This country-specific Q&A provides an overview of the legal framework and key issues surrounding arbitration law in Germany including arbitration agreements, tribunals, proceedings as well as costs, awards and the hot topics concerning this country at present.
This Q&A is part of the global guide to Arbitration.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/arbitration/
What legislation applies to arbitration? Are there any mandatory laws?
In 1998, the German Code of Civil Procedure (Zivilprozessordnung, ZPO) was amended to follow the UNCITRAL Model Law to a large extent. The main provisions of German arbitration law are contained in the 10th book of the ZPO (sections 1025 – 1066). These provisions apply to all arbitrations that are seated in Germany (regardless of the parties of the dispute, the underlying set of facts and whether it is an ad hoc or institutional arbitration). Therefore, unlike in other national laws (e.g., in France), German arbitration law does not distinguish between domestic and international arbitration. Only with regard to enforcement, German and foreign awards are treated differently.
Party autonomy is explicitly promoted by section 1042 (2) ZPO, and the parties are free to choose the rules that apply to their arbitration and bind the tribunal. Such rules (be they institutional or individually-agreed) take precedence over the ZPO, provided that they do not conflict with provisions of mandatory German law. Aside from anti-trust laws etc., such mandatory provisions are e.g. the following:
- German arbitration law applies to arbitrations seated in Germany (section 1025 ZPO);
- State courts determine the validity of an arbitration agreement (section 1032 ZPO) and may enforce temporary relief were ordered by a tribunal (sections 1041 (2) and 1041 (3) ZPO);
- A party is entitled to take recourse to the national courts if (i) the arbitration agreement disadvantages one party regarding the constitution of the tribunal (section 1034 (2) ZPO), or (ii) the tribunal has previously rejected its challenge of an arbitrator (section 1037 (3) ZPO);
- The tribunal may decide on its own competence (so-called Kompetenz-Kompetenz, section 1040 (1) ZPO);
- The parties shall be treated equally and be given a full opportunity to present their respective cases (section 1042 (1) ZPO); and
- Counsels may not be prohibited from representing a party in the arbitration (section 1042 (2) ZPO).
An English translation of these provisions (provided by the German Federal Ministry of Justice) is available at: https://www.gesetze-im-internet.de/englisch_zpo/index.html
While no doctrine of precedent exists under German law, the decisions of the German Federal Court of Justice (Bundesgerichtshof) are also an important source of arbitration law in Germany. The higher regional courts (Oberlandesgerichte), which decide in arbitration matters, regularly follow the Bundesgerichtshof’s rulings.
Is the country a signatory to the New York Convention? Are there any reservations to the general obligations of the Convention?
Germany is a signatory to the New York Convention, which entered into force in Germany on 28 September 1961. Germany’s initial reciprocity reservation was withdrawn in 1998.
What other arbitration-related treaties and conventions is the country a party to?
Until today, Germany has signed 146 bilateral (or occasionally trilateral) investment treaties (BITs) in total (including amendments), out of which some have already become ineffective or have not yet entered into force. The current status of all BITs can be checked at the website of the German Federal Ministry for Economic Affairs: http://www.bmwi.de/SiteGlobals/BMWI/Forms/Listen/Investitionsschutzvertraege/Investitionsschutzvertraege_Formular.html
In addition, several older bilateral treaties, which address the enforcement of court decisions or arbitral awards, are (at least in part) still effective (e.g., Switzerland 1929 and Tunisia 1966).
Germany is also a party to the following conventions:
- The Geneva Protocol on Arbitration Clauses (1923);
- The Geneva Convention on the Execution of Foreign Arbitral Awards (1927);
- The European Convention on International Commercial Arbitration (1961);
- The Convention on the Settlement of Investment Disputes between States and Nationals of other States (1965); and
- The Energy Charter Treaty (1994).
Is the law governing international arbitration based on the UNCITRAL Model Law? Are there significant differences between the two?
Germany adopted the UNCITRAL Model Law in 1998, but has not adopted the amendments of 2006. As explained under Question 1, the UNCITRAL Model Law was almost fully incorporated into the ZPO. The differences are inter alia:
- While the UNCITRAL Model Law applies to “commercial disputes”, the 10th book of the ZPO is applicable to any kind of arbitration under German law.
