Arbitration procedures and practice in Germany: Overview
A Q&A guide to arbitration law and practice in Germany.
The country-specific Q&A guide provides a structured overview of the key practical issues concerning arbitration in this jurisdiction, including any mandatory provisions and default rules applicable under local law, confidentiality, local courts' willingness to assist arbitration, enforcement of awards and the available remedies, both final and interim.
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This Q&A is part of the global guide to arbitration. For a full list of jurisdictional Q&As visit www.practicallaw.com/arbitration-guide.
Use of commercial arbitration and current trends
According to the statistics available from arbitration institutions (the German Institution of Arbitration (DIS) and the International Chamber of Commerce (ICC)), for 2015, there were about 160 ICC and DIS arbitrations with their seat in Germany. The number of ad hoc proceedings is estimated at 1,000 per year. Especially in major transactions with an international context, arbitration agreements would seem to be the norm, serving as a compromise on jurisdiction when the other options are the local courts of one of the parties.
Currently, the DIS Arbitration Rules and the law on arbitration are under review. The revised DIS Arbitration Rules are expected to be finalised by the summer of 2017 and any changes to the law on arbitration (if the review process identifies any necessary changes) are expected to take effect in 2018.
General advantages are the enforceability of awards abroad under the New York Convention, the right to choose as arbitrators experts in the area of the dispute, and the privacy of the proceedings.
A disadvantage may be the costs of long and complex arbitration proceedings compared to German court litigation.
The law on arbitration is contained in sections 1025 to 1066, 10th book, of the Code of Civil Procedure (Zivilprozessordnung (ZPO)). The text can be found in German and English at www.disarb.de. The 10th book of the ZPO, in effect since 1 January 1998, governs all arbitration proceedings with their seat in Germany without distinguishing between domestic and international arbitration. German arbitration law is based on the UNCITRAL Model Law, with only a few minor differences.
Mandatory legislative provisions
German arbitration law contains a small number of mandatory provisions, including:
The parties must be treated equally and each party must be given a full opportunity to present its case (section 1042(1), ZPO).
Counsel cannot be excluded from acting as authorised representatives (section 1042(2), ZPO).
Any default of a party justified by that party to the arbitral tribunal's satisfaction will be disregarded (section 1048(4), ZPO).
An arbitral tribunal has the power to rule on its own jurisdiction (section 1040(1), ZPO).
Several provisions relating to the right of recourse to the state courts:
the right to request the court to appoint the arbitrator or arbitrators in cases where the arbitration agreement grants greater rights to one party in relation to the composition of the arbitral tribunal (section 1034(2), ZPO);
the right to request the court to rule on the challenge of an arbitrator if the arbitral tribunal rejects the challenge (section 1037(3), ZPO);
the enforcement of interim measures ordered by the arbitral tribunal through the state courts (sections 1041(2) and (3), ZPO); and
the right to challenge an award made in Germany before the state courts (section 1059, ZPO).
Generally, any claims involving an economic interest are arbitrable. Claims not involving an economic interest are arbitrable to the extent that parties are entitled to conclude a settlement on the issue in dispute (section 1030, ZPO). Examples of disputes that are not arbitrable include questions involving criminal law and most family law matters.
Uncertainty exists with regard to intracompany disputes, particularly where applications to set aside corporate resolutions adopted in a general meeting of shareholders are concerned. The arbitration clause must fulfil four minimum requirements for the dispute to be arbitrable:
The arbitration clause must be included in the articles of association or in a separate agreement between all shareholders.
All shareholders must be made aware of the arbitration proceedings and must be given an opportunity to join.
All shareholders must be able to participate in the selection and appointment of the arbitrator if the arbitrator is not appointed by a neutral entity.
All applications for the setting aside of corporate resolutions relating to the same matter in dispute must be put before one arbitral tribunal.
Statutory time limits under German law, where the issue of time limits is considered to be part of substantive law, also apply in arbitration proceedings. The standard limitation period is three years. However, there are many specialised limitation periods.
