A. LEGISLATION AND RULES
A.1 Legislation
Already in the 2017-2018 edition of this Yearbook, we had reported about a working group tasked with a review of German arbitration law.[1] Based on the findings of the working group, the German Federal Ministry of Justice intended to present a draft bill for the reform of German arbitration law in 2021.[2] For various reasons, the reform was delayed, but the ministry recently resumed its work. It confirmed that the reform of arbitration law is an important concern and that it intends to present the draft bill in 2023. We will continue to keep an eye on the project.
A.2 Institutions, rules and infrastructure
In the 2020-2021 edition of this Yearbook, we had reported that the German Arbitration Institute (DIS) had published draft “Supplementary Rules for Notices of Dispute to Third Parties.”[3] After intense discussions of the draft within a working group, the DIS presented a revised draft in December 2021. The working group commented on this revised draft and a second revised draft was published in August 2022. So far, this draft has not been presented for vote to the DIS members.
In addition to the working group on third-party notices, several other DIS working groups have been created to deal with efficiency and communication, the role of expert witnesses, the settlement of disputes, the use of technology and with a complete review of the 2018 DIS Arbitration Rules. These projects are still work in progress.
B. CASES
B.1 Révision au fond of awards in antitrust cases
In a recently published order of 27 September 2022,[4] the cartel senate of the Federal Supreme Court reconfirmed its previous rulings[5] that the prohibition of a substantive review of arbitral awards by state courts (révision au fond) does not apply to awards on antitrust law provisions. In exequatur or vacation proceedings, German state courts must therefore conduct a full review of such awards on the merits.
The respondent in the instant case is the owner of a forest in which two stone quarries are located. It had let one of the quarries to the applicant and the other to a competitor of the applicant. The respondent terminated the applicant’s lease in 2017. The Federal Cartel Office investigated the case and found that the respondent had violated (i) the prohibition to threaten or cause disadvantages to other undertakings in order to induce them to conduct unlawful under the German Competition Act (CA) (section 21 paragraph 2 lit. 1 CA) and (ii) the prohibition to compel other undertakings to merge with other undertakings (section 21 paragraph 3 lit. 2 CA). According to the authority’s findings, the respondent’s intention in terminating the applicant’s lease was to induce the applicant to continue operating the quarry as a joint venture with the other lessee. In 2019, the Federal Cartel Office imposed a fine on the respondent by way of settlement.
In March 2018, the respondent commenced arbitration proceedings against the applicant and requested that the applicant be ordered to vacate and surrender the leased area. In the course of the arbitration, the respondent issued a second notice of termination, according to the Federal Supreme Court with an aim to let the property to the other lessee after the end of the lease. The arbitral tribunal did not share the Federal Cartel Office’s assessment. In its final award of 27 April 2020, it confirmed the validity of the second termination, ordered the applicant to vacate and surrender the leased area and dismissed the applicant’s counterclaim for a declaration that the terminations were invalid.
The applicant then brought an application to the Court of Appeal Frankfurt to set the award aside under section 1059 paragraph 2, lit. 2 b Code of Civil Procedure (ZPO) for breach of public policy. In an order of 22 April 2021,[6] the court of appeal dismissed the application, holding that “the fact that the mandatory provisions of German and European antitrust law are part of public policy justifies neither an unlimited review of an arbitral award under antitrust provisions nor a summary review or a plausibility check of a violation of antitrust law. The review of the arbitral award is rather limited to the question of a disregard of fundamental value decisions of the legislature expressed in the antitrust law provisions.” The court held a révision au fond to be incompatible with the nature of arbitration as a means of private dispute resolution.
