Commercial Arbitration

Germany

Siegfried H Elsing

Orrick Hölters & Elsing

    Infrastructure

  1. 1.The New York Convention
    Is your state a party to the New York Convention? Are there any noteworthy declarations or reservations?

    The New York Convention came into effect in Germany on 28 September 1961. For the time being, there are no reservations (the reciprocity reservation under article I (3) NYC was revoked with effect as of 1 September 1998) or noteworthy declarations.

  2. 2.Other treaties
    Is your state a party to any other bilateral or multilateral treaties regarding the recognition and enforcement of arbitral awards?

    Germany is a signatory to, inter alia:

    • the European Convention on International Commercial Arbitration;
    • the Washington Convention on the Settlement of Investment Disputes BetweenStates and Nationals of Other States (ICSID Convention);
    • the Energy Charter Treaty; and
    • bilateral treaties with various states, including Austria, Belgium, Greece, Italy, the Netherlands, Switzerland and the US (see www.dis-arb.de for an extensive list).

  3. 3.National law
    Is there an arbitration act or equivalent and, if so, is it based on the UNCITRAL Model Law? Does it apply to all arbitral proceedings with their seat in your jurisdiction?

    The German arbitration rules are contained in the tenth book of the German Civil Procedure Code (sections 1025–1066 of the Zivilprozessordnung (ZPO)). They follow the UNCITRAL Model Law and apply to all arbitral proceedings, the seat of which lies within Germany (section 1025 paragraph 1 ZPO).

  4. 4.Arbitration bodies in your jurisdiction
    What arbitration bodies relevant to international arbitration are based within your jurisdiction? Do such bodies also act as appointing authorities?

    The most prominent arbitral institution in Germany is the German Institution for Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit eV – DIS), which publishes the widely used DIS Rules. The DIS also functions as an appointing authority in arbitral proceedings under the DIS Rules, the UNCITRAL Rules or where the parties have so agreed. It is also the permanent arbitration body within the meaning of article IV and X paragraph 6 of the European Convention on International Commercial Arbitration.

  5. 5.Foreign institutions
    Can foreign arbitral providers operate in your jurisdiction?

    Yes. It is quite common for foreign arbitral providers to operate within Germany, particularly the ICC.

  6. 6.Courts
    Is there a specialist arbitration court? Is the judiciary in your jurisdiction generally familiar with the law and practice of international arbitration?

    There is no specialist arbitration court presiding over Germany. However, the Higher Regional Courts (Oberlandesgerichte) have exclusive jurisdiction for almost all arbitration-related decisions that remain with the state courts. Only state court assistance in the taking of evidence under section 1050 ZPO lies with the local courts (Amtsgerichte). Due to their broad jurisdiction, the higher regional courts in general have profound experience and expertise in the handling of arbitration matters.

    7. Agreement to arbitrate

  7. 7.Formalities
    What, if any, requirements must be met if an arbitration agreement is to be valid and enforceable under the law of your jurisdiction? Can an arbitration agreement cover future disputes?

    Following the in-writing requirement of article 7 paragraph 2 of the UNCITRAL Model Law, an arbitration agreement must be contained either in a document signed by the parties or in an exchange of letters, telefaxes, telegrams or other means of telecommunication which provide a record of the agreement (section 1031 paragraph 1 ZPO). This requirement is deemed to be complied with if the arbitration agreement is contained in a document which was sent by one party to the other party (or by a third party to both parties) and if the content of that document is deemed, by common usage, to be agreed upon provided that no objection was raised in due course (section 1031 paragraph 2 ZPO). In instances concerning shipping disputes, an agreement to arbitrate may also be concluded by issuing a bill of lading, which explicitly refers to an arbitration clause in a charter party (section 1031 paragraph 4 ZPO). Stricter form requirements apply where one of the parties is a consumer. In such cases, the arbitration agreement must be contained in a separate instrument and signed by the parties personally (or electronically with a qualified electronic signature). Such instrument may not contain any undertaking other than the agreement to arbitrate, unless it is notarised. Arbitration agreements can – and most usually do – extend to future disputes.

  8. 8.Arbitrability
    Are any types of dispute non-arbitrable? If so, which?

    As a general rule, only disputes concerning non-proprietary claims (nichtvermögensrechtliche Ansprüche) may lack arbitrability and only if they cannot, by law, be subjected to a settlement agreement, such as matrimonial cause, parenthood cause and life partnership cause proceedings as well as certain matters of non-contentious litigation (Angelegenheiten der freiwilligen Gerichtsbarkeit), section 1030 paragraph 1 ZPO. Residential tenancy disputes are generally non-arbitrable (section 1030 paragraph 2 ZPO). Actions for nullification or rescission of a shareholder resolution are, in principle, arbitrable if certain requirements concerning multi party arbitration, intervention and third-party notice are met (see question 16).