The standard limitation period begins to run at the end of the year in which the claim arose and the entitled party becomes aware of the circumstances giving rise to the claim and of the identity of the obligor, or ought to have become aware of such matters but for gross negligence.
The limitation period is suspended by the beginning of arbitration proceedings, meaning in German ad hoc proceedings, the date on which the notice of arbitration is received by the respondent (section 1044, ZPO). Under the DIS Rules, arbitration proceedings commence on receipt of the statement of claim by the DIS Secretariat (section 6.1, DIS Rules).
The most prominent arbitration organisation is the German Institution of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit (DIS)) (www.disarb.org). The DIS was formed on 1 January 1992. The DIS Arbitration Rules (DIS Rules), in force since 1 July 1998, follow German arbitration law in all major aspects (see box, Main arbitration organisation).
The International Chamber of Commerce () is also widely used.
Contracts with an international component usually specify ICC or DIS arbitration provisions.
International arbitrations seated in Germany are usually administered either by the DIS or the ICC.
See box, Main arbitration organisations.
The arbitral tribunal can rule on its own jurisdiction and in this context on the existence or validity of the arbitration agreement (section 1040, ZPO). Any challenge to the arbitral tribunal's jurisdiction must be raised no later than the submission of the statement of defence. If the arbitral tribunal rules in favour of its own jurisdiction at this stage, any party can request a court to decide the matter within one month of receipt of the arbitral tribunal's ruling.
If a party does not raise the objection in a timely manner, it will be prevented from raising such an objection at a later point in time (section 1027, ZPO). The concepts of separability and kompetenz-kompetenz in this sense are accepted.
The formal requirements for an enforceable arbitration agreement are as follows (section 1031, ZPO):
The arbitration agreement must be contained either in a document signed by the parties or in an exchange of letters, faxes, telegrams or other means of telecommunication which provide a record of the agreement.
The form requirement is deemed to have been complied with if the arbitration agreement is contained in a document transmitted from one party to the other party (or by a third party to both parties) and, if no objection was raised in good time, the contents of such document are considered to be part of the contract according to common usage.
The parties can also refer to an arbitration agreement contained in the standard terms and conditions of one of the parties.
An arbitration agreement is also concluded by the issue of a bill of lading, if the latter contains an express reference to an arbitration clause in a charter party.
However, if a party commences arbitration proceedings and the other party does not raise an objection as to the form of the arbitration agreement at the outset, that party will be barred from relying on any formal objections later on.
Separate arbitration agreement
Generally, a clause in the main contract fulfilling the requirements described above is sufficient. However, arbitration agreements to which a consumer is a party must be contained in a document which has been personally signed by the parties. The written form can be substituted by electronic form. No agreements other than those referring to the arbitration proceedings can be contained in such a document or electronic document. This does not apply in the case of a notarial certification.
Unilateral or optional clauses
An arbitration agreement generally only binds the signatories of the agreement. An arbitration award generally only binds the parties to the arbitration. However, in cases of assignment, agency, succession and insolvency, the assignee, principal, successor and insolvency administrator are also bound by the arbitration agreement and an arbitration award. The "group of companies" doctrine, binding certain third parties to an arbitration agreement, is not recognised in Germany. The Federal Court of Justice has held that if the group of companies doctrine is applicable under foreign law, this will violate German public policy only in extreme and exceptional cases. A third party can only be joined to an arbitration if all parties and the arbitral tribunal agree to the joinder, and the third party agrees to be submitted to the arbitration proceedings.
A party that is not a party to an arbitration agreement can only compel a party to the arbitration agreement to arbitrate disputes under the arbitration agreement if the party wishing to rely on the arbitration agreement can do so on the basis of assignment, agency, succession or insolvency (see Question 10).
Breach of an arbitration agreement
Court proceedings in breach of an arbitration agreement
A court before which an action is brought in a matter which is the subject of an arbitration agreement will, if a respondent raises such an objection, reject the action as inadmissible, unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed (section 1032, ZPO). The respondent must raise such an objection before the beginning of the oral hearing on the substance of the dispute, or it is prevented from raising the objection.
If an action is rejected as inadmissible, it is up to the claimant to initiate arbitration proceedings if it wishes to pursue its claim.
