SOME NOTES ABOUT THE ARBITRATION LEGAL REGIME – THE GERMAN ARBITRATION ACT
WHY NOT GERMANY?
I – INTRODUCTION
Undoubtedly one of the most fascinating and enriching aspects of arbitration is that more and more an arbitration community is being created, a community that knows how jurisdictions operate, that creates professional and reliant connections, while contributing to the progressive breaking of barriers regarding what is different and/or unknown. Also it is exciting to learn about how habits, customs, values and other ways of doing things make real justice.
Nonetheless countries are differentiated and knowledge is required to intervene effectively in different jurisdictions. As such, the UNCITRALi model law has facilitated everyone’s work by creating a model that has been gradually adopted by several countries. However, full harmonization is not possible because each legal system is shaped by the values and customs of each people. In this context, despite all harmonization, legal and cultural traditions continue to form the basis of each legal system.ii
Because arbitration in Germany is still mostly unknown to the lusophone world the purpose of this work is to leave you with a few introductory notes on useful aspects of the arbitration system practiced in Germany, a first look on some of the most significant players and some personal notes.
It is quite impressive that in Germany most players, even the most renowned personalities in the arbitration world, are extremely affable, open and available, an aspect that I was fortunate to experience in person, contradicting the misconception of German rigidity.
SOME NOTES ABOUT THE ARBITRATION LEGAL REGIME – THE GERMAN ARBITRATION ACT
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©2011. YAR - Young Arbitration Review • All rights reserved.
With regard to the arbitration process, as notes Ana Bruder and is confirmed by those who deal with arbitration in Germany, there is a scrupulous planning with flexibility. Another remarkable aspect is that submissions are shorter, more objective, meaning that in most cases repetitions or exaggerations are not easily found and are usually very well sustained. The German judiciary is also very time and cost efficient, there are several specialized courts and in some exceptional cases judicial proceedings can be carried out in English, therefore arbitration is still mainly used in cross-border transactions.
II - SOME NOTES ABOUT THE ARBITRATION LEGAL REGIME
The German Arbitration Act
Arbitration in Germany is governed by the German Arbitration Act. The Act is part of the German Civil Procedure Code (Zivilprozessordnung) – ZPO, sections § 1025 to § 1066.
The ZPO arbitration provisions are based on the UNCITRAL Model Law and closely follow its structure and content. They incorporate the model law for all arbitrations in Germany (not just “commercial” arbitrations), and it covers international and domestic arbitration. The law applies if the parties agree on Germany as the place of arbitration, or if an arbitral tribunal selects Germany as the place of arbitration.iii
The ZPO supports and promotes party autonomy. According to ZPO section § 1042 the parties are free to determine the procedures themselves or by reference to a set of arbitration rules.
As Torsten Lörcheriv says “The only limitation is that such agreements must not conflict with any of the small number of mandatory provisions as set out below:
- Application of the German Arbitration Law to arbitral proceedings where the seat of arbitration is situated in Germany;v
- Determination of the validity of the arbitration agreement by state courts;vi
- Right of recourse to the state courts if the arbitration agreement disadvantages one party regarding the constitution of the arbitral tribunal;vii
- Right to request a state court’s decision on a challenge of arbitrator if the arbitral tribunal has previously rejected the challenge;viii
- Enforcement of interim protective measures;ix
- Parties have to be treated equally and each party shall be given a full opportunity to present its case and;
- Counsel may not be excluded from acting as an authorized representative”. x
The regime of the German Arbitration Act does not distinguish between domestic and international arbitration, with notably exception regarding the enforcement of the awards.xi
As previously stated, the German Arbitration Act adopts largely the UNCITRAL Model Law “with a few notable exceptions, including more lenient form requirements for the arbitration agreements, the option to request a ruling from a court on the admissibility of arbitration prior to the constitution of the tribunal, greater powers of state courts to support the appointment of arbitrators and to enforce interim relief, the obligation to apply the law of the country with which the subject matter is most closely connected in the absence of an agreement by the parties on the substantive law and the time limit for the initiation of annulment proceedings”xii (3 months).
