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Germany - Part II Country Report - Handbook on Third-Party Funding in International Arbitration

Author(s): 
Anke Sessler
Jakob Sättler
Page Count: 
24 pages
Published: 
March, 2018
Jurisdictions: 
Germany
Practice Areas: 
Parties,
Third Parties in Arbitral Proceedings,
Arbitral Process,
Confidentiality,
Costs and Damages,
Apportioning of Costs,
Deposit of Costs,
Expenses of Parties

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Description: 

Originally from Handbook on Third-Party Funding in International Arbitration

1.1.   TPF Regime in Germany

1.1.1. Is TPF commonly used in your Jurisdiction? If yes, since when (is it a new trend or a well-established practice)? 

In Germany, there are several possible ways of financing a lawsuit. They range from insurance through legal aid to internal or external funding, such as credits, loans, donations, or third-party funding (“TPF”).

Most notably, legal expenses insurance (Rechtsschutzversicherung, “LEI”) has been available in Germany for decades. It is said that about 40 percent to 50 percent of German households maintain LEI, making Germany one of the largest LEI markets in the world. In Germany, LEI is generally structured as before-the-event insurance.

Next to LEI, pursuant to secs. 114 et seqq. of the German Code of Civil Procedure (Zivilprozessordnung, “ZPO”), parties in need may request legal aid.

Arguably due to both the high proportion of consumers who maintain LEI and the possibility of being granted legal aid, after-the-event (“ATE”) insurance is not very common in Germany.

However, sparked by advertisements and public relations work, there is a growing market for ATE funding (TPF), defined as an investment commitment by an external funder in exchange for a success fee (as opposed to an insurance premium). TPF is available for litigation, arbitration and alternative dispute resolution. The first commercial TPF services were established by FORIS AG, a provider for services in legal matters which is listed on the stock market, in 1998.

Even though statistics have shown that few parties use TPF,  for the following reasons the German market appears to be well-suited for TPF:

• Common law doctrines such as champerty and maintenance do not apply; 

• there are no regulatory obstacles; 

• there is no obligation to disclose the funder;  and

• the amount of legal costs a party might have to reimburse to the winning party in civil court proceedings is not very high and may be predicted with great precision.