The Bavarian Highest Regional Court (“BayObLG”) recently reaffirmed the stringent standards German courts apply when evaluating allegations of arbitrator bias. In its decision of November 7, 2024, the court rejected a challenge against a presiding arbitrator, emphasizing that neither procedural errors nor preliminary assessments raise justified doubts concerning impartiality. This ruling underscores the German courts’ thorough approach to arbitrator challenges. Moreover, the court endorses that the arbitral tribunal expressed its preliminary view on the case. This is a typical and helpful feature used in German state court proceedings.
Factual Background
The challenge against the arbitrator arose from an arbitration governed by the arbitration rules of the German Lawyers’ Association for Construction and Real Estate Law (“SOBau”). The dispute concerned fees for technical planning services in a construction project, involving claims and counterclaims totaling several million euros. Prior to this arbitration, the arbitrator had also chaired proceedings between the same parties concerning declaratory relief on whether the declared termination of the planning contract was a valid termination for cause.
During the second arbitration proceeding, the respondents challenged the impartiality of the presiding arbitrator, citing several procedural decisions and statements that, although individually seemingly minor, allegedly created serious doubts about the arbitrator’s impartiality when viewed cumulatively. Key grievances included (i) perceived differential treatment in procedural decisions, particularly regarding extensions of deadlines, and (ii) a preliminary legal assessment made by the arbitrator which respondents viewed as prejudicial.
The arbitral tribunal dismissed the challenge, finding no objective grounds to justify doubts regarding the arbitrator’s impartiality. The respondents subsequently applied for the BayObLG’s decision on the challenge according to Section 1037(3) of the German Code of Civil Procedure (Zivilprozessordnung or “ZPO”).
The Decision
The BayObLG dismissed the respondents’ application, finding that there were no justifiable doubts regarding the presiding arbitrator’s impartiality.
1. Timeliness of Challenge
Section 1037 (2) ZPO requires a party wishing to challenge an arbitrator to submit the grounds for the challenge to the arbitral tribunal in writing within two weeks of becoming aware of any circumstance that raises doubts about impartiality. In the case at hand, respondents also relied on aspects that they had not criticized within the two-week deadline. The BayObLG, in a side note, stated that older circumstances could be considered if part of a cumulative case for bias. However, as the alleged grounds for bias were deemed insufficient, the court did not need to definitively rule on the timeliness of all aspects of the challenge.
2. High Threshold for Arbitrator Challenges
The BayObLG emphasized that the standard applied for challenging arbitrators mirrors that of challenging state court judges. Challenges require objective circumstances that would lead a reasonable third party to doubt impartiality. Subjective dissatisfaction with procedural decisions or the outcome of the proceedings does not suffice. Rather, there must be an objective reason that, from the point of view of the challenging party, could reasonably give rise to the fear that the arbitrator is not impartial. It is not necessary that the arbitrator is actually biased; even the appearance of any possible lack of impartiality and objectivity should be avoided.
3. Pragmatic Considerations as such: No Grounds for Challenge
During the proceedings for declaratory relief, respondents had argued that the application for declaratory relief was inadmissible. In that context, the arbitrator had stated that deciding on the application would be a pragmatic way forward, as the tribunal had already assessed details of the case. The BayObLG clarified that such a remark, even though potentially ambiguous, does not inherently demonstrate bias. In the case at hand, the arbitral tribunal nevertheless had decided on the admissibility of the application based on legal grounds. Therefore, the BayObLG held that the remark did not indicate a departure from objectively applying the law and facts.
4. Expressing Preliminary Views: No Grounds for Challenge
In an early hearing, the arbitral tribunal provided a preliminary legal assessment of the case. This, according to the BayObLG, is no grounds for challenge. The BayObLG expressly stated that the state courts, as a matter of principle, do not review the legal opinions of arbitral tribunals and do not assess their correctness. This applies both to the review of arbitral awards and, even more so, to the question of possible bias. A fortiori, an arbitrator’s statements on the preliminary assessment of the factual and legal situation are generally not suitable to justify concerns of bias. Rather, such statements serve to reveal the current assessment to the parties at an early stage, so that in particular the party for whom the opinion is unfavorable is protected from a surprise decision and can make further submissions regarding the statements in factual and legal terms.
The BayObLG also explicitly found that preliminary legal assessments do not need to be reasoned to the same extent as final awards. Therefore, the fact that the preliminary assessment does not take into account all the arguments raised by the respondents does not raise doubts about impartiality.
Possible bias could only be inferred from a preliminary assessment if the specific circumstances of the individual case clearly and exceptionally showed that the arbitral tribunal was not (or no longer) prepared to consider justified objections to the preliminary opinion before reaching a final decision.
5. Protocol and Documentation Requirements
Respondents criticized the tribunal for not documenting certain arbitrator statements in the hearing protocol. The BayObLG clarified that, absent explicit procedural rules or agreements, arbitrators have discretion regarding procedural documentation. Against that background, the fact that specific statements were not included in the hearing protocol was deemed insufficient to establish an inference of bias, as the essential procedural obligations concerning the protocol were adequately fulfilled.
6. Procedural Errors (here: Handling of Deadline Extensions) Can Only Raise Doubts About Impartiality if Decision is Arbitrary or Clearly Unjustified
The BayObLG also addressed the respondents’ concerns about differential treatment regarding deadline extensions. The court held that simply treating parties differently could, at most, amount to a simple procedural error. Such errors, in the view of the court, do not substantiate a valid bias claim, as arbitrator challenges are not intended as a tool for procedural oversight. Furthermore, in the case at hand, the arbitral tribunal had reasons for such differential treatment.
Importantly, the BayObLG distinguished between simple procedural errors and qualified procedural errors, specifying that only arbitrary or clearly unjustified decisions that significantly disadvantage one party could raise legitimate concerns of bias.
7. Accumulation of Circumstances: Potential to Establish Bias
The BayObLG, in principle, seems to acknowledge that multiple incidents might cumulatively be capable of establishing bias. However, the court does not provide reasoning on this aspect. This is because, according to the BayObLG, the individual circumstances, on which the respondents relied, did not raise doubts about impartiality. The respondents failed to show that the aggregation of the arbitrator’s decisions and statements reached the threshold of objectively reasonable suspicion of bias.
Conclusion
The BayObLG upholds the stringent requirements for successful arbitrator challenges under German law. The decision clarifies again that only objectively verifiable and serious procedural deficiencies indicative of bias justify judicial intervention. The ruling thus ensures arbitration remains an efficient dispute resolution mechanism, free from undue interference by state courts.
This judgment aligns with Germany’s arbitration-friendly framework, promoting procedural discretion and judicial predictability while safeguarding against potential misuse of arbitrator challenge proceedings.
Finally, the decision also confirms that in arbitration proceedings seated in Germany expressing preliminary views on the case is no sign of bias. Expressing preliminary views, which is a common tool in German state court proceedings, helps the parties to concentrate on issues in their submissions that the tribunal finds relevant for its decision. This significantly increases the efficiency of the proceedings.
