The first sentence of section 1061(1) ZPO stipulates simply that recognition and enforcement of foreign arbitral awards shall be granted in accordance with the New York Convention.

Article II.2 of the New York Convention provides that, where the court of a contracting state is seised of a matter which the parties have agreed to refer to arbitration, that court shall, at the request of the parties, refer the parties to arbitration unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

The claimant requested enforcement in Germany of a French arbitral award under the Arbitration Rules of the International Arbitration Chamber for Fruit and Vegetables in Paris against the respondent for payment of the remaining purchase price for the delivery of apricots. The respondent had objected to the jurisdiction of the arbitral tribunal in the course of the arbitration, but did not initiate setting aside proceedings in France based on the lack of a valid arbitration agreement.

The competent Higher Regional Court in Munich rejected the request for enforcement, finding that there was no valid arbitration agreement between the parties under Article II.2 of the New York Convention. The court held that it was irrelevant that the respondent had not initiated setting aside proceedings on this basis in France, and that the claimant had no reason to assume that the respondent would not raise this objection in enforcement proceedings. The claimant then lodged an appeal on points of law with the Federal Court of Justice.

The Federal Court of Justice confirmed the decision of the Higher Regional Court and, finally resolving an ongoing controversy among German courts as well as among scholars, held that the respondent's failure to initiate setting aside proceedings in France in a timely manner did not prevent it from objecting to the jurisdiction of the arbitral tribunal in the enforcement proceedings. The Court explained that the applicable rule under the old arbitration law in place up to 1998 was no longer valid, whereby foreign procedural law was decisive in assessing the validity of foreign awards. Under the old arbitration law, this meant that the lack of a valid arbitration agreement could no longer be pleaded in enforcement proceedings where this would have been possible in a foreign jurisdiction by means of a time-limited remedy and the party concerned failed to do so.

According to the court, section 1061(1) ZPO now stipulates that recognition and enforcement of foreign awards is to be governed solely by the New York Convention. Neither section 1061(1) ZPO nor Article V of the New York Convention provide that a party must pursue foreign remedies against an arbitral award in order to be able to raise such objections in (German) enforcement proceedings. As a result, the Court found that the rule under the old arbitration law no longer applies, finally settling the ongoing controversy on this point since the new arbitration law came into effect in 1998.

The Court also confirmed that is does not violate good faith if a party raises the objection of arbitral jurisdiction in enforcement proceedings, but does not initiate setting aside proceedings on this ground.

This decision finally settles a controversy among courts as well as scholars arising out of the German arbitration law in force up to 1998, whereby a party was barred from relying on the lack of a valid arbitration agreement in enforcement proceedings in Germany if it had not raised this objection in a timely manner in setting aside proceedings at the seat of arbitration. It has since been unclear whether this rule still applied under the new German arbitration law and the higher regional courts were divided on the issue. The Federal Court of Justice has now made clear that the rule no longer applies. It is therefore not necessary for a party to initiate setting aside proceedings at the seat of arbitration within the applicable time limits so as not to lose the right to rely on the jurisdictional objection in enforcement proceedings in Germany. Rather, a party can wait to see whether the other side in fact initiates enforcement proceedings and can then raise the objection of the lack of a valid arbitration agreement.