Strict observance of formal requirements in case of court settlements

14 Januar 2016

On 14 July 2015, the German Federal Supreme Court (BGH) ruled that a court settlement concluded according to Section 278 para. 6 German Code of Civil Procedure (Zivilprozessordnung, ZPO) upon a settlement  suggestion made by the court in writing was only valid if every party to it had given its consent in a written submission (docket no. VI ZR 326/14). However, a party may be barred from invoking formal invalidity because of the principle of bona fide according to Section 242 German Civil Code (Bürgerliches Gesetzbuch, BGB), which is also applicable in matters of procedural law.

In the underlying case, the court of appeal had proposed a settlement to the parties in the oral hearing and had dictated the text of this settlement for the minutes on an audio data carrier, which had subsequently been played aloud to the parties and the parties’ lawyers. The Plaintiff had later declared its “approval according to Section 278 para. 6 ZPO”, and this declaration had also been dictated for the minutes on an audio data carrier, played aloud to the parties and the parties’ lawyers, and then approved by the Plaintiff’s lawyer. After the court had served the minutes which contained the written record of the oral hearing upon the parties and the Defendant had by way of a written submission declared its approval of the settlement proposal, the court established the conclusion of the settlement in accordance with Section 278 para. 6 ZPO. More than 6 weeks after the oral hearing, however, the Plaintiff pleaded the invalidity of the settlement, namely for violation of the formal requirements of the ZPO because the Plaintiff itself had not declared its approval in a written submission.

In view of the Federal Supreme Court, the Plaintiff’s approval of the recorded settlement proposal did not constitute an acceptance “by a written submission” as required in Section 278 para. 6 ZPO; in order to be valid, the approval should rather have been declared by way of a written submission. This is why the Federal Supreme Court declared the court settlement formally invalid.

Despite this, the Federal Supreme Court dismissed the appeal on legal grounds because it found that under Section 242 German Civil Code the Plaintiff was barred from invoking formal invalidity, namey because the Plaintiff had inter alia for several weeks refrained from invoking formal invalidity and had thereby given rise to the Defendant’s legitimate expectation that the Plaintiff would not plead formal invalidity. The Plaintiff had therefore acted in a contradictory way (venire contra factum proprium), such that the fact that it later invoked the formal invalidity was an abuse of law.

The entire judgment can be downloaded here (in German language).