White paper on the planned modernisation of German arbitration law - an overview

On 18 April 2023, the Federal Ministry of Justice (Bundesministerium der Justiz, “BMJ”) published a white paper on the modernisation of German arbitration law (BMJ | Pressemitteilungen | Modernisierung des deutschen Schiedsverfahrensrechts: Bundesjustizminister legt Vorschläge vor). The paper identifies issues that are to be brought in line with international developments in arbitration law. The BMJ would also like to take an open-ended look at four additional issues. The white paper contains starting points, in particular, for

• making arbitration law more competitive internationally by simplifying formal requirements in commercial transactions and modernising procedural regulations;

• strengthening specialisation, reliability and transparency in arbitration law by making adjustments to the competence of higher regional courts and introducing a new legal remedy, as well as urging arbitral tribunals and parties to publish arbitral awards;

• increasing legal certainty in arbitration law by adjusting and fleshing out legal remedies before state courts and laying down provisions on the appointment of arbitrators; and

• making interim relief more effective in the context of arbitration law.

Informal, English and digital

The aim is for Germany to become more competitive internationally as an arbitration location. To this end, the white paper calls for, among other things, a simplification of formal requirements and modernisation of procedural regulations:

• It should be possible to conclude arbitration agreements informally in commercial transactions. In particular, this is intended to dispel doubts regarding electronically agreed arbitration agreements, which may become relevant in connection with “smart contracts”, for example. This would also make it possible to conclude oral arbitration agreements under German law. In the case of consumer arbitration agreements, the current strict requirements in section 1031(5) Code of Civil Procedure (Zivilprozessordnung, “ZPO”) are to remain in place.

• In future, it should be possible to submit the arbitral award as well as documents from the arbitral proceedings in enforcement or annulment proceedings in English. The same would apply in the context of court assistance in taking evidence (section 1050 ZPO). This would not only save time, but also translation costs.

• In addition, the paper aims to make clear that hearings in arbitral proceedings may be conducted by way of a video conference unless the parties have agreed otherwise. Until now the question of whether the arbitral tribunal has discretion to order that a hearing be conducted by way of a video conference, even if one party opposes this, has been subject to debate.

Specialisation, reliability and transparency

The white paper also aims to promote specialisation, reliability and transparency of state courts in the context of arbitration.

• The BMJ would like to enable Federal States which have commercial courts to declare such courts competent, at least for requests for a declaration of enforceability or for the setting aside of arbitral awards, even if the parties have not explicitly agreed on this. It would be possible to conduct the entire proceedings before the commercial courts in English. If necessary, it would also be possible for Federal States to establish inter-state joint divisions of higher regional courts in arbitration matters. Combining expertise in this way would likely have a positive effect on the quality and predictability of decisions as well as on the speed of proceedings.

• In addition, the paper proposes examining whether court assistance in taking of evidence or the performance of other judicial acts pursuant to section 1050 ZPO, for which the local courts have so far been competent, should also be transferred to the higher regional courts which are otherwise competent for arbitration matters. Given that the higher regional courts have jurisdiction in various other arbitration matters, this would seem to be a logical approach.

• Another proposal in the white paper is the introduction of a legal remedy for setting aside arbitral awards that would be based on actions for a retrial pursuant to section 580 ZPO. For example, it should be possible for final domestic arbitral awards to be set aside if they have been obtained through bribery or perversion of justice. This would improve the reliability of Germany as an arbitration location.

• Provided that the parties agree, arbitral tribunals should in future be enabled by law to publish arbitral awards. This would increase transparency in arbitral proceedings and promote the further development of the law. It remains to be seen whether this regulation will be accepted in practice.

Legal certainty

Another aim of the white paper is to increase legal certainty by adjusting and clarifying existing legal remedies and provisions in the ZPO as well as by introducing rules on the appointment of arbitrators in multi-party arbitral proceedings:

• A request for a declaration of the (in)admissibility of arbitral proceedings (section 1032(2) ZPO) should be amended in such a way that the court seized of the matter can, at the same time, decide on the existence or validity of an arbitration agreement. Procedural economy would be improved in that the decision on the existence of the arbitration agreement would become res judicata.

• In addition, there are plans to enable state courts to set aside negative decisions on jurisdiction by arbitral tribunals. Whereas a positive decision on jurisdiction can be challenged before the state courts either under section 1040(3), sentence 2 or section 1059 ZPO, courts can only set aside negative decisions on jurisdiction pursuant to section 1059 ZPO on the basis of the reasons stated therein; however, these do not include the grounds that the arbitral tribunal, contrary to its own view, does in fact have jurisdiction. This will promote party autonomy.

• Moreover, it should be clarified 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 may, upon request of one of the parties, refer the matter back to the arbitral tribunal Otherwise, the decision setting aside the award would cause the arbitration agreement to be revived with respect to the subject matter of the dispute. So far this has only been regulated for annulment proceedings (section 1059(4) and (5) ZPO), whereby, under the existing legal situation, section 1059(4) ZPO already applies to section 1060 ZPO by analogy according to the prevailing opinion.

• Finally, the white paper addresses dissenting opinions by an arbitrator. The BMJ is examining whether a legal clarification is required in this regard.

• The creation of rules for the appointment of arbitrators in complex multi-party arbitral proceedings is intended to create more legal certainty.

• Only in urgent cases should the presiding arbitrator be able to issue orders pursuant to section 1063(3), sentence 1 ZPO in the context of compulsory enforcement or the execution of provisional/protective measures of the arbitral tribunal, without having previously heard the opposing party.

Interim relief

Finally, interim relief under arbitration law should be enhanced as part of the modernisation of arbitration law.

• It has thus far been the case that interim relief measures by arbitral tribunals can at any rate be declared enforceable in Germany if that is the place of arbitration (cf. sections 1041(2), 1025(1) ZPO). Reformed arbitration law should in future also explicitly allow for decisions of arbitral tribunals seated abroad to be declared enforceable. At the same time, German courts should be authorised to make a corresponding admission of enforcement contingent on the provision of security.

• In addition, in the further course of the legislative process it should be examined whether it would make sense for an emergency arbitrator to also be introduced into the 10th Book of the ZPO. This is already provided for in the arbitration rules of several institutions. According to Article 29 of the Rules of Arbitration of the Arbitral Institution of the International Chamber of Commerce, the emergency arbitrator may be called upon, for example, even before the constitution of the arbitral tribunal, to order such interim measures whose issuance cannot wait until the arbitral tribunal is constituted.

Conclusion

The white paper is a welcome step towards modernising German arbitration law and strengthening Germany’s position as a judicial centre in international competition. We eagerly await the BMJ’s draft bill, which will set out the reform efforts in more detail.