- The 10th book does not only apply to international, but also to domestic arbitration proceedings.
Are there any impending plans to reform the arbitration laws?
The German Federal Ministry of Justice has recently established a special task force to assess whether the German arbitration law should be amended to improve the arbitration framework and make German law even more arbitration friendly. The aspects being discussed include the enforcement of decisions by foreign tribunals in Germany and the state courts’ review of decisions by tribunals.
What arbitral institutions (if any) exist? Have there been any amendments to their rules or are there any being considered?
The most prominent German arbitration institution is the DIS (German Institution of Arbitration, Deutsche Institution für Schiedsgerichtsbarkeit). Its ancestor was established already in 1920 and the DIS, in its current form, in 1992.
The DIS Arbitration Rules have been in force since 1998. They were supplemented by the Rules for Expedited Proceedings in 2008 and by the Rules for Corporate Law Disputes in 2009. However, the DIS Arbitration Rules are currently being extensively revised. The new version, which will be published within the next months, will make the DIS a more proactive institution. Inter alia the following planned changes will impact the conduction of DIS proceedings:
- No advance on costs will be charged to validly initiate DIS arbitration. This makes DIS arbitrations easier to initiate e.g. if the request for arbitration is submitted on the last day of the respective limitation period.
- A challenge of an arbitrator is not only possible due to lacking impartiality, independence or fulfillment of parties’ requirements, but also in the event that the arbitrator does not accomplish his/her tasks according to the DIS Arbitration Rules or is incapable of accomplishing them.
In addition, the DIS also offers a broad range of other ADR-rules, e.g. the Adjudication Rules, the Conflict Management Rules, or the DIS Rules on Expert Determination. All these DIS rules can be found in English at http://www.disarb.org/de/16/regeln/uebersicht-id0.
Other arbitration institutions include the German Maritime Arbitration Association (GMAA), the Chinese European Arbitration Centre (CEAC), which is headquartered in Hamburg, the International Chamber of Commerce (ICC) in Germany, as well as several Chambers of Commerce, e.g. the Frankfurt International Arbitration Center.
What are the validity requirements for an arbitration agreement?
The explicit agreement to refer the resolution of disputes to arbitration can be provided for in an independent agreement, or in the form of a clause incorporated in a contract (section 1029 (2) ZPO).
An arbitration agreement must be made in writing, either set out in one document, or in exchanged correspondence (inter alia letters, telefax and emails, section 1031 (1) ZPO). In certain circumstances, an arbitration agreement is validly constituted by a document transmitted by one party to another party, or by a third party to both parties, provided that no timely objection was raised (section 1031 (2) ZPO).
The parties can also refer to an arbitration agreement contained in separate general terms and conditions. Even if the arbitration agreement is included in the main contract itself, it might be considered as a “standard term” (as per section 305 (1) of the German Civil Code (Bürgerliches Gesetzbuch, BGB)). In that case, also in B2B-contracts, it may be subject to a specific validity control (sometimes referred to as “fairness test”).
If a certain contract requires notarization, this has no effect on the validity of an arbitration agreement included in such contract.
If one of the parties is a consumer, unless notarized, an arbitration agreement must be a separate document to the main contract, and it needs to be personally signed by the parties (section 1031 (5) ZPO).
In the event that an arbitration agreement does not fulfill the above formalities, it will still be considered a valid agreement to arbitrate, provided that the parties do not object to the tribunal’s competence (section 1031 (6) ZPO).
Are arbitration clauses considered separable from the main contract?
Yes. An arbitration clause is treated as an independent agreement, separate from the rest of the contractual provisions (section 1040 (1) ZPO). Consequently, the invalidity of the main contract does not automatically render the arbitration agreement invalid as well.
Is there anything particular to note in your jurisdiction with regard to multi-party or multi-contract arbitration?
No. Neither the ZPO nor the DIS Arbitration Rules (in the soon-to-be-revised 1998 version) regulate these matters in detail.
