1.1 Describe the prevalence of commercial arbitrations as a method of settling disputes, both domestic and international.
Arbitration did not have an intensive tradition in Germany. It has been argued that the minor impact of arbitration in Germany was due to the old provisions of the German Code of Civil Procedure (ZPO). Since the reforms in 1998, which basically implement the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), arbitration has become more accepted in Germany, and recourse to arbitration with its venue in Germany has increased with respect to the amount and value of the proceedings. German courts have meanwhile developed a nearly uniform case law under the reformed arbitration rules, which also indicates the increasing importance of arbitration in Germany.
Research shows that in the export business around 90 per cent of contracts contain arbitration agreements. With respect to contracts concluded between German parties, only about half of the companies polled included arbitration agreements in their contracts (J-P Lachmann in Handbuch für die Schiedsgerichtsbarkeit (Cologne, Dr Otto Schmidt, 2nd edn, 2002) p 27ff).
2.1 What are the principal sources of law and regulation relating to domestic and international arbitration? (Describe the role of federal or state laws and relevance of court decisions.)
The provisions of law concerning arbitration are integrated into the ZPO in Chapter 10 (s 1025ff), which was reformed in 1997. Its provisions are effective as of 1 January 1998 and apply to all arbitration proceedings which are based on an arbitration agreement concluded as of 1 January 1998 (art 4, s 1(1) of the Transition Regulation on the New Arbitration Code). The new provisions basically rely on the Model Law.
The ZPO as federal law forms the legal basis for the procedures of arbitration within Germany. An exception from the principle that Chapter 10 of the ZPO shall only apply to domestic arbitration proceedings is incorporated in s 1025 of the ZPO, which follows art 1 of the Model Law. Under this provision, ss 1032 (arbitration and substantive claim before court), 1033 (interim measures by court) and 1050 (court assistance in taking evidence) of the ZPO apply to non-domestic proceedings. Thus, German courts may assist non-domestic arbitral tribunals in taking evidence or may have to dismiss a claim in view of an agreement to arbitrate outside of Germany. The provisions of the ZPO further apply regardless of the nationality of the parties to the agreement.
Due to the codification of procedural law provisions applicable to arbitration, court decisions have an inferior influence and only serve to interpret the provisions of the ZPO in case of ambiguity.
2.2 List and briefly describe relevant arbitration statutes, international treaties and conventions.
The Model Law provisions are basically integrated in Chapter 10, s 1025ff of the ZPO. Further reference to the provisions of the United Nations Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the New York Convention) is incorporated in s 1064 of the ZPO. Germany is a signatory to the Geneva Protocol dated 24 September 1923 and to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (the ICSID Convention).
3.1 What are/describe the principal institutions and/or government agencies that assist in the administration or oversight of international and domestic arbitrations?
The principal national institution of arbitration is the Deutsche Institution für Schiedsgerichtsbarkeit eV (DIS):
Beethovenstr 5–13
50674 Cologne
Tel: 49 22 12 85 520
Fax: 49 22 12 85 52 222
Website: www.dis-arb.de
DIS administers national and international arbitration proceedings. DIS arbitration rules have been modified with effect as of 1 July 1998 and comprise many regulations of the Model Law. DIS rules are available in several languages (www.dis-arb.de). Further, many chambers of commerce and chambers of professionals (such as the Federal Notary Chamber) provide for their own arbitration rules and/or administrate arbitration proceedings (often also on the basis of DIS Rules); however, these institutions principally act in national disputes. The International Chamber of Commerce maintains a direct presence through the German National Committee.
4.1 What is the relationship between agreements to arbitrate and access to the courts? Is there a presumption of arbitrability/policy support for arbitration? Will the courts stay court actions in favour of agreements to arbitrate?
German civil law is based on the principle of the parties’ contractual freedom. With respect to arbitration agreements the ZPO combines the principle of the parties’ contractual freedom with the primacy of arbitration over state court proceedings.
The ZPO implements art 8 of the Model Law in s 1032. German state courts are not entitled to reject a claim for lack of jurisdiction ex officio in view of an arbitration agreement. The parties are not permitted to extend the meaning of the arbitration agreement by obliging the court to respect arbitration agreements ex officio. The ZPO leaves the decision to the parties to continue a state court proceeding although an arbitration agreement exists.
