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In February of this year, the German Federal Ministry of Justice presented a draft law aimed at modernizing the arbitration procedure.

The aim of this reform is to make Germany a more attractive place for the proliferation of arbitration, both domestic and international. The previous reform was carried out 25 years ago, and now, the new formula seeks to implement rules that encourage the application of the innovations made in the field of digitalization, and develop the practice of arbitration.

As is well known, in Germany, its arbitration act is contained in the German Code of Civil Procedure (“ZPO” according to its German initials). In it, the following changes are provided for:

 

1. Freedom of form of arbitration agreements in business transactions

The draft provides that arbitration agreements between companies and/or entrepreneurs within the framework of their economic activity are not subject to certain formal requirements. The current law requires compliance with certain formalities for an arbitration agreement to be valid. However, it is interesting to note that the law prior to the 1998 law did not require certain formalities for an arbitration agreement to be valid.

However, the notorious freedom that is intended to be granted poses a problem in practice, since dispensing with any formal requirements, such as the requirement that the arbitration clause be in writing, has the potential risk of causing disputes as to the existence and content of the arbitration clause, bringing with it problems of legal uncertainty with respect to German jurisdiction.

An arbitration clause usually contains the agreement of the institution that is to administer the arbitration, the language of the proceedings, the number of arbitrators, how the arbitrators are to be appointed, etc. In the absence of a written clause, these circumstances may have to be discussed in a confrontation prior to the commencement of the proceedings themselves.

The waiver of any formal requirements is likely to impair the marketability of German arbitral awards and thus be detrimental to the objective of increasing the attractiveness of Germany as a seat of arbitration, since, according to Art. II para. 1 of the New York Convention, the Contracting States “…shall recognize an agreement in writing under which the parties undertake to submit to arbitration…”.

At the same time, in that convention, the most-favored-nation principle of Art. VII, paragraph 1, allows a party to arbitration to invoke less stringent formal requirements under the national law of the State in which it wishes to enforce an arbitral award (“…enforcement of arbitral awards entered into by the Contracting States nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon…”). However, the parties to an arbitral award with a German arbitral seat will only be favored if such rules exist in the state where the award is to be enforced.

 

2. Publication of awards

The possibility for arbitrators to publish awards is expressly included, provided that the parties give their consent, and this is considered to be tacitly granted when the parties do not oppose publication. The purpose of this measure is to give transparency to arbitration decisions in the economic and commercial field, thus promoting the proper development of the law.

 

3. Dissenting Opinion

The draft law also provides for clarifications on the admissibility of dissenting opinions. A provision is now proposed whereby an arbitrator may state his dissenting opinion on the arbitral award, or the reasons for it, in a separate opinion. The dissenting opinion of an arbitrator has hitherto harbored the risk that it would affect the domestic arbitral award in such a way that it could be set aside by a competent court, or that a foreign arbitral award could be rejected in Germany.

In this respect, it is argued that publishing and issuing a dissenting opinion violates the secrecy of the deliberations, thus causing the recognition and enforcement of the arbitral award to be contrary to German public policy. This view has been encouraged in particular by an obiter dictum of the Frankfurt am Main Higher Regional Court, which expressed serious reservations about special votes (decision of 16 January 2020, Case No. 26 Sch 14/18).

 

4. Appointment of arbitrators in multi-party arbitration proceedings

The draft also provides for a provision on the appointment of arbitrators in multi-party arbitration proceedings. This would fill a relevant gap in practice for ad hoc proceedings, as the previous legal provisions on the appointment of arbitrators were drafted on the premise that arbitration proceedings would involve a sole claimant and respondent.

 

5. Provisional or interim measures

The draft also considers that interim or conservatory measures ordered by an arbitral tribunal seated abroad may be authorized by the competent court for enforcement in Germany (section 1025 (2) ZPO-E in connection with section 1041 (2) ZPO-E). This is intended to clarify the previously controversial question of the possibility of such authorization.

 

6. Virtual hearings and digital awards

It is confirmed that oral hearings before arbitral tribunals may be conducted through videoconferences. These amendments are in line with the legislation of the Federal Ministry of Justice to promote videoconferencing in civil and other specialized courts.

In addition, the draft also contemplates that awards may, in the future, be issued electronically (through a certified electronic signature for arbitrators), a tool that already exists for judges of the jurisdictional entity.

 

7. Court proceedings

According to the draft, changes will also be introduced for court proceedings in connection with arbitration proceedings. In particular, set aside and enforcement proceedings will be modified, as the parties will be given the possibility to file pleadings in English language, with the aim of gaining procedural efficiency and saving on translation costs.

The draft authorizes the federal states to create the necessary conditions to be able to conduct all proceedings in English. Thus, the so-called Commercial Courts, which will be created to be in charge of this activity, will be competent to hear these proceedings. Likewise, in order to proceed with court proceedings in English, the parties must have expressly or tacitly agreed (e.g., if they are represented by a lawyer, they must have appeared in English without any objection).

However, not all proceedings are capable of being conducted in English, as those before the Federal Court of Justice (Bundesgerichtshof, “BGH”) will require the BGH to approve that they can be conducted in English. Likewise, the BGH could require that the proceedings continue in German without any need for a statement of reasons.