Christian (name changed) is a sole proprietor and engineer who works with German companies in the design and supply of refrigeration equipment in Germany. In addition, the young man, having at some point decided to expand his business and take it international, found a partner in the Russian closed joint-stock company "ZAO Korall." ZAO Korall equips naval vessels, including with refrigeration units, climate-control equipment and cooling systems. Christian, a highly ambitious young man with no shortage of ideas, had long dreamed of bringing one of his large-scale projects to life, but realizing it required capital investment. So, after some time, he decided to ask ZAO Korall's principal shareholder, Yevgeny (name changed), for money on loan terms. Christian assured him that he would repay the money in the near future, since he was involved in a number of profitable projects at the time. Yevgeny agreed, and a corresponding loan agreement was subsequently drawn up for 70,000 euros at a set rate of interest. Repayment deadlines were also specified. But Christian missed them. Even so, Yevgeny accommodated the young man, and the agreement was extended. This, however, did not solve the problem, and ZAO Korall, represented by Yevgeny, turned to our law firm for help.
Since there was little hope that Christian would repay the loan, and it was already clear that the matter was heading to court, we for our part advised ZAO Korall to draw up a notarized agreement setting out provisions for resolving disputes through litigation — specifically, that the case would be heard in the courts of Germany, applying German substantive law. Since Christian, as the debtor, resided in Germany, concluding this agreement with a jurisdiction clause considerably simplified our task. The agreement also provided for one further extension for Christian, but he still did not repay the loan.
The procedure for collecting a debt in Germany
Even if a debtor declares themselves insolvent, the creditor is entitled to register its claim in the schedule of creditors' claims — contacting an attorney promptly increases the chances of recovering at least part of the debt.
We then filed a claim with the court seeking, on account of the debtor's failure to perform a monetary obligation, recovery of the full loan amount together with the interest agreed in the contract on that sum (14% per annum), accrued over the term of the contract.
The limitation period in this case is three years. The problem, however, was that the client had approached us rather late, and we had to move quickly to get the claim filed in time. In February — that is, one month before the limitation period expired — the claim was filed with the court, and we made the deadline. As is well known, in order for the court to accept a claim for consideration, the court fee must be paid. We received the invoice and forwarded it to the client with a request to pay the fee, which he did. When transferring the funds, however, the client failed to state the purpose of the payment, and as a result the court was unable to match the payment received with the claim in time. This only came to light in March. We immediately wrote to the court to clarify the situation and identify the payment. The court subsequently accepted the case for proceedings, but the delay in paying the court fee gave the other side — the defendant — grounds to argue that the limitation period had expired.
Of course, as a factual matter, the limitation period had indeed already expired by March. But the lawyers at our firm do not give up that easily. Having studied the materials provided by ZAO Korall and established all the details of the case, we learned that Christian and ZAO Korall had periodically exchanged correspondence by email and WhatsApp between the debtor and staff of ZAO Korall's legal department concerning repayment of the debt. There were also several recorded telephone conversations. Accordingly, for almost nine months, the parties had remained in ongoing contact. There was only one topic of conversation — repayment of the debt. Christian claimed he still had no money, and the parties tried to find a compromise, discussing various possibilities for repayment, such as paying in instalments. In the end, 100 euros were transferred to the card of a ZAO Korall legal-department employee, and that was the only amount of the 70,000-euro loan that Christian ever repaid.
We therefore had documented correspondence that our clients had sent us. Having set out the whole situation, we filed a motion with the court arguing that, for as long as correspondence and negotiations were ongoing between the parties about the subject matter of the dispute, the limitation period had to be treated as suspended. We naturally supported our argument with the relevant statutory provision, namely § 203 of the German Civil Code (Bürgerliches Gesetzbuch — BGB). Under this provision, where negotiations are ongoing between a debtor and a creditor concerning a claim or the circumstances giving rise to it, the limitation period is suspended until one of the parties refuses to continue the negotiations. The limitation period, moreover, does not expire until at least three months after the suspension ends. Consequently, taking into account the nine months of documented contact between the parties, the deadline did not fall at the end of February, but at the end of March of the following year.
