Draft Bill For The Modernization Of German Arbitration Law – Arbitration & Dispute Resolution

Germany is in the process of renewing its arbitration law, which
in its current version dates from 1997. In April 2023, the German
Federal Ministry of Justice (the “Ministry”) published a
Key Issues Paper,
identifying potential areas of improvement of Germany’s current
arbitration law. After extensive feedback and discussion in the
German arbitration community, the Ministry has now followed up with
a Draft Bill for the
Modernization of the German Arbitration Law (the “Draft
Bill”).

The Draft Bill aims to improve the efficiency of arbitral
proceedings conducted in Germany and strengthen Germany’s
position as an international arbitration venue. Among other things,
the Draft Bill seeks to make use of technological advancements and
respond to recent national reforms in neighboring European
countries, including Switzerland and Austria. The reception of the
Draft Bill has been overwhelmingly positive, as reflected in
feedback the German Arbitration Institute (“DIS”) has
collected from its 1,500 members.¹

The Draft Bill contains several significant changes to
Germany’s current arbitration law, which are summarized
below.

Freedom of form for arbitration agreements.
Section 1031 of the German Code of Civil Procedure
(“Zivilprozessordnung” or “ZPO”) currently
requires that arbitration agreements must be concluded in writing.
The Draft Bill abolishes this requirement for commercial
transactions. As such, the Draft Bill (re-)introduces the
possibility for arbitration agreements in commercial transactions
to be concluded orally.

German arbitration law in force prior to 1933 already provided
for freedom of form in arbitration agreements and allowed for such
agreements to be concluded orally. This was later abandoned, in
line with the 1985 UNCITRAL Model Law on International Commercial
Arbitration, which required written evidence of arbitration
agreements. However, the 2006 revision of the UNCITRAL Model Law
has since abandoned the requirement for a written arbitration
agreement. The Draft Bill therefore seeks to bring Germany’s
arbitration law in line with the current UNCITRAL Model Law.

Although the abolishment of form requirements for arbitration
agreements provides appropriate flexibility, it has been criticized
because of the inevitable difficulties associated with proving the
existence of an oral arbitration agreement.² Similarly,
critics have invoked concerns about the enforceability of such
arbitration agreements as Article II(1) of the New York Convention
requires a written arbitration agreement.

However, the experience in other jurisdictions that have adopted
the 2006 UNCITRAL Model Law on this point largely reveals these
concerns as overstated. Leaving aside that the New York Convention
imposes minimum standards which permit contracting states to adopt
a more liberal regime, there is no evidence that dispensing with
form requirements for an arbitration agreement makes them less
likely to be enforced. In addition, implementing the proposed
amendments of the Draft Bill also has the advantage of increasing
uniformity across German law: pursuant to Section 38(1) of the ZPO,
choice of court agreements can be concluded without any formal
requirements. There appears to be no good reason why arbitration
agreements should be treated differently.

Joint appointment of co-arbitrator in multi-party
arbitrations. Currently, Germany’s arbitration law
does not contain provisions on multi-party proceedings. The Draft
Bill proposes to change that and introduces a new Section, 1035(4)
ZPO, which provides that in multi-party arbitration proceedings, a
co-arbitrator must be jointly appointed by all relevant parties on
one side (e.g., jointly by all claimants). According to the
proposed amendment, if the “joined parties” fail to reach
an agreement within one month, the competent court at the seat of
the arbitration will appoint the co-arbitrator upon request.

The proposed provision addresses the practical challenge in
multi-party arbitrations that all parties must have an equal say in
the appointment of their co-arbitrator, while also ensuring that
disagreements about the appointment among different parties on one
side do not stall progress of the proceedings. Conferring the power
to appoint a co-arbitrator to the competent court in case of
disagreements between the parties mirrors the position taken in
Austria and Switzerland.³ Nevertheless, it is worth
noting that this rule is subject to the parties agreeing otherwise,
and so likely to be of limited practical importance: in the case of
institutional arbitration, it will be overridden by the applicable
arbitration rules, which often foresee for the appointment of a
joint co-arbitrator to be made by the arbitral institution or else
provide for an alternative appointment process for the constitution
of a tribunal in a multi-party scenario altogether.

