By:
Ute Tü-Kasch
Albrecht Münch
Frankfurt
On January 1, 1998, a law (the "Amendments") amending certain provisions of the arbitration law came into force in Germany. The law on arbitration proceedings is now contained in Sections 1025 to 1066 of the German Civil Procedure Code (Zivilprozessordnung, "ZPO"). The Amendments follow the most recent developments in international arbitration law in order to promote the image of the Federal Republic of Germany as a situs for international arbitration proceedings. The Amendments mainly follow the UNCITRAL Model Law on International Commercial Arbitration (the "UNCITRAL Model"). The Amendments apply to national as well as to international arbitration proceedings. Set forth below are the main features of the Amendments.
Pursuant to Section 1025(1) of the ZPO, the Amendments are applicable when "the place of the arbitration proceedings is situated in Germany." Section 1025(2) of the ZPO provides that certain provisions of the Amendments, including Sections 1032 and 1050 of the ZPO, are also applicable if the place of the arbitration proceedings is situated outside Germany or has not yet been determined. Section 1032 of the ZPO provides that, if a defendant in a state court proceeding raises the issue of the existence of an arbitration clause, the state court shall dismiss the claim if it finds that an arbitration clause exists with respect to the matter in dispute. Section 1050 of the ZPO provides that state courts can be asked to support the arbitrator(s) by gathering evidence and performing other judicial acts, such as the service of documents.
Section 1030 of the ZPO provides that claims involving an "economic interest" as defined in the ZPO can be the subject matter of arbitration under the ZPO. Other claims can be the subject matter of arbitration under the ZPO only if the relevant substantive law permits the parties to submit such claim to arbitration. For example, the paternity of a child could not be the subject matter of arbitration because, under the German provisions on paternity law, such a matter may only be decided by a state court.
Section 1031 of the ZPO provides that arbitration must be agreed upon by the parties in writing, by telefax, telegram or in any other manner of communication that can prove such an agreement. The former German arbitration law required that arbitration had to be agreed upon by the parties in a writing wholly separate from any other agreement between the parties.
Section 1037 of the ZPO provides that the parties may agree upon procedures to object to the appointment of a person as arbitrator.
Pursuant to Section 1041 of the ZPO, the arbitration panel may render a temporary injunction with respect to the subject matter of arbitration unless other-wise agreed upon by the parties.
Section 1040 of the ZPO allows the arbitrator(s) to rule on the panel's jurisdiction on the subject matter brought by the parties, and to decide whether or not a valid arbitration agreement exists between the parties. Under the former German arbitration law, such questions had to be decided by the state courts.
Section 1042 of the ZPO provides for basic procedural rules: the parties must be treated equally; attorneys may not be excluded from representing a party in an arbitration proceeding; the parties may determine the procedural rules, including by reference to arbitration rules (like the International Chamber of Commerce Rules of Arbitration), to the extent the Amend-ments are not mandatory.
Conforming to Article 28 of the UNCITRAL Model, Section 1051 of the ZPO provides that the arbitrator(s) are generally bound by the choice of the parties with respect to the governing law, and that a choice of law by the parties means the choice of the substantive law of the relevant country without its provisions on the conflict of laws. If there is no choice of law by the parties, the arbitrator(s) shall apply the law of the country to which the subject matter of the arbitration is most closely connected.
Pursuant to Section 1054 of the ZPO, the arbitral award must be rendered in writing and signed by the sole arbitrator or by all arbitrators; service of the award on the parties or deposit of the award are not required for the validity of the award. In addition to the provisions of the UNCITRAL Model, the Amendments provide in Section 1057 of the ZPO that the arbitrator(s) shall decide on the costs of the proceedings, i.e., that one party must pay all costs of the proceedings, or that each party must pay a certain share of such costs.
Pursuant to Section 1056 of the ZPO, the arbitrator(s) shall conclude the proceedings by an order if (i) the claimant fails to state its claim within the time set by the arbitrator(s), unless there is sufficient reason for such failure, (ii) the plaintiff withdraws the claim and the defendant agrees to such withdrawal, (iii) the parties agree on the termination of the proceedings, (iv) the parties fail to pursue the proceedings in spite of being so requested by the arbitrator(s), or (v) the continuation of the proceedings has for any other reason become impossible.
Sections 1059(2) and (3) provide specific reasons for the setting aside of an award by a state court upon application by a party to the arbitration. For example, such reasons include that (i) the applying party shows sufficient cause that (a) the arbitration agreement is not valid, (b) the applying party was not given proper notice of the appointment of an arbitrator or of the commencement of the arbitral proceedings, or the applying party was otherwise unable to present its case, or (c) the award deals with a dispute which is not falling within the terms of the arbitration agreement, or (ii) the state court finds that (a) the subject matter of the arbitration is not capable of settlement by arbitration under German law, or (b) the recognition or enforcement of the award would be in conflict with the German ordre public. If an award is set aside, the arbitration agreement becomes operative again and the matter is remitted to the arbitrator(s) unless there is an indication to the contrary in the arbitration agreement.
Section 1062(1) of the ZPO provides that the German Higher Regional Courts ("Oberlandesgerichte") will have the main supervisory function with respect to arbitration. This applies to the appointment of, and the objection to, arbitrators, orders on procedural questions, and the setting aside or recognition of arbitral awards. Pursuant to Section 1062(4) of the ZPO, the German Local Court ("Amtsgericht") in whose district a judicial action needs to be carried out is responsible for general judicial support in gathering evidence and during the arbitration proceedings.
Similar to the UNCITRAL Model, most provisions of the Amendments are not mandatory. With respect to other provisions, there is a tension between the concept of mandatory rules of the forum and the concept of freedom of contract. To the extent the provisions of the Amendments do not expressly state whether or not they are mandatory, it may be necessary to decide whether or not parties are permitted to change such provisions by agreement. For example, Section 1054 of the ZPO requires that an award is signed by all arbitrators. If the arbitration procedure agreed upon by the parties provides that only the signature of the absolute majority of the arbitrators is required, it is a question of the German order public whether an award signed by the absolute majority of the arbitrators, but not by all arbitrators, is valid.
