BGH: Application of German law on compulsory portions despite choice of law in favour of English law

In its judgement of 29 June 2022 (Case No. IV ZR 110/21), the Bundesgerichtshof ruled that the application of English inheritance law based on a choice of law in the testamentary disposition is contrary to German ordre public if this deprives children of their entitlement to a compulsory portion independent of their needs and there is a sufficient domestic connection. The BGH thus confirms the previous decision of the Higher Regional Court of Cologne (judgement of 22 April 2021 - 24 U 77/20, ZEV 2021, 698).

In the case in question, the testator, who had English citizenship and had lived in Germany for more than 50 years, had chosen English law in his will for the succession upon death. The plaintiff, who had been adopted by the testator and had been excluded from the testamentary succession by the will, requested information on the existence of the estate pursuant to § 2314 of the Civil Code, relying on his (German) right to a compulsory portion.
After the BGH first confirmed the basic admissibility of this choice of law pursuant to Art. 22 (1), 83 (4) EuErbVO, it commented comprehensively on the question whether the application of English law in the specific case is incompatible with German ordre public and thus inapplicable (Art. 35 EuErbVO): 

"Contrary to the view of the final appeals court, the application of English law is, at least in the case to apply, obviously incompatible with the German ordre public (Art. 35 EuErbVO). This is because English law is in such serious contradiction to the constitutionally guaranteed distribution of the estate under German law that its application in the case here is unacceptable. As a result, it does not apply here." Para. 11

In this context, the BGH first referred to the guarantee of inheritance rights enshrined in the Basic Law according to Art. 14 (1) sentence 1 in conjunction with Art. 6 (1) of the Basic Law, which, according to the case law of the BGH, in principle grants children a minimum share in the estate that cannot be withdrawn and is not dependent on need. The children's right to a compulsory portion protected the family-law bond established by descent beyond death and limited the freedom to make a will. 

"As an institutional guarantee, the right to a compulsory portion is part of the German ordre public. In its landmark decision of 19 April 2005 (BVerfGE 112, 332 et seq.), the Federal Constitutional Court clarified that the right of the testator's children to a compulsory portion, with reference to the guarantee of the right to inherit under Art. 14 (1) sentence 1 in conjunction with Art. 6 (1) of the Basic Law, has the character of a fundamental right in the sense of a fundamentally inalienable and needs-independent minimum economic share of the testator's children in his or her estate. This follows from family solidarity and the family-protecting function of the right to a compulsory portion derived from this (see BVerfGE loc. cit. [juris para 64 et seq.]). Art 6 (1) of the Basic Law protects the relationship between the testator and his children as a lifelong community within which parents and children are not only entitled but also obliged to assume responsibility for each other, both materially and personally." Para. 14

A corresponding guarantee did not exist in English law. The relevant regulations of the Inheritance Act 1975 do not contain a claim to a compulsory portion comparable to German law. Only a financial compensation in the sense of a claim for maintenance of descendants was provided for, which, however, was at the discretion of the court and depended on numerous circumstances, such as the neediness of the child. A prerequisite for such a claim to compensation was that the testator had his last "domicile" in England or Wales. As a result, under English law, there was neither a claim to a compulsory portion independent of need nor a comparable claim to compensation in the concrete case, which was incompatible with the basic ideas of German compulsory portion law and thus with order public.

The decision will have a considerable influence on the practice of advising on cross-border issues in succession planning. The prevention of compulsory portion claims through choice of law in favour of a legal system without a corresponding compulsory portion right is likely to be ruled out in most cases after this ruling. With this, the BGH opposes recent decisions in other European jurisdictions that do not regard the choice of law excluding the compulsory portion as a violation of ordre public, such as in France, Austria or Italy. It remains open whether a violation of the German ordre public also exists if there is a lower right to a compulsory portion under the chosen law. In this respect, the BGH stated that a blanket approach is prohibited, which leaves legal uncertainty for cross-border succession planning in these constellations.

Clients with foreign succession planning but strong ties to Germany should take the decision as an opportunity to check their succession planning for compulsory portions. 

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