1 Arbitration Agreements
1.1 What, if any, are the legal requirements of an arbitration agreement under the laws of your jurisdiction?
The agreement between the parties to refer present or future disputes to an arbitral tribunal may be concluded in the form of an independent agreement or may form part of an agreement (Sec. 1029 (2) German Code of Civil Procedure, ZPO). The formal requirements for such arbitration agreement are laid down in Sec. 1031 ZPO.
In business-to-business relationships the arbitration agreement must not necessarily be contained in a document signed by the parties. It is sufficient if it is set out in letters, telefax copies, telegrams, or other messages exchanged by the parties, and that ensure proof of the agreement by supporting documents. Sec. 1031 (2) and (3) ZPO even facilitate the formal requirements in Sec. 1031 (1) ZPO by stipulating that they shall be deemed to have been met also in those cases in which the arbitration agreement is contained in a document transmitted by one party to another party or by a third party to both parties and – if no objection was raised in good time – the content of such document is regarded to be part of the contract in accordance with customary standards (Sec. 1031 (2)). The reference in a contract that is in compliance with the requirements to form set out in Sec. 1031 (1) or (2) for a document containing an arbitration clause may also constitute a valid arbitration agreement (Sec. 1031 (2)). Hence, arbitration clauses in general terms and conditions can be validly included.
If a consumer is party to an arbitration agreement, stricter requirements apply. According to Sec. 1031 (5) ZPO, the arbitration agreement must then be contained in a document signed by the parties, including by way of qualified electronic signature (Sec. 126 a German Civil Code (BGB)). In any case, such document may not contain agreements other than those making reference to the arbitration proceedings. Exceptions apply in case of an agreement recorded in notarial form.
Any invalidity of an arbitration agreement due to non-compliance with the form requirements will be cured if a party fails to raise objections as to the form but enters into arguments on the merits of the case in the hearing.
1.2 What other elements ought to be incorporated in an arbitration agreement?
In order to be valid, the arbitration agreement must only state that all or specific disputes between the parties in relation to a specific legal relationship shall be subject to arbitration (Sec. 1029, 1031 ZPO). However, it is recommendable to agree at least on the numbers and maybe also the qualification of arbitrators, the place and language of arbitration as well as the applicable substantive law. Lacking any such further specifications, the ZPO provides for a number of default provisions on how arbitration proceedings shall be conducted and how the arbitral tribunal will be constituted.
1.3 What has been the approach of the national courts to the enforcement of arbitration agreements?
German courts are known to be arbitration-friendly. If the defendant challenges the jurisdiction of the court seized due to the existence of an arbitration agreement that fulfils the requirements laid down in Sec. 1031 ZPO, the court will dismiss the claim according to Sec. 1032 (1) ZPO as inadmissible for the lack of jurisdiction and refer the parties to arbitration.
2 Governing Legislation
2.1 What legislation governs the enforcement of arbitration proceedings in your jurisdiction?
The enforcement of arbitration proceedings is governed by the 10th book of the ZPO that deal with arbitration proceedings. For example, courts have to decline jurisdiction in favour of a valid arbitration agreement, Sec. 1032 (1) ZPO; they will nominate an arbitrator on request of one party lacking an agreement between the parties, Sec. 1035 (3) sent. 1 ZPO; or will assist in taking evidence or performance of other judicial acts which the arbitral tribunal is not empowered to carry out on request of the arbitral tribunal (Sec.1050 (1) ZPO).
Furthermore, the courts may, at the request of a party, grant leave of enforcement of an interim measure by the arbitral tribunal (Sec. 1041 (2) ZPO) and enforce an arbitral award according to Sec. 1060 and 1061 ZPO.
2.2 Does the same arbitration law govern both domestic and international arbitration proceedings? If not, how do they differ?
The law governing arbitration proceedings is contained in the 10th book of the ZPO. Its Sec. 1025 to 1066 deal with arbitration proceedings having their seat in Germany without distinguishing between domestic and international arbitration.
2.3 Is the law governing international arbitration based on the UNCITRAL Model Law? Are there significant differences between the two?
Yes, the 10th book of the ZPO, effective as of 1 January 1998, is based on the UNCITRAL Model Law. However, the German arbitration law even exceeds the aim of the Model Law by applying without distinguishing between domestic and international arbitration proceedings having their seat in Germany and irrespective of whether or not the matter underlying the dispute is a commercial matter for one of the parties.