German state courts are only entitled to reject the claim for lack of jurisdiction upon the defendant explicitly challenging the jurisdiction of state courts prior to the oral hearing; otherwise the defendant is deemed tacitly to have accepted state court proceedings (rügeloses Einlassen) (s 1040(2) of the ZPO). Upon the challenge of jurisdiction, the state court must dismiss the claim for lack of jurisdiction, unless the court assesses that the arbitration agreement is void, non-binding or impracticable. However, state courts cannot order the transfer of the proceeding to an arbitral tribunal or vice versa; a lack of form of the arbitration agreement shall not have to be considered anymore if the defendant has defended himself in front of the arbitral tribunal without having put forward any reserves with respect to the validity of the arbitration clause (Federal High Court, June 29, 2005, SchiedsVZ 2005, 259).
The judgment rejecting the claim for lack of jurisdiction due to an arbitration agreement confirms the existence and the validity of the arbitration agreement. The judgment has a binding effect with respect to the execution proceeding of the arbitral award or the claim for annulment; in these proceedings the arbitration agreement is to be considered valid.
An exception to the primacy of arbitration over state court proceedings is made in fast-track proceedings. According to ss 1033 and 1041 of the ZPO, fast-track proceedings or Urkundenverfahren (proceedings in which evidence can only be provided by means of documents) can be initiated before a state court notwithstanding the existence of an agreement to arbitrate.
4.2 May an arbitral tribunal rule on a party’s challenge to its own jurisdiction (‘competence-competence’)? Need a tribunal suspend its proceedings if a party seeks to test jurisdiction in the courts?
The arbitral tribunal is competent to decide on its own jurisdiction and on the validity of the arbitration agreement (s 1040 of the ZPO). Implementing art 16 of the Model Law, the arbitral tribunal does not have final competence indefinitely to assess its jurisdiction.
The ‘competence-competence’ for arbitration tribunals is reduced. According to s 1040(3) of the ZPO the decision of an arbitral tribunal on the validity of the arbitration agreement is subject to the revision of the state courts. The statutory provisions incorporated in 1998 thus contradict the decision of the Federal High Court (NJW 1977, 1397) on the ‘competencecompetence’ acknowledging that the parties can attribute the competence to the arbitral tribunal finally to decide on the validity of the arbitration agreement. In accordance with the new law on arbitration the Federal High Court has revised its case law and confirmed by a judgment dated 13 January 2005 (SchiedsVZ 2005, 95ff) the final competence of the state court to decide on the validity of the arbitration clause.
State courts can revise the arbitral tribunal’s interim awards on jurisdiction upon either party’s written request. The request must be filed in writing to the state court within a period of one month following the interim award. While the request for revision is pending at the state courts the arbitral tribunal can continue the arbitral proceeding and even render the final award (s 1040(3) of the ZPO). The provision of s 1040(3) concerning the state court’s final competence to decide on the competence of the arbitral tribunal is mandatory.
If the arbitral tribunal is not yet established, either party to the arbitration agreement can request the state court to decide on the admissibility of arbitration in this specific case (s 1032(2) of the ZPO).
5.1 Provide a selected bibliography of the most influential publications in or relied upon in the jurisdiction – books, journals, newsletters and pamphlets.
