ECHR strengthens European companies’ bargain power in relations with small third-world companies, Granos organicos nacionales, 19508/07

Small Peruvian company Granos organicos nationales SA exporting bananas tried to sue 2 German import companies for a breach of contract. The third-world company and its shareholders were insolvent, and applied for legal aid (§ 8). The German Courts refused to provide the aid, since the company was not from the European Economic Area (§ 9), and the ECHR found this grounded.

The Peruvian banana company argued that there is no restriction for foreign companies to profit from legal aid in Peru. In Germany, in addition to the court fees, the Peruvian company has to pay guarantee for legal costs of € 90 020 to each of the two defendant European companies, and cover its own legal costs (§ 40). The denial of legal aid would, therefore, lead the third-world counterparts into bankruptcy (§ 35). There is no precise Peruvian case law however, since issuing a civil claim costs only € 120 in Peru, which is not a problem even for an insolvent European company (§ 42). Moreover, there is no defendant’s legal costs guarantee rule in Peru.

The ECHR held that Germany doesn’t have an obligation to provide legal aid to insolvent Peruvian companies, since the Peruvian company is unable to show case law proving the right of European companies to legal aid in Peru. Therefore there is no reciprocity, and the German restriction is proportional (§ 49).