Germany: Law Firms and Multinational Partnerships

Easier Admission Procedures For Non-German Lawyers To The German Bar
Last Updated: 20 January 2000

Germany is politically younger than the United States: its existence started in 1871. Since then its history does not have a record of being monotonous: Bismarck, a Kaiser. the Weimar Republic, a dictator, a democratic society in West-Germany, a Communist society in East Germany set the tone for music not always appreciated by the rest of the world.

Whether the lawyers mirrored that type of society each time remains an open question. Every time there was a change in society, it always took years of adjustment. To pass a law updating the status of lawyers varied between 3 and 14 years:

From 1871 to 1878 (See Endnote 1)

From 1933 to 1936 (See Endnote 2)

From 1945 to 1959 (See Endnote 3)

This article focuses on the issues of admission to the German Bar and its impacts on a global society in the new millennium

1) Development of the Legal Profession

In 1780 Prussia abolished the profession of lawyers. Before that they were required to wear long robes, because Frederic the Great wanted to make sure that the "rascals" ("Spitzbuben") should be "recognized from a proper distance". There was a complete turnaround almost 100 years later after the first German Unification in 1871. It was acknowledged that the principle of "free advocacy" is essential. Liberalism promoted the idea successfully that a lawyer has to be independent of the State. His profession was not considered as a business, but as a "service for law". This independence of the lawyer was celebrated as the Magna Carta for lawyers. The independence of the lawyer put him - in a sense - on equal footing with the judge.

These liberal ideas in the 19th century created the framework to make sure that lawyers play an important role in conflicts between the citizen and the State on one hand and between citizen themselves.

While the German lawmaker acknowledged this principle, it restricted at the same time that the lawyer may only plead in the local civil court where he is admitted. This restriction of admission to a certain civil court (Landgericht) was repealed as recently as January 1st 2000.

Finally a law was enacted to allow German lawyers to plead in all First instance German Civil Courts. The old restriction was only struck down due to developments on the level of European law and due to certain circumstances in East Germany.

After World War 2 a Federal Law was enacted in West Germany dealing with the rights and duties of lawyers in 1959.

A forerunner was enacted in the British Zone in 1949 (See Endnote 4).

The Bundesrechtsanwaltsordnung (BRAO) envisaged primarily a lawyer representing his client in court. The number of practising lawyers was so small that advertisement was considered as an act of unfair competition.

This went so far that lawyers were not even permitted to quote their areas of practice.

No need was seen to specialize, because de jure, a lawyer was authorized to deal with every aspect of law. This turned out to be wishful thinking.

In the course of decades lawyers developed a reputation that they can talk about everything - even if they know little or nothing about the subject!

Competition was restricted to the local market, because every lawyer was admitted just to one local civil court.

The income of lawyers was secured by a Fee Schedule. A Federal Law prescribed the fees of a lawyer corresponding to the value of the litigation. The lawyer was not permitted to undercut these legal fees. That was considered as an act of unfair competition. Since the 1980s the fee schedules could not keep up with the cost explosion.

Fee agreements by charging clients on an hourly basis became more and more common. The US system was a model insofar, contingency agreements are still illegal today.

2. Growth of the legal profession

Right after World War 2 a handful of judges got the new Court system off the ground in Munich in October 1945.

Admission of lawyers was a slow process.

By 1965 about 20.000 lawyers were admitted.

Currently we are approaching 100,000 lawyers in a country with close to 80 million inhabitants.

There are two reasons for this extraordinary growth: students have been flooding the universities. No technical equipment was needed for law studies. It was sufficient to provide appropriate libraries and law professors. Medical studies on the other hand required expensive technical facilities. As a consequence it was difficult to stop the "Rebellion of masses" to join the legal profession different from other professions. (See Endnote 6)

Graduates had four options. They could join the court system as a judge, obtain a job in the legal departments of administrative bodies, join a legal division of corporate headquarters or become a lawyer.

Currently the court system cannot absorb more than 4% of the graduates as judges, about 75% become lawyers.

3. East Germany joins West Germany in 1990

East Germany had only 600 practising lawyers in October 1989 serving 17 million inhabitants. Between November 1989 and October 3rd 1990, the day of German unity, additional 1400 lawyers were admitted to the Bar. Needless to say, new careers were in the pipe-line.

By looking at the sheer numbers it becomes evident how limited the influence of the legal profession must have been in East Germany, more a matter of criminal defense and divorce cases.

Civil litigation was of extremely reduced significance in a closed system. There were other ways to settle economic differences without the intervention of lawyers.