2.4 To what extent are there mandatory rules governing international arbitration proceedings sited in your jurisdiction?
As there is no distinction between domestic and international arbitration, the few mandatory rules contained in the German arbitration law apply to both domestic and international arbitration. Generally, the parties’ will to determine the conduct of the proceedings has priority, Sec. 1042 (3) ZPO. Nonetheless, there are some provisions the parties cannot deviate from. The most relevant provisions include the equal treatment of the parties and their right to present their case in full (Sec. 1042 (1) ZPO) as well as the prohibition to exclude counsel from acting as authorised representatives (Sec. 1042 (2) ZPO). A further absolute rule is that any default of a party justified by that party to the arbitral tribunal’s satisfaction will be mandatorily disregarded (Sec. 1048 (4) sent. 1 ZPO).
Moreover, several provisions relating to recourse to state courts cannot be excluded, e.g. with regard to the constitution of the arbitral tribunal (Sec. 1034 (2) ZPO), the challenge of an arbitrator (Sec. 1037 (3) ZPO), interim relief (Sec. 1041 ZPO) or the challenge of the award (Sec. 1059 (1) ZPO).
A party agreement which contradicts mandatory law will generally not lead to the invalidity of the whole arbitration agreement, but the invalid part will be replaced by the mandatory statutory provision and the arbitrator’s discretion.
3.1 Are there any subject matters that may not be referred to arbitration under the governing law of your jurisdiction? What is the general approach used in determining whether or not a dispute is “arbitrable”?
The focus of German arbitration law is on commercial disputes. An arbitration agreement concerning claims not involving an economic interest shall have legal effect to the extent that the parties have the legal capacity to conclude a settlement on the issue in dispute (Sec. 1030 (1) ZPO). Examples for disputes that are not arbitrable include most family law matters, insolvency proceedings and matters of public law. Employment matters can be subject to arbitration, provided that the narrow requirements laid down in Sec. 101 et seq. Labour Court Act are met.
The arbitrability of shareholder disputes relating to corporate resolutions used to be disputed. The Federal Supreme Court (Bundesgerichtshof) had held, in 1996, that such disputes are per se not arbitrable (Arbitrability I). In 2009, the court reversed its position and defined the standards that arbitration procedures must meet for shareholder disputes in limited liability companies (GmbH) to be arbitrable (Arbitrability II). In 2017, these standards were applicable to partnerships (KG) (decision of 06.04.2017, I ZB 23/16; Arbitrability III). According to those decisions, the arbitration agreement must be agreed upon by all shareholders, all shareholders must have a minimum standard of participation rights, all shareholders must be able to participate in the appointment of the arbitrator and parallel proceedings about the validity of the same corporate resolution must be excluded or dealt with in front of the same arbitral tribunal. The DIS has devised supplementary rules for corporate disputes that implement the court’s requirements. In the light of Sec. 23 para. 5 Stock Corporation Act (AktG), disputes in a stock corporation are viewed as not arbitrable, but a decision of the Federal Supreme Court is outstanding.
3.2 Is an arbitral tribunal permitted to rule on the question of its own jurisdiction?
Yes. According to Sec. 1040 (1) ZPO, the arbitral tribunal may rule on its own jurisdiction and in this connection on the existence or validity of the arbitration agreement. If it considers that it has jurisdiction, it shall do so by means of an interim ruling. The arbitral tribunal does not, however, have complete Kompetenz-Kompetenz – the arbitral agreement may not exclude the right to have the interim award on the jurisdiction to be challenged in the state courts.
3.3 What is the approach of the national courts in your jurisdiction towards a party who commences court proceedings in apparent breach of an arbitration agreement?
German courts shall decline jurisdiction according to Sec. 1032 (1) ZPO in favour of an arbitration agreement that fulfils the requirements laid down in Sec. 1031 ZPO if the respondent raises an objection prior to the beginning of the oral hearing on the substance of the dispute.
3.4 Under what circumstances can a national court address the issue of the jurisdiction and competence of an arbitral tribunal? What is the standard of review in respect of a tribunal’s decision as to its own jurisdiction?
According to German arbitration law, a court cannot rule on the jurisdiction of the arbitral tribunal on its own. Rather, it will decide on its own lack of jurisdiction if the defendant raises such objection and a valid arbitration agreement is in existence.
The interim ruling of the arbitral tribunal assuming its jurisdiction can be challenged according to Sec. 1040 (3) ZPO before the higher regional court by both parties within a month after having received the interim ruling. While such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award. The decision of the state court is binding in later setting-aside or enforcement proceedings.
3.5 Under what, if any, circumstances does the national law of your jurisdiction allow an arbitral tribunal to assume jurisdiction over individuals or entities which are not themselves party to an agreement to arbitrate?
An arbitral tribunal may not, under German law, assume jurisdiction over individuals or entities which are not themselves party to an agreement to arbitrate.
3.6 What laws or rules prescribe limitation periods for the commencement of arbitrations in your jurisdiction and what is the typical length of such periods? Do the national courts of your jurisdiction consider such rules procedural or substantive, i.e., what choice of law rules govern the application of limitation periods?
