Publication
Pensions Regulator announces changes to the DC scheme return for 2024
The Regulator has issued an online announcement about upcoming changes to its DC scheme return.
Germany | Publication | November 2023
International investment protection proceedings under the Energy Charter Treaty between investors and EU states are inadmissible under German civil procedure law. The parties to the arbitration proceedings can appeal to German courts to have the inadmissibility of the arbitration proceedings determined by a court order.
Background
The Federal Court of Justice (Bundesgerichtshof – BGH) recently dealt with three similar cases concerning disputes between large energy companies and EU member states (specifically, Germany and the Netherlands). Germany and the Netherlands had recently changed their energy legislation; the Netherlands passed a bill to phase-out the use of coal in power generation by 2030 and Germany passed a new law to accelerate offshore wind expansion. The companies concerned (based in Ireland and Germany, respectively) were concerned that this would jeopardise their investments and initiated arbitration proceedings under the Energy Charter Treaty before the International Centre for Settlement of Investment Disputes (ICSID). Germany and the Netherlands applied to the German courts to determine the admissibility (or inadmissibility) of the arbitration proceedings pursuant to section 1032(2) of the German Code of Civil Procedure (Zivilprozessordnung – ZPO).
Decision
Section 1032(2) of the German Code of Civil Procedure provides that parties to arbitration proceedings may file a motion, before the tribunal is constituted, for a declaratory judgement on the admissibility (or inadmissibility) of arbitral proceedings. Pursuant to section 1025(2) of the German Code of Civil Procedure, this provision also applies if the arbitration seat is abroad or is yet to be determined.
ICSID arbitrations operate as self-contained arbitrations with no seat of arbitration specified. The German court therefore had to determine if its jurisdiction to hear applications under section 1032 (2) or section 1025 (2) of the German Code of Civil Procedure extended to cover ICSID arbitration proceedings. The Federal Court of Justice ruled that section 41(1) of the ICSID Convention which allows the arbitral tribunal to determine its own competence, did not apply to intra-EU investor-state arbitration proceedings due to the primacy of application of EU law over international law. According to the rulings of the European Court of Justice (C-284/16 – Achmea; C-741/19 – Komstroy), intra-EU investor-state arbitration proceedings are not compliant with EU law. The arbitration clause contained in Article. 26 of the Energy Charter Treaty was therefore ineffective in intra-EU investor-state arbitration proceedings.
Consequently, the Federal Court of Justice held that the arbitration proceedings were inadmissible pursuant to section 1032 (2) of the German Code of Civil Procedure and any arbitral awards granted were ineffective and could not be enforced in any EU member state as they would violate EU law.
(Federal Court of Justice, 27 July 2023 – I ZB 43/22; I ZB 74/22; I ZB 75/22)
Practical tip
Germany decided last year to withdraw from the Energy Charter Treaty. However, the withdrawal period is 20 years. As long as the Energy Charter Treaty still applies, intra-EU investor-state arbitration proceedings based on the Energy Charter Treaty can therefore be declared inadmissible by German state courts and the enforcement of corresponding arbitral awards can be prevented, respectively. Although arbitral tribunals and enforcement courts outside the EU are likely to be rather unimpressed by this, it is of enormous importance for the enforcement of arbitral awards within the EU and should therefore be considered already when deciding on the initiation of arbitration proceedings in this context.
A limited company incorporated under English law having its headquarters (Verwaltungssitz) in Germany is no longer regarded as a corporation (Kapitalgesellschaft) after Brexit and will be treated as a private partnership company or, in case of a sole shareholder, as a sole proprietorship (einzelkaufmännisches Unternehmen). The sole shareholder is also personally liable for existing obligations of the limited company.
Facts
In 2018, an English limited company headquartered in Germany was finally ordered to pay the amount of € 1.973,90 by a German court. After Brexit, the creditor under the order requested that a legal succession clause be issued for the purposes of enforcement, according to which the sole shareholder was the legal successor of the limited company. The request was granted, whereupon the sole shareholder filed an action against enforcement (Vollstreckungsabwehrklage, section 768 in conjunction with section 767 German Code of Civil Procedure).