Unless an arbitration agreement is interpreted to allow for a multi-party and/or multi-contract arbitration, a third party cannot be forced to join arbitration proceedings under German law. A third party can join an ongoing proceeding voluntarily as per section 1029 (1) ZPO in conjunction with section 1031 (6) ZPO. The requirements are that (i) all parties and the tribunal agree to the joinder and (ii) the third party agrees to be joined in the proceedings.
The still-current DIS Arbitration Rules stipulate in section 13 (3): ‘The arbitral tribunal decides on the admissibility of multi-party proceedings.’ The Rules remain silent on multi-contract arbitration.
How is the law applicable to the substance determined?
Pursuant to section 1051 (1) ZPO, the applicable law is to be determined by the parties, either expressly, or through designation of a particular legal system of conflict of laws rules.
Absent a party agreement, the tribunal is to apply the law of that state to which the subject matter of the proceeding has the closest ties (section 1051 (2) ZPO). If the parties expressly authorize the tribunal, it may determine the applicable law as per the tribunal’s reasonable discretion (section 1051 (3) ZPO).
In any event, the tribunal needs to decide in accordance with the provisions of the underlying contract and has to take any existing commercial practice into account (section 1051 (4) ZPO).
Are any types of dispute considered non-arbitrable? Has there been any evolution in this regard in recent years?
Under German law, any claim under property law is arbitrable. In addition, non-pecuniary claims are also arbitrable if the concerned parties can settle the matter (section 1030 (1) ZPO). However, certain matters are non-arbitrable under German law. These exceptions include tenancy relationships for residential space, and matters relating to family law, labor law and criminal law.
There has been a recent development with regard to so called intra-company-disputes, which are now clearly arbitrable in Germany. This used to be controversial for the application of set-aside corporate resolutions adopted by a majority of shareholders in a German limited liability company. The Bundesgerichtshof decided in 2009 that an arbitration agreement for such disputes must fulfil the following four requirements:
- The arbitration clause must be included in the articles of association. Alternatively, in a separate agreement which all shareholders agreed to.
- All shareholders must be aware of the arbitration and must be given an opportunity to join.
- All shareholders must be able to participate in the appointment of an arbitrator (unless a neutral entity does the appointment).
- All applications for the setting aside of a corporate resolution relating to the same matter in dispute must be put before on tribunal.
In the same vein, the Bundesgerichtshof held in April 2017 that the same requirements apply, in principle, to a limited partnership.
Are there any restrictions in the appointment of arbitrators?
No. In line with the UNCITRAL Model Law, the German law does not restrict the parties’ free choice of arbitrators (aside from the fact that arbitrators must be impartial and independent throughout the proceeding, section 1036 (2) ZPO).
Are there any default requirements as to the selection of a tribunal?
The selection of the tribunal is based on the principle of party autonomy. If the parties fail to agree on a selection process, the ZPO provides for the procedure for the appointment of arbitrators:
In arbitration proceedings in which three arbitrators are involved, each party appoints one arbitrator, and the two selected arbitrators together appoint the presiding arbitrator. In arbitration proceedings in which a sole arbitrator is to decide the dispute, and the parties fail to jointly appoint such arbitrator, the competent state court is to appoint him/her. The same applies if a the party-appointed arbitrators are unable to agree on the presiding arbitrator, or if a party does not appoint an arbitrator within the time period of one month after having received the corresponding notice from the other party (section 1035 (3) and (4) ZPO).
Can the local courts intervene in the selection of arbitrators? If so, how?
Generally, the composition of the tribunal is subject to the parties’ agreement. However, under certain circumstances, the competent court may intervene in the appointment of arbitrators upon request of either party as per section 1035 (3) and (4) ZPO (see last question).
The first ground for intervention of the competent court is when there is no party agreement in place, and the parties fail to reach an agreement (section 1035 (3) ZPO). In this case, the court appoints a sole arbitrator. The second ground for intervention is when the two party-appointed arbitrators cannot jointly agree on a presiding arbitrator. According to section 1035(3) ZPO, the court appoints the presiding arbitrator. The third ground is when either the parties or the arbitrators do not comply with the agreed procedure of the appointment. As per section 1035(4) ZPO, the court orders the non-compliant party to carry out the respective procedural act.