There are no limitation periods for commencing arbitration proceedings. The statute of limitation is a matter of substantive law. Therefore, the question of whether or not a claim brought before the arbitral tribunal is time-barred depends on the substantive law and can vary depending on the type of claim or on a party agreement on the statute of limitation; procedural provisions dealing with the statute of limitation do not exist under German law.
3.7 What is the effect in your jurisdiction of pending insolvency proceedings affecting one or more of the parties to ongoing arbitration proceedings?
The interplay of insolvency proceedings and arbitration is complex, especially on an international scale. According to Sec. 240 ZPO, state proceedings shall be interrupted in the event of insolvency proceedings being opened against a party until they can be resumed in accordance with the rules applying to the insolvency proceedings or until the insolvency proceedings are terminated. The German Federal Court ruled in 1966 that this provision is not applicable to arbitration proceedings but in order to ensure enforcement the proceedings need to be factually interrupted and a formal change of the insolvent party by the insolvency administrator is required.
4 Choice of Law Rules
4.1 How is the law applicable to the substance of a dispute determined?
Ideally, the arbitration agreement contains a choice of law clause. The arbitral tribunal pursuant to Sec. 1051 ZPO is bound to such choice when deciding the dispute. In the absence of such choice by the parties, the arbitral tribunal shall apply the law of the state with which the subject-matter of the proceedings is most closely connected (Sec. 1051 (2) ZPO). It is at the arbitral tribunal’s sole discretion to interpret the legal concept of “closest connection”. In doing so, it may and usually does rely on Article 4 of the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (RomeI). However, there is no obligation to do so.
4.2 In what circumstances will mandatory laws (of the seat or of another jurisdiction) prevail over the law chosen by the parties?
Only taking into account the wording of Sec. 1051 ZPO, there would not be any restrictions on the law chosen by the parties, as long as the arbitrator takes account of any commercial practices that may exist. However, it is commonly accepted that mandatory rules protecting a structurally weaker party prevail over the law chosen by the parties. This includes consumers, employees and policyholders. The ordre public objection is generally seen as a question of enforceability.
Apart from that, it is unclear if or to which extent the choice of law itself is restricted; especially the application of the lex rei sitae principle of Article 14 (1) lit. a Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) and the requirement of a factual international connection.
4.3 What choice of law rules govern the formation, validity, and legality of arbitration agreements?
If Germany is chosen as the venue of arbitration, the formation of the arbitration agreement is mandatorily governed by German law (Sec. 1025 (1) ZPO). If Germany is not chosen as venue of arbitration and in absence of a choice of law, it is not yet resolved whether the lex loci abitri or the law governing the underlying contract is to be applied. If, in addition to the lack of a choice of law, no venue of arbitration is agreed upon, the law of the underlying contract will prevail.
5 Selection of Arbitral Tribunal
5.1 Are there any limits to the parties’ autonomy to select arbitrators?
The parties are free to agree on a procedure of appointing the arbitrator or arbitrators and there are hardly any limitations as to the person of the arbitrator unless circumstances exist that give rise to justifiable doubts as to his impartiality or independence or if he does not possess qualifications agreed to by the parties (Sec. 1036 (2) ZPO).
5.2 If the parties’ chosen method for selecting arbitrators fails, is there a default procedure?
Yes, Sec. 1035 (2) ZPO provides for a default procedure in case the parties’ chosen method for selecting arbitrators fails or in the absence of any agreement on the appointment of the arbitrators. Lacking an agreement on the number of arbitrators, the arbitral tribunal shall consist of three arbitrators (Sec. 1034 (1) ZPO), whereby each party shall appoint one arbitrator, and the two arbitrators shall appoint the third arbitrator who shall preside over the arbitral tribunal.
If a party fails to appoint its arbitrator or if the two arbitrators fail to agree on the third arbitrator within one month, the arbitrator shall be appointed, upon request of a party, by the court. The same applies in case the parties opted for a tribunal of a sole arbitrator but are unable to agree on the appointment of the sole arbitrator.
It is notable that Sec. 1035 (5) ZPO states that in case of appointment of a sole or third arbitrator by the court, it shall take into account the advisability of appointing an arbitrator of a nationality other than those of the parties. Without explicitly referring to international arbitration proceedings, this rule is only expedient if the parties have different nationalities.
5.3 Can a court intervene in the selection of arbitrators? If so, how?
Besides the capacity of the court to appoint arbitrators upon request of a party in the cases laid down in question 5.2, the courts may also take the necessary measure if a party fails to act as required under the agreed appointment procedure or if a third party fails to perform any function entrusted to it under such procedure (Sec.1035 (4) ZPO). The right of the court to act requires the request of one party and is subsidiary to any other mechanisms for securing the appointment agreed upon by the parties.
