Federal Ministry of Justice unveils plans to update Germany’s arbitration law

On 18 April 2023, the German Federal Ministry of Justice published a white paper (known in German as an Eckpunktepapier) on the modernisation of Germany’s arbitration law.

The current German arbitration legislation, contained in the tenth book of the German Civil Procedure Code (Zivilprozessordnung, or “ZPO”), entered into force in 1998 and was based largely on the 1985 version of UNCITRAL’s Model Law on International Commercial Arbitration. The stated aim of the modernisation is to update the current legislation, to increase its efficiency and to strengthen Germany as a seat for arbitration.

Key points of reform

The Federal Ministry of Justice has identified 12 key points of reform that it plans to introduce into the revised legislation:

1. Form requirement

A relaxation of the form requirement for arbitration agreements to remove any doubts as to the validity of arbitration agreements concluded electronically or orally (under section 1031 ZPO).

2. Arbitrator appointments

A default rule for arbitrator appointments in multi-party arbitration in cases where the parties have not agreed on another procedure for appointment, and a procedure by which a court can appoint the arbitral tribunal in cases where one side of a case cannot agree on an appointment.

3. Judicial review of negative decisions on jurisdiction

A mechanism for judicial review of negative decisions on jurisdiction. A party can currently only have a court review a positive decision on jurisdiction (under section 1040 of the ZPO).

4. Express endorsement of remote hearings

An express endorsement of remote hearings, allowing an arbitral tribunal to order a remote hearing provided the parties have not agreed otherwise.

5. Publication of awards

The possibility for arbitral tribunals to publish arbitration awards in cases where the parties consent.

6. Use of English language

The possibility to use the English language in court proceedings for the recognition, enforcement or setting aside of an award in an arbitration that has been conducted in English, avoiding the cost and time of having the award and other documents from the underlying arbitration translated. The Federal Ministry of Justice also plans to remove the requirement for parties to translate documents in support of applications for judicial support in the taking of evidence and for other judicial acts for which arbitral tribunals are not authorised under section 1050 ZPO.

7. Expanding jurisdiction of specialist English-language Commercial Courts

For the states that have established specialist English-language Commercial Courts, expanding the permitted jurisdiction of those courts to proceedings for the recognition, enforcement and setting aside of arbitral awards.

8. Extraordinary challenge mechanism

Introducing an extraordinary challenge mechanism for arbitration awards similar to that which exists for court judgments under section 580 ZPO in cases where the result has been influenced by a criminal act, permitting an action for a rehearing. The white paper gives the example of the case of an arbitration award obtained by bribery.

9. Enforceability of interim measures

Enabling the enforceability in Germany of interim measures in aid of arbitrations seated outside of Germany.

10. Admissibility of arbitration proceedings

Section 1032(2) ZPO currently empowers a court, on the application of a party, to decide on the admissibility of arbitration proceedings. The Federal Ministry of Justice’s plans would empower a court to decide on the existence or validity of the arbitration agreement itself at the same time.

11. When awards are set aside

Clarifying that, in cases where a court rejects an application for a declaration of enforceability of an arbitral award and sets the award aside (under section 1060(2) ZPO), the court may, in appropriate cases, refer the matter back to the arbitral tribunal at the request of a party (section 1059(4) ZPO) and conversely, in cases where the arbitral award is set aside, that the arbitration agreement is revived with regard to the subject matter of the dispute (section 1059(5) ZPO).

12. Court's ex parte interim relief

Explicitly restricting the special powers of a presiding judge of a civil division of a court to order ex parte interim relief to urgent cases only (section 1063 (3) ZPO).

Other potential reforms

The Federal Ministry of Justice has also identified other possible reforms and plans to examine them further before deciding on whether to incorporate them into revised legislation:

• Whether an emergency arbitrator mechanism should be introduced.
• Whether a provision on dissenting opinions should be introduced to avoid any risk that arbitral awards with dissenting opinions are subject to setting aside in Germany for this reason alone.
• Whether the 18 German states should cooperate in establishing joint tribunals across state borders at the Higher Regional Court (Court of Appeal) level in arbitration matters so as to concentrate expertise in a small number of tribunals.
• Whether the taking of evidence should be transferred to the Higher Regional Courts. At present, it is the district courts (Amtsgerichte) that are responsible for assisting in the taking of evidence or performing other judicial acts that arbitral tribunals are not authorised to do (under sections 1062 (4), 1050 ZPO) whereas competence for recognition and setting-aside proceedings are at the Higher Regional Court level.

The next step in the legislative process will be the creation of a draft bill for further debate and discussion.

Osborne Clarke comment

A reform of German arbitration law has been gently simmering for a long time and the white paper is a welcome development.

The Federal Ministry of Justice’s plans are not revolutionary but are nonetheless in some respects far-reaching, particularly as regards the use of English throughout the entirety of a court proceeding and the concentration of court business across state boundaries. If adopted, they will effect a significant modernisation of the existing statutory framework for arbitration in Germany, removing some specific inefficiencies and ambiguities and making Germany more competitive. We will continue to follow the reform process closely.