Possibilities of contesting a settlement concluded in court

Dispute over the effectiveness of the settlement

In practice, it happens time and again that one party attempts to challenge the validity of the settlement reached.

The starting point here (see the BGH ruling cited above) is that the court settlement is of a dual nature, with the result that grounds for invalidity can arise on two levels. A distinction must therefore be made between two types of conceivable defects:

Level 1: Process-related defects

On the one hand, the court settlement is a litigation contract and could suffer from procedural defects.

The most frequent deficiency at this level is the incorrect logging of the contents of the comparison.

Level 2: Material defects

The court settlement is also a “normal” substantive legal contract between the parties with which they wish to end or settle their dispute.

This contract may also suffer from defects, e.g. in such a way that one of the parties was in error when making the declarations enabling the settlement. Under certain circumstances, this would enable it to contest the settlement on the grounds of error in accordance with Section 119 BGB. The case of Section 779 BGB (error regarding the basis of the settlement), which is expressly regulated by law, also comes into consideration. A right of adjustment may also arise from the point of view of interference with the basis of the transaction (Section 313 BGB)

Procedural consequences of a settlement challenge

If a party asserts defects in the settlement to the court, this leads to the continuation of the proceedings and the examination of the asserted defects by the court.

A distinction must then be made:

• If the court finds procedural defects, this means that the court settlement is invalid. The legal dispute is still pending. A special situation arises in cases in which the parties had initially reached a substantively effective agreement and this agreement was subsequently incorrectly recorded in the minutes. This is because the merely erroneous recording does not eliminate the previously valid agreement.

  And even in other cases of a court settlement that is ineffective for procedural reasons, it may be contrary to good faith (Section 242 BGB) if a party invokes the procedural defect due to contradictory behavior. The BGH assumed this as follows in the judgment cited above:

  (…)
  However, in accordance with the principle of good faith (§ 242 BGB), the plaintiff cannot invoke the fact that the settlement determined by the appellate court pursuant to § 278 VI 2 ZPO was not valid in procedural terms.

  The principle of good faith also applies in procedural law (…).
  Contradictory behavior of a party (venire contra factum proprium) in the process can be an abuse of rights and therefore inadmissible (…).

  Contradictory conduct is an abuse of rights if a situation of trust has arisen for the other party or if special circumstances make the exercise of rights appear to be contrary to good faith (…). According to the established case law of the BGH, the exercise of rights may be inadmissible if, for example, the overall picture of contradictory conduct arises objectively because the earlier conduct is objectively incompatible with the later conduct and the interests of the other party appear to be primarily worthy of protection in view of this (…).

• If the court finds material defects that result in the settlement being null and void (i.e. initially ineffective), the situation is as if the settlement had never existed.

  The proceedings continue as normal because the legal dispute was never actually concluded.

• In cases in which the settlement was initially effective and is only called into question or has become ineffective ex nunc due to circumstances occurring later, e.g. due to a disruption of the basis of the transaction, the situation is more complex because the settlement initially had the effect of terminating the settlement.

  It is then correct to conduct a new trial, as there is no legal basis for reviving the old trial, which has been effectively terminated in the meantime. If the court comes to the conclusion that there are no defects, it will determine the effect of the settlement in terminating the proceedings by means of an appealable judgment.