Why London fees stun German clients

Reams have been written, and will continue to be written I am sure, by English lawyers on the subject of London’s ability to retain its litigation crown. We all know the story: for many years, the capital’s legal system has enjoyed hallowed status as the forum of choice for the world’s biggest-ticket commercial disputes. Indeed, statistics in the annual Commercial Court Report regularly show that the large majority of cases (consistently 74% over the last two years) do not even involve a UK party. The quality and integrity of its judges, foreign parties’ confidence in the predictability of the common law system, the transparency of the process for outsiders, and the comfort that comes from knowing the enforceability of English judgments in other jurisdictions, have all helped to create this enviable position. 

Increasing competition from the likes of the Singapore International Commercial Court and the Dubai International Finance Centre keeps the UK Commercial Court on its toes. And in response we see it constantly consulting and innovating to improve its procedures and processes to keep it in pole position – not least in the areas of witness statements and disclosure, and in expediting its uptake of technology. But is the court focusing on the right issues to keep it attractive to foreign users? Or are these initiatives the right answers to the wrong problem? A perspective from the experience of my German business clients could be instructive here.

The single biggest pain-point for German business clients engaging with the English litigation system is legal costs. UK solicitors and barristers typically have very little appreciation of just how differently costs are approached in Germany and therefore the shock that German business clients are set up for. This is not just about the scale of costs and fees with the English system, but also the complete lack of predictability, which is alien to a German client. Under German civil procedure rules, court fees are based on the value of the claim (amount in dispute), as are lawyers’ fees which are also controlled by statute – the so-called Rechtsanwaltsvergütungsgesetz (RVG). This means that any litigant in Germany can look up in advance what the lawsuit will cost them. To the euro. Take for example a business owner preparing to sue a supplier for €1m for non-performance of a contract. She can predict her costs risk very exactly (for the first instance as well as a potential appeal). Every German litigant does this before initiating legal action. The total lawyer fee risk in the first instance would be €15,461 (for her own lawyers) and another €15,461 (for her opponent’s lawyer). So, in the worst case scenario, if you completely lose your €1m lawsuit in the first instance the cost is €48,565 (2 x lawyer fees plus court fees). Compare this with the English court experience where €15,000 is not even likely to get you through the pre-action protocol.

It is true to say that German legal fees are low compared to many other countries besides the UK; lawsuits and lawyers in France, Italy, Spain, Switzerland, and even in Austria, are much more expensive than in Germany. But litigation in England is right up there at the top cost-wise and surely this could prove an achilles heel in its ambition to remain the world’s favourite litigation forum. Business litigation in England is 10-15 times more expensive compared with Germany. This difference in scale is off the scale! You can take an educated guess what the legal costs for a €1m lawsuit would be in England if it went to full trial or oral hearing – very probably in excess of £200,000.

A first question from any German client going through the English system would be: why is the costly additional layer of the pre-action protocol even needed? This layer does not exist in the German system, so clients perceive it as an unnecessary round of exchanging letters about what both parties know anyway.  

The next shock is the oral hearing stage: when an English court schedules 3-5 days for court hearings, this is anathema to a German client. In Germany, even complicated cases rarely take more than one full day in court. Why? Because in Germany judges have a much more active role in structuring the case. The court decides whether they even need to hear a witness or an expert. Under German civil procedure rules, the judge(s) decide if and on what witnesses are to be heard. And it is the judge(s) who ask(s) the questions, which leads to very short oral hearings compared with the UK, with no need for an expensive barrister and their advocacy skills.

Then, of course, there is the entire matter of disclosure – another alien concept that baffles German business clients, going against their typical assumption that internal information is private and confidential.

Some of these differences are philosophical and will not be resolved in a hurry. But one thing is for certain: good client care means taking the time to understand where your client is coming from, what their assumptions are, where they are likely to find a foreign system bumpy – and therefore how as their adviser you can best smooth out their experience. Despite the startling systemic differences, there may be very good reasons why a German business should choose, or be advised, to bring their commercial dispute to London. For example, if they want to make a very public stand on a commercial point that other people in a global marketplace will take note of. The key is to make sure clients are fully aware of the disadvantages as well as advantages. While parts of the process may not be predictable, there should not be any nasty surprises – and they can focus on the benefits instead.

Bernhard Schmeilzl is co-founder and managing partner of Graf & Partners, a Munich-based firm specialising in German-British legal issues