Higher Regional Court Saarbrücken, Judgment of 23 November 2017 – 4 U 44/16

On 23 November 2017, the Higher Regional Court Saarbrücken rendered a judgment on whether an arbitration clause modelled on the DIS model arbitration clause governing an asset purchase agreement with two parties on the seller's side covered disputes for non-contractual, insolvency-related claims between the sellers.

In answering this question, the court conducted a comprehensive interpretation of the arbitration agreement, including an interpretation of the term "parties” to a contract, and an analysis of the purpose of the arbitration clause, the parties' interests, and their declarations and actions after the conclusion of the arbitration agreement. Of particular relevance are the court's statements regarding its interpretation of standard arbitration clauses.

The Facts 

The claimant was the leader of a consortium of German banks, which had granted several loans to a German company ("Company") secured by its current and non-current assets. 

After the Company went insolvent in late 2010, the claimant terminated the loans and lodged claims against the estate. 

In March 2011, a "Framework-Agreement" was concluded between the claimant (referred to as "financial party" (Finanzpartei) and "seller" in the contract), the insolvency administrator of the Company (referred to as "seller 2") and a Chinese investor (referred to as "buyer"). Under the Framework-Agreement, the parties executed an asset-deal pertaining to parts of the Company's assets as well as further ancillary contracts (together the "Contract").

Section 14 of the Framework-Agreement contained an arbitration agreement modelled on the DIS model arbitration clause ("Arbitration Agreement") providing for place of arbitration Frankfurt am Main and English as language of the arbitration. The part of the Arbitration Agreement relevant to the dispute reads as follows1: 

14.1 All disputes arising out of or in connection with this Framework-Agreement and/or the attached transaction agreements, including disputes concerning their validity, shall be settled by arbitration without recourse to the courts of law. Under this provision, each party may, in its discretion, institute separate arbitral proceedings against one or several parties.

On 6 May 2011, the claimant and the insolvency administrator signed an "Interim Agreement" (Zwischenvereinbarung), under which the insolvency administrator agreed to pay directly to the claimant an amount of EUR 5 Million received under the Contract and to place any further payments into a separate account. The transactions under the Contract were closed on 6 June 2011.

In August 2012, the claimant initiated proceedings before the Regional Court Saarbrücken against the insolvency administrator of the Company, both in his capacity as insolvency administrator and as private individual. The proceedings were therefore against two respondents ("respondents"). 

The claimant submitted that it had received EUR 5 million from the insolvency administrator, but that the administrator had failed to keep exceeding amounts separate from the insolvency estate. The respondents invoked the Arbitration Agreement and argued that the claims were inadmissible. The claimant objected arguing that the Arbitration Agreement was applicable neither ratione personae nor ratione materiae.

The Regional Court followed the respondents' argument, and rejected the claims as inadmissible.

The claimant appealed the Regional Court's decision to the Higher Regional Court, arguing that its claims were not covered by the Arbitration Agreement. According to the claimant, the Arbitration Agreement only applied to obligations to perform (Leistungspflichten) between the parties, i.e. the sellers and the buyer. 

The respondents, by contrast, submitted that the Arbitration Agreement applied to all disputes arising out of the Contract’s transactions, including disputes between the parties acting on the sellers' side. They stated that this broad interpretation corresponded to the parties' intention when the Contract was concluded. 

The Decision of the Higher Regional Court

The Higher Regional Court followed the claimant's arguments and held the claim to be admissible. Based on an interpretation of the Arbitration Agreement, it found the agreement not to apply ratione personae, since it did not cover disputes between the claimant and the respondents.

1. Law Applicable to the Determination of the Subjective Applicability

The court interpreted the personal scope of the arbitration agreement pursuant to German Law. The court stated that, in the absence of a choice of law, the arbitration agreement was governed by German law either as the law governing the Contract or as the law at the place of arbitration. The court therefore did not decide on the question whether the law applicable to the arbitration agreement was to be determined pursuant to the conflict of laws rules for contracts or pursuant to arbitration-specific contract of laws rules. 

2. Interpretation of the Arbitration Agreement

Before entering into the analysis of the Arbitration Agreement, the court noted that, as a matter of principle, arbitration agreements only bind the parties and may only bind third persons where such persons are the legal successor of a party to the arbitration agreement or where other grounds exist that justify holding a third party to the arbitration agreement. It further stated that personal rights and obligations of an insolvency administrator are only subject to arbitration agreements, which the insolvency administrator is a personal party to.

