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April 29, 2020

German Federal Court of Justice Rules on Damage Compensation Following Breach of Choice-of-Forum Clauses

Deutscher AnwaltSpiegel

This article addresses the impact that the German Federal Court of Justice's 17 October 2019 decision (BGH, ref. III ZR 42/19 = NJW 2020, 399) regarding the fundamental yet controversial questions of whether and when the violation of jurisdiction agreements can result in obligations to pay damages will have on omnipresent "choice-of-forum" clauses in cross-border contracts. The authors evaluate the BGH's decision and explain the dogmatic considerations of the court on the substantive legal effect of jurisdiction clauses and their interpretation in conformity with IPR.

The decision arose from a dispute between two telecommunications companies: the defendant, based in Germany, and the plaintiff, based in the USA. Despite the contractual agreement under German law and Bonn as the place of jurisdiction, the US company went to court in its home country and lost due to the lack of international jurisdiction of the courts there. A dispute then arose about the legal fees incurred by the defendant for its defence in the USA, which finally had to be decided by the BGH.

While welcoming the BGH's opinion that the violation of jurisdiction clauses in principle entails obligations to pay damages, the authors note more details would have been wanted regarding the court's assessment of the argument of the US company, whose lawyers, after due consideration of the case, advised it to file a lawsuit in the USA. In the authors' opinion, the examination of the consequences of this fact on the perpetrator' fault is comparatively brief.

Ultimately, though, the authors say the ruling of the BGH is to be well received, especially from the point of view of internationally operating companies who wish to avert both the danger of legal action being taken abroad and the hardly calculable cost risks associated therewith. As a result, they conclude the BGH's decision also sends signals far beyond the German borders.