Books
J Albers in A Baumbach and W Lauterbach Zivilprozessordnung (Munich: C H Beck, 64th edn, 2006) R Geimer in R Zöller Zivilprozessordnung (Cologne: Dr Otto Schmidt, 25th
edn, 2005)
G Henn Schiedsverfahrensrecht (Heidelberg: C F Müller, 3rd edn, 2000)
J-P Lachmann Handbuch für die Schiedsgerichtspraxis (Cologne: Dr Otto
Schmidt, 2nd edn, 2002) K Lionnet Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit (Dresden: Boorberg, 3rd edn, 2005) T Lörcher and G Lörcher Das Schiedsverfahren – national/international – nach
Deutschem Recht (Heidelberg: C F Müller, 2nd edn, 2001) J Münch in Münchner ZPO-Kommentar (Munich: C H Beck, 2nd edn, 2001) P Schlosser Das Recht der internationalen privaten Schiedsgerichtbarkeit
(Tübingen: J C B Mohr, 2nd edn, 1989) P Schlosser in F Stein and M Jonas ZPO Kommentar zur Zivilprozessordnung, Bd 9 (Tübingen: J C B Mohr Siebeck, 22nd edn, 2002) R A Schütze Schiedsgericht und Schiedsverfahren (Munich: C H Beck, 3rd edn, 1999) K H Schwab and G Walter Schiedsgerichtsbakeit (Munich: C H Beck, 7th edn, 2005)
Journals
SchiedsVZ – Zeitschrift für Schiedsverfahren (German Arbitration Journal) (C H Beck), published every two months Germany
6.1 Are there form and/or content requirements for an enforceable agreement to arbitrate? How may they be satisfied?
According to s 1031(1) of the ZPO an agreement to arbitrate must be included in a document signed by both parties or in any of the documents exchanged in writing, via fax or any other medium of data transmission. The provision corresponds to art 7 of the Model Law. Contrary to art 7(2) of the Model Law, ‘one-sided’ arbitration agreements comply with the statutory form requirement, if: (i) the receiving party did not reject the arbitration clause; and (ii) such silence can be considered as an acceptance.
The agreement to arbitrate need not necessarily be incorporated in the main contract. It suffices if the contract refers to a separate document by making the agreement to arbitrate part of the contract.
Form requirements differ if a consumer is party to the agreement to arbitrate (s 1031(5) of the ZPO). Arbitration agreements have to be separately signed, unless the principal contract including the agreement to arbitrate is signed in front of a public notary.
Under the old provision of s 1027 of the ZPO (applicable to all arbitration agreements concluded prior to 1 January 1998) an agreement to arbitrate had to be signed separately by both parties unless the agreement was concluded between ‘commercials executing their business’. If the noncommercial party in the meaning of the German Code of Commerce (in the old version applicable to legal or natural persons registered in the company register, a partnership, crafts enterprise or persons exercising basic commerce) has not separately signed the arbitration agreement, the arbitration agreement is void. In a recent judgment the Federal High Court confirmed that an arbitration clause contained in general conditions applicable in contractual relations with consumers is not per se invalid (Federal High Court, 13 January 2005, SchiedsVZ 2005, 95ff).
Arbitration is not mandated for any type of normal commercial dispute in Germany.
7.2 Is arbitration prohibited for certain types of dispute (restraints of fundamental public policy)?
The provisions of Chapter 10 of the ZPO only apply to arbitration proceedings concerning civil matters in the meaning of s 13 of the German Code on the Jurisdictional Proceeding (GVG). Disputes which would be submitted to the jurisdiction of financial or social courts are excluded from arbitration. An arbitration agreement concerning non-pecuniary claims has a legal effect only to the extent that the parties are entitled to settle the dispute with respect to the subject of the claim by means of a settlement (excluding, inter alia, divorce). Arbitration is excluded concerning leasehold of objects situated in Germany unless the provisions of s 549(2) of the German Civil Code (BGB) apply to the property. However, disputes on the validity of shareholder resolutions of a GmbH (limited company), so-called Beschlussmängelstreitigkeiten, or on other corporate issues, ie if the share capital has been paid in, can generally be object of arbitration proceeding (Federal High Court, BGHZ 132, 278; OLG Frankfurt, SchiedsVZ 2004, 97ff; Wolfgang Kühn in Liber Amicorum Karl-Heinz Böckstiegel (Cologne: Carl Heymanns, 2001) p 433ff). If a company which filed for insolvency is party to an arbitration agreement, its receiver is also generally bound to it, unless in the event of appeal claims under insolvency law (Federal High Court, III ZB 24/03).
8.1 May an arbitral clause be considered valid even if the rest of the contract in which it is embedded is invalid?
In compliance with art 16(1) of the Model Law, s 1040(1) of the ZPO provides that an agreement to arbitrate is to be treated independently from other contractual stipulations. Voiding of the contract in which the agreement to arbitrate is incorporated has generally no impact on the validity of the arbitration agreement itself as the contract and the arbitration agreement are each considered to be separate, distinct ‘agreements’ with their own purpose.