"Going East" after 1990 produced a comparable mentality as "going West" in the United States in the 18th century. In spite of the same language and a common currency not all encounters have been happy ones in the legal profession.East German lawyers had little problems to be admitted to the West German system of lawyers, unless there was evidence of so-called "Stasi activities". (See Endnote 7)

The transition to a service-oriented society and the awareness to pay for such services was a new experience for East German citizens.

4. Supra-regional law firms

It was a typical situation to have just a one man law firm in the 1950's and 1960's. Compared to the Anglo-Saxon countries law firms remained extremely small in size. The main reason was the admission to one civil court. This situation was radically changed with a decision of the Federal Supreme Court allowing supra-regional law firms in 1989. (See Endnote 8)

A few months earlier the Bar Association of Dusseldorf had paved the road for the new development by allowing supra-regional law firms.

As soon as the ink of the decision of the Supreme Court was dry, supra-regional law firms were mushrooming all over Germany. A considerable number of them collapsed shortly after. The lawyers were not prepared for the management of such new entities. There was little infrastructure. The old truth came out again that Germany is a conglomerate of different mentalities: It turned out that a Bavarian law firm was better equipped to cooperate with an Austrian law firm than with a law firm from Hamburg. The Hamburg lawyer may have communicated easier with an English lawyer than with his Bavarian counterpart.

General trends in the international arena made it more and more transparent that the admission of the German lawyer to one civil court has become out-dated.

In 1994 the Federal Law maker allowed every West German lawyer to appear in every civil court (Landgericht) as of January 1st, 2000. (See Endnote 9). Some modifications were introduced at the end of 1999 to put East German lawyers on the same platform.

5. The Interprofessional Law Firm

Reviewing the legislative material of 1993, it becomes clear that there was no way to stop upcoming dramatic changes in the legal profession. (See Endnote 10)

One of the items was the interprofessional cooperation in form of a partnership. Lawyers may have a partnership with patents attorneys, tax consultants and auditors. (See Endnote 11)

Cooperation with other free professions, such as architects etc. is in the pipeline.

6. New forms of practice according to the "Partnerschaftsgesellschaftsgesetz"

The Partnerschaftsgesellschaftsgesetz (PartGG) was enacted on July 1st, 1995. (See Endnote 12)

Before that no lawyer was allowed to become shareholder of a corporation or to restrict his liability.

The PartGG is a start to restrict liability to some extent. Liability can be pinpointed to the partner being in charge of a particular case. As a consequence the remaining partners are not liable with their private property but just with the partnership's assets. Under certain circumstances the PartGG even allows to limit liability to a certain amount.

7. Lawyers organised under GmbH

After years of discussion the Bavarian Supreme Court declared for the first time that lawyers may organize themselves as GmbH (company with limited responsibility). (See Endnote 13)

That decision was reconfirmed in 1996. (See Endnote 14)

As of March 1st 1999 a Federal law permitted the existence of a lawyer's GmbH. To protect the client insurance requirements were raised by a factor of 10.

8. Multinational Law Firms

From the supra-regional partnership it was only a small step to legalize a multinational law firm. Such an enormous step forward would not have been possible without the ongoing discussion on the restrictive admission to civil courts. The main pressure, however, had come from outside, namely the European Court. In a landmark decision of the European Court of 1988 the court ruled against the Federal Republic of Germany, that a lawyer within the European Union giving services to his client should not be prevented from access to the courts in Germany. (See Endnote 15)

This was a new version of a "policy of revolving doors'

This ruling on admission procedure was the start of a new era. The philosophy on what lawyers are doing had changed.

It became possible to permit partnerships with other law firms of the European Union.

For the first time one could see other European law firms opening an office in Germany. The logistics behind that required some type of procedure be admitted to a local Bar Association.

The underlying principles were based on

  • Freedom of movement
  • Freedom of establishing a domicile
  • Freedom of offering services in the other country for a limited time.

Such freedoms were locked into the EC-Treaty since 1958. (See Endnote 16)

These principles had to be translated in a painstaking procedure into EC-Directives. The Member States have an obligation to transform European Directives into national law.

This tedious process has now gained substantial momentum in the legal profession.

9. Can US law firms form multinational partnerships with German law firms?

The German lawmaker decided to go beyond the boundaries of the European Union. It allows multinational partnerships, even if a lawyer comes from outside the European Union.

The crucial question is:

Can the lawyer be admitted to the local Bar Association?