Moreover, the courts decide upon request of a party on the challenge of an arbitrator unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, and provided that any procedure agreed upon by the parties or the arbitral tribunal’s obligation to decide on the challenge is not successful (Sec. 1037 (2) ZPO).
5.4 What are the requirements (if any) imposed by law or issued by arbitration institutions within your jurisdiction as to arbitrator independence, neutrality and/or impartiality and for disclosure of potential conflicts of interest for arbitrators?
Sec. 1036 ZPO obliges the arbitrator to disclose without delay any circumstances likely to give rise to doubts as to his impartiality or independence. This duty applies during the whole arbitral process, from his appointment until the rendering of the award.
The DIS Rules provide for a similar obligation as detailed in question 9.1. Also, according to this provision, every arbitrator shall be impartial and independent of the parties throughout the entire arbitration with the difference that the prospective arbitrators shall sign a respective declaration.
6 Procedural Rules
6.1 Are there laws or rules governing the procedure of arbitration in your jurisdiction? If so, do those laws or rules apply to all arbitral proceedings sited in your jurisdiction?
The procedural (default) provisions in Sec. 1042 to 1050 ZPO are widely disposable (Sec. 1042 (3) ZPO), even in favour of selfestablished rules or a non-statutory set of rules. This applies to all arbitral proceedings sited in Germany.
6.2 In arbitration proceedings conducted in your jurisdiction, are there any particular procedural steps that are required by law?
Arbitral agreements commence – despite a deviating agreement between the parties – on the date in which the notice of arbitration sent by the claimant is received by the respondent (Sec. 1044 ZPO). This notice must only contain the names of the parties, the subject matter of the dispute and the reference to the arbitration agreement. During the proceedings each party is to be given an effective and fair legal hearing (Sec. 1042 (1) sent. 2 ZPO). The plaintiff is to present his claim and the defendant is to state his defence (Sec. 1046 (1) sent. 1 ZPO). A hearing is not compelling (Sec. 147 (1) ZPO). In any case, the parties are to be informed of any hearing or assembly arranged for taking evidence (Sec. 1047 (2) ZPO). Moreover, the respective other party is to be made aware of any written documents submitted to the arbitral tribunal (Sec. 1047 (3) ZPO). The proceedings end with the issuance of the award.
6.3 Are there any particular rules that govern the conduct of counsel from your jurisdiction in arbitral proceedings sited in your jurisdiction? If so: (i) do those same rules also govern the conduct of counsel from your jurisdiction in arbitral proceedings sited elsewhere; and (ii) do those same rules also govern the conduct of counsel from countries other than your jurisdiction in arbitral proceedings sited in your jurisdiction?
There are no particular rules in German law governing the conduct of arbitral counsel in proceedings sited in Germany.
6.4 What powers and duties does the national law of your jurisdiction impose upon arbitrators?
There is a limited number of mandatory duties for arbitrators, including: disclosure of circumstances giving rise to doubts in the arbitrator’s impartiality (Sec. 1036 (1) ZPO); circumstances upon which to terminate the proceedings and deliver an award (Sec. 1053 (1), 1048 (1) ZPO) or upon which to continue the proceedings (Sec. 1048 (2) ZPO). The arbitral tribunal is to decide in accordance with the parties’ choice of law; if the parties did not make a choice of law, the arbitral tribunal is to apply the laws of the state with the closest connection to the subject matter (Sec. 1051 (1) and (2) ZPO). It must only base its decision on fairness and equity if the parties have expressly authorised it to do so (Sec. 1051 (3) sent. 1 ZPO).
The same applies to the powers explicitly granted to arbitrators by the ZPO. Relevant powers include: correcting an award without a petition being filed (Sec. 1058 (4) ZPO); making a discretionary decision on the bearing of costs, if the parties did not agree otherwise (Sec. 1057 ZPO); and directing provisional measures, unless the parties agreed otherwise (Sec. 1041 (1) ZPO). The arbitral tribunal may decide on its own jurisdiction (Sec. 1040 (1) sent. 1 ZPO). There are no specific rules on ordering sanctions; such could be included in the cost decision. However, there is no rule prohibiting specific sanctions, either.
6.5 Are there rules restricting the appearance of lawyers from other jurisdictions in legal matters in your jurisdiction and, if so, is it clear that such restrictions do not apply to arbitration proceedings sited in your jurisdiction?
The provision of most legal services is reserved to qualified lawyers by an EU-based national law (RDG). Representation in German courts is reserved to lawyers accredited in Germany with few exceptions where no lawyer is required at all. Representation in arbitration proceedings, on the other hand, is not restricted to lawyers. No additional professional rules apply to counsel in arbitration. Furthermore, any person fit to enter into a contract may be appointed as an arbitrator.
