The German Federal Court of Justice (Bundesgerichtshof – "BGH") recently clarified that disputes over the validity of a limited partnership's shareholder resolutions may be submitted to arbitration ("Arbitrability III" decision).

Arbitrability III is the latest of a series of decisions dealing with the arbitrability of corporate disputes. In the Arbitrability I decision of 1996, the BGH held that shareholder resolutions of a limited liability company are generally not arbitrable.[1] Several years later, in its 2009 Arbitrability II decision, the BGH held that shareholder resolutions are arbitrable, provided that the arbitration agreement and the arbitral proceedings fulfill certain general requirements to protect the shareholders' rights.[2] The BGH has now extended this rationale to limited partnerships.

The Facts of the Arbitrability III decision

The decision dealt with a limited partnership shareholder resolution by which certain limited partners were excluded from the partnership. The excluded partners challenged the resolution before an arbitral tribunal based on the limited partnership's former articles of association of 1968. These articles of association contained an arbitration clause and made reference to a separate arbitration agreement, which in turn made reference to the articles of association of 1968. A new version of the limited partnership's articles of associations of 2013 no longer contained an arbitration clause and made no reference to the previously concluded arbitration agreement. The remaining shareholders disputed the validity of the arbitration agreement before the arbitral tribunal and challenged the arbitral tribunal's jurisdiction. The arbitral tribunal found in an interim decision that it had jurisdiction. The Higher Regional Court of Oldenburg upheld the arbitral tribunal's interim decision, holding inter alia that shareholder resolutions of a limited partnership are readily arbitrable. The BGH reversed the decision of the Higher Regional Court of Oldenburg[3] and decided that the arbitration agreement and the arbitral proceedings need to fulfill the general requirements set forth in Arbitrability II, which were not met in the present case (not even by the clause in the articles of association of 1968).[4]

The General Requirements for the Arbitrability of Shareholder Resolutions

The general requirements for the arbitrability of disputes over shareholder resolutions based on Arbitrability II are that:

  • all shareholders must have agreed to the arbitration clause or agreement;
  • each shareholder must be informed of the initiation of arbitration;
  • each shareholder must be able to participate in the selection and nomination of the members of the arbitral tribunal; and
  • all disputes regarding the same shareholder resolution must be concentrated in one arbitration.

Implications for M&A and Corporate Practice

Arbitrability III will considerably impact the German M&A and corporate practice in the small and mid-cap market segment: in that market segment, limited partnerships, in particular limited partnerships with a limited liability company as general partner ("GmbH & Co. KG"), are very popular in transactional and corporate practice, inter alia due to their fiscal advantages over limited liability companies.

Anyone creating a German limited partnership and willing to submit shareholder-resolution disputes to arbitration should consider including an arbitration clause reflecting the above-mentioned general requirements in the articles of association (or in a separate agreement). This might be of particular relevance when there are more than two shareholders in the limited partnership. Because a multi-party situation can also arise after the creation of the limited partnership, and because a necessary adjustment of the arbitration clause is often overlooked in practice, it may be useful to include suitable language in the arbitration clause from the outset. By contrast, if some shareholder-resolution issues are considered not arbitrable, then the shareholders should explicitly carve-out these issues from the arbitration clause to avoid unnecessary disputes over the validity of the latter.

Arbitration clauses in the articles of association of (limited) partnerships should be reviewed to avoid surprises when it comes to disputes.

It remains to be seen, if an Arbitrability IV-decision is rendered, whether it will resolve the open question of the arbitrability of shareholder resolutions in stock corporations.