Challenging procedural arbitral awards in the event of a
negative decision on jurisdiction. Proposed Section
1040(4) ZPO of the Draft Bill addresses a lacuna in Germany’s
current arbitration law by permitting state courts to review
arbitral awards in which the tribunal declines jurisdiction. While
such a review is already possible in case of a partial award that
assumes jurisdiction, the opposite is not currently true. Instead,
as the law stands today, negative jurisdictional decisions cannot
be reviewed by state courts as none of the grounds for annulment
under Section 1059(2) of the ZPO apply to an arbitral award that
declines jurisdiction. Thus, even if fundamentally flawed in its
reasoning, a negative jurisdictional award inevitably forces
parties to litigate before state courts instead of arbitration,
even if they had clearly intended their dispute to be subjected to
arbitration.

Some authors have criticized the Draft Bill for introducing
further state court review, which they consider incompatible with
the notion that, in principle, an arbitral tribunal’s decision
should stand and be complied with by the parties, even if incorrect
on substance.⁴ In reality, however, the proposed rule is
arbitration-friendly: if an arbitral tribunal renders an award in
which it wrongly declines jurisdiction, a state court may correct
that decision and send the case back to arbitration, where it
belongs. In addition, the proposed rule fosters consistency by
treating positive and negative jurisdictional decisions
identically. It also harmonizes approaches internationally: Austria
is a notable example of another jurisdiction that provides for
review of negative jurisdictional decisions.⁵

Enforcement of interim measures issued by foreign
arbitral tribunals. The proposed amendments to Sections
1041(2) and 1025(2) of the ZPO in the Draft Bill provide for the
enforcement of interim measures made by arbitral tribunals seated
outside of Germany through German courts. As the law stands today,
there is considerable uncertainty about whether interim measures
issued by foreign arbitral tribunals are subject to state court
enforcement in Germany. Proposed Section 1041(2) therefore sets out
the procedure for a court order permitting enforcement of interim
measures. Implementing this provision would allow German
arbitration law to catch up with its Austrian and Swiss
counterparts, where the enforcement of interim measures by foreign
arbitral tribunals has long been established.⁶

Remote hearings and e-awards. The
Ministry’s Key Issues Paper did not raise the question as to
whether the new German arbitration law should include provisions on
the possibility to conduct arbitration hearings remotely by video
link or to sign arbitral awards electronically. Given widespread
discussion on these issues in legal commentary (including by Professor Dr. Maxi
Scherer and Dr. Ole Jensen, whom
the Draft Bill cites in this regard),⁷ the Draft Bill
now contains corresponding provisions.

Proposed Section 1047(2) sentence 1 of the ZPO provides the
clarification that arbitral tribunals may conduct arbitral hearings
by video link even in cases where one of the parties objects to
such a “remote hearing.” At the outset of the COVID-19
pandemic, some commentators considered only in-person hearings to
constitute “oral hearings” in the sense of Section 1047
of the ZPO and thus took the view that remote hearings cannot be
imposed upon the parties if one party – often for tactical
reasons – objects to holding the hearing
remotely.⁸ This view is incompatible with the reality of
many successful remote hearings conducted during and after the
COVID-19 pandemic. Accordingly, several arbitral institutions and
supreme courts in
different jurisdictions have since clarified that remote hearings
are permissible, even if one party objects to them, as long as fair
and equal treatment of the parties is maintained.