Before the law of Section 206 and Section 207 BRAO was amended in 1989, a lawyer needed special permission on the grounds of a law, which was not even dealing with lawyers. (See Endnote 17)

It became more and more transparent that Germany had not sufficiently acknowledged, that the person submitting the application was a practising lawyer in his home country. Formerly a partnership with German lawyers was not legal. To open a law firm in Germany outside the European Union depended on the Reciprocity Clause. Germany signed the last update of the General Agreement on Trade and Services (GATTS) on April 15th, 1934. (See Endnote 18)

The Reciprocity Clause was replaced by the Most-Favoured-Nation-Treatment. Each Member accords to services of any other Member treatment no less favourable than it accords to like services of any other country. As a consequence all lawyers of the Member States of GATTS are now allowed to open a law firm in Germany. (See Endnote 19)

GATTS became effective on January 1st, 1995. There was a quick reaction of the Federal Ministry of Justice: 29 days later an Ordinance to improve the Position of Foreign Lawyers" stated that the US term "Attorney at Law" is on the same footing as the term of "Rechtsanwalt"

The Ordinance of January 29, 1995 entitles the American attorneys-at-law to open an office in Germany. (See Endnote 20) According to Section 206 BRAO in its latest version the attorney-at-law is free to give legal advice, however restricted to the law of the country of origin and the international law. Whether he can give advice on European law is still a matter of dispute.

The attorney-at-law is allowed to form a partnership with German lawyers. His title "attorney-at-law" supplemented with his country of origin may now be printed on the letter- head in association with his German partners.

More ordinances for other countries are expected to come. There is no doubt anymore that the title "Attorney at Law" is officially acknowledged. It may not be easy for the US reader to appreciate that this can be an issue. Titles in Germany, however, have caused more problems than anywhere else. (See Endnote 21)

US-multinational partnerships are permitted and in light of a global economy they are beneficial to serve business interests effectively.

However, an international partnership only works if the lawyers educate themselves about the differences in the method of practice in the other country.

While the end result of the substantive rules of law are relatively similar, the main distinction is in the manner in which cases are handled, most especially litigation, because of the differences in procedural rules and practice. Thus, for example, a German attorney must become acquainted with the extensive use of discovery and the possible consequences for failure to comply with discovery demands, whereas the American attorney must understand that the lack of discovery as a tool for preparation of a case in Germany requires a different approach to resolving a case.

10. Admission to the Bar

Different from the United States the German Bar Association does not take any examinations to he admitted. With qualification as "Assessor" the admission to the Bar becomes a mere formality.

In order to be admitted, the only obstacle to overcome is to give evidence on personal integrity.

11. Admission of Foreign Lawyers inside the European Union

In principle the Sections 206 and 207 BRAO authorize lawyers of the European Union to set up offices in Germany. The legal advice is limited to the law of the country of origin and international law. They may only carry their home title as a professional.

The Eignungsprufungsgesetz . enacted on January 1st, 1991 enlarges the scope of practice for lawyers of the European Union (See Endnote 22).

If they pass the exam they can practise as a member of the Bar.

It requires a law degree from one of the States of the European Union that entitles them to practise in their own jurisdiction. The professional training must have taken minimum of three years.

In case these requirements are satisfied, the foreign lawyer is qualified to pass an exam before the Board of Examiners who also take the Second State Examination for German jurists. Different from the Second State Exam for Germans the topics are adjusted to the situation of foreign professionals.

The exam focuses on four areas of law: Civil law and the Rules of Professional Conduct are mandatory. The candidates have to select two more topics as options.

The examination consists of a written and an oral part and has to be carried out in German. The candidate may repeat the examination twice.

The successful graduate cannot only practise in Germany. but may also keep his office in his home state.

The procedure of the Eignungsprüfung is only open for passport holders of the European Union.

12. Developments on the level of the European Union

The basic ideas of the establishment of the European Community (EC) are laid down in the Treaty of Rome of 1958.

The legal source for multinational entities can be found in Art. 5 to ff EWGW. These regulations, confirmed by the European Court, supported the principle of non-discrimination. (See Endnote 23)

Practically every European country has a different approach with lawyers.

Belgium providing the European capital has made an early start to liberalize the situation in favour of international lawyers since 1990. Of course such foreign lawyers had to be registered at the Belgian State Bar (8List) and are submitted to the Professional Rules of the Belgian Bar.

The foreign lawyer is restricted to advise in foreign law and European Law and needs 3 years of professional experience in Belgium.

A number of European countries permit law firms in the format of a corporation.

The Netherlands even permit a Holding. (See Endnote 24)

If a law firm incorporates the question comes up whether undisclosed shareholders are permitted. England. Wales and Northern Ireland do not exclude that, but impose certain restrictions. (See Endnote 25)

One successful international structure is called the EWIV, which was introduced in 1985. This can be a cooperation of law firms in different European countries. It has one legal seat and is officially registered.

