (definition see here). At the Amtsgericht level you do not necessarily need a lawyer but you can try and write your briefs yourself (they must, however, be in German). Now, again in theory, German courts still work by the old latin saying “da mihi factum, dabo tibi ius” (i.e. give me the facts and I will give you the law). Thus, the following text (if submitted in German) would be a perfectly sufficient statement of claim:

“To the Amtsgericht Munich. My name is Hans Beckenbauer, (adress). I demand Franz Schweinsteiger to pay me 4,500 Euros. I have given Mr. Schweinsteiger this amount as a private loan on 15 May 2011 and we have agreed that he shall pay back this amount (without interest) on 15 May 2012. As evidence I present the loan agreement dated 15 May 2011 as appendix 1 to this writ. He has, however, not paid me back although I have sent him a warning letter on 25 May 2012, a copy of which is presented to the court as appendix 2. [date and signature of claimant Beckenbauer]”

Or in case of tort:

“To the Amtsgericht Munich. My name is Hans Beckenbauer, (adress). I demand Franz Schweinsteiger to pay me 2,000 Euros. Mr Schweinsteiger and myself have been to the Octoberfest in Munich on [date]. After a few beers he became angry because he did not like the music and – entirely unprovoked by me – hit me on the head with a beer stein. Evidence for this: My wife Bettina Beckenbauer as witness. I suffered a severe concussion, had severe headaches for two weeks and was unable to go to work for two weeks. Evidence: Hospital records [attached hereto as appendix 1] and my general practioner Dr. Marcus Welby as witness. I demand 2,000 Euros as compensation for pain and suffering. [date and signature of claimant Beckenbauer]”

That’s it.

Such a simple letter would actually be sufficient for the Amtsgericht to initiate proceedings: The court will give the defendant Schweinsteiger the opportunity to state his side of the case in writing (for which the court usually sets a deadline of about four weeks) and will then schedule a court date for a personal hearing of the parties (and possible witnesses).

Thus, in most cases, before the oral hearing takes place, the lawyers of both parties have submitted at least one pleading to the court, explaining the facts and (although not strictly necessary) the law from their respective points of view. This exchange of briefs (so called “schriftliches Vorverfahren”, Sec. 276 Code of Civil Procedure) is actually more important than the oral hearing because the judge forms his opinion about the case from these briefs. The oral hearing part of the trial is usually quite short (10 to 20 minutes), unless there are witnesses or experts to be heard. At the beginning of the personal hearing the judge will summarize the case and then discuss with the part2ies whether there is a possibility for a settlement. If the parties do not settle amicably the court will hear witnesses and/or experts on certain facts in dispute. After that the judge and the lawyers mostly have a pretty good clue who will win the lawsuit. If the parties are still not willing to settle, the court will render a judgement. This usually does not happen in the court session itself but a few days or weeks later. The judgement is sent to the parties usually between two and eight weeks after the trial and may be appealed within one month from the day the verdict has been delivered to the respective party.

If the defendant does not react to the initial letter from the court within the set deadline or if the defendant does not show up at the trial date, the claimant is immediately awarded a so called “Versäumnisurteil”, i.e. judgement in absence or default judgement (for details and what to do if such a default judgement was issued against you see Sec 331 Code of Civil Procedure).

However, cases are rarely as simple as in the examples above, so going to court without a lawyer is in most cases not the reasonable choice. And surely it won’t speed up the trial. So how do you mandate your lawyer after you have found the right Rechtsanwalt for your case out of the 150,000 advocates in Germany? Legally, there is surprisingly few paperwork involved: Civil courts accept the simple statement by a Rechtsanwalt that he has been duly mandated by his client. In other words: the judge will not demand to see a written power of attorney. Thus, in urgent cases, you can simply call your German lawyer and tell him to submit a writ that same day.

However, the Rechtsanwalt will, to protect his own interests, most probably ask you for a written power of attorney, a mandate agreement and a retainer, especially if it is the first time he/she works for you. To reduce the risk of being charged with assisting money laundering activities he/she will most likely ask you for a copy of your passport or other ID (“know your client policy”). If you represent a company you should provide your lawyer with the necessary documents (e.g. excerpt from the commercial register) so he can prove proper formation and existence of the company as well as due representation by its management.

