In its decision of 24 July 2014, the German Federal Court of Justice discussed whether the arbitration agreement and the arbitration rules must be notarized if the main contract which contains the arbitration agreement is to be notarized (e.g. a share purchase agreement or a property purchase agreement).
The Higher Regional Court of Munich unsettled arbitration practitioners and contract lawyers in Germany because the Court stated in an obiter dictum that an arbitration agreement might be invalid unless it is notarized. The Munich Court named two conditions under which the arbitration agreement plus the arbitration rules referred to in the agreement might have to be notarized: (i) the main contract requires a notarization (e.g. a share purchase agreement pursuant to Section 15(3) GmbHG or a property purchase agreement pursuant to Section 311b BGB), and (ii)
“the parties consider the arbitration agreement an essential part of the contract, i.e. if they had not concluded the contract without the arbitration agreement”.
The Federal Court of Justice now clarified the issue: Neither the arbitration agreement nor the arbitration rules need to be notarized. The reasoning of the Court is straightforward:
First, the arbitration agreement is a separate agreement (“principle of separability”). Since 1998, Section 1040(1) German Code of Civil Procedure expressly states:
“an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.”
Section 1040(1) is a literal adoption of Article 16(1) UNCITRAL Model Law 1985. As a result, the arbitration agreement does not necessarily have the same form requirements as the main contract.
Second, the formal validity of an arbitration agreement is exclusively governed by Section 1031 German Civil Procedure Code which reads:
(1) The arbitration agreement shall be contained either in a document signed by the parties or in an exchange of letters, telefaxes, telegrams or other means of telecommunication which provide a record of the agreement.
(2) The form requirement of subsection 1 shall be deemed to have been complied with if the arbitration agreement is contained in a document transmitted from one party to the other party or by a third party to both parties and – if no objection was raised in good time – the contents of such document are considered to be part of the contract in accordance with common usage.
(3) The reference in a contract complying with the form requirements of subsection 1 or 2 to a document containing an arbitration clause constitutes an arbitration agreement provided that the reference is such as to make that clause part of the contract.
(5) Arbitration agreements to which a consumer is a party must be contained in a document which has been personally signed by the parties. The written form pursuant to sentence 1 may be substituted by electronic form pursuant to section 126 a of the Civil Code (“Bürgerliches Gesetzbuch – BGB”). No agreements other than those referring to the arbitral proceedings may be contained in such a document or electronic document; this shall not apply if the arbitration agreement is notarized.
As a result, as long as the arbitration agreement is in writing the arbitration agreement is formally valid. This is true even if the main contract must be notarized. Special rules only apply if the arbitration agreement is concluded with a consumer (cf. Section 1031(5)).