On 1 February 2024, the Federal Ministry of Justice published a draft bill for an Act on the modernisation of German arbitration law (Draft bill of Federal Ministry of Justice | Draft bill for an Act on the modernisation of German arbitration law). The draft bill follows on from the white paper of 18 April 2023, which – without proposing any specific wording – had identified issues that were to be harmonised with international developments in arbitration law (article of 16 May 2023). The draft bill now addresses many of the issues already mentioned in the white paper, leaves out others and adds one new aspect. However, all of the reform proposals serve the same objectives. The main goal is to adapt arbitration law to the needs of today’s world, increase its efficiency and, in so doing, make Germany more attractive as an arbitration location.
In the following, we present the provisions contained in the draft bill and their potential effects:
Informal, English and digital
To ensure that German arbitration can compete internationally as a seat of arbitration, the draft bill provides for a simplification of formal requirements and a modernisation of procedural regulations:
- Pursuant to draft section 1031(4) German Code of Civil Procedure (Zivilprozessordnung, “ZPO”), it will be possible to conclude arbitration agreements informally if the arbitration agreement is a commercial transaction within the meaning of section 343 Commercial Code (Handelsgesetzbuch) for all parties. The draft bill sees a practical need for arbitration agreements that do not have to adhere to a certain form, particularly in the case of global supply chains and complex framework agreements. Since parties have a legitimate interest in documentation, each party will be able to demand that the other party confirm the content of an informally concluded arbitration agreement in textual form. However, it is hard to imagine this provision being helpful if a dispute over the existence of an arbitration agreement has already arisen.
- Draft section 1063b ZPO provides that any document in English that has been prepared or submitted in arbitration proceedings may be submitted, without a translation, in German-language court proceedings in all arbitration matters. This includes, in particular, enforcement or annulment proceedings, proceedings on the appointment or challenge of an arbitrator as well as proceedings on assistance in the taking of evidence. Although this saves the parties from having to pay the translation costs that would otherwise be incurred, it implicitly increases the qualification requirements for state court judges.
- In addition, the draft bill is intended to clarify what is already common practice, namely that – after hearing the parties – the arbitral tribunal can conduct a video hearing unless the parties have agreed otherwise (draft section 1047(2) ZPO).
- As the only addition to the proposals in the white paper, draft section 1054(2) ZPO provides that it will also be possible to issue the arbitral award as an electronic document. In this case, each member of the arbitral tribunal must sign the award with his or her qualified electronic signature.
Specialisation, reliability and transparency
The draft bill also offers solutions that promote specialisation, reliability and transparency in arbitral proceedings.
- It facilitates the concentration of arbitration-related proceedings before the commercial courts. According to draft section 1062(5) ZPO, the Federal State governments will be authorised to transfer jurisdiction in arbitration matters to the commercial courts if the latter have been established in one Federal State or by several Federal States jointly. Draft section 1063a ZPO allows the entire proceedings before the commercial courts to be conducted in English. However, decisions issued in English will need to be translated into German (draft section 1063a(1) ZPO), without this having any cost implications for the parties. One of the reasons for this is that it is up to the Federal Court of Justice to decide whether proceedings it hears will be conducted in English (draft section 1065(3) ZPO). Pursuant to draft section 1063a(3) ZPO, all of a commercial court’s decisions in arbitration matters will be published in anonymised form (together with the German translation if the decisions were issued in English).
- Moreover, draft section 1059a ZPO provides for another new legal remedy for setting aside arbitral awards that is based on actions for a retrial pursuant to section 580 ZPO. For example, it will be possible to set aside final domestic arbitral awards that have been obtained through bribery or perversion of justice.
- To increase transparency in arbitral proceedings and to promote the further development of the law, arbitral tribunals will in future be able to publish arbitral awards in anonymised form pursuant to draft section 1054b ZPO. Publication is subject to the parties’ consent, which will be deemed to have been given if, after having been asked by the arbitral tribunal for their consent, the parties do not raise an objection to publication within one month. This legal consequence of tacit consent must of course be explained to each party. The parties are allowed to agree otherwise at any time. Draft section 1054b(3) ZPO also points out that other legal provisions may impose further requirements on the publication of arbitral awards, for example to ensure data protection and safeguard business secrets or privacy rights.
