Damages in case of violation of a jurisdiction agreement

The BGH has ruled that a contractual partner may be entitled to compensation for the costs incurred by him because he was sued before a US-American court contrary to the agreement of an exclusive place of jurisdiction in Germany.

The parties are telecommunications companies. The defendant is domiciled in Bonn and the plaintiff is domiciled in Washington, D.C. The plaintiff is domiciled in Washington, D.C. The defendant is domiciled in Bonn. They are linked by an “Internet Peering Agreement” according to which they are mutually obliged to receive the data traffic of the other party at so-called peering points, to transport it on their network to the customers connected above and to provide the necessary transmission capacity at the peering points within their networks. The contract contains the agreement that German law is applicable and the place of jurisdiction is Bonn. After the plaintiff’s efforts to achieve the (free) increase in transmission capacity had been unsuccessful, it filed a lawsuit in a federal court (district court) in the USA in 2016 requesting the creation of additional capacity. This court dismissed the claim based on the jurisdiction agreement for lack of jurisdiction. Under the American Rule of Costs, there is no reimbursement of costs in the United States. The District Court did not order such reimbursement either. The plaintiff now filed a suit with the District Court in Bonn with the same content. With the counterclaim, the defendant demands reimbursement of the costs it incurred in defending itself against the action before the District Court, which it puts at USD 196,118.03. The defendant has also filed a counterclaim with the District Court in Bonn.
The District Court had dismissed the claim and granted the counterclaim. The plaintiff filed an appeal limited to the counterclaim. The Higher Regional Court dismissed the counterclaim.

The BGH reversed the judgment of the Higher Regional Court in response to the defendant’s appeal and referred the matter back to the Higher Regional Court for a new hearing and decision.

In the opinion of the Federal Court of Justice, the agreement on the place of jurisdiction in Bonn and the validity of German law must be interpreted as meaning that the parties are obliged to bring actions under the contract only in this place of jurisdiction and, if the court seised – at least to the extent that the court seised, such as the District Court, has recognised its lack of jurisdiction – to reimburse the other party for the resulting costs of the appropriate legal defence.

With such an agreement, the parties would have expressed their interest in making litigation plannable both in substantive and procedural terms. With it, the contracting parties active in international legal relations in particular wanted to create legal certainty and make (also economic) litigation risks calculable. By specifying a specific place of jurisdiction, they aimed to select a specific place of jurisdiction and, in particular, to prevent subsequent forum shopping by a contracting party. This purpose, i.e. to avoid disputes about jurisdiction and thus unnecessary costs for appealing to a court with no jurisdiction, can only be achieved if it is counteracted by appealing to a court in breach of the agreement by granting the party thereby charged a claim for reimbursement of costs. With the Agreement under German law as a whole, the parties had also recognised both the general principle resulting from § 280 (1) of the German Civil Code that a failure to comply with contractual obligations, in particular also the failure to comply with an obligation to bring an action before a court, could give rise to a claim for compensation, and the principle that a party subject to a civil dispute is obliged to reimburse the other party for the costs necessary for legal defence. The fact that, according to the case-law of the Federal Court of Justice, the mere recourse to a state, legally regulated administration of justice procedure to enforce alleged rights cannot be regarded as a fundamental breach of contract obliging the parties to pay damages does not stand in the way of this. This principle protected the constitutionally guaranteed free access to state courts. This access was not restricted in a constitutionally questionable manner by the risk of the obligation to reimburse costs inherent in any filing of an action.

In its action before the Federal Court in the USA, the applicant culpably breached those obligations and was therefore liable to pay damages. Since the costs incurred by the defendant as a result of the precautionary filing before the District Court on the merits of the case still have to be determined, the Federal Court of Justice could not make a final decision on the merits of the case and therefore referred the case back to the Court of Appeal for a new hearing and decision.

Previous instances
LG Bonn, jurisdiction from 08.11.2017 – 16 O 41/16
OLG Cologne, Urt. v. 26.02.2019 – 3 U 159/17

Source: Press release of the BGH No. 134/2019 v. 17.10.2019