In brief: arbitration formalities in Germany

Arbitration

Is the arbitration law based on the UNCITRAL Model Law?

Yes. While the relevant chapter of the German Code of Civil Procedure is not a verbatim translation of the UNCITRAL Model Law, most differences are as a result of legal technicalities. The most notable substantive differences are the following:

• German law requires a stricter form for arbitration agreements involving consumers;
• until the arbitral tribunal is constituted, German law allows each party to request a court ruling on whether the arbitration agreement is valid and covers the dispute at hand; and
• if the arbitration agreement gives one party more influence than the other on the selection of the arbitrators, the other party can request that the court appoint the relevant arbitrator or arbitrators instead.

What are the formal requirements for an enforceable arbitration agreement?

Unless a consumer is involved, the arbitration agreement meets the form requirement if it is contained in:

• a document signed by the parties;
• an exchange of (not necessarily signed) correspondence between the parties that provides a record of the agreement, in particular letters, telefaxes or emails; or
• a document sent by one party to the other or by a third party to the parties to the arbitration agreement, provided that:
• there is a common usage whereby the contents of this document are regarded as agreed upon if no timely objection is made; and
• no such timely objection is in fact made.

In all three cases, it is sufficient if the relevant document refers to another document containing the arbitration agreement, provided that the reference meets the general requirements under German contract law for an incorporation by reference.

If the arbitration agreement involves one or more consumers, it must either be notarised or be contained in a document that is signed by all parties and does not contain any provision unrelated to arbitration.

If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?

Three arbitrators will be appointed, with each party appointing one arbitrator and the co-arbitrators appointing the chair.

The parties are free to agree on the procedure for challenging an arbitrator. If no such agreement exists, any challenge must be submitted to the arbitral tribunal in writing, setting out the reasons for the challenge, within two weeks of the challenging party becoming aware of the facts on which its challenge rests. Moreover, if a party seeks to challenge the arbitrator that it appointed itself, it can only invoke the grounds for challenge that it became aware of after the appointment. If the arbitral tribunal dismisses the challenge, the challenging party may, within one month, request the court to decide on the challenge.

What are the options when choosing an arbitrator or arbitrators?

The only restrictions are that an arbitrator must be an individual person and must not be a party to the dispute (or any of its legal representatives).

Otherwise, parties are free to choose any person as arbitrator, unless the parties themselves have agreed on requirements to be met by the arbitrators. Arbitrators not meeting these agreed requirements can be challenged. However, such requirements are rarely agreed as this may dramatically narrow the choice of available arbitrators. In addition, it can sometimes be difficult to ascertain with certainty if a candidate meets the requirements (eg, whether the arbitrator is fluent in a certain language). The most common qualification agreed upon in domestic arbitration is that the arbitrator has obtained a German law degree and has passed the bar exam. In international arbitration, parties sometimes agree that the chair should not have the same nationality as one of the parties.

There is quite a large pool of arbitrators in Germany, comprising not only specialised lawyers but also university professors, judges and (to a much lesser extent) technical experts. A number of arbitral institutions seated in Germany, as well as other organisations such as the International Chamber of Commerce Germany, maintain lists of arbitrators, often for special fields of arbitration.

Does the domestic law contain substantive requirements for the procedure to be followed?

The main mandatory principles are the same as in the UNCITRAL Model Law; namely, that the parties must be treated equally and must be granted a sufficient opportunity to present their case. In addition, German law guarantees the parties’ rights to be represented by counsel and to challenge a tribunal-appointed expert for lack of independence or impartiality.

Provided that those principles are respected, the parties can tailor the arbitral procedure to their needs. To the extent that there is neither an agreement of the parties on the procedure nor a fallback provision in German arbitration law, it is for the arbitral tribunal to devise the procedure in its discretion.

On what grounds can the court intervene during an arbitration?

The court will intervene to make a final determination on arbitral jurisdiction, provided that this ruling is requested by a party:

• before the constitution of the arbitral tribunal; or
• within a month of an arbitral award on jurisdiction.

Moreover, the court will remove arbitrators upon the request of a party if:

• they are unable or unwilling to perform their duties in due time but fail to resign (and the parties are unable to agree on removing such arbitrator); or
• they are successfully challenged in court for lack of independence or impartiality within a month of the challenging party being notified of the arbitral tribunal’s dismissal of the challenge.

In addition, upon the request of a party, the court will appoint an arbitrator if:

• the arbitration agreement gives the counterparty more influence over the selection of the arbitrators than the requesting party; or
• if the applicable appointment procedure for the arbitrator fails – in particular, if a party does not appoint its arbitrator or if the parties or co-arbitrators fail to agree on an arbitrator.

Furthermore, the arbitral tribunal (or, with its approval, a party) may request assistance from the court in the form of judicial acts that exceed the powers of the arbitral tribunal (eg, compelling appearance of witnesses, administering an oath to a witness or serving of documents by public notice).

The court’s powers as described above cannot be overridden by agreement. However, in some cases, the deadline for the relevant application can be changed by agreement of the parties.

Finally, each party may request interim relief from the court notwithstanding an arbitration agreement or a pending arbitration. According to the prevailing view, the parties cannot validly exclude the court’s jurisdiction for interim relief even by way of an express agreement.

Do arbitrators have powers to grant interim relief?

Yes, unless the parties have agreed otherwise. However, the court retains parallel jurisdiction on interim relief, and it is usually more effective to seek interim relief in court. This is mainly because an arbitral order for interim relief cannot itself be the subject of enforcement measures; instead, this first requires an order from the court.

When and in what form must the award be delivered?

Unless agreed by the parties, there is no time limit for rendering the award.

The award must be in writing and signed by the sole arbitrator or, in the case of a tribunal, by at least the majority of its members. If not all members of the tribunal have signed the award, the award must indicate the reasons for the missing signatures. While German law also requires the award to indicate the date on which it was rendered and the seat of the arbitration, their omission does not affect the validity of the award. Finally, unless agreed otherwise by the parties, the award must state the reasons on which it is based (failing which, there is a risk that the award may be set aside).

On what grounds can an award be appealed to the court?

Arbitral awards cannot be appealed to the court. Therefore, the court will not hear any argument that the arbitral tribunal’s decision is incorrect. However, both domestic and foreign awards may be set aside for the narrow grounds provided in article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and article 34 of the UNCITRAL Model Law. In principle, an application for the setting aside of the award must be filed within three months of receipt of the arbitral award.

What procedures exist for enforcement of foreign and domestic awards?

Foreign awards, regardless of the country of origin, are recognised and enforced pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, unless another applicable treaty provides more favourable conditions for recognition and enforcement.

Enforcement of a domestic award requires a court order declaring the award enforceable. A request for this declaration will be refused only if there are grounds for setting aside the award (in which case the court will set aside the award in the same proceedings). Importantly, however, if the counterparty has failed to request the setting aside of the award in a timely manner, the court deciding on the enforceability of the award will not take into account any grounds for setting aside except for a lack of arbitrability and a violation of public policy.

Can a successful party recover its costs?

Unless agreed otherwise by the parties, the arbitral tribunal has discretion as to who shall bear the costs of the arbitration (in which proportion) and whether a party may (fully or partially) recover its legal fees and expenses from the other.

Often, when deciding on those matters, German arbitrators tend to look primarily at each party’s rate of success (ie, a comparison of the requests for relief and the tribunal’s decisions thereon). However, other factors (eg, inefficient procedural behaviour) may also come into play. Arbitral tribunals are not bound by (but remain free to take guidance from) the German ad valorem tables on legal fees recoverable in state court proceedings.