In a recent decision, the Higher Regional Court of Munich (Oberlandesgericht München; hereinafter: “Court”) ruled that an arbitrator cannot be challenged for lack of impartiality because he failed to use language emphasizing the preliminary nature of a pre-hearing indicative order. (Higher Regional Court of Munich, Decision of 24 November 2015 (34 SchH 5/15), NJW 2016, 881 = SchiedsVZ 2015, 309.)
In 2014, Claimant brought a payment claim against Respondent arising out of the termination of their non-marital relationship before the Southern German Family Arbitration Court (Süddeutsches Familienschiedsgericht; hereinafter: “Arbitration Court”), which consists of two arbitrators. Before the oral hearing, the Arbitration Court issued an indicative order to the Parties. In the order, the Arbitration Court laid down the legal prerequisites for Claimant’s claim and concluded: “Therefore, (…) a retroactive claim is not possible.” („Somit kommt auch für die Zahlung … ein nachträglicher finanzieller Ausgleich nicht in Betracht.“, NJW 2016, 881 = SchiedsVZ 2015, 309.) and “In sum, it can be asserted that Claimant does not have a claim.” („Zusammenfassend kann festgestellt werden, dass dem Ast. für die von ihm vorgetragenen … finanziellen Zuwendungen und Arbeitsleistungen … ein Ausgleichsanspruch nicht zusteht.“, NJW 2016, 881 = SchiedsVZ 2015, 309.) Further, the Arbitration Court made settlement proposals, which involved counterclaims of Respondent against a private limited company (hereinafter: GmbH) of Claimant, which Respondent had mentioned, but not technically raised in the proceedings.
Subsequently, Claimant challenged both arbitrators for lack of impartiality. Claimant alleged that the arbitrators had already made up their minds before the oral hearing. In addition, the arbitrators – in making the settlement proposal – had allegedly granted the Respondent claims against the GmbH of Claimant, which Respondent had not even raised in the proceedings.
The Arbitration Court rejected the challenge. The Arbitration Court reasoned that the indicative order served to prepare for the oral hearing and to give the Parties an opportunity to complete their submissions with regard to both facts and legal arguments. A final decision would only be made in the oral hearing after hearing both Parties.
Because the Arbitration Court rejected the challenge, Claimant filed a petition at the Higher Regional Court of Munich to challenge both arbitrators according to Section 1037 of the German Civil Code of Procedure (Zivilprozessordnung; hereinafter: “CCP”). Under this section, a party may file a petition that the court take a decision on the challenge if the prior challenge of the arbitrator was unsuccessful under the agreed arbitration rules or the rules set out in Section 1037(2) CCP.
The Higher Regional Court of Munich dismissed the petition, holding that the arbitrators could not be challenged on the ground of lack of impartiality.
The Court explained that an arbitrator can generally be challenged under circumstances that “give rise to justified doubts as to his impartiality or independence” (Section 1036(2) CCP), to be decided from an objective point of view.
On this basis, the Court held that such circumstances did not exist in the present case.
The Court reasoned that the indicative order did not show that the arbitrators had already made up their minds before the oral hearing. The indicative order in this context served to prepare the oral hearing and “naturally” was of preliminary nature only: The preliminary nature followed from the pre-hearing stage of the proceedings as such. Although the arbitrators did not expressly classify the indicative order as preliminary (e.g., using words such as “probably”, “likely” or “potential”), this did not mean that the arbitrators were not open to further discussion on legal issues or would not accept further submissions. The arbitrators’ duty of impartiality did not require the use of subjunctive or the explicit expression that the indicative order was preliminary.
Additionally, the Court found that the Parties had agreed to apply institutional arbitration rules, which determine that the CCP be applied correspondingly. It should be noted that the supplemental application of the German CCP may distinguish this case from international arbitration cases, in which the CCP may not be applicable. Relying on Section 139 CCP, the Court found that the arbitrators did not exceed their duty to inform and provide direction on factual and legal issues. Moreover, the Arbitration Court was obliged to examine the facts under all legal aspects and to discuss them with the Parties. Further, the settlement proposal did not violate the arbitrators’ duties, because Section 278 CCP encourages the Arbitration Court to support an amicable solution of the dispute, which would obviously involve Respondent’s counterclaims.
In an obiter dictum, the Court finally held that the challenge could neither be based on the Arbitration Court acting ultra vires, because the Arbitration Court – in its settlement proposal – made reference to a possible counterclaim of Respondent against Claimant’s GmbH which had not been raised. The Court noted that the Arbitration Court did not actually fail to distinguish between possible claims against Claimant personally and possible claims against Claimant’s GmbH. Even if the Arbitration Court had in fact misapplied the law by failing to make this distinction, such failure would not have been sufficient ground for a challenge of the arbitrators. According to the Court, a mere incorrect application of the law is not sufficient for a challenge for lack of impartiality.