## Facts

- A Dutch private limited liability company (BV), incorporated and registered in the Netherlands since 1990, hired a German contractor in 1992 to perform renovation and painting work on a garage building and adjoining motel in Germany.
- The BV alleged defects in the contractor’s work and, after an unsuccessful notice to cure, sued in Germany seeking 1,163,657.77 DM plus interest for remediation costs and resulting damage.
- In 1994/1995, the BV’s shares were acquired by two German residents; the lower courts found that, thereafter, the BV’s actual management and administration were conducted from Germany.
- The trial court and appellate court treated the BV’s administrative center as shifted to Germany and, applying German conflict-of-laws “seat theory,” dismissed the action as inadmissible for lack of legal and party capacity.
- On appeal on points of law, the German Federal Court of Justice addressed whether EU freedom of establishment requires recognition of the BV’s legal capacity in Germany notwithstanding any transfer of its central administration.

## Issues

1. Whether Germany may deny legal and party capacity to an EU-incorporated company that maintains its registered seat in the incorporating Member State but conducts central administration from Germany.
2. Whether refusing such a company access to German courts based on domestic conflict-of-laws “seat theory” violates EU freedom of establishment.
3. Whether German procedural rules on party capacity must be applied consistently with EU law to recognize the company’s capacity to assert contractual claims.

## Decision

- The German Federal Court of Justice reversed the appellate judgment and remanded for further proceedings on the merits.
- The court held that, for companies protected by EU freedom of establishment, Germany must recognize the company’s legal and party capacity if it remains legally capable under the law of the incorporating Member State and retains its registered seat there.
- The court rejected using domestic “seat theory” to deny an EU-incorporated company’s capacity to sue in Germany solely because its central administration is conducted from Germany.
- The court did not decide the alleged construction defects or damages, limiting its ruling to capacity and admissibility.

## Legal Principles

- EU freedom of establishment requires the host state to recognize the legal existence and litigation capacity of a company duly incorporated in another EU Member State, where the company remains capable under its incorporation law and retains its registered seat there.
- Domestic conflict-of-laws rules linking corporate status to the place of central administration cannot be applied to deprive an EU company of access to courts in the host state.
- National procedural provisions governing party capacity must be interpreted consistently with EU law for EU-protected companies, so that capacity is determined by the law of incorporation rather than the company’s administrative center.

## Conclusion

The court held that an EU-incorporated company must be allowed to sue in Germany even if its central administration is conducted from Germany, so long as it remains legally capable under its incorporation law and keeps its registered seat in the incorporating Member State; the case was remanded for adjudication of the contractual claims.


Dutch BV v. German Contractor (BGH), VII ZR 370/98, BGHZ 154, 185 (Ger. 2003)