9. QUALIFICATION/APPOINTMENT/LIABILITY OF ARBITRATORS
9.1 Are there specific provisions regulating the qualifications of arbitrators? Are there requirements (including disclosure) for ‘impartiality’ and ‘independence’, and do such requirements differ as between domestic and international arbitrations?
The ZPO does not set out requirements for the qualifications of arbitrators. Any person – who need not necessarily have studied law – whom parties deem suitable may be appointed by them as arbitrator. Minors and persons suffering from incapacity are excluded from service as arbitrators.
The requirement of independence applies to judges and to the arbitrators (Federal High Court BGHZ 98, 70). The German Constitution (the Constitution) sets out in art 97 that judges have to be independent and are only bound by the law itself. According to long-standing Federal High Court jurisdiction, art 97 also applies to arbitrators. Any arbitrator appointed by a party must disclose information in advance of his or her appointment if doubts arise with respect to his or her impartiality or independence (s 1036(1) of the ZPO).
9.2 Are there provisions governing the challenge or removal of arbitrators? Do the courts or other jurisdictions play/have a role in any such challenge?
The ZPO does not incorporate the provision of art 1(1) Model Law according to which no person shall be precluded by reason of his or her nationality from acting as an arbitrator, as the German legislators considered nondiscrimination as self-evident and thus its codification as superfluous, in Germany particular, in view of art 3 of the Constitution, which guarantees equal treatment.
Arbitrators can be challenged in accordance with the provision of s 1036 of the ZPO, when justifiable doubts arise with respect to the impartiality or independence of an arbitrator. A party which appointed or which participated in the appointment of an arbitrator may only challenge the appointment for reasons of which the party becomes aware subsequently to the appointment. Any party having accepted the appointment of an arbitrator subsequent to the arbitrator having disclosed circumstances which are likely to give rise to justifiable doubts as to his or her impartiality or independence, is deemed to have waived its right to challenge the appointment for reasons disclosed.
The parties can extend or reduce the reasons for challenge by means of party agreements; however, they cannot abandon the general requirement of impartiality of arbitrators.
In a DIS arbitration the defendant had requested the law firm of the challenged arbitrator to provide a legal opinion for one of its subsidiaries. The arbitral tribunal agreed with the challenge and argued that it was of no relevance whether the challenged arbitrator was aware of the appointment of his law firm or whether he was involved in preparing the legal opinion (SchiedsVZ 2003, 94).
State court decisions on the challenge of arbitrators for impartiality are more on a general basis. For example, OLG München decided (BB 1971, 886) that an arbitrator is not allowed to discuss the case in private with only one party. OLG Dresden decided that there are justifiable doubts on the impartiality of a sole arbitrator if he had represented the parties before as counsel in a litigation (SchiedsVZ 2005, 159ff). The challenge procedure follows the provisions in s 1037 of the ZPO, which corresponds to art 12 of the Model Law.
Deviating from the statutorily fixed challenge procedure, parties are free to agree on a procedure for challenge of arbitrators. Failing such agreement, a party which intends to challenge an arbitrator shall within two weeks after becoming aware of the constitution of the arbitral tribunal or of any circumstances which might give rise to justifiable doubt as to his or her impartiality or independence, send a written statement on the reasons for challenge to the arbitral tribunal. Should the challenged arbitrator not withdraw from his or her mandate or the other party agree to the challenge, the arbitral tribunal shall decide on the challenge. In addition, s 1036(2) of the ZPO allows a challenge to the arbitrator if he or she is missing the qualifications on which the parties agreed. For example, if the parties stipulated that the arbitrator must be a lawyer, a person not qualified in this way may be challenged successfully.
The old version of the ZPO defined the reasons for challenge illustratively by reference to ss 41 and 42 of the ZPO, which apply to the challenge of state court judges. Although the reference was eliminated, these grounds for challenge are still considered to apply and to establish basic cornerstones for impartiality, such as: (i) no personal relation to one of the parties; (ii) no prior appointment as legal counsel of one of the parties; (iii) not having been witness or expert in a proceeding with one of the parties; (iv) not having a personal interest in the result of the proceeding; or (v) no undue delay in conducting the arbitration.