The other side, of course, disagreed and tried to grasp at any small detail as though it were a life raft. They argued that this correspondence had nothing to do with the case at hand, and that the 100 euros mentioned in the correspondence related not to repayment of the loan but to a different matter, explaining that the funds had been transferred to the account of a legal-department employee rather than to Yevgeny, the principal shareholder himself. This was a rather feeble attempt by the defendant to dispute the facts. We had fully documented the entire exchange, translated it, and noted the dates, times and content of the messages exchanged. We also read out a passage from the correspondence in which Christian himself had asked for the employee's bank details in order to simplify the transfer. The opposing side then tried to argue that there were inaccuracies in the translation of the correspondence and that it had not been certified by a translator, meaning it could not be used in the proceedings. We explained, however, that a certified translation is only required for documents, whereas correspondence of this kind does not constitute a document. Later, the defendant insisted that the correspondence we had submitted related to new facts in the case and could therefore not be admitted at this stage of the proceedings. The judge dismissed this argument as well, noting that we had introduced nothing new, but had simply substantiated the case further by adding the correspondence as a new piece of evidence.
The debtor also claimed that the rate of interest charged by the claimant was excessive. German law does indeed contain a provision under which a transaction can be declared void if it sets an excessively high rate of interest. And 14% per annum is considered a fairly high rate by German standards. We explained, in response, that the loan had been taken out in the Russian Federation, where different standards and practices apply, and that 14% is not high by Russian statistics. There is a difference, we pointed out, between the interest rates set by the European Central Bank and those set by the Central Bank of the Russian Federation, where different rates and percentages prevail. The rate also depends on the term of the loan, which in our case was one year. We also presented statistical data on average interest rates for one-year loans, for the same year in which ZAO Korall extended the loan to the entrepreneur. We also drew attention to the fact that it matters a great deal whether a loan is denominated in a foreign currency or in rubles, since interest rates on ruble loans are higher than on foreign-currency loans. An analysis of the statistics showed that the rate set by ZAO Korall fell within the average interest rate at which banks extend loans. And although German law applied to the case, the underlying figures used to assess the interest rate still had to be drawn from Russian practice, since the application of German law does not override the terms of the transaction, and the transaction had been concluded in the Russian Federation. Accordingly, it was the business conditions prevailing in Russia, not in Germany, that had to be considered. We also stressed that, in light of the debtor's insolvency, we had already dropped from the claim the demand for the contractual penalty of 0.6% per day of delay, which had been asserted at the pre-trial stage of the dispute and was provided for in the contract.
During the proceedings, the judge sided with us on most points. Based on the correspondence we had submitted as evidence, the judge granted our motion to extend the limitation period and agreed with the claims asserted against the defendant. The defendant thus found himself cornered. The court, however, taking into account the fact that the debtor was insolvent and had no funds to repay the loan — his assets already being subject to encumbrances — proposed that the parties reach an agreement, and put forward for discussion an amount of 70,000 euros. This amount was set without taking into account all the interest accrued in the meantime, which we had also included in the claim and had intended to recover from the defendant. After discussing the matter with our client, however, he agreed to this amount. In this way, we succeeded in reaching a settlement that, on the one hand, gave the debtor a realistic chance of repaying ZAO Korall, and, on the other, allowed us to achieve the desired result for our client.
In closing, we would like to point out how important it always is to pay attention to the small details. It was quite careless of ZAO Korall not to state the purpose of the payment when transferring the funds for the court fee. We were, of course, able to fix this problem, but a case does not always contain enough evidence to allow everything to be corrected. So always be attentive, in everything you do. You never know what situation this might lead to. And even such a small detail can carry major consequences — such as, in our case, the risk of losing the entire proceedings.
For our clients, everything ended well, but these events taught them a great deal. People often delay consulting a law firm and only do so at the last moment, thereby only making their situation worse. Timely involvement of an attorney, however, could greatly simplify and speed up a case. We therefore advise you always to seek out professionals in the field without delay.
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THE LAW FIRM REPRESENTS CLIENTS' INTERESTS THROUGHOUT GERMANY
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