A. LEGISLATION AND RULES
A.1 Legislation
In the 2023-2024 edition of this Yearbook, we had reported about the Federal Ministry of Justice’s key issues paper on the modernization of German arbitration law dated 18 April 2023 and the respective draft bill published on 1 February 2024[1]. The paper and the bill were aimed at adapting the law to current requirements and to increase Germany’s attractiveness as an arbitration venue. The proposed arbitration law reform was intended to complement the Ministry’s parallel legislative project on commercial courts.[2] The 12 points on which a reform of arbitration law was planned were covered in the 2024 edition of this Yearbook. The German arbitration community largely welcomed the reform proposal. There were, however, numerous critical voices regarding the proposal to abolish the need for a written arbitration agreement.
On 26 June 2024, the German government went on to pass the draft bill on the modernization of the German arbitration law largely unchanged. Having discussed the draft in a first session on 17 October 2024, the German Bundestag referred the bill, as expected, to the Legal Affairs committee. In a public hearing of this committee on 4 December 2024, numerous German arbitration practitioners recommended an adoption of the law in the current legislative term. Most of them stressed that they would rather have the law in this legislative term – including the largely criticized plan to abolish the need for a written arbitration agreement – than having to wait a considerable amount of time for a more refined draft.[3] Unfortunately, the bill was not put to a vote on the last day of the session before the federal elections on 23 February 2025 and failed on the principle of discontinuity. The reform project will have to start again in the next session. This will provide an opportunity to address some of the criticisms of the old bill and to further improve German arbitration law.
The bill did not deal with the use of artificial intelligence (AI) in arbitration. This may be surprising since AI tools, for example for the translation of documents, (audio) transcription or document review and research, are being used frequently in arbitration proceedings and this trend will continue. AI systems can already propose decisions about specific legal issues based on a given set of facts. In view of the rapid development of AI, it is only a matter of time until AI systems will also be able to decide complex commercial disputes.
AI systems therefore can constitute a serious threat for the integrity of the arbitration process. From AI-generated expert reports (or even awards) to AI hallucinations of non-existent facts or laws, the risks are manifold. Even when an AI system works properly, it poses challenges for the proceedings. If an AI expert system is a “black box” not “explaining” how the algorithm arrived at a certain conclusion, how can an arbitral tribunal then rely on its output and be sure that the AI system is not biased? Tribunals must base their decisions on the facts of the case, so they need to understand the evidence. Furthermore, if an AI document review reveals a cause for (or a defense against) a disputed claim, may the arbitral tribunal take such “excessive evidence” into account although the parties did not deal with it in their submissions?
German law does not yet have clear answers to the many potential issues related to AI. As in most other countries, the specific legal framework for using AI in dispute resolution is still developing and the constitutional and legal boundaries for the use of AI systems are the subject of intense debate amongst legal scholars and practitioners.
Apart from the German constitution, two EU regulations dealing with, inter alia, the use of AI in dispute resolution proceedings contain some guidance. Regulation (EU) 2016/679 (the General Data Protection Regulation, GDPR) provides that “the data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly significantly affects him or her” unless the decision “is based on the data subject’s explicit consent.”[4] Even where such consent is given, “the data controller shall implement suitable measures to safeguard the data subject’s rights and freedoms and legitimate interests, at least the right to obtain human intervention on the part of the controller, to express his or her point of view and to contest the decision.”[5] This excludes the possibility of using an AI system for the autonomous decision of a dispute between natural persons without human involvement and control. Natural persons could therefore not agree that a computer should act as arbitrator and that the decisions of the software should be final and binding for the parties. Since the provision of justice by the state through courts or arbitral tribunals (Justizgewährungsanspruch) is a fundamental requirement of the rule of law, the same applies to disputes among legal persons.
The second EU regulation dealing with the use of AI systems for dispute resolution is the Artificial Intelligence Act (“AI Act“) which entered into force on 1 August 2024.[6] Article 3 (1) of the AI Act defines an AI system as “a machine-based system that is designed to operate with varying levels of autonomy and that may exhibit adaptiveness after deployment, and that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments.”
While the AI Act confirms that such systems contribute to “a wide array of economic, environmental and societal benefits across the entire spectrum of industries and social activities” (recital 4), the AI Act is concerned that “depending on the circumstances regarding its specific application, use, and level of technological development, AI may generate risks and cause harm to public interests and fundamental rights that are protected by Union law. Such harm might be material or immaterial, including physical, psychological, societal or economic harm” (recital 5). To meet the challenges which AI systems may create, the AI Act applies a risk-based approach: The higher the risk of an AI system is classified, the stricter the rules that apply.
