The arbitration agreement is a separate agreement from the substantive agreement (= doctrine of separability). As a result, the arbitration agreement can be governed by a different law from substantive agreement. What law governs the arbitration agreement if the parties have not explicitly chosen a law for the arbitration agreement? The answer is a continuing matter of debate.
Another matter of debate is whether the CISG can govern the arbitration agreement. The matter arises – in particular – if both parties to the arbitration agreement are from CISG contracting states. Most courts and scholars argue that the CISG can govern the formation of the arbitration agreement. Articles 19 and 81 CISG speak in favour of this position. Art. 19 (3) CISG states that adding dispute settlement terms to an offer constitutes a material alteration. Similarly, Art. 81 (1) sent. 2 CISG stress that dispute settlement agreements are not impacted by an avoidance of the contract. This shows that the CISG expressly deals with dispute resolution clauses. The minority view argues that the CISG does not deal with the formation of the arbitration agreement because Art. 4 CISG limits the scope of the CISG to the formation of sale contracts.
In its decision of 26 November 2020, the German Federal Court of Justice (“BGH”) had the opportunity to take a stance on this debate.
The parties entered into a contract for the supply of spices. In a letter confirming the order of 1,500 kg of mace flowers, the Dutch seller referred to the “Verbandsbedingungen der Nederlandse Vereniging voor de Specerijhandel”, the general terms of the Dutch Spice Association (“NVS-Terms”). The NVS-Terms contain a dispute resolution clause providing for arbitration in Amsterdam. The NVS-Terms designated the law of The Netherlands to govern the contract and expressly excluded the application of the CISG to the contract.
The seller did not attach the NVS-Terms to the confirmation letters sent to the German buyer. Neither did the buyer sign the order confirmations that included the reference to the NVS-Terms.
When the buyer filed a suit against the seller before a German court, the seller objected against the jurisdiction of the German courts and relied on the arbitration clause included in the NVS-Terms.
The BGH’s decision on the validity of the arbitration agreement
The BGH dismissed the seller’s objection. It found the alleged arbitration agreement invalid on formal grounds.
The law applicable to the formal validity of the arbitration agreement is, according to the BGH, (i) the general principles as laid-down in Art. II (2) NYC and (ii) the requirements pursuant to Section 1031 German Code of Civil Procedure (“ZPO”) which is an adoption of the UNCITRAL Model Law 1985 (with certain modifications), and (iii) the law applicable to the arbitration agreement. The latter two laws were applicable pursuant to Art. VII (1) NYC. Art. VII (1) NYC states: “The provisions of the present Convention shall not … deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.”
Firstly, according to the BGH, the criteria of Art. II (2) NYC were not met. The parties had not concluded an “agreement in writing“.
Secondly, the requirements of German law were also not fulfilled. The formal validity of an arbitration agreement is governed by Section 1031 ZPO which is an adoption of Art. 7 (2) UNCITRAL Model Law 1985. Section 1031 ZPO states:
“(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 timely raised – 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.
The crucial question was whether the requirements of Section 1031(3) ZPO (= Art. 7 (2) sent. 3 UNCITRAL Model Law 1985) were fulfilled. Was there a contract between seller and purchaser, which referred to a document containing an arbitration clause, i.e. the NVS-Terms?
In order to assess whether there was a contract, the BGH applied the CISG. Under the CISG, the mere reference to the NVS-Terms in the confirmation letter was, however, insufficient. The NVS-Terms did not become a component part of the contract. In the absence of a specific terms and conditions regime, the Court applied the general rules of contract interpretation of the CISG. The Court neither identified an indication for a mutual agreement in the course of the parties’ negotiations (Art. 8 (3) CISG) nor did it establish that a reasonable third person would have understood the arbitration clause as component part of the contract (Art. 8 (2) CISG).
Thirdly, the BGH found that the law governing the substantive validity of the arbitration agreement was the law of The Netherlands. The BGH extracted from Art. V (1)(a) NYC the conflict of laws rule that the law governing the substantive validity of the arbitration agreement was the law expressly chosen by the parties for the arbitration agreement or – if there is no such choice – the law of the seat, i.e. here The Netherlands. The BGH again applied the CISG as the Dutch law for cross-border sales agreements, and not the domestic law of The Netherlands.
In an obiter dictum, the BGH expressly addresses the separability principle and reinforces that the arbitration agreement did not “automatically” follow the decision on the material scope of the contract under the CISG. Only after the fruitless application of Art. II (2) NYC and due to the more-favourable-right rule, leading to the application of German arbitration law, did the question of an inclusion under the CISG become vital.
As the judgment shows, while the substantive validity of the arbitration agreement is only governed by one law (the law chosen by the parties or the law of the seat), the formal validity of the arbitration agreement is, however, governed by a multitude of laws. It is sufficient if the arbitration agreement is formally valid pursuant to at least one of these laws.
In spite of the wording of Art. 4 CISG (“[t]his Convention governs only the formation of the contract of sale“), the BGH applied the CISG also to the question whether the arbitration agreement has been formed.
 Enka Insaat ve Sanayi AS (Respondent) v OOO Insurance Company Chubb (Appellant)  UKSC 38 (https://www.globalarbitrationnews.com/the-supreme-court-in-enka-v-chubb-on-the-law-applicable-to-the-arbitration-agreement-the-buck-stops-here/); cf. also Kröll/Mistelis/Perales Viscasillas CISG, 2nd ed. 2018, Art. 4 Rn. 32, 33; Sulamerica CIA Nacional De Seguros SA & Ors v Enesa Engenharia SA & Ors  EWCA Civ 638 -.
 “Mace-Flower Decision”, BGH decision dated 26.11.2020 – I-ZR 245/19 (https://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&Datum=Aktuell&Sort=3&nr=112973&pos=19&anz=619).