In its decision of 5 November 2013, the Higher Regional Court Stuttgart tackled the question of whether an arbitral award is enforceable in Germany when an arbitral tribunal awards a pecuniary claim against an insolvent defendant in Switzerland (Higher Regional Court of Stuttgart, Decision of 5 November 2013, 1 Sch 2/11).
The Court held that the arbitral award violated German public policy because the insolvency creditor did not register its insolvency claims in the insolvency table in Switzerland.
In detail:
In 2004, the claimant brought an arbitration claim in a German arbitration against a company seated in Switzerland. In 2009, bankruptcy proceedings were commenced in Switzerland against the defendant company. The claimant in the arbitration decided not to participate in these bankruptcy proceedings and not to register its claims in the insolvency table in Switzerland. In January 2011, the arbitral tribunal awarded a pecuniary claim against the insolvent Swiss company.
“Setting aside” proceedings pursuant to Section 1059 German Code of Civil Procedure (ZPO) were brought before the Higher Regional Court of Stuttgart. The Court elaborated on the question whether the award in favor of an insolvency creditor violates German public policy and must – for that reason – be set aside. The Court started its analysis by pointing out that the principle of equal treatment of creditors in bankruptcy is part of the German public policy. This principle is violated if a creditor does not “participate” in the bankruptcy proceedings but brings an arbitration claim and tries to enforce its claim in the full amount against the insolvent debtor.
An arbitral award against an insolvent debtor does not, however, automatically violate public policy. The Court differentiated three scenarios: (i) In scenario A, the claimant registers its claims in the insolvency table at the place where the bankruptcy proceedings were commenced. In the arbitration proceedings, the claimant amends its claim and requests the tribunal to determine that the claimant has an insolvency claim against the insolvent debtor. If the tribunal finds in favor of the claimant, the arbitral award would be compliant with German public policy and thus enforceable. (ii) In scenario B, the claimant also registers its claims in the insolvency table. However, the claimant does not amend its claim but continues to request an award ordering the insolvent debtor to pay. If the tribunal finds in favor of the claimant, the arbitral award would nevertheless be compliant with German public policy. The award would simply have to be interpreted to the effect that the arbitral tribunal merely determined that the claimant has the insolvency claim which it had registered in the insolvency table. (iii) In scenario C, which was the scenario at hand, the claimant had not registered its claims in the insolvency table but requested the arbitral tribunal to order the insolvent debtor to pay. The award in favor of the claimant violated German public policy. The Court emphasized that the result in scenarios A, B, and C is the same irrespective of whether the bankruptcy proceedings were commenced in Germany or in Switzerland as long as Germany recognizes the foreign bankruptcy proceedings
As a result, from a German law perspective, a claimant in an arbitration is advised to always register its claims in the insolvency table.