As to dispute resolution, the AI Act acknowledges that the use of AI tools can support the decision-making power of judges but emphasizes that such tools may not replace the judges and that the final decision-making must remain “a human-driven activity” (recital 61). Given the speed of technological development, the risk that such a replacement could occur is high.
Thus, the AI Act considers AI systems “intended to be used by a judicial authority [i.e., court] or on their behalf to assist a judicial authority in researching and interpreting facts and the law and in applying the law to a concrete set of facts, or to be used in a similar way in alternative dispute resolution [i.e. arbitration]” to be high-risk. Exceptions are made for systems which do not pose “a significant risk of harm to … fundamental rights of natural persons, including by not materially influencing the outcome of decision making”.[7] Such exceptions are assumed if an AI system is intended to:
- perform a narrow procedural task,
- improve the result of a previously completed human activity,
- detect decision-making patterns or deviations from prior decision-making patterns and is not meant to replace or influence the previously completed human assessment, without proper human review; or
- perform a preparatory task to an assessment relevant for the dispute resolution process.
Although the AI Act does not prohibit a high-risk AI system per se, it requires several safeguards, namely that:
- a risk management system is established, implemented, documented and maintained (article 9 AI Act),
- the system is developed based on training, validation and testing data sets that meet certain quality criteria (article 10 AI Act),
- a technical documentation is drawn up before the system is placed on the market or put into service and this documentation is kept up-to date (article 11 AI Act),
- the system technically allows for the automatic recording of events (logs) over its lifetime (article 12 AI Act),
- the system is designed and developed in such a way as to ensure that its operation is sufficiently transparent to enable deployers to interpret the system’s output and to use it appropriately (article 13 AI Act),
- the system is designed and developed in such a way that it can be effectively overseen by natural persons during the period in which it is in use (article 14 AI Act), and
- the system is designed and developed in such a way that it achieves an appropriate level of accuracy, robustness, and cybersecurity throughout its lifecycle (article 15 AI Act).
In addition, the AI Act has created several obligations for the providers, importers, and distributors of high-risk AI systems (articles 16 – 25 AI Act) and for the deployers of such systems (articles 26 and 27 AI Act). A “deployer” is defined in article 3(4) AI Act as “any natural or legal person, public authority, agency or other body using an AI system under its authority except where the AI system is used in the course of a personal non-professional activity.” Arbitrators clearly are deployers in the meaning of this provision.
As deployers, arbitrators have to “take measures to ensure, to their best extent, a sufficient level of AI literacy of their staff and other persons dealing with the operation and use of AI systems on their behalf, taking into account their technical knowledge, experience, education and training and the context the AI systems are to be used in, and considering the persons or groups of persons on whom the AI systems are to be used” (article 4 AI Act).
A.2 Institutions, rules and infrastructure
In the 2022-2023 edition of this Yearbook, we had reported that the German Arbitration Institute (DIS) had created several working groups to discuss various aspects of DIS arbitration[8]. In 2024, the working group “Technology in Arbitration” published its report which deals with a wide range of issues relating to the use of technology in arbitral proceedings.[9]
One of the topics discussed by the working group was the use of large language models in arbitration. The discussion focused on the use and the functionalities of these models and the concerns regarding transparency and confidentiality. The report included several recommendations for parties, arbitrators, and the DIS.
So far, the DIS has not passed guidelines for the use of AI in arbitration. The Silicon Valley Arbitration and Mediation Center (SVAMC) still seems to be the only arbitral institution with such guidelines.[10]
B. CASES
B.1 A party unconditionally honoring an arbitral award by making the due payment can lose the right to challenge the award
On 26 October 2023, the German Federal Court of Justice issued a decision that serves as a cautionary tale for parties seeking to honor arbitral awards to stop the accrual of interest while still considering challenging the award.[11]
The parties had conducted an arbitration under the auspices of the DIS regarding an offshore wind farm project. In March 2021, the unsuccessful party was ordered to pay approximately EUR 45 million. A few days after receiving the award, the in-house counsel of the unsuccessful party contacted the in-house counsel of the opposing party with the following message: “We are still reviewing the award but have started working on the payment in parallel. Maybe we can even transfer by the end of the week, but a lot of alignment is required, as you can imagine.” Two days later, the same in-house counsel sent another email stating, among other things, “With reference to the final award in the arbitral proceedings DIS, my client intends to pay the awarded amount to your client immediately. For this purpose, a bank account number is needed.” From further correspondence, it appeared that the unsuccessful party intended to make a prompt payment to avoid the accrual of further interest. However, the party did not indicate that it was contemplating initiating challenge proceedings regarding the award.
