On the Modernization of German Arbitration Law

Freedom of form: Currently, German arbitration law imposes certain formal requirements for arbitration agreements. In the future, at least in commercial transactions, the conclusion of form-free arbitration agreements shall be allowed. This will potentially provide parties with more flexibility in entering into arbitration agreements. Stricter standards will continue to apply for agreements with consumers.

Appointment of arbitrators: The Code of Civil Procedure does not contain provisions regarding the appointment of arbitrators in multi-party arbitration proceedings, i.e., in those proceedings involving more than two parties. In cases where the parties have not agreed on a procedure for appointing arbitrators in multi-party proceedings, they will be able to fall back on a corresponding provision in the Code of Civil Procedure in the future.

Equal treatment of positive and negative arbitration decisions on jurisdiction: According to the current legal situation, a party can only take legal action against a positive arbitration court decision on jurisdiction (interim decision). The BMJ intends to introduce a legal action to also set aside negative decisions of an arbitral tribunal on jurisdiction. This means that state courts can review decisions of the arbitral tribunal declaring itself not competent for the dispute.

Digitization: In addition, the Code of Civil Procedure is expected to allow that oral hearings before arbitral tribunals can be conducted by video conference, as well as the recording of hearings, unless the parties agreed otherwise. The use of audio and video transmission can be a meaningful alternative, especially in cross-border proceedings.

Publication of arbitration awards: To make arbitration proceedings more transparent and to promote the development of the law, more arbitral awards are intended to be published subject to the consent of the parties involved.

English-language applications in the enforceability declaration procedure: According to the White Paper, applications for a declaration of enforceability or annulment of arbitration awards can now also be submitted in English. This will save costs and time for the production of translations.

New legal remedy: An extraordinary legal remedy is planned to remove final domestic arbitration awards based on the German action for restitution (Section 580 ZPO). The new legal remedy makes it possible to set aside final decisions if for example the outcome of the decision was influenced by a criminal offense.

Interim legal protection: If an arbitral tribunal orders interim measures, a German court can enable the enforcement of these measures domestically, even if the place of arbitration is abroad.

Decision on the existence or validity of the arbitration agreement: In the interest of procedural economy, the court may also issue a decision on the existence or validity of the arbitration agreement in applications for a declaration of admissibility or inadmissibility of arbitration proceedings pursuant to Section 1032 (2) ZPO. This is intended to ensure that the decision on the existence of the arbitration agreement also becomes final and binding.

Concurrence of annulment and enforceability proceedings: Currently, a state court may refer the dispute back to the arbitral tribunal if it sets aside a domestic arbitral award. In future it is explicitly admissible that a state court may refer a dispute back to the arbitral tribunal also in cases where it refuses the declaration of enforceability. Previously, this was not explicitly regulated by law but was already applied in practice (Section 1059 (4) ZPO was applied analogously to Section 1060 ZPO). In case of doubt, the annulment of the arbitration award has the consequence that the arbitration agreement is revived with regard to the subject matter of the dispute.

Enforcement: In the case of orders from the Higher Regional Court in the context of enforcement of arbitral awards, the special powers of the court under Section 1063 (3) sentence 1 ZPO to issue orders without prior hearing of the opposing party will expressly be limited to orders in urgent cases.

Federal states that establish Commercial Courts at the Higher Regional Courts can declare them competent for applications for the declaration of enforceability or the setting aside of arbitral awards. Finally, further points are listed which should be subject to an "open-ended" examination during the drafting of the bill:

-          The establishment of an emergency arbitrator,

-          the admissibility of dissenting opinions,

-          the joint establishment of panels at the Higher Regional Courts in arbitration cases across borders, and

-          the transfer of additional powers from the local courts to the Higher Regional Courts

The initiative is generally welcome, as the importance of arbitration proceedings, especially in international disputes, is growing, and German arbitration procedural law is in global competition with other arbitration locations. The White Paper can be found here. A draft for the implementation of the proposal is not yet available. It remains to be seen whether the law will strengthen Germany in the international competition for arbitration venues. We will keep you informed about the further progress of the legislative process.