Legal Protection Insurers in Germany Soon Owners of Law Firms? – German Law on Lawyers referred to the ECJ!

Legal Protection International sees a good chance that German law on lawyers could be on the verge of a revolution and that the legal services market could soon also be open to legal protection insurers: the Bavarian Lawyers’ Court in Munich has referred questions on the law governing lawyers to the Court of Justice of the European Union for a preliminary ruling under Article 267 TFEU (decision of 20 April 2023, ref. BayAGH III-4-20/21 ). Essentially, the issue is whether the purely financial participation of non-lawyers (i.e. a simple monetary investment) in a law firm is permitted under German law. The bar associations reject third-party participation outright, since otherwise the independence of the lawyer would be compromised and the intention to make a profit would be contrary to the lawyer’s activity.

The Bavarian court questions this argumentation and challenges the absolute prohibition under German law because of the associated restrictions on fundamental freedoms. The Court of Justice will now have to assess whether such a prohibition on participation violates higher-ranking EU law, in particular the freedom of movement of capital (Art. 63(1) TFEU), the freedom of establishment (Art. 49, 54 TFEU), the rights under Art. 15 Services Directive and the rights under Art. 15, 16 EU Charter of Fundamental Rights (freedom to choose an occupation and the right to work, entrepreneurial freedom). The case is registered with the Court of Justice of the European Union under case number C-295/23.

The facts of the case: in 2020, a lawyer in Bavaria, who is also the operator of a well-known legal-tech debt collection company, founded a law firm as an “Unternehmergesellschaft” (UG: a limited liability company that can be founded with as little as 1 euro in start-up capital) as the sole shareholder. This was licensed and in 2021 the shareholder sold 51% of the shares in the business to an Austrian GmbH, which operates exclusively on a commercial basis. The articles of association of the law firm were amended: any influence or instruction of the shareholders on the lawyer’s activities is thus excluded and the shareholders are subject to strict confidentiality obligations. The amendment to the articles of association and the transfer of shares were registered by the competent court. However, the Munich Bar Association revoked the licence of the law firm and an action was brought against this. At the hearing the court decided to refer the case to the Court of Justice of the European Union for a preliminary ruling.

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