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German Federal Court of Justice decision on timeliness of application to courts to determine admissibility of arbitration
Practical Law UK Legal Update Case Report 1-507-9648 (Approx. 3 pages)
German Federal Court of Justice decision on timeliness of application to courts to determine admissibility of arbitration
by Practical Law
| Published on 01 Sep 2011 • Germany |
Stephan Wilske (Partner) and Claudia Krapfl (Associated Partner), Gleiss Lutz
In a decision dated 30 June 2011, but only recently published, the Federal Court of Justice held that an application to the court to determine whether or not arbitration is admissible is timely if the application is received by the court prior to constitution of the arbitral tribunal. It is not necessary for the application to be served on the other side prior to constitution of the arbitral tribunal.
Background
Section 1032 paragraphs 2 and 3 of the German Code of Civil Procedure (Zivilprozessordnung, ZPO) read as follows:
"(2) Prior to the constitution of the arbitral tribunal, an application may be made to the court to determine whether or not arbitration is admissible.
(3) Where an action or application referred to in subsection 1 or 2 has been brought, arbitral proceedings may nevertheless be commenced or continued, and an arbitral award may be made, while the issue is pending before the court."
Facts
The parties had concluded a "Cross Patent Licence Agreement", in which they had granted each other patent licences. This agreement contained an arbitration clause.
One of the parties became insolvent and the insolvency administrator informed the other party that, according to the German Insolvency Code, he would not be fulfilling the obligations of the insolvent party under the "Cross Patent Licence Agreement". The other party then started arbitration proceedings and requested the arbitral tribunal to declare that it continued to have the right to use the patents under the agreement.
The insolvency administrator applied to the Higher Regional Court of Berlin, requesting that the court determine that the arbitration was inadmissible under section 1032 paragraph 2 ZPO. The Higher Regional Court of Berlin dismissed the application as impermissible, arguing that the application was untimely because, although it was received by the court prior to constitution of the arbitral tribunal, it was only served on the other party after the arbitral tribunal had been constituted. Service on the other party had taken several months since it was effected abroad with legal assistance. The Higher Regional Court of Berlin held that the application to the court becomes inadmissible as soon as the arbitral tribunal is constituted.
The insolvency administrator appealed to the Federal Court of Justice.
Decision
The Federal Court of Justice reversed the Higher Regional Court's decision. It declared that the application for determination on the admissibility of arbitration was permissible and needed to be reviewed on the merits by the Higher Regional Court.
The Federal Court of Justice held that it was only necessary for the application to be submitted to the court prior to constitution of the arbitral tribunal. It found that it was not necessary for the application to be served on the other party prior to constitution of the arbitral tribunal. This follows from the wording of section 1032 paragraph 2 ZPO, which refers to an application being "made" prior to the constitution of the arbitral tribunal. The provision says nothing about the necessity of service on the other party. This is furthermore consistent with the purpose of section 1032 paragraph 2 ZPO, which is meant to provide for a quick and efficient procedure for deciding on the admissibility of arbitration if so requested of the court.
Comment
The decision helpfully clarifies that an application for determination of whether or not arbitration is admissible under section 1032 paragraph 2 ZPO only needs to be submitted to the court and not served on the other party prior to the constitution of the arbitral tribunal. Since service on a party abroad may, in many circumstances, take some time, requiring service on the other party prior to constitution of the arbitral tribunal for the application to be permissible would contradict the purpose of section 1032 paragraph 2 ZPO to provide an efficient court procedure to decide on the admissibility of arbitration.