6.6 To what extent are there laws or rules in your jurisdiction providing for arbitrator immunity?
Immunity as such is not granted to arbitrators by German law. Arbitrators also do not enjoy the same protection as formal judges. A breach of contractual duties or any other unlawful act will give rise to liability under the general German law provisions. These liability provisions cannot be excluded for intentional breaches and wrongdoings. However, it is common practice to restrict the arbitrator’s liability regarding (even gross) negligence via individual contracts between the arbitrator and the parties or via application of institutional rules (e.g. Sec. 45.1 DIS-Rules, Article 41 ICC, Article 45.1 Swiss Rules).
6.7 Do the national courts have jurisdiction to deal with procedural issues arising during an arbitration?
After the arbitrational tribunal has been formed, a court generally may not take action regarding the arbitration proceedings (cf. Sec. 1032 (1) and (2) ZPO).
However, under Sec. 1062 ZPO, courts can be competent for certain decisions on petitions and applications regarding: the appointment, recusal or termination of office of an arbitral judge; the determination of (in)admissibility of arbitration proceedings or regarding the decision of an arbitral tribunal to affirm its own competence; the enforcement, reversal or modification of arbitral orders providing for provisional measures or securities; and the reversal or (reversal of) declaration of enforceability of the arbitration award. The courts also may support the arbitral tribunal in the taking of evidence under certain circumstances (Sec. 1050 ZPO).
7 Preliminary Relief and Interim Measures
7.1 Is an arbitral tribunal in your jurisdiction permitted to award preliminary or interim relief? If so, what types of relief? Must an arbitral tribunal seek the assistance of a court to do so?
Unless the parties have agreed otherwise, the arbitral tribunal may, at a party’s request, grant interim relief. Such interim relief may also include an obligation to post security (Sec. 1041 (1) ZPO). Whilst no court assistance is needed to determine the measure itself, a petition to permit its enforcement has to be filed with a court (Sec. 1041 (2) ZPO).
7.2 Is a court entitled to grant preliminary or interim relief in proceedings subject to arbitration? In what circumstances? Can a party’s request to a court for relief have any effect on the jurisdiction of the arbitration tribunal?
Even after arbitration proceedings have commenced, a court may, upon a party’s request, order preliminary measures regarding the subject matter of the arbitration proceedings (Sec. 1033 ZPO). The conditions and scope of any such measures are governed by general civil procedures (cf. Sec. 916 et seq. ZPO). Since any interim relief ordered by the arbitration tribunal will only be declared enforceable if no corresponding measure has already been made to a court (Sec. 1041 (2) sent. 1 ZPO), contradictory measures are not to be expected.
It is not yet definitely determined whether the court’s authority in this regard can be modified by the parties.
7.3 In practice, what is the approach of the national courts to requests for interim relief by parties to arbitration agreement?
Whilst there is no court practice specific to arbitration proceedings (see question 7.2), it is to be noted that the requesting party still has to substantiate aspects already brought forward in arbitration.
7.4 Under what circumstances will a national court of your jurisdiction issue an anti-suit injunction in aid of an arbitration?
Anti-suit injunctions are not part of German procedural law. On the contrary, even the enforcement of foreign anti-suit injunctions is deemed to be in violation of German public policy. This certainly applies to any jurisdictions subject to the European treaties (cf. ECJ C-159/02 Turnen/Grovit a.o.).
7.5 Does the law of your jurisdiction allow for the national court and/or arbitral tribunal to order security for costs?
Sec. 1041 (1) ZPO allows arbitral tribunals to order security for costs as it deems fit with regard to the arbitration’s subject matter. Courts may also make such orders, pursuant to the general civil procedure rules in Sec. 916 et seq. ZPO (cf. Sec. 921 ZPO).
7.6 What is the approach of national courts to the enforcement of preliminary relief and interim measures ordered by arbitral tribunals in your jurisdiction and in other jurisdictions?
Sec. 1041 (2) to (4) ZPO provide the courts with the power to grant the enforceability of preliminary measures upon a party’s request, unless a corresponding measure has already been made to a court; the courts may even alter the wording or otherwise reverse and modify an order, if so required for the measure’s enforceability.
8 Evidentiary Matters
8.1 What rules of evidence (if any) apply to arbitral proceedings in your jurisdiction?
The ZPO does not contain any specific provisions that apply to taking of evidence by an arbitral tribunal. In the absence of specific agreements between the parties, the arbitral tribunal is free to set the rules of evidence. The arbitral tribunals are also free in their assessment of the evidence taken in arbitral proceedings (Sec. 1042 (4) ZPO). This is reflected in Article 28 DIS Rules: it expressly provides that the arbitral tribunal shall not be limited to admitting evidence only offered by the parties.