On appeal, the Federal Supreme Court disagreed and upheld its case law that dates back to the time before the reform of German arbitration law in 1986. In its view, arbitral awards are subject to unrestricted review by the state courts with respect to the application of sections 19 to 21 CA. The court was not deterred by its own rulings[7] that an arbitral award is only contrary to public policy if its recognition or enforcement leads to a result that is “manifestly” incompatible with essential principles of German law, which is the case if the award “violate[s] the elementary foundations of the legal system.” According to the Federal Supreme Court, the prohibitions in sections 19 to 21 CA qualify as “elementary foundations” so that the recognition or enforcement of an arbitral award is “already contrary to public policy if it is based on an erroneous application of these regulations.” The prohibition of a révision au fond does therefore not apply here, as “no legal system can accept that violations of its most fundamental norms are confirmed by its own courts.” The Federal Supreme Court found that the aim of the respondent’s termination was to induce the applicant to sell its quarry facilities to its competitor, who would then operate both quarries. The ultimate goal was to eliminate the applicant from competition and thus to prevent a price war between the lessees and to achieve a higher rent.
B.2 Order to produce presiding arbitrator’s file requires all parties’ and arbitrators’ consent
In exequatur proceedings concerning a domestic award, the Court of Appeal Frankfurt held in an order of 16 May 2022[8] that a state court cannot issue an order to arbitrators to produce the presiding arbitrator’s file without the consent of all parties and all arbitrators.
Counsel for the respondent, who had not been represented by counsel in the arbitration proceedings, had applied to the president of the former arbitral tribunal for access to the president’s file, claiming that this was the only way to verify whether the respondent had received all relevant documents.
The president denied the request, pointing out that she saw neither a justified interest nor a legal basis for it, as the respondent had received all relevant documents by email as well as all applications, procedural orders and the award by courier. Moreover, the president took the position that the tribunal’s appointment had ended with the conclusion of the arbitral proceedings.
The respondent then applied to the Court of Appeal to require the president of the former arbitral tribunal to produce and make available their file which formed the basis for the award. The court dismissed the application, holding that there is no legal basis for the requested order. The court further held that the confidentiality of the arbitral proceedings also extends to the contents of the file and to the arbitrators’ deliberations potentially documented therein. Production of the file thus required consent of all parties and all arbitrators.[9] While the opposing party did not take a position on the application in the case at hand, the court found that there was no consent of the arbitrators so that the application had to fail.
B.3 The Pechstein Saga continues — the German Constitutional Court set the case back to square one
Regular readers of this Yearbook are familiar with the legal fight of the German speed skater Claudia Pechstein against the International Skating Union (ISU) and the German Speed Skating Association (DESG).[10]The German first and second instance judgments dealing with the validity of an arbitral award of the Court of Arbitration for Sport in Lausanne, Switzerland (CAS) in the Pechstein case temporarily called the future of international sports arbitration into question. The third instance decision seemed to have resolved the matter in favor of sports arbitration. The judgment of the German Constitutional Court shows that the representatives of international sports arbitration may have rejoiced too soon.
The dispute was triggered by the results of doping tests taken during the World Speed Skating Championships in Hamar, Norway, in February 2009. Blood samples taken from Ms. Pechstein during the competition showed an elevated reticulocyte count. Reticulocyte is a precursor of the adult red blood cell that transports oxygen from the lungs to the muscles. Athletes can increase the formation of reticulocytes through doping agents. Based on the blood tests, the ISU Disciplinary Commission banned Ms. Pechstein from competitions and practice for two years over doping allegations. Ms. Pechstein argued that the doping allegations were wrong and that the suspicious blood levels were caused by a disease called hereditary spherocytosis.
Before entering the Skating World Championship in Hamar, Ms. Pechstein had to sign an entry form by which she had accepted the ISU Constitution (which established the ISU Disciplinary Commission) and recognized the CAS as the arbitral tribunal authorized to issue final and binding awards in case of disputes (“ISU Arbitration Agreement”). Ms. Pechstein therefore filed an appeal against the decision of the ISU Disciplinary Commission with CAS. The appeal was dismissed by the CAS tribunal. Two further appeals to the Swiss Federal Tribunal also failed. Thereupon, Ms. Pechstein sued ISU and DESG for damages before the District Court Munich I. She argued that both ISU and DESG had forced her to accept the exclusive jurisdiction of CAS and that the ISU Arbitration Agreement was null and void due to this coercion.