Arbitration in breach of a valid jurisdiction clause
If a party initiates arbitration in breach of a valid jurisdiction clause, the other party must object to the jurisdiction of the arbitral tribunal in its statement of defence (section 1040.2, ZPO). Otherwise, it will be precluded from raising the objection later in the proceedings (section 1027, ZPO). If the arbitral tribunal dismisses the matter for lack of a valid arbitration agreement, the matter can then be brought before the state courts. If the arbitral tribunal still confirms its jurisdiction, the opposing party can make an application to have the matter of jurisdiction decided by the courts (section 1040.3, ZPO).
Number and qualifications/characteristics
The parties are free to determine the number of arbitrators. Failing such determination, the number of arbitrators is three. The arbitration agreement cannot grant greater rights to one party with regard to the composition of the arbitral tribunal which place the other party at a disadvantage. In such cases, the other party can request the court to appoint the arbitrator or arbitrators in deviation from the nomination made, or from the agreed nomination procedure (section 1034, ZPO).
Generally, any person who has the capacity to enter into a contract can act as arbitrator. Although judges or other civil servants can act as arbitrators, they require approval from their respective supervisory authorities before they can accept appointments.
The appointment of an arbitrator can be challenged if circumstances give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed on by the parties (section 1036, ZPO; section 18, DIS Rules). An arbitrator must disclose any circumstances likely to give rise to justifiable doubts of his impartiality or independence as soon as he becomes aware of them.
Appointment of arbitrators
On the request of a party, a sole arbitrator will be appointed by the court if the parties are unable to agree on his or her appointment. In an arbitration with three arbitrators, each party appoints one arbitrator. The two arbitrators that they have appointed then appoint the third arbitrator to act as chairperson of the arbitral tribunal. If a party fails to appoint an arbitrator within one month of receipt of a request to do so from the other party, or if the two arbitrators (appointed by the parties) fail to agree on the third arbitrator within one month of their appointment, the appointment will be made by the court on the request of a party (section 1035, ZPO).
Removal of arbitrators
Unless the parties have agreed otherwise, a party who intends to challenge an arbitrator must send a written statement of the reasons for the challenge to the arbitral tribunal, within two weeks of becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstance that warrants a challenge, (section 1037, ZPO).
Commencement of arbitral proceedings
Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent (section 1044, ZPO). The request must state the names of the parties, the subject matter of the dispute and contain a reference to the arbitration agreement. It must also include the nomination of an arbitrator.
Applicable rules and powers
Applicable procedural rules
The parties can determine the procedural rules that apply (section 1042 (3), ZPO), ranging from the procedure applicable in German court proceedings to any foreign procedural law or individual provisions in any such laws.
Mandatory rules in the German arbitration law include the duty of the arbitral tribunal to treat the parties equally and to give each party a full opportunity to present its case (section 1042 (1), ZPO). Also, counsel cannot be excluded from acting as an authorised representative (section 1042 (2), ZPO).
Failing party agreement and in the absence of provisions in the German arbitration law, the arbitral tribunal will conduct the arbitration in such a manner as it considers appropriate. The arbitral tribunal is empowered to determine the admissibility of taking evidence, take evidence and freely assess such evidence (section 1042 (4), ZPO).
The procedural rules arbitrators are likely to follow depend on the legal background of the parties and the arbitrators. There is a distinct tendency in the German international arbitration community to seek guidance from the International Bar Association (IBA) Rules on the Taking of Evidence, but not to agree on their application specifically in a procedural order.
The arbitral tribunal has full discretion on how to conduct the taking of evidence. Witnesses, experts, documents and inspection are admissible as evidence. It is accepted that anyone can be a witness, including parties or party officers. Although there is a tendency towards tribunal-appointed experts, party-appointed experts are also admissible.
Evidence and disclosure
Arbitral tribunals can order disclosure of documents and attendance of factual and expert witnesses. However, they do not have the power to enforce such orders. If a party fails to comply with such an order, the arbitral tribunal can either request the assistance of the state courts or draw negative inferences.
