Digitalization and Internationalization: German Arbitration Law is Renewing Itself

On 1 February 2024, the Federal Ministry of Justice presented a draft bill that aims to modernise arbitration law and make Germany more attractive as an arbitration location. But do these changes meet the requirements of practice?

Freedom of Form in Arbitration Agreements in Commercial Transactions

The draft bill provides for the repeal of the current formal requirements for arbitration agreements in cases where the arbitration agreement is a commercial transaction for all parties. The arbitration agreement could then be concluded informally, which would make it considerably easier to conclude it, at least in commercial transactions. At first glance, a simplification of form seems to be welcome.

In practice, however, several problems are likely to arise:

With regard to the objective of a more international orientation, the requirement of a “commercial transaction” which is directly linked to the status of merchant is likely to lead to difficulties. This is because the draft does not refer to the definitions under commercial law. In other countries, the regulation may not be readily comprehensible with regard to the terms “commercial transaction” and “merchant”.

In the case of foreign companies, it is likely to be questionable on what basis (according to German commercial law?) their merchant status would have to be assessed.

The abolition of any formal requirements would also entail a certain risk of abuse. A state proceeding could be delayed by a party claiming the oral conclusion of an arbitration agreement. In the future, it would therefore be advisable to also record the decision against an arbitration agreement.

Despite the planned simplification of forms, it will continue to be recommended in practice that arbitration agreements should be written down for evidentiary purposes. This is also in view of the fact that arbitration agreements generally regulate not only the jurisdiction of the arbitral tribunal itself, but also questions regarding the conduct of the arbitration proceedings (e.g. arbitration institution, number of arbitrators and place of arbitration).

Greater transparency through the publication of arbitral awards

Another innovation is the possibility of publishing arbitral awards in anonymised or pseudonymised form. This is intended to increase transparency in arbitration proceedings and contribute to the further development of the law. This represents a step towards more openness in arbitration. However, it is worrying that the parties would have to actively object to publication if publication is not wanted. To this end, the arbitral tribunal must request the consent of the parties and at the same time point out that without objection within one month, the consent is deemed to have been given.

This principle is at odds with the fact that parties to arbitration often choose arbitration precisely because of confidentiality. From the point of view of arbitration parties, it would therefore be welcome if the principle were reversed in such a way that active consent to publication is required.

Digitisation of proceedings through video hearings

The draft bill takes account of the digital revolution by explicitly allowing video hearings in arbitration proceedings. This flexibility reflects the needs of the modern business world and enables procedures to be handled more efficiently. But that’s not the big deal. This is because video hearings are also possible under applicable law and already play an essential role in institutional arbitration proceedings (e.g. in proceedings management conferences).

English as the language of proceedings in commercial courts

In the future, it will be possible to carry out essential processes such as the appointment or rejection of arbitrators, the examination of the admissibility of arbitration proceedings, and the annulment or enforcement of arbitral awards in English. In particular, the commercial courts, which are intended for international disputes, will play a central role in this.

The state governments are to be empowered to define the framework conditions for the implementation of such procedures in English. This is to be subject to the parties’ agreement on the language of the proceedings. However, there is no guarantee that the entire legal process up to the BGH will be carried out in English. Rather, the BGH should be able to order at any time that the proceedings be continued in German.

In addition, the draft provides that English-language documents can be submitted in proceedings conducted in German. The court should only be able to demand translations in exceptional cases.

Although the draft does not ensure that proceedings are conducted in English throughout, the planned jurisdiction of the commercial courts for arbitration proceedings is a positive step towards the internationalisation of Germany as a centre of justice.

Designation of Arbitrators in Multi-Party Arbitrations

The rules on the appointment of arbitrators in multi-party arbitration proceedings are intended to close a practical gap, especially for ad hoc proceedings. So far, the regulations have primarily been designed for constellations with only one plaintiff and one defendant. The draft brings clarity to cases where several parties are on the same side of the proceedings without following the rules of the litigation cooperative of state court proceedings.

Two key questions are addressed in the draft bill: First, whether co-litigants must jointly appoint an arbitrator – a practice that is already widely accepted. Second, how in the event of disagreement among the parties to the dispute, a replacement appointment of arbitrators takes place. Here, the draft offers a flexible solution: The competent court has the discretion to appoint either only the missing arbitrator of the parties or both party-named arbitrators.

Dissenting Opinions on Arbitral Awards

The draft bill provides for arbitrators to be allowed to record their dissenting opinions in the form of dissenting opinions, which can currently pose a risk to the validity of arbitral awards. This clarification increases the transparency of the decision-making process and brings German law into line with internationally applicable practices.

Result

The reform initiative of the Federal Ministry of Justice to strengthen Germany as a location for arbitration is a step in the right direction. The draft bill on arbitration law presented contains numerous positive aspects, including progressive innovations as well as essential clarifications. At the same time, the draft identifies some areas that need further fine-tuning. The forthcoming deliberations and the legislative process should be used to address these shortcomings. If carefully and purposefully revised, the reform could make a decisive contribution to increasing Germany’s international competitiveness as a location for arbitration proceedings.

By MELCHERS, Germany, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact germany@transatlanticlaw.com

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