Germany is a party to several international treaties: the New York Convention; The Washington Convention on the Settlement of Investment Disputes between States and Nationals of other states (ICSID); the European Convention; and the Energy Charter Treaty.xiii Furthermore, Germany entered into bilateral Investment treaties with more than 130 countries, making it the country with the single largest number of bilateral investment treaties
The parties are free to determine the number of arbitrators and the arbitrators appointment procedure. Failing such determination, the number of arbitrators shall be three, whereby each party is entitled to appoint an arbitrator and those arbitrators shall agree on the chairman. Failing such agreement, the default provision states that appointment shall be made, upon the request of a party by the competent regional court (Oberlandesgericht).xiv
An arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not posses the qualifications agreed to by the parties. The arbitral tribunal shall take the final decision on this matter, upon request of a party, if the challenged arbitrator does not withdraw or the other party does not agree to the challenge.xv
According to the words of Kreindler, Kopp and Rothe “There are no rules under German law addressing conflicts of interest of arbitrators specifically. The IBAxvi Guidelines on conflicts of interest are not part of German arbitration law, but they represent an international standard, which has influenced German case law and is recognized by German courtsxvii.”
As the same authors also refer “There are generally no limitations on who can serve as an arbitrator”,xviii but in Germany it is common practice for parties to agree that one or more members of an arbitral tribunal, particularly the chairman, must be admitted to the German Bar.
And according to DIS Rules “unless otherwise agreed by the parties, the chairman of the arbitral tribunal or the sole arbitrator, as the case may be, shall be a lawyer”. xix
Conduct of Proceedings
After setting up the arbitral tribunal the proceedings must be based on the applicable rules and any further agreement of the parties.
When these rules or agreements are not established, the OCTOBER 10, 2014 • YAR • 43 ©2011. YAR - Young Arbitration Review • All rights reserved.
arbitral tribunal has discretion on how to conduct the proceedings.
From the beginning to the end of the arbitration process the parties shall be treated with equality, be given full opportunity to present their case, and if they want, have a chance to be represented by counsel, who can not be excluded from relevant procedures. Neither the German Arbitration Act nor the DIS Rules mention the terms of reference or any similar proceeding, but naturally, the parties or the arbitrators can agree on this procedure.
Whenever the parties choose Germany as the place of arbitration, they must ensureto take into account that, if they failed any further party agreement, as Kreindler, Kopp and Rothe wrote in their Arbitration Guide: “…the competent court for annulment and/or enforcement of the award, as well as any supportive measures regarding the conduct of the arbitration proceedings, will be the Higher Regional Court in the district in which the place of arbitration is located”. However “even though an increasingly harmonized case law on most issues regarding arbitration has developed since the time the German Arbitration Law came into force, some courts tend to be more experienced with arbitration than others”. xx
Arbitration proceedings are generally regarded as being confidential, however the ZPO, more specifically, the German Arbitration Act has no provisions on confidentiality.xxi
On the other hand, the DIS Rules provide that any person involved in arbitration - the parties, the arbitrators and persons at the DIS secretariat – has to maintain strict confidentiality towards any third person regarding the conduct of the arbitral proceedings and, in particular, regarding the parties and any means of evidence.xxii
In Germany the arbitral award has the same effect between the parties as a final and binding court judgment and shall state the reasons upon which it is based.
Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with those situations as provided by law: lack of capacity of a party; invalidity of the arbitration agreement; violation of due process principles; the award being beyond the mandate conferred by the arbitral agreement; inappropriate constitution of the arbitral tribunal; lack of arbitrability of the matter subject to arbitration and violation of ordre public.
In respect to recognition and enforcement of an arbitral award, there’s a difference between the enforcement of foreign and domestic awards. Domestic awards can be annulled according to the grounds previously mentioned and enforceability will be refused if one of the grounds for annulment is applicable. The recognition and enforcement of foreign arbitral awards are granted according to the New York Convention.
