An article highlighting the key arbitration-related developments in Germany in 2011.
The year 2011 has seen four court decisions by the Federal Court of Justice (BGH), the highest German court that deals with arbitration matters, ruling on matters of interest for international arbitration practitioners.
In a decision dated 30 June 2011, the Federal Court of Justice held that an application to the court under section 1032 of the German Code of Civil Procedure (ZPO), to determine whether or not arbitration is admissible, is timely if the application is received by the court prior to constitution of the arbitral tribunal (see Legal update, German Federal Court of Justice decision on timeliness of application to courts to determine admissibility of arbitration (www.practicallaw.com/1-507-9648)). It is not necessary for the application to be served on the other side prior to the constitution of the arbitral tribunal. In particular, service on a party abroad may, in many circumstances, take some time. Therefore, requiring service on the other party prior to constitution of the arbitral tribunal for the application to be permissible would contradict the purpose of section 1032, paragraph 2 ZPO to provide an efficient court procedure to decide on the admissibility of arbitration and was rejected by the court.
On 25 January 2011, the Federal Court of Justice held that an arbitration agreement contained in a contract for investment services between a foreign broker and a German consumer is invalid if the arbitration agreement is not contained in a separate document personally signed by the parties (see Legal update, Invalidity of arbitration agreement in contract with German consumer (www.practicallaw.com/7-505-4471)). This decision is in line with a number of prior decisions by the Federal Court of Justice in previous years confirming the jurisdiction of the German courts for claims for damages resulting from foreign investment services. Since the German parties are treated as consumers as long as the investment services are related to their private assets, the strict form requirements under section 1031, paragraph 5 ZPO for arbitration agreements with consumers must be fulfilled.
In a follow-up decision dated 19 May 2011, the Federal Court of Justice held that these strict form requirements for arbitration agreements with consumers are mandatory (see Legal update, Federal Court of Justice decision on formal requirements for an enforceable arbitration agreement (www.practicallaw.com/4-507-1311)). This means that a consumer cannot waive the form requirements provided for in section 1031, paragraph 5 ZPO specifically for the protection of consumers, since it is in the public interest for these form requirements to be mandatory. Therefore, if a consumer purports to rely on the arbitration agreement, this will not cure the non-compliance with the form requirements. Rather, the arbitration agreement is invalid and the state courts are competent to determine the dispute.
In a decision dated 14 July 2011, the Federal Court of Justice confirmed that an arbitration agreement is not inoperative even if the parties erroneously agreed on an arbitral institution that does not exist, as long as a supplementary interpretation of the contract demonstrates that the parties wanted to agree on arbitration (see Legal update, German Federal Court of Justice decision on inoperativeness of pathological arbitration agreement (www.practicallaw.com/1-508-8515)). The decision shows that it is quite difficult for a respondent to object to arbitration on the basis that the arbitral institution agreed upon does not exist. German courts in such a situation are rather more likely to interpret the arbitration agreement to provide for ad hoc arbitration or arbitration with another institution, as long as it is possible to determine the will of the parties. In cases where this is not possible, however, courts will hold the arbitration agreement to be void for lack of certainty.