- Where court assistance in taking of evidence or the performance of other judicial acts pursuant to section 1050 ZPO are concerned, the white paper envisaged transferring competence from the local courts to the higher regional courts, which are otherwise competent for arbitration matters. However, this was not addressed in the draft bill.
Legal certainty
It is the intent of the draft bill that all of the proposals in the white paper under the heading “legal certainty” be implemented. This concerns the following points:
- Under the draft bill, the existing possibility to request that a state court declare the (in)admissibility of arbitral proceedings will be expanded. Accordingly, a party can choose between only having the court decide on the question of whether the specific subject matter of the dispute falls under the arbitration agreement (currently section 1032(2), sentence 1 ZPO), or having the court issue an explicit decision on the existence and validity of the arbitration agreement that becomes res judicata (draft section 1032(2), sentence 2 ZPO).
- Draft section 1040(4), sentence 2 ZPO provides for new grounds for setting aside arbitral awards. State courts will be able to set aside negative decisions on jurisdiction by arbitral tribunals if they consider the decision to be wrong. The purpose of this is to ensure that cases for which the arbitral tribunal has declined jurisdiction will in future be treated in the same way as cases for which the arbitral tribunal has assumed jurisdiction. This gives the claimant an additional option if his or her request for arbitration has already failed due to an (alleged) lack of jurisdiction.
- As considered in the white paper, draft section 1054a ZPO now actually wants to explicitly declare separate opinions to be admissible “for the future”, both with respect to the final ruling (dissenting opinion) and to the reasoning (concurring opinion). A decision by the Frankfurt Higher Regional Court in 2020 had given rise to doubts about the admissibility of separate opinions in Germany (and internationally), but separate opinions will not be a part of arbitral awards. Under the draft bill, it will, however, be possible for the parties to agree otherwise, and this might already need to be taken into account in the arbitration clause.
- In complex multi-party arbitration proceedings, all parties will be obliged to cooperate in the appointment of arbitrators. If a party fails to fulfil this obligation within one month despite being requested to do so, the arbitrator will be appointed by the state court (draft section 1035(4) ZPO).
- A more technical clarification the draft bill envisages is that, where a request for a declaration of enforceability is rejected and, at the same time, the arbitral award is set aside pursuant to section 1060(2), sentence 1 ZPO, the state court will be able, upon request of one of the parties, to refer the matter back to the arbitral tribunal (draft section 1060(2), sentence 4 ZPO in conjunction with section 1059(4) ZPO). The same applies to the possible finding that the decision to set aside the award will cause the arbitration agreement to be revived with respect to the subject matter of the dispute (draft section 1060(2), sentence 4 ZPO in conjunction with section 1059(5) ZPO).
Interim relief
There is less focus on interim relief in the draft bill than in the white paper.
- The draft bill also comprehensively revises the provision in section 1041(2) ZPO, which regulates the powers of the state court with regard to interim measures of the arbitral tribunal. In addition to editorial changes and clarifications, draft section 1041(2) ZPO (in conjunction with draft section 1025(1) ZPO) also stipulates that interim relief measures of arbitral tribunals seated abroad will be admissible unless one of the specified grounds for refusal applies. However, German courts will still be authorised to make an admission of enforcement contingent on the provision of security.
- The clarification in draft section 1063(3), sentence 1 ZPO is unlikely to change much about the situation. According to the new wording, in the context of compulsory enforcement or execution of provisional/protective measures of the arbitral tribunal, if the chairperson has not previously heard the opposing party, he or she will no longer be able to issue measures at his or her discretion, but only in urgent cases and upon request.
- On the other hand, provisions on the so-called emergency arbitrator are not to be included. Whereas the white paper had at least considered introducing such provisions, the draft bill does not state the reasons for leaving them out.
Conclusion
The draft bill takes into account many of the proposals in the white paper, with the only new additions being provisions on the “electronic arbitral award”. There will be no “emergency arbitrator” after all.
Some points will surely be highly debated in the further legislative process, and the bill is expected to undergo further significant changes. This is all the more so considering that it must be harmonised with the introduction of the commercial courts, which is envisaged in a separate bill. We will monitor further developments and report again as soon as the revised draft bill is available.
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