  9. 9.Third parties
    Can a third party be bound by an arbitration clause and, if so, in what circumstances? Can third parties participate in the arbitration process through joinder or a third-party notice?

    Due to the in-writing requirement (section 1031 paragraph 1 ZPO) third parties will only be bound by an arbitration agreement if they have either acceded to it at the outset or if they explicitly agree to participate in the arbitration. Participation through joinder or third-party notice against the will of the third party is not possible. These cases must, however, be distinguished from the situation where the substantive law operates to extend arbitration agreements to non-signatories, ie, to the transferee of a right which is covered by an arbitration clause (analogy to section 401 BGB) or to the general partner of a (limited) partnership which is party to the arbitration agreement (section 128 HGB).

  10. 10.Consolidation
    Would an arbitral tribunal with its seat in your jurisdiction be able to consolidate separate arbitral proceedings under one or more contracts and, if so, in what circumstances?

    Unless all parties involved agree, arbitral tribunals do not have the power to order consolidation.

  11. 11.Groups of companies
    Is the “group of companies doctrine” (or any other method of piercing the corporate veil) recognised in your jurisdiction?

    According to the prevailing view, there is no group of companies doctrine in German arbitration law. However, affiliates of a party to an arbitration may, in exceptional cases, be subject to the agreement to arbitrate, e.g., where the affiliate has demonstrably agreed to be included in the arbitration agreement or where the affiliate's objection to the arbitral proceedings would amount to a violation of good faith (for instance, because it had previously contested the jurisdiction of the state courts relying on the arbitration agreement).

  12. 12.Separability
    Are arbitration clauses considered separable from the main contract?

    Yes, the doctrine of separability is generally accepted in Germany.

  13. 13.Competence-competence
    Is the principle of competence-competence recognised in your jurisdiction? Can a party to an arbitration ask the courts to determine an issue relating to the tribunal’s jurisdiction and competence?

    There is no pure competence-competence principle under German law. Arbitral tribunals are indeed called upon to decide jurisdictional issues first (section 1040 paragraph 1 ZPO), but such decisions may be challenged before the state courts (section 1040 paragraph 3 ZPO), which hence have the ‘final say’.

  14. 14.Drafting
    Are there particular issues to note when drafting an arbitration clause where your jurisdiction will be the seat of arbitration or the place where enforcement of an award will be sought?

    No special requirements arise under German law. As is the case everywhere, it is advisable to also specify in the arbitration clause the number of arbitrators, the place and language of the proceedings and the law governing the arbitration agreement (besides the choice of law regarding the main contract).

  15. 15.Institutional arbitration
    Is institutional international arbitration more or less common than ad hoc international arbitration? Are the UNCITRAL Rules commonly used in ad hoc international arbitrations in your jurisdiction?

    Empirical data appears to show that ad-hoc arbitrations account for the majority of arbitral proceedings and that the UNCITRAL Rules are being used only rarely.

  16. 16.Multi-party agreements
    What, if any, are the particular points to note when drafting a multi-party arbitration agreement with your jurisdiction in mind? In relation to, for example, the appointment of arbitrators.

    Since the German arbitration law does not provide for special rules on multi-party arbitration, it is advisable to include such rules in the arbitration agreement whenever there is a possibility that a multi-party arbitration may arise. If the arbitration agreement is to cover actions for nullification or rescission of shareholder resolutions, it must fulfil certain qualifications concerning, inter alia, intervention and third-party notice. In order to meet these requirements it is advisable to refer to the Supplementary Rules for Corporate Law Disputes of the German Institution of Arbitration (DIS).

    17. Commencing the arbitration

  17. 17.Request for arbitration
    How are arbitral proceedings commenced in your jurisdiction? Are there any key provisions under the arbitration laws of your jurisdiction relating to limitation periods of which the parties should be aware?

    Unless otherwise agreed, the arbitral proceedings commence upon receipt by the respondent of a request for arbitration which must include the name of the parties, a description of the subject-matter of the dispute and a reference to the arbitration agreement (section 1044 ZPO). There are no specific procedural time-limits to file a request for arbitration and prescription is solely a question of substantive law.

    18. Choice of Law

  18. 18.Choice of law
    How is the substantive law of the dispute determined? Where the substantive law is unclear, how will a tribunal determine what it should be?

