In its decision I ZB 42/25 of 18 December 2025, the German Federal Court of Justice clarified when legal disputes may be remitted to an arbitral tribunal pursuant to Section 1059(4) German Code of Civil Procedure.
Under Section 1059(4) German Code of Civil Procedure, a state court that sets aside an arbitral award may remit the case to the arbitral tribunal. There has been uncertainty about whether this is possible when the award was set aside due to a violation of the right to be heard under Article 103(1) Basic Law (German equivalent to a constitution). The doubts arise because, in cases of serious violations of the right to be heard, it is questionable whether the arbitral tribunal can issue an unbiased and error-free award upon reconsideration.
Factual Background
The case concerned the payment of milestone-based earn-outs following a SPA in the pharmaceutical industry. The arbitral tribunal had ordered the respondent to pay USD 46.43 million because it had, contrary to good faith within the meaning of Section 162 of the German Civil Code, prevented the occurrence of a milestone event, and therefore the condition was deemed to have been fulfilled.
The respondent challenged this award before the Bavarian Highest Regional Court and the German Federal Court of Justice. The Bavarian Highest Regional Court found, among other things, that the arbitral award violated the respondent’s right to be heard with respect to both the finding of a breach of duty and the causality of the breach for the non-occurrence of the milestone event. Nevertheless, despite this violation of the right to be heard, the court remitted the case to the arbitral tribunal pursuant to Section 1059(4) German Code of Civil Procedure.
The German Federal Court of Justice concurred with the legal view of the Bavarian Higher Regional Court and provided a textbook explanation of the prerequisites under which a remittal to the arbitral tribunal pursuant to Section 1059(4) German Code of Civil Procedure may take place.
Remittal to the Arbitral Tribunal under Section 1059(4) German Code of Civil Procedure
Section 1059(4) German Code of Civil Procedure allows a court to set aside an arbitral award and remit the case to the arbitral tribunal:
If the setting aside has been requested, the court may, in appropriate cases and upon application by a party, remit the case to the arbitral tribunal after setting aside the arbitral award.
The German Federal Court of Justice’s Interpretation
The German Federal Court of Justice considered whether a case may be remitted to the arbitral tribunal even when the arbitral award was rendered in violation of the right to be heard. Prior case law showed some uncertainty as to when such a violation precludes remittal.
The First Civil Senate of the German Federal Court of Justice first noted that remittal under Section 1059(4) German Code of Civil Procedure is only appropriate when the defect in the arbitral proceedings can be remedied through remittal. The Court then interpreted Section 1059(4) German Code of Civil Procedure to confirm that not every violation of Article 103(1) Basic Law rules out remittal:
Wording: The wording of Section 1059(4) German Code of Civil Procedure provides no indication for a restrictive interpretation. The legislature did not limit remittal to less serious grounds for setting aside. Such a restriction would also contradict the principle of the révision au fond, under which arbitral awards may only be set aside for serious procedural defects anyway.
Historical Context: When Section 1059(4) German Code of Civil Procedure was introduced, the legislature assumed that the original arbitral tribunal would not repeat its procedural errors. This corresponds to the practice in state court proceedings, where cases may also be remitted even after a violation of the right to be heard – see, for example, Section 544(9) German Code of Civil Procedure.
Purpose of the Provision: Section 1059(4) German Code of Civil Procedure promotes procedural economy. Remittal enables a time and cost‑efficient resolution of the dispute. This objective would be undermined by an interpretation excluding remittal in cases where violations of the right to be heard are typically alleged in annulment proceedings.
Systematic Considerations: The German Federal Court of Justice also emphasized that Section 1059(4) German Code of Civil Procedure is not an exceptional provision and clarified its relationship to Section 1059(5) German Code of Civil Procedure. Section(5) German Code of Civil Procedure only clarifies that it is the parties’ general will to conduct arbitral proceedings and not state court proceedings after the annulment of an arbitral award.
Discretion of the Competent State Court
Whether a case is suitable for remittal under Section 1059(4) German Code of Civil Procedure depends solely on the circumstances of the individual case. The competent court has discretion in determining suitability. Remittal is excluded where the defect is so serious – such as an obvious and grave violation of the right to be heard – that it raises doubts regarding the impartiality of the arbitral tribunal. However, even multiple violations of the right to be heard do not necessarily amount to an obvious and grave violation.
Conclusion
The German Federal Court of Justice’s decision is welcome, as it provides a textbook‑like explanation of when a case is suitable for remittal to the arbitral tribunal. Regardless of the legal clarification of the requirements for remittal, practical problems may arise in remittal proceedings because a considerable amount of time usually passes between the issuance of the arbitral award and its annulment.