While the request to the state court is pending, the arbitral tribunal, including the challenged arbitrator, can continue the proceeding and render an award.
9.3 Does legislation govern, or have the courts developed rules regarding the liability of arbitrators for acts related to their decision-making function?
German law merely provides for a provision in s 839 of the BGB on liability for breach of official duty. According to long-standing jurisdiction of the Federal High Court (BGHZ 42, 313) an arbitrator enjoys the same privileges as a state court judge. With respect to unlawful decisions, s 839(2) states: ‘if an official commits a breach of his official duty in giving judgment in an action, he is not responsible for any damage therefrom, unless the breach of duty is punishable by a public penalty to be enforced by criminal proceedings.’ The judge’s/arbitrator’s privilege of liability is further extended by s 839(1), according to which negligence is only imputable to the judge/arbitrator if the injured party is unable to obtain compensation elsewhere. Further, the duty to make compensation does not arise if the injured party has wilfully or negligently failed to avert the injury by making use of a legal remedy. The meaning of ‘legal remedy’ is to be understood in a broad sense.
In German jurisprudence, one case is known in which a court ordered an arbitrator to pay compensation (Hanseatisches Oberlandesgericht Hamburg, judgment dated 8 December 1960, 3 U 98/60). However, arbitrators are free to negotiate with the parties in advance to reduce their liability in accordance with the German law provisions. Section 276(2) of the BGB allows exclusion of liability for negligent conduct. Liability deriving from intent cannot be excluded.
10. PARTY REPRESENTATION
10.1 Are there particular qualification requirements for representatives (‘counsel’) appearing in the jurisdictions?
Arbitration legislation does not impose any form requirements for party representatives who act as ‘counsel’ on an arbitration. However, according to the mandatory provision of s 1042(2) of the ZPO, lawyers may not be excluded from representing a party in arbitration. This includes domestic and foreign lawyers. The arbitral tribunal may, however, reject representation by a person who represents a party in legal matters on a regular basis as part of his or her business but who is not admitted to the bar (s 157 of the ZPO).
11. PLACE OF ARBITRATION/PROCEDURES
11.1 Are there provisions governing the place (seat) of arbitration, or any requirement for arbitral proceedings to be held at the seat?
According to s 1043 of the ZPO, the parties may determine the place of arbitration. If there is no agreement, the tribunal determines the place, taking into account the circumstances of the case including the suitability of the place for the parties. Unless the parties agreed otherwise, the arbitral tribunal may convene for a hearing for interrogation of witnesses, experts or the parties or for the purpose of internal deliberations or for inspection of goods or the review of documents at any suitable place (s 1043(2)). The legal seat of the arbitration determines the applicable procedural law, the qualification, whether the award is domestic or international and the venue of the state court relevant for the award. The legal seat of the arbitration must be mentioned in the award and the award is deemed to be rendered at the indicated day and place (s 1054(3) of the ZPO).
11.2 Are specific procedures mandated in particular cases, or in general?
In respect to procedures, the ZPO follows the respective provisions of arts 23 and 24 Model Law in s 1046 (Statement of Claim and Defence) and s 1047 (Hearing and Written Proceedings). The claimant shall state the facts supporting his or her claim, the points at issue and the relief or remedies sought, the respondent shall state his or her defence in respect of these particulars. The parties may submit documents with their statements, or may add reference to the documents or other evidence they will submit. The parties may amend or supplement the claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal disallows such amendment in view of the delay it would cause.
The tribunal shall decide whether to hold oral hearings and the tribunal shall hold such hearings if so requested by a party. The parties shall be given sufficient advance notice of hearings or meetings. All submissions to the arbitral tribunal shall be communicated to the other party. Any expert report or evidentiary document on which the tribunal may rely in making its decision shall be communicated to the parties.
12. EVIDENCE GATHERING
12.1 What is the general approach to the gathering and tendering of evidence at the pleading stage and at the hearing stage (production, discovery, privilege, use of witness statements etc)? Are there differences between domestic and international arbitrations?