Scope of disclosure
There is no general duty to disclose documents in litigation or arbitration. In litigation, a court can order the production of documents from parties and third parties if one party has requested those documents, has described them in sufficient detail and has explained why the documents are relevant to the dispute. These orders must be reasonable and are subject to privileges of the requested party.
Validity of parties' agreement as to rules of disclosure
In arbitration, the parties are free to determine rules on disclosure in the arbitration agreement or in an agreement after the dispute has arisen. Failing party agreement, arbitration proceedings with a solely German background adhere more to the procedure applicable in German litigation, while arbitrations with an international context tend to follow the IBA Rules on the Taking of Evidence in International Arbitration 2010.
There is no provision on confidentiality in German arbitration law. Therefore, by law, while arbitrations are not public, they are not necessarily confidential without a party agreement on confidentiality. However, there is a very broad confidentiality provision under section 43 of the DIS Rules, whereby the parties and their representatives, arbitrators and persons at the DIS secretariat involved in the administration of the arbitration proceedings must keep confidential the conduct of arbitration proceedings, and in particular the parties involved, witnesses, experts and other evidentiary materials.
Courts and arbitration
German courts can intervene during a pending arbitration to:
Provide a court decision on the arbitral tribunal's jurisdiction (section 1040(3), ZPO).
Appoint arbitrators by default (section 1035, ZPO).
Take a decision on the challenge of an arbitrator (section 1037(3), ZPO).
Grant interim relief (section 1033, ZPO) or enforce interim relief ordered by the arbitral tribunal (section 1041, ZPO).
Assist in taking evidence (section 1050, ZPO).
Assistance in taking evidence includes assistance in compelling witnesses to attend. However, German courts are bound to their own procedural rules in assisting arbitration proceedings. This means that they cannot assist in enforcing broad disclosure orders which would be inadmissible under German procedural law.
A competent court for measures under section 1050 of the ZPO is the local court where the measures are to be taken (section 1062(4), ZPO). A competent court for granting interim relief is the local or regional court that is competent under the general rules on jurisdiction.
For all other measures listed above, the higher regional court at the seat of the arbitration has jurisdiction (section 1062(1), ZPO).
Risk of court intervention
Courts tend to be arbitration-friendly and will not assist a party in frustrating arbitration proceedings.
A party can apply to a court to determine whether arbitration is admissible before the constitution of the arbitral tribunal or after the arbitral tribunal has confirmed its jurisdiction. Even if such an action is brought, arbitration proceedings can still be commenced and continued, and an arbitration award can be made while the issue is pending before the court (sections 1032 and 1040(3), ZPO). The same applies to applications made to challenge arbitrators. While this action is pending, the arbitral tribunal can continue the proceedings (section 1037(2), ZPO). Frequent court applications will therefore not serve to delay the proceedings.
Unless otherwise agreed by the parties, the arbitral tribunal can, at the request of a party, order such interim measures as it may consider necessary in relation to the subject matter of the dispute (section 1041, ZPO).
To enable enforcement the court can, at the request of a party, permit enforcement of such a measure ordered by the arbitral tribunal, unless application for a corresponding interim measure has already been made to a court. The court can amend such an order if necessary to enforce the measure.
The arbitral tribunal can grant interim relief on an ex parte basis, if it gives the other party an opportunity to comment after granting interim relief and, if necessary, if it changes or revokes its order.
In exceptional circumstances, the arbitral tribunal can award security for costs. Further, the arbitral tribunal can require any party to provide appropriate security in connection with measures for interim relief. Decisions can include orders for a bank guarantee or an attachment.
Rights of appeal/challenge
Recourse to the German courts against an award can only be made by an application to set aside if the award was rendered in Germany (section 1059, ZPO).
Grounds and procedure
Unless the parties have agreed otherwise, an application for setting aside must be made within three months of the party making the application having received the award (section 1059(3), ZPO). The competent court is the higher regional court at the seat of arbitration (section 1062(1), ZPO).