    The arbitral tribunal will preferentially honour any explicit agreement of the parties as to the applicable law. Such choice of law clauses will be interpreted as referring to the substantive law of that state only and not to its conflict of laws rules unless the parties have stipulated otherwise. Failing any express specification of the governing law, the tribunal shall apply the law of the state to which the dispute is most closely connected (section 1051 paragraphs 1 and 2 ZPO).

    19. Appointing the tribunal

  19. 19.Choice of arbitrators
    Does the law of your jurisdiction place any limitations in respect of a party’s choice of arbitrator?

    Each arbitrator, even when party-appointed, must be independent and impartial. There are no further limitations.

  20. 20.Foreign arbitrators
    Can non-nationals act as arbitrators where the seat is in your jurisdiction or hearings are held there? Is this subject to any immigration or other requirements?

    There are no special requirements for foreign arbitrators.

  21. 21.Default appointment of arbitrators
    How are arbitrators appointed where no nomination is made by a party or parties or the selection mechanism fails for any reason? Do the courts have any role to play?

    If the parties cannot agree on a sole arbitrator, if a party does not designate a party-appointed arbitrator or if the two party-appointed arbitrators cannot agree on the chairman, the appointment is made by the Higher Regional Court (Oberlandesgericht) instead. The same applies where the parties have agreed on a particular appointment procedure and the appointment fails for whatever reason. There is always a fall back competence of the Higher Regional Court.

  22. 22.Immunity
    Are arbitrators afforded immunity from suit under the law of your jurisdiction and, if so, in what terms?

    Generally, arbitrators are not immune and may be held liable if they negligently breach their duties. Only with respect to the award as such are the arbitrators privileged in that they are only liable if they act intentionally. This exemption is founded on the assumption that the parties tacitly agree to accord arbitrators the same privilege as state court judges.

  23. 23.Securing payment of fees
    Can arbitrators secure payment of their fees in your jurisdiction? Are there fundholding services provided by relevant institutions?

    The most common way to secure payment of arbitrators' fees and expenses in an ad-hoc arbitration is by requesting from the parties an advance to be held on trust on a client account (usually by the chairman) until the proceedings come to an end and the arbitrators' remuneration is finally determined. In case of an institutional arbitration under the auspices of the DIS, the DIS will administer and hold the advances.

    24. Challenges to arbitrators

  24. 24.Grounds of challenge
    On what grounds may a party challenge an arbitrator? How are challenges dealt with in the courts or (as applicable) the main arbitration institutions in your jurisdiction? Will the IBA Guidelines on Conflicts of Interest in International Arbitration generally be taken into account?

    An arbitrator may only be challenged on the grounds that there are reasonable doubts as to his or her impartiality and independence or that he or she does not satisfy qualifications agreed by the parties (section 1036 ZPO). The application can only be based on facts previously unknown to the challenging party. Challenges must be filed with the arbitral tribunal within two weeks after the challenging party became aware of the constitution of the arbitral tribunal or the circumstances that give rise to the challenge. If the respective arbitrator does not withdraw from office or if the other party does not consent to the challenge, the application will be decided by the arbitral tribunal. Should the arbitrator not be dismissed, the challenge may be brought before the Higher Regional Court (section 1037 ZPO). The procedure under the DIS Rules (Section 18) is essentially identical and – unlike, e.g., the ICC-Rules – the Secretariat of the DIS does not decide upon the motion. The IBA Guidelines on Conflicts of Interest are usually taken into consideration.

    25. Interim relief

  25. 25.Types of relief
    What main types of interim relief are available in respect of international arbitration and from whom (the tribunal or the courts)? Are anti-suit injunctions available where proceedings are brought elsewhere in breach of an arbitration agreement?

    Interim relief may be granted by both the state court (section 1033 ZPO) and the arbitral tribunal (section 1041 ZPO). Provisional measures ordered by the tribunal are, however, subject to the state court's scrutiny. They require a state court order to be enforceable and may be annulled or amended by the state court. Interim relief may consist in distraint (Arrest), measures of protection (Sicherungsverfügung), measures of arrangement (Regelungsverfügung) or, in exceptional cases, measures of performance (Leistungsverfügung). Anti-suit injunctions are not available under German law, inter alia, because they are considered an infringement of comity.

  26. 26.Security for costs
    Does the law of your jurisdiction allow a court or tribunal to order a party to provide security for costs?

    The arbitrators are entitled to an adequate advance on costs (section 669 BGB) and they may refrain from performing their services until full payment is made.