The District Court Munich I accepted that Ms. Pechstein had been coerced because she had no choice but to sign the arbitration agreement if she wanted to participate in the championship. The court found that there was a “structural inferiority” on Ms. Pechstein’s part, as the ISU could force her to agree to arbitration or otherwise face a ban from her profession. The ISU Arbitration Agreement was held to have had “unusually burdensome consequences” for Ms. Pechstein, as it deprived her of access to state courts and forced her into arbitration proceedings without public hearings and without a right to legal aid. The court had several additional criticisms of CAS, including that CAS arbitrators can only be chosen from a closed list, which is compiled without “authoritative influence” from the athletes.
Nevertheless, the District Court Munich I ruled that Ms. Pechstein’s application was inadmissible. The court held that this issue should have been brought forward in the CAS proceedings. Since Ms. Pechstein had neither relied on the alleged invalidity of the ISU Arbitration Agreement nor challenged the jurisdiction of CAS during the CAS arbitration proceedings, the objection was precluded.[11]
Ms. Pechstein filed an appeal against this judgment with the Court of Appeal Munich. The court of appeal held that the ISU Arbitration Agreement was invalid on competition law grounds and that the CAS decision was therefore not enforceable in Germany.[12]
ISU filed an appeal against this judgment to the German Federal Supreme Court which reinstated the judgment of the District Court Munich I.[13] Although the Federal Supreme Court confirmed that ISU is market dominant with respect to the competitions it organizes, it held that it does not constitute an abuse of power if such a dominant sports federation requires athletes to agree on CAS arbitration as a precondition for competing. In the opinion of the Federal Supreme Court, the CAS arbitration rules safeguard the athletes’ rights to a sufficient extent and are subject to control by the Swiss Federal Tribunal. The Federal Supreme Court also saw no structural imbalance in the fact that arbitrators had to be selected from a list. Athletes and federations were, according to the Federal Supreme Court, not opposing “camps,” guided by adverse interests, but bound to cooperate in their fight against doping.
Ms. Pechstein took the case to the European Court of Human Rights and brought a constitutional complaint to the German Federal Constitutional Court. The European Court of Human Rights confirmed that CAS’s refusal to grant Ms. Pechstein a public hearing violated article 6(1) ECHR.[14] The Federal Constitutional Court overturned the ruling of the Federal Supreme Court and referred the case back to the Court of Appeal Munich.[15]
The Federal Constitutional Court held that the judgment of the Federal Supreme Court violated Ms. Pechstein’s right to access to justice guaranteed by article 2 (1) in conjunction with article 20 (3) of the German Constitution because the Federal Supreme Court had misjudged the significance of the right to public hearings. The Federal Supreme Court had ignored that the statutes of CAS did not provide for a right to a public hearing, which Ms. Pechstein had unsuccessfully requested in the arbitration proceedings. This did not only violate Ms. Pechstein’s constitutional rights, but also her rights under article 6 (1) of the European Convention on Human Rights (ECHR).
Both under the German Constitution and the ECHR, arbitration proceedings must guarantee effective legal protection and meet minimum standards of the rule of law. For the German Federal Constitutional Court, these standards were not met in the Pechstein arbitration because Ms. Pechstein’s request for a public hearing was rejected by the tribunal.
To avoid any misunderstanding, the German Federal Constitutional Court did not suggest that a public hearing is required for all (commercial) arbitrations. The court confirmed that private arbitration is protected by the freedom of contract pursuant to article 2 (1) and article 12 (1) of the constitution and that voluntary arbitration proceedings can provide for nonpublic hearings. However, waiving the right to access to the state courts by concluding an arbitration agreement in sport is, for the Federal Constitutional Court, not possible without restrictions. On the one hand, an internationally uniform sports jurisdiction is necessary to combat doping in international sports competitions and therefore not constitutionally objectionable as such for the Federal Constitutional Court. On the other hand, both the general right to access to justice and the protection of private autonomy guaranteed by article 2 (1) of the constitution set limits to the possibility of derogation by way of an arbitration agreement. By opening an alternative, nongovernmental possibility of binding dispute resolution for citizens seeking justice, the state must ensure that the arbitral proceedings guarantee effective legal protection and meet minimum standards under the rule of law. Only with these guarantees is it possible for the state to recognize arbitral decisions and enforce them in the exercise of its sovereign power.
