According to section 1060 (second paragraph, first sentence), when read in connection with section 1059 (second paragraph, number 2(b)) of the German Code of Civil Procedure (Zivilprozessordnung, ZPO), awards which violate the right of the parties to be heard as part of the ordre public shall not be declared enforceable.

If an arbitral tribunal decides ex aequo et bono without express authorisation by the parties (section 1051, third paragraph, ZPO), this violates section 1059 (second paragraph, number 1(d) ZPO) because the procedure is inadmissible.

The arbitral proceedings were conducted in Munich, under the ICC Rules and concerned a claim by a buyer for damages resulting out of the (defective) construction and delivery of a boiler for a biomass power plant in Austria. There were also counterclaims by the Italian seller for payment of open invoices for the boiler.

The arbitral tribunal and the parties agreed to split the proceedings into two parts (Phase I and II). Both parties requested that Phase I be decided with a non-enforceable interim decision, whereby the arbitral tribunal decided certain preliminary questions. In Phase II the arbitral tribunal rendered a final award, granting the majority of the counterclaims for payment and granting declaratory relief with regard to the liability of the seller for defects of the boiler, where the damages had apparently not been quantified. The seller applied to have the award declared enforceable with regard to the payment orders. However, the buyer requested that parts of the award be set aside because of a violation of the right to be heard and a violation of the agreed procedure.

The Higher Regional Court of Munich upheld the arbitral tribunal's award and declared it enforceable regarding the payment orders.

Regarding the alleged violation of the right to be heard, the buyer argued, among other things, that the arbitral tribunal had reached decisions in the final award which contradicted its interim decision, without informing the parties of its changed views prior to the final award. However, the court explained in detail that there were no contradictions in the decisions of the arbitral tribunal which would warrant the setting aside of the award.

The court found, generally, that the right to be heard does not establish a duty on an arbitral tribunal to issue directions explaining its views to the parties. However, the parties must have a chance to comment if the arbitral tribunal changes an opinion it expressly stated in the course of the proceedings (see Legal update, Higher Regional Court of Stuttgart on the right to be heard). Furthermore, it must be apparent from the award that the arbitral tribunal has taken into account all of the submissions by the parties.

Regarding the alleged violation of the agreed procedure, the court held that it did not amount to an unauthorised ex aequo et bono decision if the arbitral tribunal estimates the amount of certain claims, concerning reimbursement of additional costs from seller to buyer. The court found that under Article 20.1 of the ICC Rules, the arbitral tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means. It read this as authorisation for the arbitral tribunal to make estimations regarding certain claims, if it considers this appropriate under the circumstances. The court found that whether the arbitral tribunal had correctly applied estimation principles was not capable of review in setting-aside proceedings, as long as the procedure chosen by the arbitral tribunal was in line with the applicable arbitration rules. Since it found that estimations are covered by the broad provision of Article 20.1 of the ICC Rules regarding the establishment of facts of the case, it found that there was no violation of the agreed procedure.

This decision is another helpful addition to the case law dealing with questions of ordre public and the right to be heard. It confirms that arbitral tribunals have a wide discretion in shaping the proceedings, such as by choosing to apply certain estimation principles, which will not be reviewed by the court in setting aside proceedings.

Docket No. 34 Sch 08/10.