Higher Regional Court of Frankfurt a.M., Decision of 2 February 2017 – 26 Sch 6/16

The decision of the Higher Regional Court of Frankfurt a.M. deals with the question of when a decision by a panel vested by the parties with the task of resolving their disputes constitutes an arbitral award enforceable under § 1060 German Code of Civil Procedure (“ZPO”). The question arose with regard to two decisions rendered by a so-called “contractual advisory committee” (Vertragsbeirat) composed of directors and management members of the parties in dispute.

The Court held that, while the unambiguous intent of all parties involved was that the committee would act as an arbitral tribunal within the meaning of §§ 1025 et seq. ZPO, the committee, nevertheless, could not be regarded as such, as it did not meet the minimum requirements of an arbitral tribunal with regard to its composition. As a consequence, the Court refused to declare the decisions of the contractual advisory committee enforceable.

I. The Facts of the Case

The applicant and the respondent entered into a framework agreement (PPP-Rahmenvertrag) regarding the construction and operation of hospitals in two cities. In respect of the resolution of disputes between the parties, the agreement provided for a contractual advisory committee (Vertragsbeirat) to be composed of five members: the applicant and the respondent would each be represented by two members (by the director of the party and its technical manager or, in the case of the respondent, at its discretion, a corresponding representative of a sub-contractor) and a fifth member would be jointly appointed by both parties. The decisions of the advisory committee would become binding on the parties unless challenged by either party before the ordinary courts of law within four weeks of its notification.

The two parties and a sub-contractor of the respondent further entered into an amendment to the framework agreement specifying the role of the advisory committee. The amendment provided, inter alia, that the advisory committee would render its decisions as an arbitral tribunal pursuant to §§ 1025 et seq. ZPO and that its decisions would be binding on the parties until set aside or modified by an ordinary court of law. The decision would become final unless challenged by either party before the ordinary courts of law within four weeks of its notification. To this extent, express reference was made to the jurisprudence of the Federal German Supreme Court (“BGH”) regarding an arbitral award with limited binding effect.

During the construction phase and the operational phase, the contractual advisory committee rendered various decisions. As far as the subject-matter considered by the Higher Regional Court of Frankfurt a.M. is concerned, the committee rendered: (i) a “Partial Arbitral Award” (Teil-Schiedsurteil) in which it ordered the respondent to pay a certain sum of money to the applicant as well as to provide information as further specified in its decision; and (ii) an “Arbitral Award” (Schiedsspruch) in which it ordered the respondent to pay the legal fees incurred by the applicant in respect of a proceeding before the advisory committee that was concluded one year earlier.

The applicant filed two requests before the Higher Regional Court of Frankfurt a.M. to declare both decisions enforceable. The respondent requested that the requests be rejected on the basis that the decisions did not qualify as arbitral awards within the meaning of § 1060 ZPO because the contractual advisory committee was not an independent and impartial decision-making body given that its members included directors and members of the management of the parties to the dispute.

II. The Decision by the Court

The Higher Regional Court of Frankfurt a.M. rejected both requests for a declaration of enforceability as inadmissible. Noting that, pursuant to § 1060 ZPO, the requested declaration required: (i) that the decisions were rendered in an arbitral proceeding within the meaning of §§ 1025 et seq. ZPO; and (ii) that they had the effect of a final court judgment between the parties pursuant to § 1055 ZPO, the Court held that the decisions of the contractual advisory committee did not qualify as arbitral awards because, due to its composition, the committee did not act as a proper arbitral tribunal.

Initially, however, the Court held that, contrary to what the respondent had argued, the contractual provisions revealed an unambiguous intent of the parties to enter into an arbitration agreement within the meaning of § 1029(1) ZPO. In the Court's view, this intent in particular could be deduced from the parties' agreement on the role of the contractual advisory committee, including the reference to the jurisprudence of the BGH on arbitral awards with limited binding effect.

Irrespective of this clear intent of the parties, the Court came to the conclusion that the decisions of the contractual advisory committee were not capable of exequatur because the composition of the decision-making body did not fulfil the minimum requirements of an arbitral tribunal. The Court noted that the decision of the dispute by an impartial and independent third party – as recognized for a court system in accordance with the rule of law – is an indispensable characteristic of arbitration. This rule is a concrete rendering of the principle that no one shall be allowed to be their own judge.

Accordingly, the Court considered that a party or its legal representative and, in the case of a legal person, the members of its representative bodies, are excluded from acting as an arbitrator. In the two decisions under consideration, the contractual advisory committee had been composed of, inter alia, one of the two co-directors of the respondent, one of the two co-directors of the applicant as well as a member of the management of the sub-contractor. The Court held that in a multi-member body, it was sufficient for one of its members to be a statutory party representative in order to exclude the impartiality of the entire decision-making body. In the Court's view, this principle applies irrespective of whether the party had appointed a second co-director or whether its management body included further members.

The Court further held that, contrary to what the applicant had argued, the fact that each side had equally appointed two members of the contractual advisory committee and that the fifth member, the chair of the contractual advisory committee, did fulfil the requirements of impartiality and independence, did not compensate for the lack of impartiality of its members because the decision-making authority was vested in the entire decision-making body, not the chair alone.

The Court held that it was not abusive for the respondent to claim that the contractual advisory committee did not qualify as an arbitral tribunal within the meaning of §§ 1025 et seq. ZPO even though it had accepted previous decisions rendered by the committee. The Court stressed that the exclusion of the administration of justice by partial arbitrators, which follows from the principle that no one can be their own judge, is absolute and therefore not subject to party autonomy. 

III. Résumé

The decision of the Higher Regional Court of Frankfurt a.M. is in line with the settled case law of the German Federal Supreme Court pursuant to which the impartiality of the members of a decision-making body is an absolute requirement for such a body to qualify as an arbitral tribunal within the meaning of §§ 1025 et seq. ZPO (cf. BGH, judgment dated 7 June 2016 – KZR 6/15; BGH, decision dated 27 May 2004 – III ZB 53/03 with further references). This requirement cannot be disposed of by the parties. Party autonomy ends where the rule-of-law principle dictates certain minimum requirements, such as impartiality of the decision-makers, for a decision to be declared enforceable pursuant to § 1060 ZPO.

The Higher Regional Court of Frankfurt a.M. clarified that, in a multi-member decision-making body, the rule that no one can be their own judge excludes the impartiality of the entire body even if only one of the body’s members acts as statutory representative for one of the parties to the dispute. 

The original full text of the decision can be accessed under the following link: http://www.lareda.hessenrecht.hessen.de/lexsoft/default/hessenrecht_lareda.html