According to German law, a party challenging an arbitral award for procedural irregularities has to demonstrate that such irregularities presumably affected the outcome of the arbitration. In a recent decision, the Federal Supreme Court provided some guidance as to the level of proof required in this regard (Decision of December 11, 2014, record no I ZB 23/14).
The German arbitration law, contained in the 10th book of the German Code of Civil Procedure (ZPO), was revised in 1998 and is largely based on the UNCITRAL Model Law. There are, however, a few discrepancies between the German law and the Model Law, one of them concerning applications for the setting aside of an award due to procedural irregularities. Article 34 (2) (a) (iv) Model Law provides that an arbitral award can be set aside if the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the applicable mandatory law. Section 1059 (2) No. 1 (d) ZPO, the equivalent of the mentioned Model Law provision, provides that an arbitral award can be challenged if the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the applicable law or an admissible agreement between the parties “and this presumably affected the award”. Accordingly, unlike the Model Law, the German ZPO requires a causal link, or, to be precise, a presumable causal link, between the procedural irregularity and the outcome of the arbitration. A similar provision was already contained in Section 1041 (1) No. 5 of the ZPO as in force before 1998.
In its decision of December 11, 2014, the Federal Supreme Court had to tackle the issue as to when the required causal link can be assumed. The case that gave rise to the decision concerned an application for the setting aside of an arbitral award. The arbitral award had been challenged because it had been rendered by an arbitral tribunal that included an arbitrator who was successfully challenged in a separate court action. While the arbitral proceedings had still been pending, the responding party in the arbitration had challenged the presiding arbitratrix, arguing a lack of impartiality on her part. The arbitral tribunal rejected the application and the responding party continued to pursue its challenge application against the presiding arbitratrix before the competent Higher Regional Court. While this application was still pending, the arbitral tribunal rendered its final award in favor of the claimant. Approximately 9 months after the final award was rendered, the Higher Regional Court decided on application by which the chairwoman was challenged and held that she had in fact been lacking impartiality. After this decision, the responding party filed a second application before the competent Higher Regional Court, this time in order to have the final award set aside. The application was premised on the argument that the presiding arbitratrix was not impartial so that the composition of the arbitral tribunal had not been in accordance with Section 1059 (2) 1 (d) ZPO.
Based on the Higher Regional Court’s previous decision, it was clear that the composition of the arbitral tribunal had in fact been defective. The only remaining question therefore was whether this procedural irregularity presumably affected the final award. The claimant who was successful in the arbitration argued that such presumable effect could not exist because the decision by the tribunal was unanimous. This fact was in fact confirmed by a letter of the two remaining party-appointed arbitrators that was submitted to the court. In the letter, the arbitrators further stated that the very same award would be rendered even if a new presiding arbitrator was appointed for purposes of fresh arbitral proceedings. The court, however, held that it had to be assumed that the defective constitution of the arbitral tribunal did affect the outcome of the arbitration, notwithstanding the letter of the party-appointed arbitrators. Following earlier case law, the Federal Supreme Court explained that the requirement as to a causal link between the procedural irregularity and the award was only intended to avoid that mere formalities can lead to a successful challenge application. Therefore, the threshold for determining such a causal link has to be a low one. In the view of the Federal Supreme Court, the requirement as to a presumed causal link is always fulfilled if a successfully challenged arbitrator participated in rendering the award.
The Federal Supreme Court was not moved by the fact that the remaining arbitrators had confirmed the decision’s unanimous nature. According to the Federal Supreme Court, it cannot be excluded that the conduct of an arbitrator in the course of the deliberations also influences the process of the shaping of opinions, and finally the vote, of his or her fellow arbitrators. Accordingly, it is possible that the remaining arbitrators would have arrived at a different decision if they had deliberated the decision with a different third arbitrator. The Federal Supreme Court therefore confirmed the decision of the Higher Regional Court by which the arbitral award had been set aside.