III - COSTS AND ARBITRATORS FEES
In respect to costs, the German Arbitration Act establishes that, unless the parties agree otherwise, the arbitral tribunal shall allocate, by means of an arbitral award, the costs of the arbitration between the parties, including those costs incurred by the parties that were necessary for the proper pursuit of their claim or defense. It shall do so at its discretion and take into consideration the circumstances of the case, in particular the outcome of the proceedings.xxiii
According to Kreindler, Kopp and Rothe “While arbitral tribunals have discretion as to the allocation of costs, the rule that costs follow the event is widely used in arbitrations seated in Germany. In Germany qualified arbitrators will regularly refer to the rules applicable to the litigation costs”xxiv and the truth is that only exceptionally the arbitral tribunal will differ from that rule in order to penalize dilatory conduct or bad faith behaviour by a party during the proceedings.
In 2013 there was a tendency to allow the prevailing party to recover attorney fees based on a time charged agreed between the party and its attorneys rather than by reference to the fees provided in the attorneys’ Remuneration Act (RVG).xxv This tendency constitutes a significant change in respect to costs, since that was not possible according to the Remuneration Act.
In short, arbitration in Germany is cost efficient, but German arbitrators and judges are strict in respect to the costs and expenses that can be reimbursed.
IV - CIVIL LAW / COMMON LAW
Germany is a civil law country and naturally most German lawyers and German arbitrators have a civil law training, at least from the outset. This situation affects the practice in arbitration, nevertheless there is an increasing influence of common law practice, therefore it is common, for example, both in domestic and international arbitration seated in Germany to have written witness statements.
Other notorious examples of this influence are “cross examination and direct examination” which as Kreindler, Kopp and Rothe wrote: “… are not known in German litigation (but) are usually permitted in domestic arbitration, where witnesses are traditionally questioned by the arbitral tribunal first and only subsequently by the parties. In international arbitrations, the tribunal follows what can be considered international best practice, namely, to allow the parties to question the witnesses first”. xxvi
Another good example is the “Discovery” which is practically unknown to German law. Actually there is no pretrial discovery proceeding in Germany that permits litigants to “discover” evidence from their opponents. Consequently, court procedures cannot be used by the parties to gather information In Germany, third parties not involved in a lawsuit can be ordered by the court to disclose documents but will not be ordered to produce a document if the document production is “unreasonable” in light of possessing party’s legitimate interests or if it is protected by a personal or professional privilege. Also Discovery, as used in common law countries, would
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conflict with EU Data Protection Requirement.
However there is a tendency in the German arbitral community to look for assistance from the IBA rules on the taking of evidences and those rules provide for a certain degree of document production.xxvii As in litigation, in respect to document production, to request documentation from the opposing party the applicant will have to strictly and fully comply with the requirements provided for in the IBA Rules (e.g. Article 3.3) and therefore must specify their content in detail. In short “Discovery” as used by common law practitioners is generally not allowed.
V - DISxxviii
The main institution for arbitration in Germany is DIS.xxix
The DIS Rules are based on the German Arbitration Act and these DIS Rules are guided by the same principles of equality between the parties and parties’ autonomy, which are common to other institutions.
Either way, this institution is less interventive and arbitrators can conduct the proceedings more freely. From the outset, parties can choose the arbitrators freely. The arbitrators can set the appropriate time limit for the respondent to file the statement of defense. There is no obligation to have terms of reference, the institution does not scrutinize the final award and there is no rigid time limit for the tribunal to render the award. Nevertheless the
proceedings are generally time-efficient.
On an interesting note, we highlight that DIS has two very interesting set of rules, one regarding Supplementary Rules for Expedited Proceedings 08 (SREP) and another regarding Supplementary Rules for Corporate Law Disputes 09 (SRCoLD), which were prepared with the collaboration of the judges from the Supreme Federal Court (Bundesgerichtshof).