Moreover, in case the arbitration agreement favors one party with regard to the composition of the tribunal, the disadvantaged party may file a petition with the competent court as per section 1034 (2) ZPO. The court may then diverge from the party agreement and compose the tribunal.
Provided that the seat of arbitration has not yet been determined, unless the parties have agreed otherwise, German courts will have jurisdiction if either party has its place of business or habitual residence in Germany (sections 1025(3) and 1062(3) ZPO).
Can the appointment of an arbitrator be challenged? What is the procedure for such challenge? Has there been an increase in number of challenges in your jurisdiction?
The appointment of an arbitrator can be challenged. Primarily, the parties may agree on a procedure. Alternatively, arbitral institutions usually have provisions in place concerning the challenge of arbitrators. In the absence of such specific agreement or institutional rules, the ZPO also provides for a challenge-mechanism. Section 1036 (2) ZPO requires circumstances that give rise to justifiable doubts as to the arbitrator’s impartiality or independence or that the arbitrator does not possess the agreed qualifications. Such challenge must be made within two weeks after becoming aware of the constitution of the tribunal or any circumstance that constitutes a ground for challenge (section 1037(2)(1) ZPO).
However, regardless of the parties’ right to agree on the recusal procedure, the parties cannot eliminate the control procedure before the state courts pursuant to section 1037 ZPO. This means that in case a tribunal rejects a party’s challenge, such party may request the competent court to decide on the challenge within one month after the rejection.
The tribunal may continue with the proceedings and issue an award while the challenge to the competent court is pending pursuant to section 1037 (3) ZPO. In that event, the Bundesgerichtshof has held given the challenge is successful only after the award has already been rendered, this constitutes a ground for setting aside of the award. The Bundesgerichtshof reasoned that it must always be assumed that the illegitimate composition of the tribunal directly affected the final decision.
There has been no visible increase in number of challenges to arbitrators.
What happens in the case of a truncated tribunal? Is the tribunal able to continue with the proceedings?
Yes, under certain circumstances, a truncated tribunal may continue with the proceedings until the appointment of a substitute arbitrator as per section 1039 (1) ZPO. Reasons for the appointment of a substitute arbitrator are laid out in section 1039 (1) ZPO, including impartiality issues (section 1037 ZPO), the arbitrator fails or is incapable to perform the assigned tasks (section 1038 ZPO), or the arbitrator’s resignation based on other circumstances or the parties’ agreement that this arbitrator’s appointment shall be terminated.
Are arbitrators immune from liability?
No, arbitrators are not entirely immune from liability. Instead, arbitrators are liable to parties in the same way state court judges are. This cannot be derived from any explicit provision. Instead, the Bundesgerichtshof drew a comparison between the work of arbitrators and judges and thus granted arbitrators the same immunity privileges as judges (so called Spruchrichterprivileg). Consequently, arbitrators are not liable for the correctness of their decision, unless the erroneous application constitutes a deliberate criminal offence.
However, aside from the correctness of their decisions, arbitrators may be liable under general German law for contractual breaches of their agreement to act as arbitrator or tortious behavior. This could for example be the case if the arbitrator fails to disclose circumstances giving rise to doubts as to the arbitrator’s impartiality or independence, leading to damage.
Parties may, however, agree in advance to limit the arbitrators’ liability to the extent permitted under German law (i.e., no exclusion of liability for intentional or grossly negligent conduct).
Is the principle of competence-competence recognised? What is the approach of local courts towards a party commencing litigation in apparent breach of an arbitration agreement?
Yes, the principal of competence-competence (so-called Kompetenz-Kompetenz) is recognized pursuant to section 1040 (1) ZPO. Accordingly, the tribunal can decide on its own jurisdiction and therefore on the existence and validity of an arbitration agreement. The tribunal’s decision is subject to review in potential subsequent setting-aside proceedings. In addition, German arbitration law provides for the option to obtain a court decision on the validity of the arbitration agreement prior to the constitution of the tribunal (section 1032 (2) ZPO).
If arbitration is commenced in violation of the actual arbitration agreement (e.g., the proceedings are initiated at the wrong arbitration institution), the respondent must object to the tribunal’s jurisdiction no later than with its reply to the request for arbitration. Such party’s participation in the constitution of the tribunal does not prevent such objection (section 1040(2) ZPO). The tribunal must then render a decision on jurisdiction, which may be challenged within one month before the competent state court (section 1040(3) ZPO).