According to the Federal Constitutional Court, the conditions under which a public hearing can be dispensed with were not met in the Pechstein case. In this respect, the court confirmed that the violation of the right to a public hearing is not only a violation of a mere procedural provision. Thus, it is irrelevant whether a public hearing was specifically required in the proceedings of Ms. Pechstein or whether such a hearing could have been dispensed with in accordance with the case law of the European Court of Human Rights. Decisive for the Federal Constitutional Court was the fact that the statutes of CAS did not provide for a right to a public hearing even for those cases in which a public hearing is mandatory pursuant to article 6 (1) ECHR. Thus, the normative structure of the arbitral proceedings, which the court considered to be decisive for the effectiveness of the arbitration agreement at issue here, neither satisfied the guarantees of article 6.1 of the ECHR nor the corresponding requirements of Ms. Pechstein’s right to access to justice under German constitutional law.
In an obiter dictum, the Federal Constitutional Court indicated that the structural predominance of the sports associations, particularly in the appointment of the “neutral” third arbitrator, may also violate the right of access to justice under article 2(1) in conjunction with article 20(3) of the constitution. The court stated that it is essential for any judicial activity that it is exercised by a “nonparticipating” third party. This requires neutrality and distance from all parties to the proceedings. Article 101(1) of the German Constitution guarantees that the individual in the specific case stands before a judge who fulfills these requirements. For the Federal Constitutional Court, these principles must also be applied in the design of national or international arbitration proceedings, which must meet the minimum requirements of the rule of law in order to be able to exclude or limit legal protection by the national courts of law.
B.4 District Court Munich hints a potential sea-change in arbitrability of patent matter
In its decision of 25 May 2021, the District Court Munich I dealt with the arbitrability of disputes over the existence of patent rights.[16] While these observations were only presented in the shape of an obiter dictum, they are noteworthy, as they suggest that such disputes should be arbitrable, as opposed to the currently prevailing opinion in Germany.
The respondent had filed a patent application. The claimant put forward a claim for vindication of said patent application. The claimant argued that they were the rightful inventor so that the respondent’s pending patent ought to be transferred to the claimant. The claimant alleged that the respondent had learned about their invention during certain technology tests that the parties had carried out together. Prior to these tests, the parties had entered into a confidentiality agreement, which included an arbitration clause. The claimant asserted that the patent application filed by the respondent some time after the tests was based on the claimant’s technology as disclosed during the tests. Notwithstanding the arbitration clause, the claimant filed its claim for vindication of the patent application with the District Court Munich I. The respondent argued that the action was inadmissible due to the arbitration clause in the confidentiality agreement. The claimant replied that a claim for vindication of a patent was not arbitrable.
In its detailed and well-reasoned decision, the court came to the conclusion that a claim for patent vindication is arbitrable and therefore dismissed the claim as inadmissible. Arbitrability under German law is governed by section 1030 ZPO. According to this provision, any claim involving property rights (vermögensrechtlicher Anspruch) may become the subject matter of an arbitration agreement. An arbitration agreement regarding claims not involving property rights has legal effect insofar as the parties are entitled to settle disputes relating to the object of the dispute. The district court held that a patent right involves economic interests, as the owner can grant licenses against payment to third parties. Only with regard to the existence of patents, the legislature had decided that patents can only be granted and cancelled by state courts. Accordingly, the District Court Munich I held that a claim for vindication of a patent application is arbitrable, as the rights deriving from a patent application can be freely transferred between the parties in accordance with applicable patent law.
The decision of the District Court Munich I is, however, even more noteworthy for the obiter dictum that followed; the court suggested that, contrary to the prevailing opinion in Germany, disputes about the existence of a patent are also arbitrable. The court considered incorrect the legislature’s reasoning that the existence of a patent was not subject to the parties’ disposition, as a patent owner could voluntarily waive its patent right. Accordingly, the district court considered it possible for an arbitral tribunal to order a patent owner to apply for cancellation of the patent with the competent patent authority. Eventually, the court did not have to decide this question. It may, however, be a first indication that German courts might change the approach to the arbitrability of disputes concerning the existence of patents.