Legal Costs (Lawyer and Court Fees)

The German justice system provides lawyers and clients with very transparent rules regarding legal costs:

The claimant has to pay in Court Fees (Gerichtsgebühren). The exact sum depends on the amount in dispute (Streitwert). A few examples: if you sue for 2,000 Euros the court fee is 219 Euros. If you sue for 10,000 Euros, the court fee is 588 Euros and if you sue for a million Euros the court fee is 13,368 Euros. You can find the entire chart here (website of the German Bar Association), while the first column shows the amount in dispute (Gegenstandswert) and the fourth column (Gerichtskosten) gives you the corresponding court fee. As long as this fee has not been paid the court will not forward the writ to the defendant, i.e. the proceedings won’t start. Thus, in practice, the court fees are usually being paid at the same day the writ is submitted. As an incentive for the parties to reach a settlement there is the rule that 2/3 of the court fees are returned if the court does not have to write a verdict.

The costlier part of the lawsuit are lawyer fees. The Rechtsanwaltsvergütungsgesetz (Federal Act on Lawyer Remuneration) regulates the fees a lawyer is entitled to charge his/her client. Again, as with the court fees, the lawyer fees correspond with the amount in dispute. If the lawyer wants to charge higher rates he must conclude an express written agreement with his client. So, although billing by hourly rates is becoming more and more common in Germany, the general rule is still billing by the statutory table of lawyer fees. The details are a bit complicated. If you want to know the whole story, see here (lawyer fees Germany) or, in case you are REALLY, REALLY interested in the topic: here.

The surprising news for clients coming from a common law system is this: In the end, the party that loses the lawsuit has to foot the entire legal costs, i.e. the court fees as well as the legal fees for both sides lawyers, expert fees, witness travel expenses etc. Pure and simple: Everything! If the parties settle, the costs are usually split up.

Since the fees are so transparent each party can easily calculate its cost risk (Prozesskostenrisiko). For the concrete amounts you can again refer to the chart of the German Bar Association: The right column (titled “gesamt”, meaning “total”) shows the total costs of the lawsuit, consisting of the court fees and of both sides lawyer’s fees. An example: If you sue someone for 25,000 Euros and you lose the case you will have gambled away 5,062.30 Euros. Not included in this table are, however, fees for court appointed experts or travel expenses for witnesses. These additional costs and expenses must also be borne by the losing party.

However, in complicated and/or bulky matters, especially if the amount in dispute is relatively small, you will have difficulty to find a Rechtsanwalt, let alone a larger law firm, that is willing to accept the case on the basis of the statutory lawyer fees. Even more so in international cases where the lawyer must translate documents and correspond in another language. As in Britain or the USA your lawyer will ask for remuneration based on hourly rates. If your lawyer’s fees exceed the statutory fees the opponent does not need to compensate you for the exceeding amount. By the way: paying a German lawyer via contingency fee is now theoretically allowed (up until a few years ago this was categorically prohibited in Germany), but the requirements in § 4a Abs. 1 S. 1 RVG are so restrictive that in fact it almost never happens, also because the lawyer runs a high risk that such a contingency agreement is declared void by a court (as in this case here).

Another issue to consider is that claimants that do not have their habitual residence within the European Union must provide security for the legal costs of the proceedings in case the defendant demands this (Sec. 110 ZPO).

Conclusion

From a legal perspective, making a court claim in Germany is not complicated at all. Whether it makes sense economically depends on various factors: the amount in dispute, the complexity of the case (do you need to fly in witnesses or can you prove the essential facts with documents) and – last but not least – on whether you can find a qualified bilingual lawyer that is willing to accept the case at reasonable fees. In case you decide to try: Best of luck!

Rechtsanwalt Bernhard Schmeilzl, LL.M.

For more information on the German legal system: the bilingual brochures “Law – Made in Germany” (free download here) as well as “Continental Law” (free download here), published by the German Law Societies explain the basic principles of Continental Law. If you wish to look up specific German legislation you find central German statutes on the website of th e German Department of Justice (here), including an English version of the Code of Civil Procedure. The German Civil Code (Bürgerliches Gesetzbuch) is available for download here: German_Civil_Code_in_English_language.