On 18 April 2023, the German Federal Ministry of Justice published its „Guidelines on the modernization of German Arbitration Law“ (Guidelines)[1], proposing twelve potential changes to the current rules. Those changes, together with the proposed introduction of commercial courts[2], are aimed at strengthening Germany as a place for international commercial disputes.
The Guidelines are based on a report by a working group which had been tasked with the review of German arbitration law back in 2016.[3] They are not so much a set of specific suggestions as a ventilation of ideas in abstract form. Nevertheless, if those ideas were implemented, they might at least on paper amount to the biggest modernization effort since the reform of 1997, when digitalization was still in its infancy and globalization had not yet the impact on the German legal landscape as it has now. Therefore, a closer look at the proposed changes is warranted.
I. The Ministry’s proposals
1. Form Requirements for Arbitration Agreements
Current German law requires that arbitration agreements shall be in writing (as in Option I of Art. 7 (2) UNICTRAL Model law). The Ministry now proposes that b2b arbitration agreements should be subject to no formal requirements (as in Option II of Art. 7 of the Model Law). This was actually the law until 1997; the proposed modernization is therefore a return to the roots.
The Ministry argues that this change would eradicate doubts about the validity of arbitration agreements that were concluded electronically, and that it would allow oral arbitration agreements. As for the former, those doubts were minor at best – case law and legal literature have long held that b2b arbitration agreements can e.g. be concluded by email. As for the latter, parties will be well advised to create a proper paper trail about their arbitration agreements, no matter whether this is strictly necessary under the law or not.
2. Multi-Party Proceedings
Arbitration institutions like the ICC and DIS already have rules in place for handling disputes between more than two parties.[4] Absent such rules though, multi-party disputes can lead to a number of practical and legal problems, starting with the appointment of the arbitrators. Without providing details, the FMJ proposes to introduce statutory rules for the appointment of arbitrators in multi-party disputes so that standstills and deadlocks can be avoided in the future.
3. Judicial Review of Decision on Jurisdiction
Just like Art. 16 (3) UNCITRAL Model Law, German law grants either party the right to request a court review of an arbitral tribunal’s ruling that the tribunal has jurisdiction. The Ministry now proposes that the parties should have such right also where an arbitral tribunal holds that it lacks jurisdiction.
While logical at first glance, it remains unclear how this change would work in practice. (It seems out of the question that the parties or the court could force the tribunal to deal with the case.) There is also the matter of whether such right is really necessary: A tribunal that incorrectly assumes jurisdiction over a case thereby infringes a party’s constitutional right to be heard by a judge. In the reverse situation – i.e. where a tribunal incorrectly rejects jurisdiction – there is no such infringement, merely (at worst) a breach of the arbitrator’s contract.
4. Video Conferencing
Following the largely positive experience of German state courts with video conferencing during the pandemic, the Ministry proposes to incorporate the option for video conferencing into law, acknowledging the progress of digitalization since the last amendment in 1997. This is a cosmetic change only; nothing in the current law prevents parties from agreeing to hold a hearing by video conference.
5. Publication of Arbitration Awards
One of the few legitimate concerns about commercial arbitration on a conceptual level is that it can stunt a jurisdiction’s overall legal development by reducing the number of published legal precedents at least in certain areas of law. In Germany, this effect has already become noticeable in construction disputes and post-M&A disputes.
Publishing awards could mitigate this issue, and this is what the Ministry proposes to introduce, subject to the parties’ approval. Arbitration institutions like the ICC already have such rules in place[5]. Whether the Ministry envisages an “Opt-In” for the parties or an “Opt-Out” (like the ICC rules) is not yet clear. In any event, if the publication of an award is subject to the approval of the parties, one may expect that only few awards will come to light.
6. Documentation in English
Parties often run into a language barrier when requesting to have their awards declared enforceable in Germany: the language at German state courts is German, regardless of the language of the award. The Ministry now proposes that both the arbitral award itself and the documents from the arbitration proceedings may be “submitted” in English.