How are arbitral proceedings commenced? Are there any key provisions under the arbitration laws relating to limitation periods or time bars of which the parties should be aware?
Generally, the parties are entirely free to agree on a specific commencement mechanism in line with the principle of party autonomy. Only absent such agreement, the commencement will be subject to section 1044 ZPO. According to this provision, the proceedings commence when the respondent has received the request for arbitration (contrary to section 6.1 DIS Arbitration Rules under which the proceedings commence when the institution has received the request for arbitration). Section 1044 ZPO further stipulates that the request for arbitration must designate the parties, the subject matter of the dispute and make reference to the applicable arbitration agreement.
Once the respondent (or the institution) has received the request for arbitration, the applicable limitation period is suspended. German arbitration law does not provide for any limitation period. Instead, the statute of limitation depends on the substantive law.
However, the arbitration law does impose procedural time bars that are relevant for the initial stage of arbitration proceedings. Absent any diverging party agreement, the claimant shall present its claim in the time agreed upon by parties or determined by the tribunal. The same applies to the respondent’s reply (section 1046 ZPO). In the event that the claimant fails to comply with such time limit, the proceedings shall be terminated pursuant to section 1048 (1) ZPO. The respondent’s failure to comply with such time limit will not be considered as an acknowledgment of the claimant’s assertions (section 1048 (2) ZPO).
What happens when a respondent fails to participate in the arbitration? Can the local courts compel parties to arbitrate? Can they order third parties to participate in arbitration proceedings?
If a respondent does not submit a reply to a request for arbitration, the tribunal shall continue the proceedings without considering such failure as an acknowledgment of the claimant’s assertions (section 1048 (2) ZPO). If either party fails to appear at a hearing, the tribunal may continue the proceedings and may ultimately issue its award based on the insights it has obtained otherwise (section 1048 (3) ZPO).
German courts cannot compel a respondent to participate in the arbitration. They also cannot force a third party to participate in arbitration proceedings without its consent.
In what circumstances is it possible for a state or state entity to invoke state immunity in connection with the commencement of arbitration proceedings?
Generally, where a state has validly agreed to arbitration, it cannot invoke state immunity or rely on its own national law to contest its capacity to be a party to arbitration proceedings. The arbitration agreement (be it in a commercial contract or a treaty) constitutes a waiver of the state’s immunity with regard to the scope outlined in the arbitration agreement or the treaty, respectively.
It is important to note that German courts consider this waiver to also encompass exequatur proceedings (i.e., proceedings about the declaration of enforceability of the award resulting from the arbitration). However, with regard to the subsequent enforcement as such, sovereign assets are still immune from enforcement (see question 32).
In what instances can third parties or non-signatories be bound by an arbitration agreement or award?
As a general rule, arbitration agreements bind only the parties that have expressly agreed to arbitrate (section 1029 (1) ZPO). As a result, a third party cannot be forced to join an arbitration without its consent.
If the third party consents, the (original) parties may agree to its participation (or the institutional rules may provide for a special legal construction of joinder). The rules regarding joinder of parties in state court-litigation do not apply to arbitral proceedings. Therefore, in order for an arbitration agreement to extend to a third party, (i) the latter needs to agree to be joined, and (ii) all parties and the tribunal need to agree (either by explicit agreement or by the application of institutional rules).
Only in instances of assignment, agency, succession and insolvency, the respective assignee, principal, successor and insolvency administrator is generally bound by the arbitration agreement and any arbitral award (exceptions apply).
Moreover, the “group of companies doctrine” is not adopted in Germany. This position is explicitly confirmed by the Bundesgerichtshof. However, the court also found that if the doctrine is applied under foreign laws, this does not necessarily constitute a violation of German public policy.
What interim measures are available? Will local courts issue interim measures pending the constitution of the tribunal?
Germany has not adopted the 2006 amendments to the UNCITRAL Model Law (see question 4), and, consequently, German arbitration law does not in detail address interim measures and their enforcement. Still, the ZPO provides that the parties may request interim relief either from the competent state court (sections 1026 and 1033 ZPO) or from the tribunal (section 1041 ZPO).