Decision
The Berlin Regional Court dismissed the action against enforcement. The English limited company, which consisted of only one shareholder, ceased to exist in Germany upon expiry of the Withdrawal Agreement on 31 December 2020. The foundation theory (Gründungstheorie), according to which a company is subject to the laws of the state in which it is established, which is to be applied to companies from EU member states due to the freedom of establishment guaranteed under European law (Article 49 of the TFEU), was no longer to be applied to companies incorporated in the UK. Following Brexit, the UK was considered to be a ‘third country’, thus the modified corporate domicile theory (Sitztheorie) was applicable, according to which the foreign company was ex lege transformed or reclassified, respectively – i.e., in the particular case of a single-member company (Einpersonengesellschaft), into the owner of the company (sole shareholder). Consequently, the sole shareholder was personally liable for existing obligations of the limited company. A protection of legitimate expectations or ‘grandfathering’ (Vertrauens- oder Bestandsschutz) was to be excluded, as the transition period ending on 31 December 2020 provided the opportunity to transform the limited company into another corporate form recognised under German law. Limited companies, which have not changed their corporate form in Germany, now lead “double-lives”: From an English point of view, they are still limited companies; from a German point of view, however, a single-member company is regarded a sole proprietorship.
(Berlin Regional Court, 28 November 2022 – 101 O 57/22)
Practical tip
Creditors of English limited companies having their headquarters in Germany, who have already obtained a German judgment against the limited company, can enforce directly against the shareholder(s) via legal succession. Creditors without a title can sue the shareholder(s) directly. Shareholders of such limited companies can no longer hide behind the “corporate veil”.
Legal-tech solutions using a debt collection licence under the German Legal Services Act (Rechtsdienstleistungsgesetz – RDG), the agreement of a percentage contingency fee on injury compensation claims and the agreement of (assignable) costs of legal enforcement in analogous application of the German Act on Lawyers’ Fees (Rechtsanwaltsvergütungsgesetz – RVG) are permissible.
Background
The claimant, a debt collection service provider registered under the German Legal Services Act, sought reimbursement of pre-litigation costs of legal enforcement following the settlement of an accident claim under assigned rights. The claimant operated a consumer platform offering injured parties out-of-court settlement and enforcement of compensation claims for material and immaterial damage. In particular, the platform contained an “injury compensation calculator” that provided a non-binding estimate of the amount of injury compensation. The claimant’s general terms and conditions (GTCs) provided, amongst other things, for a 15% contingency fee which is limited to injury compensation claims settled out of court. In the event of non-success, the GTCs provided for an indemnification against costs. The claim was successful and the defendant appealed against it to the Federal Court of Justice.
Decision
The appeal to the Federal Court of Justice was unsuccessful. The Court held that, as regards to the collection service providers’ authority to act, the claimant's business model was not intended to also include the defence against counterclaims as well. Moreover, there was no infringement of section 4 of the German Legal Services Act since the accident victim’s indemnification against costs in case of non-success of the claimant’s efforts – by reference to the Federal Court of Justice’s decisions LexFox and AirDeal – was not to be classified as ‘another performance’ (andere Leistung) within the meaning of the relevant provision.
Further, a conflict of interests did not arise from the claimant’s contingency fee of 15 % of the injury compensation enforced out of court. Given the terms of the fee agreement concluded, there was no concrete risk that, in order to obtain the contingency fee, the claimant would compromise on the enforcement of injury compensation claims. In particular, besides the contingency fee, the injured party’s general reimbursement claim assigned in lieu of performance was to be based on the amount of the compensation payments recovered. Besides this, the accident victim was free to claim further damages as the reimbursement claims were exclusively assigned pursuant to section 13e of the German Legal Services Act. Analogous application of section 4 of the German Legal Services Act was also excluded.
(Federal Court of Justice, 7 March 2023 – VI ZR 180/22)
Practical tip
The Federal Court of Justice made it clear that the concurrent agreement of a contingency fee and costs of legal enforcement is permissible under section 13e of the German Legal Services Act. The decision will be interesting for legal-tech providers in cases where costs of legal enforcement are recoverable as damages under section 249 of the German Civil Code (Bürgerliches Gesetzbuch – BGB) irrespective of default (such as immaterial claims for damages in case of data protection violations), particularly if the claim is not enforced by way of a debt collection assignment but rather by a debt collection authority.
Publication
The Regulator has issued an online announcement about upcoming changes to its DC scheme return.
Publication
On July 30, 2024, the Regulator published its market oversight report on how trustees are complying with their environmental, social and governance (ESG) duties, including in respect of climate change.
Publication
We reported last month that the Court of Appeal had agreed with the High Court’s previous judgment that all rule amendments to contracted-out DB schemes between 1997 and 2013 require written actuarial certification. Three pensions professional bodies have now issued a joint statement on the effect of the ruling.
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