According to s 1042(4) of the ZPO, the arbitral tribunal determines the rules for procedure at its own discretion unless the parties have agreed otherwise and if there is no relevant provision in the ZPO. Under the ZPO the parties have the burden of introducing all the facts and circumstances relevant to the case into the proceedings and of presenting the pertinent means of evidence. However, the ZPO only applies if the place of arbitration is Germany (s 1025(1) of the ZPO). The ZPO follows the Model Law in referring only to a few provisions concerning fact-finding and gathering of evidence. Section 1042(4) empowers the tribunal to determine the admissibility of evidence, to conduct the pertinent evidentiary proceedings and to weigh the evidence gathered. Section 1049 of the ZPO empowers the tribunal to appoint experts and to determine their terms of reference. Section 1050 of the ZPO provides a mechanism for obtaining the assistance of state courts in taking evidence (almost never used by arbitral tribunals). This civil law-style procedure grants the tribunal the power actively to manage and monitor the proceedings instead of observing passively the adversarial actions of the parties.
A party’s scope of investigation is rather narrow in German civil practice. A party presenting evidence to court is obliged to describe in detail the facts to be proven by the evidence and the relevance of these facts to the decision of the dispute. In general an arbitral tribunal need not observe the domestic procedural rules on the specific means of evidence and the conduct of the evidentiary proceedings, which is explicitly spelled out in s 1042(4) of the ZPO.
Due to the fact that the ZPO is addressed to professional judges and qualified lawyers, the rules for taking evidence are rather vague. It is up to the party to identify and submit means of evidence available. It is in general not possible to instruct the opponent to submit certain documents except in specific cases. Discovery is not admitted unless agreed by the parties. The tribunal is free to waive evidence at its own discretion. The standard of proof is certainty beyond reasonable doubt (s 286(1) of the ZPO).
The burden of proof in conjunction with the burden to submit means of evidence and to substantiate the claim play an important role for the judgment or award under German procedural and substantive law. In respect to witness hearings, an important issue is the distinction between a party and a witness. A party including a corporation’s legal representatives cannot act as witness for its own party; however, it can be called by the opponent to give a party’s statement. In arbitral proceedings the dominant view is that this restriction does not apply and the tribunal may hear the testimony of a party like that of any other witness.
The coaching of witnesses is not dealt with by German procedural law. Contact with the witness is admitted; however, influencing the witness would be illegal and seen as an obstruction of justice.
Written witness statements are generally not accepted in German civil proceedings and the party always has the right to put questions to a witness and, therefore, may request an oral presentation (s 397 of the ZPO). In arbitration, witness statements are admitted and it is at the discretion of the arbitral tribunal to hear the witnesses personally.
12.2 What powers of compulsion or court assistance are there for arbitrators to require attendance of witnesses or production of documents, either prior to or at the substantive hearing? Is there a difference between domestic and international tribunals or as between parties and non-parties? Do special provisions exist for arbitrators appointed pursuant to international treaties (ie bilateral or multilateral investment treaties)?
Arbitral tribunals are not entitled to require the attendance of witnesses or production of documents. Under s 1050 of the ZPO the arbitral tribunal or a party with approval of the arbitral tribunal may request from a court assistance in taking evidence or take traditional measures which are not within the competence of the arbitral tribunal. The court may execute the request within its competence and according to its rules on taking evidence (art 27 of the Model Law). There are no differences between domestic and international tribunals. There are no special provisions for arbitrators appointed pursuant to international treaties.
13. INTERIM MEASURES/ROLE OF THE TRIBUNAL
13.1 Are there special provisions relating to the granting of interim and preliminary relief? Have the courts recognised and/or limited any such authority? Do the courts themselves play a role in interim relief in arbitration proceedings?
An arbitration clause does not prevent a party from asking a court, before or during arbitral proceedings, for an interim measure of protection and for a court to grant such measure (s 1033 of the ZPO). The arbitral tribunal may, at the request of a party, order any party to take any such interim measure as protection as the tribunal may consider necessary in respect to the subject matter of the dispute. The arbitral tribunal may require security (s 1041 of the ZPO). The arbitral tribunal may order any appropriate measure by order after having heard both parties. The arbitral tribunal cannot enforce the order. The court on request of the party orders the execution of the arbitral order. The court may change the arbitral order and is entitled to rescind or change the execution order on request of a party. If the interim measure turns out to be unjustified from the very beginning then the affected party is entitled to claim damages, which can be claimed in the pending arbitration.