8.2 What powers does an arbitral tribunal have to order disclosure/discovery and to require the attendance of witnesses?
The arbitral tribunal has the powers to order the disclosure or discovery of documents and to require the attendance of witnesses. However, as the concept of disclosure of documents is alien to German civil litigation, in domestic arbitrations, these powers are rarely exercised.
8.3 Under what circumstances, if any, can a national court assist arbitral proceedings by ordering disclosure/discovery or requiring the attendance of witnesses?
Sec. 1050 ZPO provides that state courts shall assist an arbitral tribunal in the taking of evidence. However, the state courts can do so only within the parameters of the rules of evidence in the ZPO. As these do not comprise the concepts of disclosure or discovery, outside the narrow bounds of Sec. 142 ZPO, Sec. 1050 ZPO cannot be employed to assist Anglo-Saxon style document production in Germany.
8.4 What, if any, laws, regulations or professional rules apply to the production of written and/or oral witness testimony? For example, must witnesses be sworn in before the tribunal and is cross-examination allowed?
An arbitral tribunal does not have authority to administer an oath. Should it insist on a witness swearing an oath, it must seek the assistance of the state courts. An oath is rarely required, however, both in domestic litigation and in arbitration. Domestic arbitrations typically operate without cross-examinations, whereas they are currently being used in international arbitrations. Written witness statements are another import into German arbitration practice, and are increasingly being used.
8.5 What is the scope of the privilege rules under the law of your jurisdiction? For example, do all communications with outside counsel and/or in-house counsel attract privilege? In what circumstances is privilege deemed to have been waived?
Rules on privilege typically correspond to rules on discovery and disclosure. In the absence of those, German procedural law has only rudimentary rules on legal privilege. The client enjoys legal privilege for all communication with counsel; the scope of privilege afforded to communication with in-house counsel used to be unclear. Sec. 53 Code of Criminal Procedure (Strafprozessordnung, StPO) now states that, as a general rule, communication with an in-house counsel, even if admitted to the bar, is not subject to legal privilege.
9 Making an Award
9.1 What, if any, are the legal requirements of an arbitral award? For example, is there any requirement under the law of your jurisdiction that the award contain reasons or that the arbitrators sign every page?
Sec. 1054 ZPO defines the formal requirements: the award must be in writing, in the language of the proceedings, and it should be signed – but not on every page – by all arbitrators; however, the signatures of the majority may suffice. Unless the requirement is waived, the award must give reasons. It shall state the place of arbitration and shall be dated.
9.2 What powers (if any) do arbitral tribunals have to clarify, correct or amend an arbitral award?
Pursuant to Sec. 1058 ZPO, an award may be corrected, either upon an application of a party, or in the tribunal’s own initiative, with respect to computation errors, spelling mistakes and other mistakes of such nature. Sec. 1058 ZPO also applies to all other changes to an award, such as corrections, amendments addressing claims that were raised in the proceedings, but not disposed of in the award. Any such changes must observe the form requirements of Sec. 1054 ZPO (see question 9.1).
10 Challenge of an Award
10.1 On what bases, if any, are parties entitled to challenge an arbitral award made in your jurisdiction?
The grounds for challenge set out in the ZPO are those that international readers will be familiar with from Article 34 of the Model Law and Article 5 of the New York Convention. Sec. 1059 ZPO allows a challenge to be based on (i) the lack of a valid arbitration agreement, (ii) the lack of proper notification of the appointment of an arbitrator, or of the arbitration proceedings, or a violation of the right to be heard, (iii) the arbitral tribunal exceeding the boundaries of the arbitration agreement, (iv) a violation of an agreement between the parties as to the constitution of the arbitral tribunal, and finally (v) a violation of German public policy or the fact that the matter in dispute was not arbitrable under German law.
10.2 Can parties agree to exclude any basis of challenge against an arbitral award that would otherwise apply as a matter of law?
As a matter of principle, the right to challenge an award cannot be waived in its entirety. The right to challenge on the grounds that public policy was violated or that the matter is not arbitrable under German law can specifically not be waived. All other reasons on which a challenge can be based may be waived once the award has been rendered and the facts on which a challenge could be based are known.
10.3 Can parties agree to expand the scope of appeal of an arbitral award beyond the grounds available in relevant national laws?
The parties are not at liberty to extend the statutory grounds for setting aside an award.
10.4 What is the procedure for appealing an arbitral award in your jurisdiction?
The challenge of an award is heard by the Court of Appeal (Oberlandesgericht) for the district in which the place of arbitration is located. The challenge must be filed within three months from the receipt of the award.
11 Enforcement of an Award
11.1 Has your jurisdiction signed and/or ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards? Has it entered any reservations? What is the relevant national legislation?