B.5 New decision of the Federal Supreme Court on the arbitrability of disputes concerning defects in partnership resolutions (Schiedsfähigkeit IV)
Disputes about the validity of shareholders’ resolutions in limited liability companies or partnership resolutions are a frequent source of court cases and arbitrations. The Federal Supreme Court provided guidance on the arbitrability of such disputes in a string of, for now, four decisions (Schiedsfähigkeit I – IV). The latest of these decisions — Schiedsfähigkeit IV — considers the arbitrability of disputes concerning defects of partnership resolutions.[17] First, the court confirmed that the minimum requirements for arbitration clauses in the articles of association of limited liability companies (as defined in Schiedsfähigkeit II[18]) also apply to partnership agreements. The court further held that it was necessary that such partnership agreements also provide that the arbitral proceedings not only concern the relationship between the partners, but also the relationship between the partner claiming that the resolution is void and the partnership as such. In this regard, the Federal Supreme Court departed from its previous case law, according to which arbitration clauses in partnership agreements were considered valid without this additional requirement.
[1] The Baker McKenzie International Arbitration Yearbook 2017-2018, Germany, A.1.
[2] The Baker McKenzie International Arbitration Yearbook 2020-2021, Germany, A.1.
[3] The Baker McKenzie International Arbitration Yearbook 2020-2021, Germany, A.2.
[4] File no. KZB 75/21, SpuRt 2023, 50.
[5] Judgments of 25 October 1966, file no. KZR 7/65, BGHZ 46, 365 and of 27 February 1969, file no. KZR 3/68, GRUR 1969, 501.
[6] File no. 26 Sch 12/20, NZKart 2022, 89.
[7] Orders of 23 July 2020, file no. I ZB 88/19, SchiedsVZ 2021, 46 and of 4 November 2021, file no. I ZB 54/20, NJW 2022, 245.
[8] File no. 26 Sch 19/21, SchiedsVZ 2022, 351.
[9] This is in line with the prevailing opinion in academic literature, cf. Haller, SchiedsVZ 2011, 179.
[10] The Baker McKenzie International Arbitration Yearbook 2010-2011, Switzerland, B.10; The Baker McKenzie International Arbitration Yearbook 2014-2015,Germany, B.3; The Baker McKenzie International Arbitration Yearbook 2016-2017, Germany, B.2.
[11] File no. 37 O 28331/12, SchiedsVZ 2014, 100, The Baker McKenzie International Arbitration Yearbook 2014-2015,Germany, B.3.
[12] Judgment of 15 January 2015, file no. U 1110/14 Kart, SchiedsVZ 2015, 40,The Baker McKenzie International Arbitration Yearbook 2016-2017, Germany, B.2. As a reaction to the decision of the Court of Appeal Munich, the German parliament enacted an Anti-Doping Act in November 2015 that includes a provision on sports arbitration. According to section 11 of the Act, sport associations and athletes may conclude arbitration agreements as a prerequisite for the participation of athletes in sport competitions and tournaments if the arbitration agreements involve the sport associations and athletes in national or international sport organizations and have, as their goal, to organize, promote or secure such sport events. This prerequisite is met in particular if the arbitration agreement is supposed to enforce the anti-doping codes of the World Anti-Doping Agency. Section 11 of the Anti-Doping Act, cf. The Baker & McKenzie International Arbitration Yearbook 2015-2016, p. 123.
[13] Judgment of 7 June 2016, file no. KZR 6/15, NJW 2016, 2266; English translation and annotation Rombach in SchiedsVZ 2016, 268, The Baker McKenzie International Arbitration Yearbook 2016-2017, Germany, B.2.
[14] Judgment of 2 October 2018, file no. 67474/10.
[15] File no. 1 BvR 2103/16, SchiedsVZ 2022, 296.
[16] File no. 21 O 8717/20, SchiedsVZ 2022, 98.
[17] File no. I ZB 13/21, SchiedsVZ 2022, 86.
[18] File no. II ZR 255/08, NJW 2009, 1962.