The state courts may either grant an attachment order (sections 916-934 ZPO) or order an interim injunction (sections 935-945 ZPO). Interim measures ordered by the tribunal will not be automatically enforceable but require enforcement to be granted by the competent state court.
German courts will not issue anti-suit injunctions. It is highly disputed whether tribunals can issue anti-suit injunctions without the agreement of the parties. The relevant provision (section 1041 (1) ZPO) only provides that the tribunal may order such measures it considers necessary in respect of the subject-matter of the dispute.
Are there particular rules governing evidentiary matters in arbitration? Will the local courts in your jurisdiction play any role in the obtaining of evidence?
There are no particular rules that govern evidentiary matters in arbitration. Provided that the tribunal treats both parties equally and fairly, it has broad discretion regarding the conduct of the proceedings. This includes the tribunal’s authority to decide on the admissibility of the taking of evidence, whether to take evidence, and how to assess the results (section 1042 ZPO). In practice, the IBA Rules on the Taking of Evidence are often referred to, especially in cases that are not purely domestic.
State courts may play a role in the obtaining of evidence. The tribunal (or either party upon approval by the tribunal) may ask the competent court to provide support in the taking of evidence (section 1050 ZPO). If the court deems the request admissible, it shall provide support in accordance with its procedural rules, which govern the taking of evidence in state court litigation.
This is particularly important in regard to compelling witnesses to testify. While the tribunal cannot compel witnesses, it can request the assistance of the competent state court. Following such request, the competent court may compel witnesses that fall under its jurisdiction to appear in court and provide testimony. The arbitrators are entitled to be present and pose questions to the witness. In practice, also the parties are present at this hearing and usually will be granted the opportunity to ask questions.
What ethical codes and other professional standards, if any, apply to counsel and arbitrators conducting proceedings?
Generally, German law does not provide any arbitration-specific ethical codes or other professional standards. Counsels and arbitrators who are admitted to a German bar are bound by the ethical rules of the German Federal Lawyers’ Act. These ethical rules do not apply to foreign counsels and arbitrators, who are bound by the respective codes and professional standards of their home jurisdiction.
In practice, tribunals increasingly rely on ethical codes prepared by institutions for guidance (e.g., IBA Guidelines on Party Representation, IBA International Principles on Conduct for the Legal Profession, and The Code of Professional and Ethical Conduct prepared by the Chartered Institute of Arbitrators).
How are the costs of arbitration proceedings estimated and allocated?
Pursuant to section 1057 (1) ZPO, the parties may agree on the estimation and allocation of costs. Absent a party agreement, the tribunal shall estimate and allocate the costs, according to its discretion.
Regarding the allocation of costs, the tribunal needs to take into account all the circumstances of the case as well as the outcome (section 1057 (2) ZPO). This is in line with the general concept of costs-follow-the-event, which applies in German state court civil proceedings.
This decision on costs covers the costs of the arbitration (fees and expenses), particularly institutional fees as well as necessary costs incurred by the parties, such as lawyer’s fees, travel expenses and translation costs.
The decision on the costs can either be included in the final award or a separate cost award may be rendered after the termination of the proceedings (section 1057 (2) ZPO).
Can pre- and post-award interest be included on the principal claim and costs incurred?
Yes. The tribunal may grant interest to the extent that the applicable substantive law allows a claim for interest. For example, with respect to principal claims, German law stipulates interest rates from the date of commencement of the arbitration (or from the date of the breach of contract or default).
No distinction is drawn between the award of interest in the pre-award period and in the post-award period. Instead, interest is payable up to the date of payment as a matter of course. There is no discretion to exercise for state courts or tribunals.
What legal requirements are there for the recognition of an award?
The ZPO distinguishes between domestic awards (section 1060 ZPO) and foreign awards (section 1061 ZPO).
If the award has been rendered by a tribunal seated in Germany, it is considered a domestic award. While it is recognized that arbitral awards are equal to state court decisions, in order to be enforceable, an award must be declared enforceable by a German state court. The competent court is to review any alleged reasons for setting aside the award. In addition, the court must ex officio examine whether the subject matter of the dispute is arbitrable in Germany and the award violates public policy.