    27. Procedure

  27. 27.Procedural rules
    Are there any mandatory rules in your jurisdiction that govern the conduct of the arbitration (e.g. general duties of the tribunal and/or the parties)?

    Although the German arbitration law acknowledges the principle of party autonomy, there is a variety of mandatory rules (ius cogens), all of which cannot be listed here. The most important rules include the right to be heard and to equal treatment, the principle of competence-competence, bonas mores, public policy and some fundamental procedural rules (ne ultra petita, impartiality, nemo iudex in sua causa).

  28. 28.Refusal to participate
    What is the applicable law (and prevailing practice) where a respondent fails to participate in an arbitration?

    Where a respondent fails to participate, the arbitral tribunal may continue the arbitral proceedings and render the award on the basis of the existing findings, unless the default is sufficiently excused. Unlike in state court proceedings, the claimant's allegations are, however, not deemed to be admitted by respondent (section 1048 ZPO).

  29. 29.Admissible evidence
    What types of evidence are usually admitted, and how is evidence usually taken? Will the IBA Rules on the Taking of Evidence in International Commercial Arbitration generally be taken into account?

    The most common means of evidence are documents, witnesses (including a party's representatives) and experts. Witnesses are usually interrogated by the tribunal with subsequent questions by counsel. Only where the parties or the subject matter of the dispute are closely connected to common law jurisdictions might witnesses be examined in the way of an Anglo-American cross-examination. The IBA Guidelines on the Taking of Evidence are an important guideline when the expectations of parties with different legal cultures (the common law/civil law divide) must be reconciled.

  30. 30.Court assistance
    Will the courts in your jurisdiction play any role in the obtaining of evidence?

    The arbitral tribunal or a party with the tribunal's approval can apply to the state courts to assist in the taking of evidence and other judiciary acts which an arbitral tribunal cannot perform (section 1050 ZPO). This also applies to foreign arbitral proceedings. However, since the German civil procedure does not provide for discovery (see question 31), the state courts will refuse assistance in that respect.

  31. 31.Document production
    What is the relevant law and prevailing practice relating to document production in international arbitration in your jurisdiction?

    Since the German law of civil procedure does not have a discovery procedure in the American style, arbitral tribunals are regularly rather cautious about ordering document production that goes beyond the German Code of Civil Procedure (sections 421 et seq, 142 ZPO). In the recent past, however, arbitral tribunals have more and more often resorted to the IBA Rules on the Taking of Evidence as an almost 'transnational standard' to document disclosure.

  32. 32.Hearings
    Is it mandatory to have a final hearing on the merits?

    Unless otherwise agreed by the parties, the arbitral tribunal must conduct at least one oral hearing on the merits where one party so requests. This requirement follows from the right to be heard.

  33. 33.Seat or place of arbitration
    If your jurisdiction is selected as the seat of arbitration, may hearings and procedural meetings be conducted elsewhere?

    Hearings and other procedural meetings can be held wherever the arbitral tribunal thinks fit, except where the parties have stipulated otherwise (section 1043 paragraph 2 ZPO).

    34. Award

  34. 34.Majority decisions
    Can the tribunal decide by majority?

    Decisions by the arbitral tribunal require a majority vote (section 1052 paragraph 1 ZPO).

  35. 35.Limitations to awards and relief
    Are there any particular types of remedies or relief that an arbitral tribunal may not grant?

    Within the scope of the arbitration agreement and provided that the dispute is arbitrable, an arbitral tribunal may grant any remedy or relief that a state court could.

  36. 36.Dissenting arbitrators
    Are dissenting opinions permitted under the law of your jurisdiction? If so, are they common in practice?

    Dissenting opinions are permitted, but occur only very rarely for practical reasons.

  37. 37.Formalities
    What, if any, are the legal and formal requirements for a valid and enforceable award?

    In order to be valid and enforceable, an award must at least be rendered in writing, be signed by (at least the majority of) the arbitrators, state date of their execution and the place of the arbitral proceedings, and be served upon the parties to the arbitration (section 1054 ZPO).

  38. 38.Time frames
    What time limits, if any, should parties be aware of in respect of an award? In particular, do any time limits govern the interpretation and correction of an award?

    The German arbitration law does not provide for specific time limits to render the award. However, any application for correction or interpretation must be made within one month after service of the award (section 1058 ZPO).

    39. Costs and interest

  39. 39.Costs
    Are parties able to recover fees paid and costs incurred? Does the “loser pays” rule generally apply in your jurisdiction?

