The planned legislative proposal to modernise arbitration law aims to strengthen Germany’s competitive position as a venue of arbitration internationally.

Introduction

German arbitration law is will soon be amended. Following the key issues paper issued by the Federal Ministry of Justice on 18 April 2023, the subsequent draft bill to modernise German arbitration law was published on 1 February 2024. 25 years after the last reform, the revision of the tenth book of the German Code of Civil Procedure (ZPO, Sections 1025 ff.) generally aims to make Germany a more attractive location for arbitration proceedings on the international stage. This article highlights the most important planned changes.

Key innovations and their effects

The modernisation of German arbitration procedure includes significant innovations in key areas. We comment on few selected changes below.

Reduced formal requirements to simplify arbitration agreements

At present, arbitration agreements are subject to strict formal requirements. Essentially, the agreement must be signed by both parties, or there has to be an exchange of correspondence, for example in the form of an offer and acceptance, which can be made by email, fax or other means of communication. Section 1031 (4) ZPO-E will change this. In addition, the new provisions will make it possible to validly enter into arbitration agreements orally in the case of mutual commercial transactions. Each contracting party will be entitled to receive confirmation in text form following the oral conclusion of the arbitration agreement. Text form means at least email. Text form confirmation makes sense anyway for evidentiary reasons, since it gives the parties a means of proving the existence of the agreement.

This innovation has sparked a heated debate. On the one hand, it is welcomed by the German Institution of Arbitration (DIS) for practical purposes and because it has long been standard practice internationally.

But not everyone shares this position. The German Federal Bar, for example, takes a critical view on the proposed legislation. The oral nature of arbitration agreements would create greater uncertainty, as the new regulation would give rise to more disputes over whether an arbitration agreement actually exists.

Language of proceedings before the Commercial Courts

The federal states can now set up commercial courts at the Higher Regional Courts for proceedings pursuant to Section 1062 (1) ZPO. The draft bill provides that, for example, the language of proceedings for setting aside a case should be exclusively English if the defendants agree on this or the defendant party at least does not object, see Section 1063a (1) Sentence 1 No. 2 ZPO-E ICW Section 1062 (1) Sentence 1 No. 4 ZPO-E.

Publication of arbitral awards

To date, only relatively few arbitral awards have been published. This is due to the fact that the parties usually have to actively consent to publishing (cf. Art. 44.3 Sentence 2 DIS Arbitration Rules 2018). This is now set to change. Pursuant to Section 1054b ZPO-E, the arbitral tribunal may, with the consent of the parties, publish the arbitral award and any dissenting opinion in whole or in part in anonymised or pseudonymised form or arrange for such publication. It is important to note that under certain circumstances such consent may be assumed to have been given (cf. Section 1054b (1) Sentence 2 ZPO-E). The arbitral tribunal may request the parties to consent to publication. If no objection is raised by any party within one month of the letter of request being served, the arbitral tribunal may publish both the arbitration award and any dissenting opinion.

Section 1063a (3) ZPO-E provides that the decisions of the Commercial Courts will also be published in anonymised form.

This revision is intended to create greater transparency in arbitration and to promote the further development of the law.

Digitalization in arbitration law

To meet the rapid pace of digitalization in arbitration law, the new provisions are to enable the arbitration award to be contained in an electronic document in accordance with Section 1054 (2) ZPO-E, provided that no party objects. The award must then be sent to the parties as an electronic document in accordance with Section 1054 (5) ZPO-E. To apply for a  declaration of enforceability, a party in future may send the arbitration award to the court electronically as an electronic document (see Section 1064 (1) Sentence 3 ZPO-E).

This gives the winning party more flexibility and should strengthen Germany as a venue of arbitration. Overall, the proceedings will be accelerated.

Admissibility of dissenting opinions

In 2020, the decision of the Higher Regional Court of Frankfurt (OLG Frankfurt) attracted international attention. The OLG stated in an obiter dictum that a submission of a dissenting opinion might violate the secrecy of deliberations of the tribunal, and thus also public order, making the award unenforceable. The decision has been the subject of criticism since dissenting opinions are common practice abroad. The draft law is intended to eliminate the uncertainty created by such case law for Germany as an arbitration location.

Pursuant to Section 1054a (1) ZPO-E, an arbitrator is now permitted to express a dissenting opinion on the arbitral award or its reasoning, unless otherwise agreed by the parties.

Enforcement of interim measures of foreign arbitral tribunals

A further innovation can be found in Section 1025 (2) ZPO-E with the inserted reference to Section 1041 (2) ZPO-E, according to which the arbitral tribunal can also order the enforcement of interim measures if the place of arbitration is abroad or has not yet been determined. This helps to overcome existing uncertainties and serves the purpose of legal certainty.

However, pursuant to Section 1041 (2) Sentence 3 ZPO-E, there are certain reasons why this application may not be granted. These include, in particular, the grounds set out in Section 1059 ZPO: one of the parties was not legally competent under foreign law or the arbitration agreement was invalid under foreign law, or the arbitration award relates to a dispute that is not mentioned in the arbitration agreement. The application must also be refused according to Section 1041 (2) Sentence 3 ZPO-E if an interim measure has already been applied for before a domestic court, or if a provisional or protective measure has been cancelled or suspended by the arbitral tribunal.

Conclusion

The planned changes will modernise German arbitration law, bring it into line with international standards and thus strengthen Germany's position as a venue of arbitration. The new provisions allowing for easier publication of arbitral award will strengthen the development of the law in Germany even beyond the area of arbitration. It will now be up to the parties to decide whether they wish to prevent publication.

Sources:
Draft Bill for the Modernisation of Arbitration Law
DIS_Statement_on_the_Draft_Bill_of_the_Federal_Ministry_of_Justice_for_the_Modernisation_of_Arbitration_Law
Opinion of the German Bar Association the the Draft Bill for Modernisation of Arbitration Law in German language
Higher Regional Court of Frankfurt Decision on Dissenting Opinion