Recent Developments in the Framework of Arbitration in Germany

In summary

This article deals with the current innovations with regard to arbitration in Germany.

Discussion points

• High flexibility in favour of the parties according to the 2018 DIS Arbitration Rules
• Current case law in Germany regarding arbitration

Referenced in this article

• German Institution of Arbitration / Deutsche Institution für Schiedsgerichtsbarkeit (DIS)
• The DIS Arbitration Rules
• Higher Regional Court of Frankfurt am Main (OLG Frankfurt am Main)
• Bavarian Supreme Regional Court (BAyObLG)
• German Civil Code of Procedure (ZPO)

Introduction

The desire of clients to resolve disputes through arbitration is nothing new in the modern business world and nothing new to Germany. On the contrary, the number of arbitration proceedings is currently higher than ever before; actually more and more users are asking for the possibility of ending disputes by means of arbitration. In the meantime, arbitration proceedings have become an established and recognised method of ending legal disputes in Germany. Germany, especially Frankfurt am Main, located in the heart of Europe, is becoming more and more popular as a location for arbitration proceedings. On the one hand, this is due to its optimal geographical location. Besides this, the arbitration-friendly approach of German state courts even supports the use of arbitration. Finally, by conducting arbitration proceedings at the DIS (the German Arbitration Institute), the new DIS Arbitration Rules of 2018 increase the attractiveness of Germany as a place for arbitration. The current innovations with regard to arbitration in Germany, and which aspects make the conduct of arbitration proceedings in Germany particularly attractive, will be presented in the sections that follow.

Special features of the 2018 DIS Arbitration Rules

In 2018, the new DIS Arbitration Rules came into force. The innovations primarily aim at high flexibility in favour of the parties in order to individually adapt the procedure to the needs of the parties involved.

The DIS Arbitration Rules place a special emphasis on working to resolve disputes amicably. For example, article 26 of the DIS Arbitration Rules explicitly states that, unless a party objects, the arbitral tribunal shall promote a consensual resolution of the dispute or individual issues in dispute at every stage of the proceedings.

In addition, the 2018 DIS Arbitration Rules pay particular attention to maintaining the efficiency of arbitration proceedings, and to working towards a speedy conduct of proceedings. This is not only expressly provided in article 27 of the DIS Arbitration Rules (article 27.1 states: ‘The arbitral tribunal and the parties shall conduct the proceedings in a time- and cost-efficient manner, taking into account the complexity and economic importance of the dispute.’), but is also ensured by various instruments contained in the Rules. For example, by working towards the prompt constitution of a three-member arbitral tribunal (in the event that a party fails to nominate an arbitrator, the Appointing Committee may select and appoint an arbitrator, see article 12.1). On the other hand, by creating incentives for the efficient conduct of the proceedings by all parties involved through rules on costs (article 33.3 of the Rules provides that the arbitral tribunal may take into account the outcome of the proceedings and the efficiency of the conduct of the proceedings by the parties when deciding on costs). In addition, Annex 3 of the DIS Arbitration Rules provides that in the case management conference the arbitral tribunal shall discuss with the parties various measures to increase the efficiency of the proceedings (eg, limiting the volume and number of pleadings, issuing partial awards, and use of information technology).

Furthermore, the DIS Arbitration Rules ensure a high degree of procedural flexibility. Pursuant to article 41 of the DIS Arbitration Rules, the parties can always choose whether they wish to use an alternative DIS dispute resolution procedure. At the same time, the parties can then record possible settlements reached in the form of an arbitral award by consent, thereby ensuring enforceability.

Current case law regarding arbitration

In recent years, there have been a number of interesting decisions by state courts, which have caused quite a stir in the arbitration scene. In particular in this context is the decision of the Higher Regional Court of Frankfurt am Main, according to which a dissenting opinion in arbitration proceedings is inadmissible under German public policy. Another decision worth mentioning is a judgment of the Bavarian Supreme Regional Court, which shows the positive attitude of the state courts in Germany towards arbitration by ruling that a subsequent but missing agreement to arbitrate is not a mandatory condition for the validity of an arbitration clause.