If the parties consent, an award on agreed terms can also be declared enforceable by a German notary public, unless the award violates public policy (section 1053 (4) ZPO).
Foreign awards are recognized and enforced in accordance with the New York Convention (section 1061 ZPO). The ZPO provides for a mechanism if the award has been set aside at the seat of arbitration. If the award is set aside after it has been declared enforceable in Germany, the concerned party may apply that the declaration of enforceability is repealed (section 1061 (3) ZPO).
Does the law impose limits on the available remedies? Are some remedies not enforceable by the local courts?
The arbitration law itself does not impose any limitations on the available remedies. Generally, the types of remedies primarily depend on the substantive law of the dispute. Moreover, the parties themselves may determine further competences of the tribunal.
Although remedies are not limited, some remedies are not enforceable in Germany. Most importantly, the Bundesgerichtshof held that punitive damages are considered a violation of public policy.
Can arbitration proceedings and awards be appealed or challenged in local courts? What are the grounds and procedure?
German arbitration law does not provide for an appeal mechanism. Nevertheless, the parties are free to determine an appeal mechanism. Absent any party agreement, the only recourse of the parties is to commence setting-aside proceedings.
If the award has been rendered by a tribunal seated in Germany, section 1059 ZPO applies. The award needs to be challenged upon three months from the date on which the challenging party receives the award.
Section 1059 ZPO lists several grounds to set aside a domestic arbitral award. The list is based on the grounds for the refusal of recognition and enforcement under the New York Convention and includes inter alia:
- Violation of due process (section 1059 (2) no. 1 lit. a ZPO);
- Violation of the parties’ arbitration agreement (section 1059 (2) no. 1 lit. b ZPO);
- Excess of the competences of the tribunal (section 1059 (2) no. 1 lit. c ZPO); and
- Violation of public policy (section 1059 (2) no. 2 lit. b ZPO);
State courts are not allowed to take any other circumstances into account. In particular, they are prohibited to review the arbitral award on substance (no révision au fond).
Pursuant to section 1059 (4) ZPO, the state court can set aside the award and also refer the case back to the tribunal, if appropriate and requested by a party. In the event that an award is set aside and the matter is referred back to the tribunal, the proceedings will continue before the original tribunal. On the other hand, if the award is set aside but the matter cannot be referred back to the original tribunal, the arbitral proceedings must be repeated from the very beginning.
The decision of the competent court (Oberlandesgericht) can be appealed to the Bundesgerichtshof. The appeal is limited to issues regarding the admissibility of the arbitral proceedings, the jurisdiction of the tribunal as well as the setting aside or the recognition and the enforcement of an award (sections 1062 (1) and 1065 (1) ZPO). Otherwise, the decision of the competent court is binding.
Can the parties waive any rights of appeal or challenge to an award by agreement before the dispute arises (such as in the arbitration clause)?
No, such waivers are invalid. The Bundesgerichtshof held that the right to an application for setting-aside proceedings may not be entirely excluded by the parties in advance. In particular, the parties cannot waive their right to challenge an award based on the non-arbitrability of the subject matter and the violation of public policy grounds.
To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?
As explained under question 21, where a state has agreed to arbitration, it cannot invoke state immunity during the arbitration proceedings or during the exequatur proceedings (i.e., about the declaration of enforceability of the award).
However, such waiver of immunity does not apply to the enforcement of the award as such. The immunity in execution proceedings follows different rules and may still be recognized even if the state has waived its immunity in relation to the arbitration proceedings. This is important with regard to state assets in Germany over which German courts have jurisdiction based on the principle of territoriality (section 23 ZPO). On the basis of the doctrine of limited sovereign immunity, the German Federal Constitutional Court (Bundesverfassungsgericht) distinguishes between sovereign and non-sovereign assets. State assets fulfilling a sovereign function are protected against enforcement measures. Conversely, awards against assets of foreign authorities located in Germany with a commercial purpose are enforceable.
To what extent might a third party challenge the recognition of an award?