13. Crossborder Legal Service

A European directive of 1977 imposed free crossborder services for European lawyers. The first transformation into German law was declared as null and void by the European Court of Justice (See Endnote 26).

The revised wording of the Rechtsanwaltsdienstleistungsgesetz (RADG) became effective in 1990. (See Endnote 27)

Since then lawyers of the European Union may practise law under their title used in their native country for a short period of time. Such rights have been without precedent: lawyers may plead at any German court except at the German Federal Supreme Court. European lawyers all of a sudden were on the fast track compared to German lawyers, who could only plead at the civil court of their home city.

If the statutes of the Court require respresentation by a German Rechtsanwalt, the foreign colleague may only plead in cooperation with a German Rechtsanwalt. The agreement has to be in writing as soon as the first court hearing starts.

Subsequent Court hearings can be handled without further local assistance.

With regard to liability a unique situation has come up: while the two lawyers cooperate, it does not create client-lawyer relationship with the German lawyer.

In case of doubt the foreign lawyer practising in Germany is subject to the Rules of German law. At any rate the non-German professional is bound to respect the Rules of Professional Conduct of the German Bar.

It has to be remembered the RAGD does not pave the road to set up an office or become a member of the German Bar. But it gives him an opportunity to follow up with his case directly to the German court. The number of cases involving "crossborder lawyers" are expected to increase substantially.

14. Conclusions

(1) Outdated admission procedures to the Regional Bar Association and to the German courts have blocked the development of the legal profession in Europe considerably. When it
comes to international law the situation has changed dramatically within the past 10 years. The train has not lost its steam

(2) The needs of global economies will probably speed up this process

(3) International lawyers advise their clients well to enter arbitration agreements in international contracts. As long as the court systems continue to be as different as they are, the needs of the clients are better served in international arbitration procedures. The selection of arbitrators with international experience and language skills helps to improve the quality of the procedure and accelerates to resolve a dispute.

Endnotes:

(1) Rechtsanwaltsordnung of July 1st, 1878, RGB1 I, 60, RAO

(2) Reichs-Rechtsanwaltsordnung v. 21.02.1936, RGB1 I, 1470, R-RAO

(3) Bundesrechtsanwaltsordnung of August 1st, 1959, BGB1I, 565, BRAO

(4) RAO for the British Zone of March 10, 1949, VOB1 for the British Zone p. 8

(5) Bundesgebührenordnung für Rechtsanwälte of 26.07.1957, BGB1 I. 907, BRAGO

(6) Ortega y Gasset used the term "Rebellion of the masses" for all type of incidents in Europe

(7) Gesetz zur Prüfung von Rechtsanwaltszulassungen, Notarbestellungen und Berufung ehrenamtlicher Richter of July 24th, 1992, RNPG

(8) BGH Z 108, 290 = NJW 1989, 2890

(9) There is a strong tendency for historic continuation. Technically every lawyer is still being admitted to one civil court, therefore Section 18 BRAO remains unchanged. Section 78 ZPO (Rules of Federal Civil Procedure) allows every lawyer to plead before a Landgericht (Postulationsfähigkeit).

(10) Bundestagsdrucksache of May 19, 1993, BT-Drucks. 12/4993, 33

(11) Section 59a Sect. 3 (2) BRAO

(12) BGBL 1, 1744

(13) BayObLG, Judgement of 24.11.1994, GmbHR 1995, 42

(14) BayObLG, Judgement of 28.08.1996, DB 1996, 2026

(15) EUGH of 25.02.1988 - Rs 427/1985 Commission/BR Deutschland NJW 1988, 887

(16) Art. 48 - 51 EGV; Art. 28 - 30 EWR-Abkommen

52-58 31-35

59-66 36-39

(17) Art. 1 1 Sect. 1 Sentence. 2 Rechtsberatungsgesetz, RBerG

(18) BGBL 1994, II, 1473 and 1643

(19) BGBL 1994, II, 1438

(20) BGBL 1995, I. 142

(21) Right before the outbreak of World War II a law was enacted on Academic Titles (Gesetz über die Führung akademischer Grade vom 07.06.1939). Many federal states have enacted new legislation. The old law has not been repealed until today

(22) BGBL 1990, I, 1349

1993, 512, 529, 1666

(23) EugH, Judgement of 27.9.1988, Rs. 81/87 (Daily Mail)

(24) Verordening op de Praktijk Vennotschap

(25) Rule 5 (2a) of the Solicitor's incorporated Practice Rules

(26) EUGH, Slg, judgement of 25.02.1988, NJW 1988, 887

(27) RADG, 14.03.1990. BGB1 I, 1479

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