Inadmissibility of a dissenting opinion in arbitration proceedings under German public policy (OLG Frankfurt, 16 January 2020 – 26 Sch 14/18)

The decision of the Higher Regional Court of Frankfurt am Main has caused discussion in the German arbitration community. In the case to be decided there, the court had to deal with a motion by an insolvency administrator over the assets of a German GmbH against an arbitration award under the procedural rules of the Court of Arbitration of the International Chamber of Commerce (ICC). In the arbitration proceedings, which were post-M&A proceedings, the insolvency administrator asserted claims for damages against the sellers as former shareholders of the insolvent GmbH amounting to over €400 million. The arbitral tribunal dismissed the insolvency administrator’s arbitration claim. However, one of the arbitrators submitted a supplementary dissenting opinion one day later. In the state proceedings, one of the complaints was that the insolvency administrator’s right to be heard had been violated because the arbitration court had ignored core arguments made by the insolvency administrator that were relevant to the decision. In this respect, the dissenting opinion also objected in particular to the assessment of the above-mentioned expert opinion made in the arbitral award.

The court set aside the award as requested and based the setting aside on the violation of the right to be heard. In an obiter dictum, the court further stated that the communication of the dissenting opinion to the parties would also have led to an annulment. The court reasoned that the special importance of the secrecy of the deliberations for the protection of the independence and impartiality of the arbitrators requires that the secrecy of the deliberations may not be placed at the disposal of the parties or the arbitrators and has to be regarded as an element of procedural public policy.

It remains to be seen whether this will be confirmed by the Federal Court of Justice. However, it must be taken into account that in a dissenting opinion not only the voting behaviour of the arbitrators is disclosed, but also the reasoning. Under German law, this may constitute grounds for setting aside the arbitral award (see section 1059 II No. 1d of the German Civil Procedural Code (ZPO)).

Subsequent but missing agreement of an arbitration contract is not a mandatory condition for the effectiveness of an arbitration clause (BayObLG, decision of 21 January 2021 – 101 SchH 115/20)

The proceedings before the Bavarian Supreme Regional Court concerned the question of the admissibility of arbitration proceedings. The applicant was a tax consultant and asserted claims against the continuing partnership. He requested that arbitration proceedings be declared inadmissible because, in his opinion, the severance payment claims of a partner who had left the firm did not fall within the scope of the arbitration clause. According to its wording, the arbitration clause only referred to arbitration proceedings between the partnership and a partner or between the partners themselves. In addition, it was stipulated that disputes concerning the termination of the contract were to be settled before an arbitral tribunal and that a separate arbitration agreement on the jurisdiction of the arbitral tribunal and its composition was still to be agreed. However, such an agreement was never concluded.

The court ruled that the arbitration clause was validly agreed. The validity of an arbitration agreement did not depend on an agreement on procedural details, because in such a case the ZPO applied. It was therefore irrelevant that the partners, contrary to their original intention in the arbitration clause, did not conclude a separate arbitration agreement containing procedural provisions. The court considered the arbitration agreement to be final and binding. In particular, there was no evidence that the parties had intended to further regulate the essential content of the arbitration agreement in a subsequent arbitration agreement. The fact that the partnership agreement contained a confidentiality agreement also indicates, in the court’s view, that the parties intended to exclude recourse to the ordinary courts because of the public hearing.

The court was of the opinion that the dispute fell within the scope of the arbitration clause, as arbitration agreements were to be interpreted broadly. In case of doubt, it has to be assumed that arbitration agreements on disputes arising from a legal relationship between shareholders also apply to shareholders who have left the company. Such a broad interpretation is supported by the fact that the arbitration clause largely provided for arbitration proceedings for all disputes.

This decision is very welcome from a practical point of view, as it confirmed that despite possible deficiencies in an arbitration agreement, the way to arbitration would still be open.

Outlook

What the future may hold for arbitration in Germany cannot be predicted. What is noticeable, however, is that Germany has established itself as an important and relevant location for arbitration proceedings. The updated DIS Arbitration Rules once again emphasise this. In combination with the positive and benevolent attitude of the ordinary courts towards arbitration, Germany as a place for arbitration offers the security for fair and efficient proceedings.