Furthermore, proposed Section 1054(2) of the ZPO introduces the
option to render arbitral awards electronically without a hardcopy
original. Such an “e-award” will need to include the
names of all tribunal members and their qualified electronic
signatures. A qualified electronic signature as defined by the
Draft Bill will be created by using a “qualified electronic
signature creation device” and authenticated by a
“qualified certificate for electronic signatures.” These
requirements are based on the European Union’s
eIDAS Regulation. The eIDAS Regulation establishes a legal
framework for recognizing electronic signatures in civil
proceedings by equating them with handwritten signatures. While
thus common in European jurisdictions, it is doubtful whether
arbitrators domiciled outside the European Union are familiar with
eIDAS signatures and possess the means to produce them.

The parties have the right to object to the issuance of an
e-award and instead request an award in paper form. Parties will
often wish to do so, given that a qualified electronic signature
may not be sufficient in other jurisdictions to allow for
enforceability of the award. However, the proposed amendment
represents a significant advancement in the digitalization of
arbitration legislation. It also harmonizes the legal status of
arbitral awards with that of court judgments and orders (which in
Germany can be rendered electronically), and indeed with a handful
of other jurisdictions that have already introduced
e-awards.⁹

Publication of arbitral awards. Another novel
suggestion in the Draft Bill is the publication of redacted
arbitral awards with the parties’ consent as per the new
Section 1054b of the ZPO. This amendment aims to foster
transparency and trust in arbitral proceedings while contributing
to the development of the law. Although Germany’s current
arbitration law does not prohibit the publication of arbitral
awards with the agreement of the arbitral tribunal and parties,
this option has been rarely used.¹⁰Among other things,
concerns over inadequate redactions and potential identification of
parties have hindered its practical implementation. The amendment
encourages parties to consider publication, facilitating broader
discussions on legal matters and enhancing legal clarity and
consistency. Parties may object to anonymized or pseudonymized
publication within one month, ensuring a balanced approach to
transparency and confidentiality.

The proposed provision is a response to increased criticism that
the prevalence of arbitration to resolve disputes in certain areas
– such as post-M&A disputes – prevents the
development of the law in those areas.¹¹ The publication
of arbitral awards would ensure that the application of those
principles becomes public such that academic debate can ensue
– as it has in the context of investor-state arbitration. On
the other hand, publication of an award must always remain in the
parties’ discretion, who may have opted for arbitration based
on the privacy it promises.

Dissenting opinion. The Draft Bill further
proposes a new Section 1054a of the ZPO which expressly permits an
arbitrator to voice disagreement with the arbitral award or its
reasoning by rendering a dissenting opinion. This somewhat curious
provision – which does not appear to be contained in any
other arbitration law around the world – can be traced back
to a 2020 obiter dictum by the Higher Regional
Court of Frankfurt am Main. In that decision, the court
insinuated that a dissenting opinion might violate the secrecy of
deliberations and thus lead to the annulment of the award to which
it is appended. The court’s obiter has been met by near
unanimous criticism from German commentators.¹² Given
that dissenting opinions typically address the substance of the
majority decision without giving away anything about the
tribunal’s deliberations, and given they are commonplace
internationally, there does not appear to be much doubt as to the
permissibility of dissenting opinions. The proposed amendment
therefore simply clarifies that dissenting opinions are permissible
in German arbitrations.

Request for retrial of the case. Proposed
Section 1059a of the ZPO introduces an entirely novel legal remedy
that allows for the setting aside of arbitral awards which have
become final and can no longer be challenged under conditions like
those of an action for retrial. To pursue this application, a party
must substantiate one of the valid causes for retrial under Section
580 of the ZPO, such as the other party’s commission of perjury
on a statement forming the basis of the award, or forgery of a
document on which the award relies. This amendment once again aims
to achieve conformity between arbitration proceedings and state
court proceedings. While arguably of limited practical importance,
a recent English case
demonstrates that even in high-stakes cases fraudulent behavior can
impact an arbitral award. Introducing a dedicated statutory
provision addressing fraudulent awards further strengthens the
legitimacy and credibility of arbitration as a dispute resolution
mechanism in Germany.

