Section 242 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) reads as follows:

Section 1032, paragraph 1 of the German Code of Civil Procedure (Zivilprozessordnung, ZPO) reads as follows:

The claimant was a member of the board of the respondent, a German stock corporation. The claimant initiated court proceedings after the respondent terminated the management contract with immediate effect and requested the court to find that the management contract continued to be valid. The respondent denied the jurisdiction of the court by referring to an arbitration clause in the management contract, but at the same time raised a counterclaim in the court proceedings. After the court informally told the claimant that it considered the arbitration clause to be valid and the claim to be inadmissible, the claimant withdrew his action and indicated to the respondent that he would initiate arbitration proceedings. The respondent then continued to rely on the counterclaim in the court proceedings and argued in the court proceedings that the arbitration clause was invalid as it did not fulfil the form requirements of an arbitration clause with a consumer under section 1031 paragraph 5 ZPO and that the member of the board was to be treated as a consumer.

The claimant then initiated arbitration proceedings and the respondent again objected to the arbitration proceedings on the basis that the arbitration clause was invalid. The arbitral tribunal confirmed its jurisdiction in an interim award, which was challenged by the respondent in court proceedings before the Higher Regional Court of Frankfurt am Main.

The Higher Regional Court of Frankfurt am Main confirmed the interim award of the arbitral tribunal. It held that the respondent was bound by its original objection to the court proceedings by relying on the arbitration clause in the management contract. Since the respondent had only argued the invalidity of the arbitration clause in the court proceedings after the claimant had withdrawn his action, the Higher Regional Court found this to be contradictory behaviour and in violation of the duty of good faith under section 242 BGB. It found the same to be true for the objection to the arbitration proceedings.

The court did not deal with the question of whether an arbitration clause in a management contract concluded with a member of the board must fulfil the requirements of section 1031 paragraph 5 ZPO, whereby arbitration clauses with consumers must be contained in a separate document personally signed by the parties. This question therefore remains open in German case law.

However, the court confirmed that a party may not benefit from contradictory behaviour by relying on an arbitration clause in court proceedings and then arguing that the arbitration clause is invalid in later court or arbitration proceedings.

In this decision, the Higher Regional Court of Frankfurt am Main confirms the consistent German case law that it is contradictory behaviour and a violation of the principle of good faith for a party to rely on an arbitration clause when a claimant initiates court proceedings and then deny the validity of the arbitration clause in later arbitration proceedings. This is true even in cases where the respondent first relies on the arbitration clause in court proceedings and then later denies the validity of the arbitration clause in court proceedings and in arbitration proceedings.