About a week later, the unsuccessful party made the payment. In June 2021, the unsuccessful party filed an application with the competent Hanseatic Higher Regional Court Hamburg, partly challenging the final award. The higher regional court rejected the challenge. On appeal by the applicant, the Federal Court of Justice set aside the order of the higher regional court and remanded the case to the higher regional court for a new decision. The Federal Court of Justice held that challenging an arbitral award requires that the applicant is “aggrieved” by the award and furthermore confirmed, based on previous case law, that a party is no longer aggrieved by an award if the party has made an unconditional payment of the amount due under the award. Such payment effectively removed the interest of the unsuccessful party in having the decision set aside, the court said. Whether a payment is unconditional is to be determined objectively from the perspective of the creditor. In this case, it was unclear whether, from the perspective of the opponent, the payment was to be considered unconditional. Since the assessment of the facts was reserved to the Higher Regional Court Hamburg as the court of fact, and could only be reviewed by the Federal Court of Justice as the court of appeal for procedural errors or violations of recognized principles of interpretation, laws of thought or principles of experience, and since the order of the higher regional court lacked such an assessment of facts, the case was remanded. The higher regional court was ordered to determine whether the applicant had clearly indicated at the time of payment that it was still considering challenging the award and therefore only making the payment provisionally to avoid enforcement measures and/or the accrual of further interest. The decision highlights the need to make it noticeably clear that a party reserves the right to challenge the arbitral award if payments are made to avoid the accrual of further interest.
B.2 Arbitration admissible despite foreign law rendering arbitration agreement invalid and creating exclusive jurisdiction of foreign court
Disputes over the effectiveness of jurisdiction and arbitration clauses in commercial contracts following the Russian war of aggression against Ukraine and the subsequent sanctions imposed on Russia have repeatedly been the subject of reports in this yearbook and on our Global Arbitration News blog.[12]
As a reminder, after Russia had occupied Crimea in 2014, the EU and other states had imposed sanctions against Russia. In 2020, the Russian parliament adopted Federal Law 171-FZ “to protect the right to access to justice of sanctioned parties.” Law 171-FZ added articles 248.1 and 248.2 to the Russian Arbitrazh Procedure Code (APC), which, in a nutshell, provide for the exclusive jurisdiction of the Russian state commercial courts (“Arbitrazh Court(s)“) over disputes involving sanctioned persons or relating to sanctions. The new provisions overturn jurisdiction or arbitration agreements providing for litigation or arbitration outside Russia. Moreover, the Arbitrazh Courts are authorized to issue anti-suit injunctions against a party which has or intends to initiate foreign proceedings. If the party does not comply with the injunction and initiates or continues foreign proceedings, the Arbitrazh Court can award the amount sought by the party in the foreign proceedings as a penalty for failure to comply with the injunction.
The Russian legislation triggered complex disputes over jurisdiction with parallel litigation and arbitration proceedings in and outside of Russia. In one of these cases, the Higher Regional Court Berlin had to decide whether articles 248.1 and 248.2 APC did render an arbitration agreement invalid.[13]
The case related to a contractual dispute between a German and a Russian party. After the beginning of the Russia/Ukraine war, the German party had terminated the contract to comply with the sanctions. The Russian party considered the termination to be invalid. The contract provided for Vienna International Arbitral Centre (VIAC) arbitration in Vienna, but the Russian party sued the German party in Russia, seeking specific performance of the contract. In addition, it applied for an anti-suit injunction against possible VIAC arbitration. The German party then asked the Higher Regional Court Berlin for a declaration that VIAC arbitration was admissible. Such a request is possible under section 1032 (2) of the German Code of Civil Procedure (ZPO). According to this provision, until the arbitral tribunal has been formed, a request may be filed with the court to have it determine the admissibility or inadmissibility of arbitral proceedings. The Russian party did not participate in the German proceedings.
The Higher Regional Court Berlin declared that VIAC arbitration was admissible “to the exclusion of state courts.” For the court, the European sanctions did not render the arbitration agreement inoperable. As to articles 248.1 and 248.2 APC, the court considered them to be irrelevant and held that the arbitral tribunal was the appropriate body to decide about the validity of the arbitration agreement.
Unfortunately, a section 1032 (2) ruling is a blunt sword because it has only a declaratory effect. Other than an anti-suit injunction, it is not enforceable. The court cannot order, under threat of a fine or liability for damages, that the opponent complies with a valid jurisdiction or arbitration agreement and abstains from filing a suit against the applicant with a Russian Arbitrazh Court. The declaration may help to dispel doubts on the part of potential arbitrators that arbitration proceedings are admissible, but it is unlikely that such a court declaration will make a strong impression on the Russian opponent.