Jurisdiction of German Commercial Courts and submission
of English-language documents in arbitration-related court
proceedings. Proposed Section 1062(5) sentence 2 of the
ZPO broadens the jurisdiction of German Commercial Courts to
encompass arbitration-related court proceedings, which in turn
intends to expedite the resolution of disputes through the
specialized expertise of the Commercial Courts.

Similarly, proposed Section 1063b(1) of the ZPO allows parties
to submit arbitral awards and documents in proceedings before the
Commercial Courts in English. Given the prevalence of English in
international arbitrations, this new rule significantly reduces the
resources otherwise required for translation of documents.

Emergency arbitration. While the Ministry’s
Key Issues Paper considered a provision on emergency arbitration,
the Draft Bill has not picked up this idea.

Concentration of arbitration matters before certain
higher regional courts. A further proposition included in
the Key Issues Paper would have concentrated the jurisdiction of
arbitration matters to only a few select German higher regional
courts. This change would have led to a welcome specialization and
accumulation of expertise at those courts, as is the case with the
Swiss Federal Tribunal and the Austrian Supreme Court. However, the
Draft Bill does not contain corresponding provisions.

Summary

The proposed amendments in the Draft Bill aim to modernize
German arbitration law. By allowing informal arbitration
agreements, recognizing qualified electronic signatures on awards,
and facilitating the submission of English-language documents,
Germany demonstrates its commitment to adapting to contemporary
commercial practices and international standards. With other
measures, such as a statutory provision on the publication of
arbitral awards, Germany aims to set new standards that have not
yet been adopted in other jurisdictions. Overall, the Draft Bill
paves the way for a legal arbitration framework that is both more
efficient and makes responsible use of technological
advancements.

The Group has had a long-standing focus on arbitration in
Germany, Switzerland and Austria, and counts more than a dozen
German-speaking arbitration specialists in its ranks.

Footnotes

1. See DIS, Statement on the
Draft Bill of the Federal Ministry of Justice for the Modernisation
of Arbitration Law.

2. On this criticism, see DIS, Statement on the
Draft Bill of the Federal Ministry of Justice for the Modernisation
of Arbitration Law, at p. 2.

3. See Section 587(5) of the Austrian Code of Civil
Procedure; Article 179(5) of the Swiss Private International Law
Act.

4. See DIS, Stellungnahme zum
Referentenentwurf des Bundesministeriums der Justiz eines Gesetzes
zur Modernisierung des Schiedsverfahrensrechts, at p.
4.

5. Section 611(2)(1) of the Austrian Code of Civil
Procedure.

6. See Sections 577(2) and 593(3) to (6) of the Austrian
Code of Civil Procedure; Article 185a(1) of the Swiss Private
International Law Act.

7. See Scherer and Jensen, ‘Die Digitalisierung der
Schiedsgerichtsbarkeit’ in Riehm and Dörr (eds),
Digitalisierung und Zivilverfahren 591, 610-620 (De
Gruyter 2023).

8. See, e.g., Münch in Münchener
Kommentar, Section 1047, at para. 9 (Beck, 5th ed. 2017);
Lachmann, Handbuch für die Schiedsgerichtspraxis, at
para. 1588 (Otto Schmidt, 3rd ed. 2008).

9. Article 1072 of the Dutch Code of Civil Procedure;
Article 41 (6) of the Arbitration Law of the United Arab
Emirates.

10. For a notable exception, see S. Elsing, G. Pickrahn,
K. Pörnbacher & G. Wagner, M&A-Streitigkeiten vor
DIS-Schiedsgerichten, 2022.

11. See, e.g., beck-aktuell, Ergebnisse der 67.
Jahrestagung der Präsidenten der OLG, des KG und des BGH,
dated 25 June 2015, becklink 2000386.

12. See, e.g., Bickmann and Wagner, ‘Das Sondervotum
(dissenting opinion) im deutschen Schiedsverfahrensrecht’, GWR
2020, 295; Hochstrasser and Sunaric, ‘Dissenting
Opinion – Weder Ärgernis noch Torheit’,
SchiedsVZ 2021, 35.

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