Here, the Ministry may have fallen victim to a common misconception. Documentary evidence can be “submitted” in any language at German state courts already under the current law; it only has to be translated to German if (!) the court requests it[6]. If the court is reasonably proficient in English (or Spanish, or French, or Mandarin etc.) there is no need for a translation, although the hearing and the decision will still be in German.
It remains to be seen whether the Ministry merely erred about the law as it is, or whether it seeks to introduce an actual change. There is no indication yet as to how this change could look like.
7. Proceedings at Commercial Courts
The actual attack on the language barrier is hidden in the next proposal: The Ministry proposes that German states with commercial courts shall be allowed to delegate exclusive jurisdiction for arbitration matters to those courts insofar as proceedings for the recognition or the setting aside of awards are concerned. There, the parties shall then have the option to conduct the proceedings entirely in English.
8. Remedy against final Awards
For arbitration practitioners, perhaps the most alarming part of the Ministry’s guidelines is the proposal to introduce a procedure for setting aside (German) awards in exceptional cases, meaning circumstances under which a state court judgment would be subject to an action for restitution. The Ministry explicitly names bribery and deliberate abuse of law as example. The practical implications seem limited: an arbitral award obtained through such means would violate the ordre public and be subject to nullification anyway. The proposal would only become relevant in cases where a party learns about the bribery (etc.) only after the deadline for nullification proceedings has expired.
9. Interim Relief
Although German arbitration law largely follows the UNCITRAL Model Law, legal scholars hotly debate whether interim measures by foreign tribunals can be enforced in Germany (in contrast to Art. 17 H Model Law, which explicitly says so). The Ministry now wants to resolve this debate in favor of enforcement.
10. Court Decision on Jurisdiction
German law provides for a fairly unique legal remedy by allowing parties to request – prior to the constitution of the tribunal – a binding court decision on whether an arbitration would be permissible or not. The Ministry proposes to clarify that a court dealing with such request may also issue a decision on the existence or validity of the arbitration agreement.
11. Remittal to Arbitral Tribunal
Another clarification concerns cases where a court rejects the recognition of an award and simultaneously sets it aside. The Ministry proposes that in such cases, the matter can be referred back to the arbitral tribunal, and that the arbitration agreement may be resuscitated.
12. Ex parte Orders
Finally, the Ministry proposes to limit the state courts’ authority to issue ex parte orders in enforcement matters to urgent cases. This proposal refers to the option of getting a “preliminary” enforcement of an award while the main recognition proceedings are still pending. In this respect, too, the Ministry’s proposal is more of a clarification than a reform.
II. Further Ideas
In addition to the above proposals, the Ministry has spelled out a number of additional ideas and invited discussion about them. Those include
- the introduction of an emergency arbitrator[7] into German arbitration law,
- the option for individual members of an arbitral tribunal to issue dissenting opinions,
- the introduction of joint courts for several German federal states specifically for arbitration matters, and,
- granting the Higher Regional Courts jurisdiction for (almost) all arbitration-related issues, including the support for evidence-taking.
III. Conclusion
The Ministry’s proposal has triggered a number of reactions in the German arbitration community. On closer inspection, most of the changes are either of little practical relevance, or mere clarifications or codifications of the law as it is practiced anyway. Accordingly, they have not sparked much outrage, and to the extent that the reaction has been critical, it has been more on the lines of mild disappointment about certain key issues being ignored. The good news, then, is that the foreseeable future will bring no risk of disruption by overzealous government intervention to a dispute resolution mechanism which, although not without faults, is by and large working quite well.
[1] The German version of the Guidelines can be found here.
[2] See our Global Litigation News article on the Guideline for the introduction of commercial courts.
[3] See The Baker McKenzie International Arbitration Yearbook 20217/2018, Chapter Germany, A.1.
[4] See Articles 12 (6) to (8) ICC Rules and Art. 18 and Art. 20 DIS Rules.
[5] Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the ICC Rules of Arbitration, Section IV C, available here.
[6] Sec. 142 (3) Code of Civil Procedure. Confirmed by e.g. the Federal Administrative Court, Decision of 9 February 1996, 9 B 418/95.
[7] See for example Article 29 of the ICC Rules.
