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Recoverability of lawyers’ fees in legal proceedings

Recoverability of lawyers’ fees in legal proceedings

Foreign companies are regularly party to proceedings before a German court. As in every other European country, the lawyer’s fees are a cost item that should not be underestimated and which give rise to the question of their recoverability for foreign clients.

1.       Statutory remuneration
In Germany, the level of lawyers’ remuneration is basically determined by the rates set in the Rechtsanwaltsvergütungsverordnung – RVO (Regulation on Lawyers’ Remuneration). These are governed by the value in dispute. If a case’s value at issue is EUR 50,000, for example, then the lawyers for the Claimant and the Defendant receive EUR 3,483.73 for handling a case leading to a judgment. As in many other countries, such as the Netherlands, however, charging by hourly rates as part of a fee agreement has also become established in Germany.

2.       Reclaiming the cost of statutory remuneration
The losing party in a court case must bear the costs of the other party’s legal representation according to the quota for defeat. This reimbursement obligation on the part of the defeated party relates to the level of statutory fees according to the RVG. If, for example, the Dutch party in a case before a German court wins 80% of its claim, then its opponent must pay 80% of the Dutch party’s legal costs and the Dutch party must pay 20% of the opponent’s legal costs, each based on the level of costs according to the RVO.

3.       Reclaiming lawyers’ costs that exceed statutory costs
If the lawyer and client have reached a fee agreement, depending on the level of the value in dispute, it can quickly become the case that the lawyer’s costs invoiced exceed the statutory costs. The question then arises as to whether the losing party in a court case also has to reimburse the pro rata temporis remuneration and/or to what extent? Current prevailing opinion rejects reimbursement of the part of the remuneration that exceeds the statutory fees in cases before state courts. Agreed remuneration is not statutory remuneration and accordingly not reclaimable to this extent. Otherwise the risks of litigation would be incalculable for the parties. Something different only applies if the defending party has contractually undertaken to reimburse the additional costs incurred pursuant to the fee agreement.

4.       Reclaiming costs as part of a claim for damages
It is also conceivable for a claim to reimbursement of costs to be asserted in the form of a claim for damages secondary to the principal claim in a case. A defendant’s duty to reimburse within the scope of a claim for damages routinely requires fault. In the process it is acknowledged that lawyer’s costs which were caused by the damaging event are to be reimbursed if, from the injured party’s point of view and taking into account the specific situation, they may be regarded as necessary. Each party is basically permitted to consult a lawyer to safeguard its rights and, as a rule, lawyer’s fees therefore usually form part of the damage eligible for compensation.

In this context, the issue of the level of lawyer’s costs to be reimbursed as part of a claim for damages is contentious. The overwhelming opinion is that legal costs based on a fee agreement should not be refunded, even as part of a claim for damages, if these exceed the statutory fees. The opinion that lawyer’s fees calculated pro rata temporis can be reclaimed as part of a claim for damages if they were expedient and necessary for prosecution of an action and do not contravene the precept of more provident litigation is, however, increasingly gaining ground.If, for example, a Dutch company involves a lawyer, who works in his Dutch practice and charges pro rata temporis, the Dutch company can assert a claim for reimbursement of the legal fees in full in proceedings conducted before a German court, because there is a possible long-term (confidential) relationship based on experience with this practice and the lawyer responsible for the case can advise in Dutch. This meets the expediency criterion. The expenditure claimed must be proportionate to the objective and legal scope of the matter in dispute. It is incumbent upon the creditor to prove the specific level of the lawyer’s costs charged pro rata temporis. If the requirement for proof is met and if the court is convinced that the hours claimed were necessary for appropriate prosecution of an action, in a particular case the victorious party’s full legal expenses may be imposed upon the defeated party. Whether the claim will be awarded is governed by the conditions.

5.       Reclaiming costs in arbitration proceedings
Conversely, in arbitration proceedings, determination of the level and scope of the costs to be reimbursed and thus also the reclaimability of hourly fees is routinely at the discretion of the arbitration tribunal. Primarily because of the complex subject matter of arbitration proceedings, for which the parties voluntarily opt, a pro rata temporis fee agreement between party to arbitration and legal representative is routinely regarded as appropriate. Basically substantiation of lawyer’s costs incurred is also all that is required in arbitration proceedings.

By Susanne Hermsen 

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