DIS also serves as the national committee for ICCxxx in Germany, and, upon request, may provide assistance for the selection of arbitrators, both in ad hoc and institutional arbitrations.xxxi
After twenty years with Jens Bredow as Secretary-General, the Institution recently appointed Francesca Mazza for this role. Francesca Mazza is an Italian national who holds a PhD from the University of Heidelberg and is a former ICC senior manager. As noted by the former DIS Chairman and eminent arbitrator Karl-Heinz Böckstiegel: “We’re thrilled to bring Francesca on board. DIS made great strides these past years under the leadership of Jens Bredow.” (...) “Her cross-cultural background and experience and her passion for arbitration makes her the perfect choice for the role and for DIS.”xxxii
This choice of Francesca Mazza confirms the international ambition of DIS and consolidates the cross-border experience of the Institution.
As general remarks in respect of DIS, Michael Mcllwrath’s OCTOBER 10, 2014 • YAR • 45
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words at Kluwer Arbitration Blog – 28/02/2013 are expressive: “has the advantage of making dispute resolution appear more neutral, consistent and reliable in the eyes of those who hale from outside the city’s wall.”sxxxiii “The model adopted by the DIS, the German Arbitration Institute, is (…) disciplined, centralized and, well, let’s just say more… German”.xxxiv
In this respect, I would go further and say that neutrality, consistency and reliability are signature features of the German arbitration perfectly embodied in the arbitrations administered by DIS.
VI – GERMAN ARBITRATORS
With regard to the arbitrators, with no intention to be comprehensive and with the certainty that not all those that are notable are mentioned, it is essential to list the following outstanding personalities in Germany, who hold extensive and rich curricula, from which we will only refer some of the most significant aspects.
PROF. DR. KARL-HEINZ BÖCKSTIEGEL
- Till 1971 – partner at a law firm in Düsseldorf;
- Till 2001 – Holder of the Chair of International Business Law and Director of the Institute of Air and Space Law, University of Cologne;
- Chairman of the Board of the German Institution of
- President of the International Law Association (ILA) 2004-2006 and President of the German Association for International Law 1993-2006;
- President of the London Court of International Arbitration (LCIA) 1993-1997.
KREINDLER, RICHARD HAMILTON
- Honorary Professor at the Westfälische Wilhelms-
Universität, Münster 2009;
- Fellow and Chartered Arbitrator at the Chartered Institute of Arbitrators (CIArb), London, 2006;
- Nominated by PLC Cross-Border Quarterly in “The Top 20 Arbitration Specialists” worldwide (July 2006)xxxv.
PROF. DR. KLAUS PETER BERGER, LL.M.
- Current Chairman of the German Institution of Arbitration
- Professor for Domestic and International Private and Commercial Law, Comparative and Private International Law; Director at the Institute for Banking Law and Centre for Transnational Law (CENTRAL), University of Cologne Faculty of Law, Germany (since 2002);
- Professor for International Business Law and Director of the Institute for International Business Law, Muenster University Faculty of Law, Germany (1996 - 2002).
PROF. DR. KLAUS SACHS
- Specializing in national and international arbitration, with more than 25 years of experience in proceedings as counsel or
arbitrator in more than 150 arbitral proceedings;
- Vice President of the International Court of Arbitration
- Munich Representative of the International Arbitration Institute (IAI).
PROF. DR. SIEGFRIED H. ELSING, LL.M.
- Has more than 30 years of experience as litigation and international arbitration counsel, having represented private investors, international companies, sovereign states and state agencies in a wide range of significant and complex cross-border disputes;
- In 2011 the President of the World Bank designated Mr. Elsing to serve on the Panel of Conciliators for the Administrative Council of the International Centre for Settlement of Investment Disputes (ICSID);
- Graduated from Münster Law School and holds an LL.M from the Yale Law School;
- Languages: German, English and French.
DR. MARK C.HILGARD
- Leads the litigation and arbitration practice of Mayer Brown in Germany;
- Domestic and international arbitration and business transactions; emphasis on proceedings related to mergers and acquisitions, contractual disputes, complex liability cases, agency law, cartel law, plant engineering and construction, turn-key projects, telecommunication;
- Chairman and party appointed co-arbitrator as well as party representative in numerous arbitral proceedings (mainly ICC, DIS and ad hoc proceedings) with emphasis on the areas described above.