Generally, a party is entitled to challenge an award if the party is adversely affected by the award (and be it only by the decision on costs). Accordingly, a third party might be entitled to challenge an award if the award has a res iudicata effect on it. This primarily covers instances where the scope of the award’s legal effect extends to the third party.
Have there been any significant developments with regard to third party funding recently?
No. Third-party funding is generally permitted both in arbitration and litigation in Germany. However, neither German arbitration law nor the DIS Arbitration Rules expressly regulate third-party funding.
Is emergency arbitrator relief available? Is this frequently used?
Neither the ZPO nor the still-current 1998 DIS Arbitration Rules provide for emergency arbitrator relief. Only the DIS Sport Arbitration Rules of 2016 provide for interim relief prior to the constitution of the tribunal (section 20 (2)). The latter is rather frequently used due to the often urgent circumstances related to sport disputes (suspensions due to doping, qualifications for upcoming tournaments etc.).
However, the parties are free to agree on (institutional) rules that do include emergency arbitrator relief in arbitrations seated in Germany.
Are there arbitral laws or arbitration institutional rules providing for simplified or expedited procedures for claims under a certain value? Are they often used?
The ZPO does not provide for expedited arbitration proceedings.
The DIS Arbitration Rules were supplemented by rules for expedited proceedings in 2008. Irrespective of the amount in dispute, the Supplementary Rules for Expedited Proceedings (SREP) only apply if the parties have agreed to their application prior to the filing of a statement of claim (section 1.1 SREP). In 2015 and 2016, only 5 out of 300 DIS cases were administered pursuant to the SREP.
However, a new version of the DIS Arbitration Rules will be published within the next months.
Have measures been taken by arbitral institutions to promote transparency in arbitration?
Under the DIS Arbitration Rules, the conduct of the arbitration proceedings and the parties involved are confidential (section 43.1). Arbitral awards can only be published with the consent of the parties (section 42).
One of the aims of the initiated revision of the DIS Arbitration Rules (see question 6 above) is to increase transparency of the arbitration proceedings.
Is diversity in the choice of arbitrators and counsel (e.g. gender, age, origin) actively promoted? If so, how?
Neither German arbitration law nor the still-current DIS Arbitration Rules contain any specific provisions with regard to the diversity in the choice of arbitrators and counsel. Aside from that, international initiatives (e.g., “The Pledge - Equal Representation in Arbitration”) are also getting support in Germany, leading to more diversity.
Have there been any developments regarding mediation?
In 2012, Germany enacted the Mediation Act (Mediationsgesetz, MediationsG). The MediationsG implemented the European Mediation Directive into German law and sets forth basic principles and procedures for mediation in Germany.
In addition, in the context of the enactment of the MediationsG in 2012, several provisions of the ZPO and other procedural codes have been amended and now provide for mediation in connection with court proceedings. Section 278a of the ZPO clarifies that state courts are empowered to suggest to the parties mediation or another form of alternative dispute resolution. Courts may also refer the parties to another judge who acts as a judicial conciliator (Güterichter, section 278 (5) ZPO). The judicial conciliator may use all methods of alternative dispute resolution, including mediation, but is not authorized to render a binding decision.
Finally, the DIS provides for institutional mediation under the DIS Mediation Rules.
Have there been any recent court decisions considering the setting aside of an award that has been enforced in another jurisdiction or vice versa?
The basic principle in Germany is that, in line with Article V (1) (e) of the New York Convention, courts will generally not enforce foreign awards that have been set aside at the seat of arbitration.
However, this may be different if the foreign state in which a foreign award was set aside is a Member State of the European Convention on International Commercial Arbitration 1961. Because, as held by the Bundesgerichtshof in 2014, Article IX (2) of this convention specifically excludes the application of Article V (l) (e) of the New York Convention in enforcement proceedings. Consequently, if the annulment was based on a foreign public policy which is not recognized in Germany, the award will be recognized and declared enforceable.
If setting aside proceedings are already initiated in the country of origin and enforcement proceedings in Germany are initiated simultaneously, the party resisting enforcement may request the stay of the enforcement proceedings (Art. VI (1) NY Convention). In some instances, German courts have refused to adjourn the proceedings due to pending setting-aside proceedings abroad and declared the award enforceable (because, in the courts’ view, no grounds existed for setting aside the award).