14. TAXATION OF ARBITRATORS’ FEES
14.1 Does the state, or any of its sub-divisions, purport to tax domestically the fees of foreign arbitrators conducting hearings in the state? Is there a difference if the arbitration is ‘seated’ in the state or elsewhere?
Any German resident is subject to income taxation at the place of his or her residence. It does not matter where he or she earns their income. Foreign arbitrators serving in Germany generally enjoy no exemption from the German income tax system. In conclusion, proceeds deriving from arbitral services rendered in Germany are subject to domestic taxation if a Double Taxation Convention does not provide otherwise. Further, German arbitrators are subject to VAT, regardless of whether the VAT can be charged to the parties.
15. DEFAULT PROCEEDINGS
15.1 Are there provisions governing a tribunal’s ability to determine the controversy in the absence of a party who, on appropriate notice, fails to appear at or seek adjournment of the arbitral proceedings?
In compliance with art 25 of the Model Law, s 1048 of the ZPO stipulates three types of absence of a party and the respective procedural consequences. If the claimant fails to communicate his or her statement of claim, the arbitral tribunal shall terminate the proceedings, whereas if the respondent fails to communicate his or her statement of defence, the arbitral proceeding shall continue without treating such failure in itself as an admission of the claimant’s allegations. Should any party fail to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceeding and make the award on the evidence before it. In addition to the Model Law provisions, s 1048(4) of the ZPO states that any absence that is sufficiently explained to the arbitral tribunal does not have to be considered to the disadvantage of the failing party.
16. THE ARBITRAL AWARD
16.1 Must an award take any particular form, eg in writing, signed, dated, place, the need for reasons, delivery etc?
The requirements on form and content of an award are set out in s 1054 of the ZPO, which corresponds to art 31 of the Model Law, and requires, in domestic and international arbitrations, that awards must be in writing, signed and dated and must indicate the place where the award is made. Section 1054 of the ZPO refers to final and partial awards and to orders with respect to preliminary relief. The award has to set out the place where the award is signed, which has to correspond to the legal seat of the arbitral tribunal; however, the award is valid also in the absence of an indication with respect to the legal place of the arbitration, as such place can be retraced on the basis of the procedural documents. An award becomes effective as of the submission of the signed award to each party.
16.2 Are there limits on arbitrators’ powers to fashion appropriate remedies, eg punitive or exemplary damages, rectification, injunctions, interest and costs?
According to s 1051 of the ZPO, the arbitral tribunal shall decide the dispute in accordance with the rules of law as applicable to the substance of the dispute, either by the party’s choice of law or, if such law is not designated, the law to which the dispute has the closest relationship. The closest relationship has to be determined by the conflict of law rules. The applicable law determines the appropriate remedies. Remedies granted under the applicable law have to respect the ordre public. An arbitral award violating the ordre public principles can be appealed. Only upon the parties’ express authorisation is the arbitral tribunal also entitled to decide ex aequo et bono (OLG Munich, SchiedsVZ 2005, 309ff). The parties can withdraw such authorisation until the arbitral tribunal renders its award.
According to German international law principles, the obligation to pay interest is subject to substantive law. Thus, the substantive law applicable to the dispute decides if interest is to be granted and in which amount. According to German substantive law, interest is to be paid on any money debt as of the time payment is due. According to s 352 of the German Commercial Code the interest rate is 5 per cent per annum if the money debt derives from an action to be considered as a commercial act for both parties. In case of delayed payment, in particular after having been put on notice, the interest rate is 5 per cent above the basic rate of the European Central Bank according to s 288 of the BGB. If German law is the applicable substantive law, compound interest against the debtor is prohibited (s 248 of the BGB).
With respect to the costs of the arbitration, s 1057 of the ZPO provides that unless otherwise agreed by the parties, the arbitral tribunal shall at its own discretion determine the costs (costs of the proceeding and fees for counsels) pro rata, considering the particularities of the case, in particular the result of the proceeding. The arbitral tribunal must set out the amount of costs that each party has to bear, otherwise a party may request a supplementary award on costs.
