Current case law

• Choice of court agreement sufficient to justify application of EU law
• Expert opinion not admissible in case of a rejection of the expert
• Assignment of claims for indemnity against D&O insurer

Choice of court agreement sufficient to justify application of EU law

A 'foreign element', within the meaning of the Brussels I Regulation, exists if two parties domiciled in the same Member State agree on the international jurisdiction of the courts of another Member State within the scope of a choice of court agreement.

Facts of the case

Two parties, which were domiciled in Slovakia, concluded two loan agreements. Both agreements contained an identical choice of court agreement according to which, in the event of a dispute not resolvable by negotiation, "the Czech court with both subject matter and local jurisdiction was to [...] decide on the dispute." The claimant, who was the assignee of the rights asserted, requested repayment of the loans by the defendant and brought an action before the Supreme Court of the Czech Republic for payment of the amounts due and determination of the Czech court having local jurisdiction to hear the case pursuant to section 11 para. 3 Code of Civil Procedure on the basis of the choice of court agreement contained in the two loan agreements. The claimant argued that the choice of court agreement was valid and in line with the requirements stipulated in Article 25 (1) Brussels I Regulation and that no other court had jurisdiction - whether special or exclusive - thereunder. With its question referred to the ECJ for a preliminary ruling, the court sought to clarify whether the Regulation is applicable if the only foreign element is that the parties, which are domiciled in the same Member State, have concluded a choice of court agreement agreeing on the jurisdiction of the courts of a Member State other than that in which they are domiciled. Alternatively, such case could be regarded as a domestic matter, since the mere intention of the parties was not sufficient to give their contractual relationship an international character.

Decision

The ECJ affirmed the existence of a foreign element, which is required for the Brussels I Regulation to apply. It ruled that Art. 25 (1) Brussels I Regulation applies to a choice of court agreement as soon as the parties to a contract, who are domiciled in the same Member State, agree on the jurisdiction of the courts of another Member State for disputes arising from that contract. The ECJ did not comment on the question of whether the claimant, who was an assignee in the present case, could at all refer to a choice of court agreement it had not negotiated itself.

(ECJ, 8 February 2024 - C-566/22)

Practical tip

• The decision also applies to cases in which two contracting parties with habitual abode in a third country have validly agreed on the jurisdiction of the courts of a Member State under the Brussels I Regulation by way of a choice of court agreement, because Article 25 Brussels I Regulation applies irrespective of the parties' domicile, and the foreign element may also consist in the parties being domiciled in a third country (ECJ, 8 September 2022 - C-399/21).
• If the third country is a Contracting Party to the Hague Convention on Choice of Court Agreements (HCCA), however, the HCCA takes precedence within the scope of its application.

Expert opinion not admissible in case of a rejection of the expert

The expert opinion of an expert who has been rejected may, as a matter of principle, not be used. There are only very limited exceptions. If, for example, an expert opinion has already been submitted, and a party rejects the respective expert thereafter, such opinion must not necessarily be considered inadmissible.

Facts of the case

The claimant was claiming damages from the defendant after medical treatment. An expert was called in by the court and explained orally in a hearing before the Regional Court a written opinion he had prepared. During the hearing, the claimant challenged the expert on the grounds of bias, and subsequently substantiated this in a written statement. The expert responded in writing. Thereafter, the claimant submitted a new written statement, in which it based its challenge for bias on the facts that the expert's response contained inappropriate criticism of the claimant's challenge for bias as well as of the claimant's legal representative and his conduct during the hearing.

While the Regional Court rejected the challenge for bias, the Higher Regional Court (4th Civil Senate) held it to be well-founded. In this context, it stated that it could be left open whether the grounds originally referred to had been asserted in good time, since, in any case, there was a lack of grounds for bias at that time. With his statement, however, the expert had exceeded the bounds of the required neutrality and objectivity by analysing and negatively evaluating the personality of the claimant's representative and his conduct in court. The expert opinion was used by the Regional Court and the action was dismissed. The appeal against the use of the expert opinion was dismissed by the Higher Regional Court (5th Civil Senate) on the grounds that the Regional Court was not obliged to obtain a new expert opinion from another expert because, at the time the challenge was filed, there was no reason to doubt the expert's impartiality, as the expert and the claimant's legal representative had not met before the expert opinion had been prepared. A reason to fear that the expert's impartiality had already been compromised when the expert opinion was prepared did therefore not exist. Apart from that, the claimant's challenge of the expert constituted an abuse of rights, as the claimant was thereby pursuing purposes unrelated to the proceedings. Requests for rejection that are made solely to delay proceedings or to pursue purposes unrelated to the proceedings are inadmissible due to a lack of legal interest (fehlendes Rechtsschutzinteresse). In the present case, the pursuit of purposes unrelated to the proceedings is evident from the course of the proceedings. With the appeal allowed by the Federal Court of Justice after the non-admission complaint, the claimant continued to pursue its requests for appeal.

Decision

The appeal was successful. In the opinion of the Federal Court of Justice, the appeal rightly criticised the Court of Appeal for not ordering a second expert opinion and basing its decision on the arguments of the rejected expert. According thereto, it was true that the court, pursuant to section 412 para. 2 German Code of Civil Procedure, could order a second expert opinion if an expert was successfully rejected after submitting an expert opinion. In such case, however - regardless of the wording ("can") - the expert opinion of an rejected expert must generally no longer be used. There are no apparent exceptions to this rule in this respect.