- Chairman, sole and party-appointed arbitrator in more than 25 proceedings (DIS, ICC, ad hoc), according to “Chambers” one of Germany´s “most in demand” arbitrators;
- Representing clients in more than 50 arbitration and mediation proceedings, recipient of the ILO Client Choice Award in 2010 and 2011 as Germany´s best arbitration counsel;
- Mediator in more than 10 proceedings, and currently he is partner in the Litigation/Arbitration Department of Baker&
- Languages: German and English.
PROF. DR. ROLF TRITTMANN, LL.M
- Partner in the International Arbitration Group of Freshfields Bruckhaus Deringer;
- Experience as chairman and sole arbitrator: 30 proceedings; as co-arbitrator: 58 proceedings and as counsel: 68 proceedings.
DR. ERIK SCHÄFER
- Partner of COHAUSZ & FLORACK, an inter-disciplinary law firm combining legal, technical and scientific expertise in all OCTOBER 10, 2014 • YAR • 46 ©2011. YAR - Young Arbitration Review • All rights reserved.
fields of technology;
- Graduated from the University of Freiburg/Germany in 1983 and qualified for the Bar (2nd State Exam);
- He began his professional career as counsel at the Secretariat of the International Court of Arbitration of the International Chamber of Commerce (ICC) in Paris;
- Since 1994 he has been acting either as counsel or arbitrator in national and international arbitration proceedings;
- Main areas of his practice are (international) arbitration - often matters with a technical or scientific ‘flavour’ and include all aspects of intellectual property.
- As arbitrator:
Co-Arbitrator: 40 arbitrations (ICC, DIS, PCA, VIAC, CEAC, ad hoc);
Chairman: 15 arbitrations (ICC, DIS, GMAA, Hamburg
Chamber of Commerce);
Sole Arbitrator: 7 arbitrations (ICC, DIS, VIAC,
Hamburg Chamber of Commerce);
- As counsel:
Party representation in numerous domestic and international arbitration proceedings (e.g. ICC, DIS, ICSID, ZHK, VIAC, AAA, ad hoc);
- Specialized as arbitrator and counsel, in particular in the following sectors: Energy, Industrial Plant Building/Construction, Banking & Finance, post-M&A.
DR. PHILIPP K. WAGNER, LL.M
- Since 07/2003 WAGNER Arbitration | Berlin: Independent arbitrator and party counsel in arbitration proceedings as well as legal advisor in cross-border business transactions, independent legal practice;
- As arbitrator:
Co-Arbitrator 10 arbitrations (DIS, UNCITRAL);
As Chairman: 2 arbitrations (DIS, UNCITRAL);
As Sole Arbitrator: 6 arbitrations (ICC, DIS); - As party counsel:
In arbitration proceedings: 13 arbitrations (ICC, DIS, ad hoc);
In arbitration related national court proceedings: 5 proceedings;
- As secretary to the arbitral tribunal: 4 arbitrations (ICC, DIS, ad hoc);
- He is specialized in international and domestic arbitration (institutional and ad hoc) as well as in litigation, International Contracts (e.g. sales and other contracts, distribution, corporate, M&A, venture capital, private equity, joint ventures) real estate law.
DR. DOROTHEE RUCKTESCHLER
- Admitted as lawyer in Germany for more than 30 years and with vast experience in national and international arbitration as counsel and arbitrator. She has represented clients in numerous international arbitration proceedings under various major institutional rules. In addition, she has been appointed arbitrator (co-arbitrator and presiding arbitrator) in a large number of high-profile international disputes;
- Her most recent practice has focused on disputes relating to, inter alia, asset/share purchase agreements, joint venture agreements, corporate law and commercial law, e.g. energy supply agreements.
VI - CONCLUSION - GERMANY AS A SEAT FOR ARBITRATION
In short Germany is an arbitration friendly jurisdiction. Generally, arbitration agreements are accepted and respected by the courts. The judiciary supports arbitration efficiently and there is an increasingly harmonized case law on most issues regarding arbitration. There are experienced and reliable professionals and institutions, and the arbitration system is very consistent and efficient, as Germans are. Therefore practitioners should seriously consider to seat arbitrations in Germany.