B.3 No anti-anti-suit injunction against Russian anti-suit injunction ordering to withdraw a request for arbitration in Stockholm
On 16 June 2024 the Higher Regional Court Düsseldorf refused to grant a worldwide “anti-anti-suit injunction” against an anti-suit injunction of a Russian Arbitrazh Court.[14] The case related to a dispute between a German and a Russian party. The underlying contracts provided for the supply of gas by the Russian party and were governed by Swiss law. Each contract contained arbitration clauses providing for arbitration in Stockholm. From mid-June 2022, the Russian party only supplied reduced quantities of gas and stopped supply by the end of August 2022. The German party filed a request for arbitration before an ad hoc arbitration tribunal seated in Stockholm in November 2022.
In March 2024, the Arbitrazh Court in St. Petersburg issued an anti-suit injunction against the German party and ordered under threat of a penalty that the German party withdraw the request for arbitration. The German party therefore asked the District Court Düsseldorf to grant an anti-anti-suit injunction against the Russian opponent. The district court dismissed the application, and this decision was confirmed by the higher regional court.
The higher regional court had doubts whether an injunction against a foreign anti-suit injunction was admissible under German law. From the perspective of German law, anti-suit injunctions are inadmissible since they violate the principle of territoriality and constitute at least an indirect encroachment on foreign judicial sovereignty and the right of access to the foreign court. According to the higher regional court, the same applies to anti-anti-suit injunctions.
The Higher Regional Court Düsseldorf left open whether an injunction against a foreign anti-suit injunction was exceptionally permissible if the foreign injunction aimed at the judicial sovereignty of Germany and the right of access to a German court. In the case at hand, the Russian anti-suit injunction was directed against arbitral proceedings in Sweden. Since no court proceedings conducted in Germany were affected by the anti-suit injunction of the Russian Arbitrazh Court, the German courts could not be called upon to counteract. For the higher regional court, the right of access to justice does not include the protection of foreign proceedings (in the case at hand Stockholm arbitration) from a foreign anti-suit injunction and the principle of territoriality and essential elements of state sovereignty of Russia therefore prevailed.
[1] The Baker McKenzie International Arbitration Yearbooks 2023-2024, Germany, A.1.
[2] For details see Juergen Mark, Germany wants to introduce English speaking commercial courts, Global Litigation News (https://globallitigationnews.bakermckenzie.com/2023/02/15/germany-wants-to-introduce-english-speaking-commercial-courts/).
[3] https://betriebs-berater.com/32372/2025/bt-ausschuss-recht-experten-begruessen-schiedsverfahrensreform-trotz-einwaenden/.
[4] Article 22 (1) and (2) Regulation (EU) 2016/679.
[5] Article 22 (3) GDPR.
[6] Regulation (EU) 2024/1689 of 13 June 2024 laying down harmonised rules on artificial intelligence and amending Regulations (EC) No 300/2008, (EU) No 167/2013, (EU) No 168/2013, (EU) 2018/858, (EU) 2018/1139 and (EU) 2019/2144 and Directives 2014/90/EU, (EU) 2016/797 and (EU) 2020/1828.
[7] Article 6 (2) and (3) in conjunction with Annex III No. 8 lit. of the AI Act (text in brackets added).
[8] The Baker McKenzie International Arbitration Yearbooks 2022-2023, Germany, A.2.
[9] https://www.disarb.org/en/networks-young-talent/2018-dis-arbitration-rules-clinic/practice-group-technology-en.
[10] Guidelines on the Use of Artificial Intelligence in Arbitration, https://svamc.org/wp-content/uploads/SVAMC-AI-Guidelines-First-Edition.pdf.
[11] Federal Supreme Court, Order of 26 October 2023, I ZB 14/23, SchiedsVZ 2024, 254.
[12] Cp. Baker McKenzie International Arbitration Yearbook 2018-2019, chapter on Russia, B 6 (https://www.globalarbitrationnews.com/2021/01/01/baker-mckenzie-international-arbitration-yearbook-2020-2021-russia/); Baker McKenzie, Disputes involving sanctions against Russian persons must now be settled in the Russian state courts, Global Arbitration News (https://www.globalarbitrationnews.com/2020/07/09/disputes-involving-sanctions-against-russian-persons-must-now-be-settled-in-the-russian-state-courts/); Juergen Mark/Olena Oliinyk, The consequences of the sanctions against the Russian Federation and of the Russian countermeasures for international arbitration, Global Arbitration News (https://www.globalarbitrationnews.com/2022/07/27/the-consequences-of-the-sanctions-against-the-russian-federation-and-of-the-russian-countermeasures-for-international-arbitration/#_ftn3).
[13] Higher Regional Court Berlin, Order of 1 June 2023, 12 SchH 5/22, SchiedsVZ 2024, 218.
[14] Higher Regional Court Düsseldorf, Order of 17 June 2024, I-26 W 7/24, SchiedsVZ 2024, 262.
