Section 767 German Code of Civil Procedure (ZPO) deals with objections that can be raised in enforcement proceedings and provides that such objections are only admissible if the grounds on which they are based arise after conclusion of the last oral hearing.

The claimant had concluded an agreement with the respondent for the supply of sugar which contained an arbitration agreement. When the claimant issued an invoice on the basis of this agreement, the respondent set this off against claims for damages under three other agreements.

The claimant subsequently filed a request for arbitration. The arbitral tribunal ordered the respondent to pay the full amount of the invoice, disregarding the set-off claims because they were not covered by the arbitration agreement. When the claimant tried to have the award declared enforceable by the Higher Regional Court of Berlin (Kammergericht), the respondent pleaded set-off as a substantive (as opposed to a procedural) objection.

The Higher Regional Court of Berlin then declared the award enforceable and ignored the set-off claim. The court reasoned that the set-off ran counter to the purpose of the enforcement proceedings and that it had no jurisdiction in this regard. The respondent then lodged an appeal on points of law with the Federal Court of Justice (BGH).

The Federal Court of Justice ruled that, in enforcement proceedings, substantive objections against claims established in the arbitral award are generally admissible. According to the court, however, the underlying grounds for the objection must, in analogous applications under section 767(2) ZPO, have generally arisen after the close of the arbitration proceedings. Therefore, in the case of set-off, the set-off claim should not have already existed during the arbitration proceedings. By exception, it is admissible if the debtor seeks to set off a claim that arose prior to completion of the arbitration proceedings, but the arbitral tribunal did not rule on such claim. Where an arbitral tribunal abstains from ruling on a set-off, the substantive objection of set-off can, according to the court, be repeated before an ordinary court of law, regardless of why the arbitral tribunal refused to deal with the set-off issue.

The decision helpfully clarifies that set-off, as a substantive objection, is also admissible in enforcement proceedings before the higher regional courts. The only exception applies where the relevant objection itself is subject to an arbitration agreement. In the latter case, the decision lies with the arbitral tribunal and not an ordinary court of law (see on this point the decision of the Federal Court of Justice dated 29 July 2010 (Docket No. III ZB 48/09) reported in Legal update, Federal Court of Justice on set-off in enforcement proceedings).