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Higher Regional Court of Munich clarifies criteria for termination of arbitrator's mandate
Practical Law Legal Update 9-505-9665 (Approx. 3 pages)
Higher Regional Court of Munich clarifies criteria for termination of arbitrator's mandate
| Published on 05 May 2011 • Germany |
Stephan Wilske (Partner) and Claudia Krapfl (Associated Partner), Gleiss Lutz
In a decision dated 17 December 2010, but only recently published, the Higher Regional Court of Munich clarified the relevant criteria for a decision on the termination of an arbitrator’s mandate.
Background
Section 1038 of the German Code of Civil Procedure (Zivilprozessordnung, ZPO) on the termination of an arbitrator's mandate provides:
"(1) If an arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay, his mandate terminates if he withdraws from his office or if the parties agree on the termination. If the arbitrator does not withdraw from his office or if the parties cannot agree on the termination, any party may request the court to decide on the termination of the mandate. (2) If, under subsection 1 of this section or section 1037 subs. 2, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, this does not imply acceptance of the validity of any ground for withdrawal referred to in sub-section 1 of this section or section 1036 subs. 2."
Facts
In November 2002, the claimant began arbitration proceedings, which concerned the dissolution of a partnership.
At the beginning of 2003, the sole arbitrator in the proceedings appointed an expert to determine the value of the partnership. The arbitration proceedings suffered from long delays caused by both the expert and the parties. The expert did not render his opinion until 2008. The claimant took from November 2004 to June 2006 to comment on a list of clients submitted by the respondent and the respondent was responsible for the fact that the expert could not visit the offices of the partnership until June 2007.
Comments on the expert opinion were delayed because both parties requested various extensions of time. In early 2009, upon receiving comments from both parties, the arbitrator requested the expert to answer further questions. However, nothing further happened in the proceedings until September 2009, when the claimant challenged the expert and requested the appointment of a new expert. The parties exchanged various submissions on this point, but again nothing happened until July 2010, when the claimant requested the arbitrator to terminate his mandate. The arbitrator then took steps to continue with the proceedings and announced that he would finalise the proceedings by the end of 2010.
The claimant requested the Higher Regional Court of Munich to terminate the arbitrator's mandate according to section 1038 paragraph 1 of the ZPO. The respondent and the arbitrator objected to the challenge. The arbitrator explained that the delay in 2010 had been caused by a restructuring of his law firm which had since been finalised, giving him the time to bring the arbitration proceedings to a close.
Decision
The Higher Regional Court of Munich refused the request for termination of the arbitrator's mandate. It reasoned that termination of an arbitrator's mandate by the state courts on the basis of undue delay is only possible in very exceptional cases.
The court found that on the facts of the case, the delays between November 2002 and November 2009 were not due to inactivity of the arbitrator, but to delays caused by the parties as well as the expert. According to the court, it was not empowered to review the measures taken by the arbitrator in order to ensure that the expert submitted an expert opinion in a reasonable amount of time. Rather, the court emphasised that a number of extensive delays had been caused by the parties themselves.
Regarding the time period between November 2009 and July 2010, the court found that the arbitrator had in fact not done anything to proceed with the arbitration. It explained that it was not sufficient for the arbitrator to indicate, after being asked to terminate his mandate, that he would promptly proceed and that no further delays would occur. However, since the arbitrator had explained the delay with the restructuring of his law firm (a situation which was not foreseeable at the time the arbitrator accepted the mandate) the court compared this delay to the delays caused in the past by the parties and decided that the arbitrator had not caused undue delay to the proceedings.
Comment
There are only a few published decisions on the termination of an arbitrator's mandate for undue delay. This decision shows that German courts will only terminate an arbitrator's mandate in very exceptional circumstances. In this particular case, the court held that an arbitration which had been ongoing for eight years and had been delayed by the arbitrator as well as the parties and the expert, did not warrant the termination of the arbitrator's mandate.
While on the one hand this shows that German courts are very careful to intervene in arbitration proceedings, it also gives cause for concern in that parties cannot hope for assistance from the state courts if arbitration proceedings drag on indefinitely due to delays caused by the arbitrator as well as the expert appointed by the arbitrator, in particular if the parties themselves have caused additional delays.