Germany is a party to the New York Convention; it is incorporated into the ZPO through Sec. 1061. Germany has not made any reservations. The original reciprocity requirement was given up in 1999.
11.2 Has your jurisdiction signed and/or ratified any regional Conventions concerning the recognition and enforcement of arbitral awards?
Germany is a party to the 1923 Geneva Protocol on Arbitration Clauses, the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards, the 1961 European Convention on International Commercial Arbitration, the 1965 Convention On the Settlement of Investment Disputes between States and Nationals of Other States and, finally, the 1994 Energy Charter Treaty.
11.3 What is the approach of the national courts in your jurisdiction towards the recognition and enforcement of arbitration awards in practice? What steps are parties required to take?
The general opinion amongst observers appears to be that German courts take an arbitration-friendly approach, and this includes the recognition and enforcement of foreign arbitral awards. Generally, the grounds for setting aside or denying the recognition and enforcement of an award are construed narrowly. The Court of Appeals (Oberlandesgerichte) which is competent to hear applications for the recognition and enforcement of foreign arbitral awards has constituted dedicated senates dealing with arbitration matters. A party seeking the recognition and enforcement of an award must file a respective application with the competent Court of Appeals. The decision of the Court of Appeal on the recognition and enforcement can be challenged, as a matter of right, before the Federal Supreme Court.
11.4 What is the effect of an arbitration award in terms of res judicata in your jurisdiction? Does the fact that certain issues have been finally determined by an arbitral tribunal preclude those issues from being re-heard in a national court and, if so, in what circumstances?
Yes, as an arbitral award is deemed to have the same effect inter partes as a final and binding judgment of a state court, pursuant to Sec. 1055 ZPO, it has res judicata effect.
11.5 What is the standard for refusing enforcement of an arbitral award on the grounds of public policy?
German courts typically take a narrow view of the concept of public policy (ordre public), and understand it to comprise only the fundamental principles of the German legal order. A mere violation of German mandatory legal provision in itself does not constitute, per se, a violation of public policy, nor does the wrong interpretation of such provisions by the arbitral tribunal.
12.1 Are arbitral proceedings sited in your jurisdiction confidential? In what circumstances, if any, are proceedings not protected by confidentiality? What, if any, law governs confidentiality?
Arbitration proceedings in Germany are not automatically confidential, for lack of a statutory provision to that effect. Parties must always agree explicitly on confidentiality, be it in the arbitration agreement, or be it by incorporating arbitration rules that provide for, as the DIS Rules do, confidentiality of the proceedings.
12.2 Can information disclosed in arbitral proceedings be referred to and/or relied on in subsequent proceedings?
The law is unclear on this issue. Some commentators argue that arbitral proceedings are to be treated as confidential even in the absence of an express agreement. However, there is no case law to that effect, and parties are advised to explicitly agree on confidentiality, if they want to avoid information disclosed in arbitral proceedings to be used outside these proceedings.
13 Remedies / Interests / Costs
13.1 Are there limits on the types of remedies (including damages) that are available in arbitration (e.g., punitive damages)?
From a German law perspective, the types of remedies are not a matter of the applicable arbitration law, but a matter for the applicable substantive law to determine. If the underlying governing law permits punitive damages, an arbitral tribunal would be free, in principle, to grant punitive damages in an arbitral award. However, there are certain limits: an award for punitive damages may not be capable of recognition and enforcement in Germany, as this type of remedy is deemed to be in violation of public policy (ordre public).
13.2 What, if any, interest is available, and how is the rate of interest determined?
Under German law, interest is a matter for the substantive law to determine. If German substantive law applies, the BGB stipulates a default rate of interest. In commercial transactions, the rate would be nine percentage points above the base rate of the European Central Bank, and in other transactions, five percentage points above the base rate (Sec. 288 BGB). This provision applies to default interest. Sec. 291 BGB, which provides for interest during the period a claim is pending, does not apply in arbitral proceedings, but only in state court proceedings.
13.3 Are parties entitled to recover fees and/or costs and, if so, on what basis? What is the general practice with regard to shifting fees and costs between the parties?
Sec. 1057 (1) ZPO grants arbitral tribunals the power to issue a decision on costs. The tribunal has wide discretion to allocate costs taking into account the circumstances of the case at hand, including, but not limited to, the degree to which a party succeeded in the proceedings. Tribunals typically follow the loser pays principle. Legal fees can be recovered in a time-spent basis. The recovery is not limited, unlike in state court proceedings, to fees calculated in accordance with the statutory legal fees under the Lawyers Remuneration Act (Rechtsanwaltsvergütungsgesetz, RVG).