    Arbitral tribunals are to allocate the costs between the parties according to their best judgment, taking into account the circumstances of the case and in particular the outcome of the case (section 1057 ZPO). Hence, the ‘loser pays’ rule principally applies (see also section 35.2 DIS Rules).

  40. 40.Interest on the award
    Can interest be included on the principal claim and costs? Is there any mandatory or customary rate?

    There is no procedural right to interest. Where German substantive law applies, the principal claim is often subject to default interest at a rate of 5 (consumer involved) or 8 (commercial entities) percentage points above the base lending rate (sectionsection 288, 291 German Civil Code – BGB). Usually there is no basis for interest on the arbitration costs (unless they can be qualified as damage for delay).

    41. Challenging awards

  41. 41.Grounds for appeal
    Are there any grounds on which an award may be appealed before the courts of your jurisdiction?

    Arbitral awards may not be appealed before state courts. Only in very rare cases do the parties agree on a right to appeal to a superior arbitral tribunal.

  42. 42.Other grounds for challenge
    Are there any other bases on which an award may be challenged, and if so what?

    (Domestic) arbitral awards may be challenged by a party to the arbitration on the ground that (section 1059 ZPO):

    • one of the parties to the arbitration lacked the capacity to participate in the arbitration;
    • the agreement to arbitrate was invalid or void;
    • the party was not duly informed about the appointment of an arbitrator or about the arbitral proceedings or was incapable of adducing evidence, objections, defences and other means of attack or defence for another reason;
    • the dispute was not covered by the arbitration agreement;
    • the constitution of the arbitral tribunal or the arbitral proceedings did not comply with the provisions of the tenth book of the ZPO or with an agreement between the parties;
    • the subject of the dispute was not arbitrable; and
    • the recognition or enforcement of the award would violate public policy. Beyond this, arbitral awards may not be challenged (or appealed) on the ground that the matter was incorrectly decided on a question of law or fact.

  43. 43.Modifying an award
    Is it open to the parties to exclude by agreement any right of appeal or other recourse that the law of your jurisdiction may provide?

    The right to challenge the award under section 1059 ZPO is ius cogens and may not be disapplied by the parties’ agreement.

    44. Enforcement in your jurisdiction

  44. 44.Enforcement of set-aside awards
    Will an award that has been set aside by the courts in the seat of arbitration be enforced in your jurisdiction?

    No, such an award would not be recognised nor enforced. Should the foreign award be set aside after it was declared enforceable in Germany, the enforcement decision would essentially be annulled upon application (section 1061 ZPO).

  45. 45.Trends
    What trends, if any, are suggested by recent enforcement decisions? What is the prevailing approach of the courts in this regard?

    German courts tend to be rather enforcement-friendly.

  46. 46.State immunity
    To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?

    According to the general view and decisional authority, state entities may not rely on immunity to object to an award to be declared enforceable. They are considered to have waived this objection by entering into the arbitration agreement. However, the execution of such an award by seizing a particular asset might be inadmissible if that asset is used for a sovereign purpose.

    47. Further considerations

  47. 47.Confidentiality
    To what extent are arbitral proceedings in your jurisdiction confidential?

    Arbitral proceedings are not intended as a public forum. But that should not be confused with confidentiality. Whereas the arbitrators are required to keep the arbitral proceedings and their contents confidential, neither witnesses, nor experts, nor the state courts involved or the parties are under a general obligation of secrecy. Rather, such an obligation requires an express or implied undertaking to this effect, e.g., as far as the parties are concerned, in the form of section 43 of the DIS Rules. The agreement to arbitrate is, however, ipso iure not sufficient to imply a confidentiality obligation.

  48. 48.Evidence and pleadings
    What is the position relating to evidence produced and pleadings filed in the arbitration? Are these confidential? Is there any way that they might be relied on in other proceedings (whether arbitral or court proceedings)?

    See question no. 47. The evidence produced in an arbitration may be relied upon by the other party unless it is subject to confidentiality obligations.

  49. 49.Ethical codes
    What ethical codes and other professional standards, if any, apply to counsel and arbitrators conducting proceedings in your jurisdiction?

    German counsel and arbitrators have to observe the rules of professional conduct (BRAO, BORA). Arbitrators should also pay regard to the IBA Guidelines on Conflicts of Interest.

  50. 50.Procedural expectations
    Are there any particular procedural expectations or assumptions of which counsel or arbitrators participating in an international arbitration with its seat in your jurisdiction should be aware?

    All participants should be aware of differences in legal culture between common law and civil law jurisdictions. Since Germany is a civil law country, arbitrations that take place here are more likely to follow civil law traditions.

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