An award can only be set aside if either:
The applicant shows sufficient cause that:
a party to the arbitration agreement was under some incapacity according to the law applicable to it;
the agreement is not valid under the law to which the parties have subjected it or, failing any indication of this, under German law;
a party was not given proper notice of the appointment of an arbitrator or of the arbitration proceedings, or was otherwise unable to present its case;
the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. However, if decisions on matters submitted to arbitration can be separated from those not submitted, only that part of the award containing decisions on matters not submitted to arbitration can be set aside;
the composition of the arbitral tribunal or the arbitral procedure was not in accordance with a provision of the German arbitration law or with an admissible agreement of the parties, and it can be presumed that this affected the award.
The court finds that:
the subject matter of the dispute is not capable of settlement by arbitration under German law; or
recognition or enforcement of the award leads to a result which is in conflict with public policy (ordre public).
Waiving rights of appeal
These rights of appeal cannot be effectively excluded.
Unless the parties have agreed otherwise, an application for setting aside an international arbitration award rendered in Germany must be made within three months of the party making the application having received the award (section 1059(3), ZPO). Once a German court has declared the arbitration award enforceable, an application to set aside the award is no longer possible.
Enforcement of international arbitration awards rendered outside of Germany follows the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. There are no specific time limits for requesting enforcement of foreign arbitral awards in Germany. However, claims decided in a final and binding judgment or award are time-barred after 30 years (section 197(1) No. 3, BGB).
Arbitrators can agree on a fee structure with the parties in the arbitrators' contract. Hourly rates can be used. In domestic arbitrations, the rates will often adhere to the fixed fee structure applicable according to the Statute Regulating Attorney Fees for appellate services. In arbitrations with an international context, it is becoming more common to apply the fee schedule of the DIS Rules as the customary fee schedule.
Under the DIS Rules, the fee structure for arbitrators is based on the amount in dispute according to a schedule of costs, with its most recent revision dating from 1 March 2016.
Lawyers' fees can be fixed according to the Statute Regulating Attorney Fees, but commonly the fee structure is billing according to hourly rates. Third party funding by professional funders is permitted. Professional funders are becoming more active on the German arbitration market, particularly for large arbitral claims. Practical examples are still rare, so there is no information available on whether this has any particular effect on the arbitral proceedings.
It is not a matter of law that the unsuccessful party is obligated to pay the successful party's costs. Rather, the arbitral tribunal can allocate the costs at its discretion and take into consideration the circumstances of the case, in particular the outcome of the proceedings (section 1057, ZPO). In domestic arbitration proceedings in Germany, arbitrators usually adhere to the general principle in German civil procedure that the costs will be allocated in proportion to the outcome.
Unless the parties agree otherwise, the arbitral tribunal usually allocates the costs of the arbitration between the parties (by means of a final or separate arbitration award), including the necessary costs the parties have incurred for the proper pursuit of their claim or defence.
Recoverable costs include costs of the arbitrators, costs of the parties, costs for taking evidence and fees for representation. The arbitral tribunal will consider whether the costs of the parties and fees for representation were reasonable and necessary for the proper pursuit of the claim or defence. Further, the arbitral tribunal can take into account the conduct of the parties, in particular whether the parties have acted in an expeditious and cost-effective manner.
Enforcement of an award
Enforcement of an arbitration award takes place if it has been declared enforceable. The application for a declaration of enforceability will be refused and the award set aside if one of the grounds for setting aside exists (see Question 28).
Grounds for setting aside will not be taken into account if, at the time when the application for a declaration of enforceability is served, an application for setting aside based on such grounds has been finally rejected. Further, the grounds for setting aside for the reasons listed in Question 28 under the first bullet point will not be taken into account if the relevant time limits have expired without the party opposing the application having made an application for setting aside the award. The grounds listed in Question 28 under the second bullet point are to be observed ex officio.
If an award has been declared enforceable, the court order can be used for enforcement under the general rules of enforcement of judgments and other titles, such as enforcement against movable or immovable property.
Germany is a party to the New York Convention. The New York Convention has been in force since 28 September 1961. Germany has not made (or has withdrawn) any declarations or notifications. Germany is also a party to the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927. Various bilateral agreements relating to the recognition and enforcement of arbitration awards also exist.