17. RECOURSE FROM AN AWARD
17.1 Are there provisions governing modification, clarification or correction of an award?
Similar to art 33 of the Model Law, the provision of s 1058 of the ZPO provides that any party can request the arbitral tribunal to correct calculation, typographical or any errors of similar nature, to interpret parts of the award or to render an additional award for claims presented in the arbitration but omitted in the award. Unless otherwise agreed by the parties, such request must be filed within a one-month period following the service of the award to the parties. The tribunal may decide on the correction or interpretation of the award within one month and on the additional award within two months. The correction or interpretation of an award is not a separate award but part of the initial award. Contrary to this, the additional award, on claims which had been presented in the arbitral proceeding but omitted in the initial award, constitutes a new final award that can be executed itself.
17.2 May an award be appealed to or set aside by the courts? If so, on what grounds and by what procedures?
Recourse to a state court against an arbitral award may only be made upon request to national courts if the party making the application shows that: (i) the arbitration agreement is invalid; (ii) the party was not given proper notice or was otherwise unable to present its case; (iii) the award deals with a dispute not contemplated by the terms of the submission to arbitration; or (iv) the composition of the tribunal or the procedure was not in accordance with the agreement of the parties. Further, appeal is possible if the court finds that the subject matter of the dispute was not arbitrable or if the award was in conflict with the ordre public (s 1059 of the ZPO).
Only awards rendered in Germany (the place of arbitration) can be subject to appeal. An appeal can only aim to set aside the award in full or in part with effect ex tunc but not to modify the award. Appeal to set aside an award may not be made after three months have elapsed from the date on which the party appealing received the award.
In addition to the provisions of art 34 of the Model Law, s 1059(4) of the ZPO sets out that in cases of doubt the arbitration clause becomes effective again upon the award having been set aside with an ex tunc effect. The parties’ intent is decisive in this respect, although the legislators are of the opinion that, unless otherwise expressly set out, the parties are deemed to have an interest in the continuation of the arbitration proceedings. It is disputed in German legal literature whether an arbitral tribunal must be constituted again upon the award having been set aside or whether the mandates of the initially appointed arbitrators still continue. Legal authors agree that the parties have the right to refuse the continuation of the mandate of their initially appointed arbitrators if the award was set aside for infringement of procedural principles, in particular for the non-respect of a hearing in accordance with the law.
18. ENFORCEMENT OF AWARD
18.1 What are the procedures and standards for enforcing an award? Is there a difference between ‘domestic’ and ‘non-domestic’ awards?
German law distinguishes between domestic and foreign awards. The enforcement of a domestic arbitral award is regulated in s 1060 of the ZPO and is initiated upon the respective request to the appellate court (Oberlandesgericht) designated by the parties in their arbitration agreement or the appellate court of the district in which the arbitration took place. The enforcement request must be accompanied either by the award itself or a certified copy thereof. There is diverging case law on whether – in the enforcement proceeding – objections can be raised against the award under material law aspects if the underlying facts had not been known before (OLG Cologne, OLG Düsseldorf, OLG Dresden, OLG Koblenz, SchiedsVZ 2005ff, 163ff, 214ff, 210ff, 260ff) .
The enforcement of foreign awards is set out in s 1061 of the ZPO, which incorporates the rules of the New York Convention.
19. CONFIDENTIALITY OF PROCEEDINGS
19.1 What are the confidentiality requirements of the arbitral process, ie existence of the arbitration, pleadings, documents produced, hearing, award?
State court proceedings are generally open to the public. To the contrary, arbitration proceedings are traditionally not open to the public.
State court judges who make use of secrets of which they gain knowledge during their mandate commit a penal act (s 203 of the German Code on Penal Law). As the penal law provision only refers to public mandates, which the arbitrators do not execute, it is the general opinion of German legal literature that arbitrators have a contractual obligation deriving from their mandate not to exploit or make use of secrets of which they become aware due to their mandate.
20.1 Is there any particular aspect of the approach to arbitration in the jurisdiction which bears special mention?
There are no particular aspects of the approach to arbitration in Germany which bear special mention.