(1) Wording of the Contract

In the court's view, the wording of the Arbitration Agreement only covered disputes between the seller and the buyer, but not intra-seller disputes. The sellers were not to be considered "parties" as far as their internal relationship was concerned. The court concluded that obligations to perform (Leistungspflichten) were only intended to arise on the "horizontal" level of the contract, i.e. between the sellers and the buyer. With regard to the "vertical" level, i.e. among the sellers, the court found that the Contract did not contain obligations to perform between the sellers which could fall within the scope of the Arbitration Agreement. The court added that these considerations applied a fortiori to the claim against the insolvency administrator in his personal capacity, who was not involved in concluding the Arbitration Agreement.

The fact that the Arbitration Agreement granted each party the right to institute separate arbitral proceedings against one or several parties did not lead the court to a different conclusion. According to the court, this wording was only intended to provide the buyer with the right to bring claims under the contract against either one or both sellers.

(2) Evidence on the Parties' Intentions

The court found no indication that the Arbitration Agreement, contrary to its wording, extended to "vertical disputes". During the evidentiary hearing, the lawyers who drafted the Contract testified as witnesses and stated that when the clause was negotiated, no consideration was given to whether it should also cover "vertical disputes". A witness further stated that a dispute resolution expert drafted the Arbitration Agreement, and that he had understood the arbitration clause to be the model clause of the German Institution for Arbitration (DIS), which should cover all potential disputes. 

In the court's view, however, the fact that the Arbitration Agreement was considered a standard clause only confirmed that the clause was not intended to govern "vertical disputes".

(3) Purpose of the Clause

According to the court, the purpose of the Arbitration Agreement confirmed this conclusion. It reasoned that the purpose of the clause was to resolve disputes between parties from different countries, i.e. the German sellers on the one hand and the Chinese buyer on the other hand. Hence, it was not necessary to extend the Arbitration Agreement to disputes concerning non-contractual obligations among the sellers.

(4) Interests of the Parties

The court declared that it was obvious the parties had not intended to extend the Arbitration Agreement to the dispute under consideration, particularly since witnesses had emphasized the expertise of the arbitrators, the confidentiality of the proceedings, and the wish to exclude statutory provisions as far as possible as reasons for including the Arbitration Agreement. 

In the court's view, these considerations matched the sellers' relationship with the foreign buyer, but not their internal relationship. The court saw no reason for the Stuttgart-based claimant and the Saarbrücken-based respondents to refer their non-contractual disputes to arbitration in Frankfurt in a foreign language without the right to an appeal. The court further expressed doubts whether an international arbitral tribunal would have more expertise with German insolvency law than German state courts. Lastly, the court held that the confidentiality of the arbitral proceedings and the parties' alleged aim at an extra-statutory forum to settle their disputes would diametrically contravene the goal and purpose of the relevant statutory (insolvency) law.

The court pointed out that the insolvency administrator had an evident interest in settling the dispute in ordinary court since there was still no coherent jurisprudence on the question whether his professional insurance indemnified him for costs following an arbitral award, rather than a state court decision.

3. Decision

Since the court found the Arbitration Agreement inapplicable to "vertical disputes" and thus not binding upon the insolvency administrator in this capacity, it ruled that the clause did a fortiori not bind the insolvency administrator as a private person.

Based on these conclusions, the Higher Regional Court reversed the Regional Court's decision, and referred the matter back for further consideration.

Conclusion

The Higher Regional Court interpreted an arbitration of an asset purchase agreement between two sellers and one buyer, which the sellers considered to be a standard clause. Emphasising the natural reading of the term “parties”, the court concluded that disputes called "vertical disputes" between the sellers were not covered by the arbitration agreement. The court found no indications that the parties to the contract had intended to extend the scope of the arbitration agreement to "vertical disputes", and found this narrow interpretation of the subjective scope to be in line with the parties' interests. In this regard, the court inter alia reasoned that the parties to the dispute, which were both seated in Germany, had no apparent interest in conducting arbitral proceedings in English before a private tribunal. 

Irrespective of the present case, parties seated in Germany may have good reasons to conduct their arbitration in a foreign language. It may be the language of the underlying contract, or the language used within an international group of companies. 

In view of the court's narrow interpretation of the arbitration agreement, users of arbitration and their legal advisors should ensure that the subjective scope of an arbitration agreement is sufficiently clear, particularly where multiple parties are involved.

The full text of the decision can be accessed under the following link: http://www.olg-saarland.de/entscheidungen/