13.4 Is an award subject to tax? If so, in what circumstances and on what basis?
The award does not per se trigger any taxes under German law. Whether payments made to a party under an arbitral award are taxable is exclusively a matter for the applicable tax law to decide.
13.5 Are there any restrictions on third parties, including lawyers, funding claims under the law of your jurisdiction? Are contingency fees legal under the law of your jurisdiction? Are there any “professional” funders active in the market, either for litigation or arbitration?
There are no restrictions on third-party funding under German law. Parties have access to a wide range of professional funders, both in litigation and arbitration. Lawyers may not be able to fund actions they are bringing themselves, as they would violate the prohibition against contingency fees and quota litis. Contingency fees are allowed only in very narrow circumstances and, essentially, a party would need to show that without a contingency fee arrangement it would not have access to justice. Since there is an active third-party funding market, this will be very hard to demonstrate.
14 Investor State Arbitrations
14.1 Has your jurisdiction signed and ratified the Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965) (otherwise known as “ICSID”)?
Germany signed the Convention in 1966 and ratified it in 1969.
14.2 How many Bilateral Investment Treaties (BITs) or other multi-party investment treaties (such as the Energy Charter Treaty) is your jurisdiction party to?
Germany pioneered BITs; the 1959 treaty between Germany and Pakistan was the first of its kind. Until today, Germany has concluded 155 BITs, of which 132 are still in force. These include, however, BITs with other EU Member States, the validity of which is in doubt, following the ECJ’s Achmea decision of 6 March 2018. In addition, Germany is a party to the Energy Charter Treaty.
14.3 Does your jurisdiction have any noteworthy language that it uses in its investment treaties (for example in relation to “most favoured nation” or exhaustion of local remedies provisions)? If so, what is the intended significance of that language?
Germany’s BITs are based on a model BIT, and the majority of BITs in force contain provisions that are largely identical to the model BIT. Germany’s BITs do not contain unusual language that would deviate from international standards used in investment treaties.
14.4 What is the approach of the national courts in your jurisdiction towards the defence of state immunity regarding jurisdiction and execution?
The jurisprudence of the German courts distinguishes between acts of state (acta iure imperii) on the one hand, for which a state enjoys immunity and commercial acts of state on the other hand (acta iure gestionis), for which there is no protection. If a state has entered into an arbitration agreement, such state is deemed to have also submitted to the jurisdiction of the competent courts for court proceedings arising out of such arbitration. However, this is not construed as such a state also waiving its immunity when it comes to the actual enforcement of the award. When it comes to execution, the same test is supplied as for the immunity of jurisdiction; if assets serve sovereign purposes of this state, they are immune from execution. All other assets may be the object of enforcement.
15.1 Are there noteworthy trends or current issues affecting the use of arbitration in your jurisdiction (such as pending or proposed legislation)? Are there any trends regarding the type of disputes commonly being referred to arbitration?
The Federal Ministry of Justice in 2017 has established a working group that looks at the need to reform the 10th book of the ZPO; in particular, in light of the modernisation of the UNCITRAL Model Law. This work is ongoing.
15.2 What, if any, recent steps have institutions in your jurisdiction taken to address current issues in arbitration (such as time and costs)?
As of March 2018, new rules of the German Institution for Arbitration (DIS), Germany’s leading arbitral institution, came into force, replacing the 1998 Rules. The new rules constitute a major modernisation which can be allocated to three main objectives: firstly, the procedures should be faster; secondly, more efficient and cost-effective; and thirdly, more transparent. To this end, the arbitral tribunal will be relieved of both administrative tasks and decisions concerning the tribunal itself. To speed up proceedings, time limits for arbitrator appointments and filings have been shortened significantly. To assist in enhancing efficiency, the arbitral tribunal must hold a case management conference within 21 days and discuss not only the timetable with the parties but also a catalogue of measures to optimise efficiency and costs.
It is also new that in proceedings with parties of different nationalities, the sole arbitrator or, in the case of an arbitral tribunal, the chairperson must have a different nationality from the parties if appointed by the DIS.
The DIS will play a more active role in running the arbitration. Under the old rules, for example, the arbitral tribunal itself decided on a challenge against an arbitrator. The decision now rests with the newly created Arbitration Council, an independent body. The Council is also responsible for requests to remove an arbitrator from office and has the power to adjust the fees of the arbitral tribunal if an arbitration ends without an award or by settlement. At the request of the parties, the Council shall also review the determination of the amount in dispute by the arbitral tribunal, as it forms the basis on which the fees for the arbitrators are determined. Last but not least, it may reduce the arbitrators’ fees if they have not brought the proceedings to a conclusion swiftly enough.
This text is the Germany chapter from The International Comparative Legal Guide to: International Arbitration 2018, 15th Edition. A practical insight into cross-border arbitration work.