Therefore, arbitration awards made in Germany should be enforceable in New York Convention and Geneva Convention countries, and in other countries where bilateral agreements exist.
The recognition and enforcement of foreign arbitration awards is granted under the New York Convention. Applications must be made with the higher regional court at the seat of the respondent. If there are grounds for refusing a declaration of enforceability, the court will rule that the arbitration award is not to be recognised in Germany. If the award is set aside abroad after having been declared enforceable, an application for setting aside the declaration of enforceability can be made (section 1061(3), ZPO).
Length of enforcement proceedings
In 2016, a review to modernise the arbitration law started. While no major reform of the arbitration law is expected, various changes and some additions that focus on other modernised arbitration laws and the modernised UNCITRAL Model Law have been suggested for discussion. If a reform is considered necessary, new legislation will be enacted in 2018 to coincide with the 20th anniversary of the enactment of the arbitration law.
Also, the review to update the DIS Rules is in progress. The DIS is planning to finalise the new DIS Rules by the summer of 2017. To facilitate the review process, the DIS board of directors has adopted ten guidelines, according to which (among other things) arbitral proceedings must be non-bureaucratic, flexible and open to party autonomy, and the revised rules must be suitable for the needs of domestic and international users.
Main arbitration organisation
German Institution of Arbitration (DIS)
Main activities. The most prominent arbitration organisation in Germany.
Dr Claudia Krapfl
Areas of practice/expertise. International arbitration and cross-border litigation, with a focus on construction disputes, post-mergers and acquisition disputes and general commercial law.
Represented a Swiss food technology company in ICC arbitration against a US company concerning damages arising out of the sale of food processing technology.
Represented an international engineering firm in ICC arbitration against a Turkish company regarding the design and construction of a processing plant.
Represented a German technology company in DIS arbitration against an Asian company in a post-mergers and acquisition dispute
Languages. German, English
Member of the:
Chartered Institute of Arbitrators (MCIArb).
German Institution of Arbitration (DIS).
German-American Lawyers' Association (DAJV).
Swiss Arbitration Association (ASA).
London Court of International Arbitration (LCIA).
Publications. Claudia regularly publishes on arbitration and is a co-author of the chapter on enforcement in Böckstiegel/Kröll/Nacimiento, Arbitration in Germany (Kluwer Law International, 2nd ed, 2015).
Professional qualifications. Germany, Rechtsanwalt 1997; New York, Attorney-at-Law 1997; admitted to various US federal courts including the US Supreme Court
Areas of practice/expertise. International arbitration and cross-border litigation, with a focus on project-related disputes, post-mergers and acquisition disputes, construction disputes, joint ventures, investment arbitrations and general commercial law.
Languages. German, English, French, Spanish
Represented a German investor in ICSID arbitration and annulment proceedings against Turkmenistan (ICSID Case No. ARB/09/9) concerning a dispute arising from various violations of the bilateral investment treaty between Germany and Turkmenistan.
Represented Korean conglomerate in DIS arbitration proceedings against a German insolvency trustee arising from acquisition of a group of companies in the solar industry.
Chairman in DIS arbitration between South Korean, Russian and Singaporean companies arising from a dispute in the steel industry.
Fellow of the Chartered Institute of Arbitrators (FCIArb),
Member of the:
German-American Lawyers' Association (DAJV) (Board Member);
German Institution of Arbitration (DIS);
Swiss Arbitration Association (ASA);
London Court of International Arbitration (LCIA);
American Bar Association;
New York State Bar Association;
International Bar Association;
American Law Institute;
American Society of International Law;
SIAC Users Council;
Advisory Committee of the Swiss Arbitration Academy; and
Senior Committee of Contemporary Asia Arbitration Journal.
Publications. Stephan regularly publishes on arbitration and is author of the chapter on ad hoc arbitration in Germany in Böckstiegel/Kröll/Nacimiento, Arbitration in Germany (Kluwer Law International, 2nd ed., 2015). He is also the co-editor and co-author of Guerrilla Tactics in International Arbitration (2013).