According to the case law of the Federal Court of Justice, such an exception could be taken into consideration if the party rejecting the expert provoked the reason for rejection in an abusive manner. The consideration of the Court of Appeal (5th Civil Senate) that the claimant's challenge was inadmissible because it constituted abusive litigation tactics for circumventing unwanted taking of evidence was inconsistent with the binding effect of the decision made by the Higher Regional Court (4th Civil Senate) in the challenge proceedings and may therefore not be taken into account (sections 512, 406 para. 5 German Code of Civil Procedure). Moreover, in view of the course of the proceedings, a party was free to exercise the right of rejection (section 406 para. 1 sentence 1 German Code of Civil Procedure in conjunction with section 42 para. 2 German Code of Civil Procedure) within the time limits provided for in section 406 para. 2 sentence 1 and sentence 2 German Code of Civil Procedure).
Then again, there should be no reason to doubt the expert's impartiality in the preparation of his previous opinions. In the present case, the Court of Appeal erred in denying this. The fact that a (possible) impairment of impartiality did not become apparent earlier does not mean that such an impairment did not already exist. In the absence of corresponding findings by the Court of Appeal, however, this exceptional circumstance could not be confirmed. Thus, the question of whether the expert opinion may be used must still be left open.

(Federal Court of Justice, 5 December 2023 - VI ZR 34/22)

Assignment of claims for indemnity against D&O insurer

The reversal of the burden of proof in accordance with section 93 para. 2 sentence 2 German Stock Corporation Act (Aktiengesetz - AktG) also applies in a direct action of the company against the insurance company if the managing director against whom a claim is asserted assigns his claims against the D&O insurer to the company.

Facts of the case

The former managing director of the claimant, a German limited liability company (GmbH), was accused of having breached his duties as managing director and consequently causing damage. He had rejected increasing coverage under an existing fire insurance, with the result that damage caused by a subsequent fire was not fully covered by the applicable sum insured. The managing director then assigned his claim for indemnity against the insurer under a D&O insurance, which had been taken out in his favour, to the claimant. The company brought an action against the D&O insurer for payment under the assigned claim for indemnity. The Regional Court dismissed the action on the grounds that, following the assignment of the claim for indemnity, there was no longer any serious claim against the managing director and, in consequence thereof, no insured event as per the terms and conditions of the insurance. The claimant appealed to the Higher Regional Court.

Decision

The appeal was rejected. The Higher Regional Court held that the D&O insurer was not obliged to assume liability for the claim as the claimant had no claim for damages against the managing director. The managing director was not liable under section 43 para. 2 German Limited Liability Companies Act (GmbH-Gesetz - GmbHG) since the fact that fire insurance coverage was not increased fell under the Business Judgement Rule (BJR), which is enshrined in section 93 para. 1 sentence 2 German Stock Corporation Act and applies analogously to German limited liability companies. Accordingly, saving on insurance premiums may be a justifiable option if, as argued in the present case, the company would not survive a major fire economically, even with insurance cover. Furthermore, the managing director had acted on the instructions of the sole shareholder and was not responsible for insurance matters. A claim for indemnity against the D&O insurer did therefore not exist.

Although the question was not relevant to the decision in the present legal dispute, the Higher Regional Court stated in an obiter dictum that, in cases where the insured managing director assigns his claim for coverage against the D&O insurer to the allegedly aggrieved company, the reversal of the burden of proof in favour of the company according to section 93 para. 2 sentence 2 German Stock Corporation Act applies also in a direct action against the D&O insurer. Accordingly, in case of a direct action, it is incumbent upon the insurance company to show and prove that the conduct of which the managing director is accused was not in breach of duty or that there was no fault on his part. The assignment of the claim for indemnity merely results in a change of the creditor, but does not affect the requirements regarding the basis of the claim, which is to be examined incidentally (section 43 para. 2 German Limited Liability Companies Act and section 93 para. 2 German Stock Corporation Act, respectively). In consequence thereof, the provisions on the burden of presentation and proof as stipulated by law in favour of stock corporations and also applicable to limited liability companies remain applicable. The court held that the insurance company was not in a less favourable position in case of a direct action than it would be if liability and coverage proceedings were conducted separately, because it still had influence on the question of liability, as the board was contractually obliged to provide information and cooperate. Thus, the D&O insurer was sufficiently protected.

(Higher Regional of Cologne, 21 November 2023 - 9 U 206/22)

Practical tip

• The legal issue addressed by the Higher Regional Court only in an obiter dictum has been controversially discussed for a long time and has not yet been conclusively clarified by the highest courts. As far as can be seen, this is the first higher court decision on this subject, which - although not legally binding - is very likely to have a certain signalling effect. Arguments against the opinion of the Higher Regional Court of Cologne in legal literature include, among other things, that the applicability of the rules on the burden of proof also in case of direct actions created the risk of collusion between the company and its managing director when asserting claims for coverage in a direct action. It remains to be seen how other courts will position themselves with respect to this legal issue and whether the Federal Court of Justice will provide clarification in the near future.