Germany moves forward with arbitration reform

German arbitration law was last overhauled substantially more than 25 years ago. Efforts to modernise the law and to reinforce Germany’s popularity as a seat of arbitration are now underway. As reported earlier on ArbitrationLinks, the German Federal Ministry of Justice published a key issues paper in April of last year. The Ministry has now followed up with a draft ministerial bill.

The draft bill does not aim for a fundamental reworking of current arbitration law (i.e. chapter 10 of the German Code of Civil Procedure, which is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”)), but rather for selective adjustments. These adjustments are focused on codifying aspects of arbitration not covered by existing law but already addressed by practice, arbitral institutions and other jurisdictions’ arbitration laws, on implementing 2006 changes to the UNCITRAL Model Law and on addressing the “continuously advancing digitalisation of procedural law”.

The draft ministerial bill implements all twelve reform proposals set out in the 2023 key issues paper. A few highlights:

Implementing the 2006 Model Law revisions

While Germany’s arbitration law is based on the UNCITRAL Model Law, it is far from a verbatim adoption. The draft bill maintains this approach in implementing the 2006 revisions to the Model Law. For example, the draft bill would allow for submitting arbitral awards in proceedings for the declaration of enforceability in English in addition to German, but would still require a certified copy, rather than a simple copy as proposed in the Model Law.

Following option II of Article 7 of the Model Law, the draft bill would enable arbitration agreements for commercial transactions to be concluded without adhering to any form requirements. The draft bill also would admit the enforcement of interim measures issued by foreign arbitral tribunals, as suggested by the Model Law.

Court proceedings supporting arbitration

The most significant changes proposed by the draft bill relate to the conduct of arbitration-related court proceedings. The draft bill recognises that in “the world of international arbitration, English is regarded as ‘lingua franca’”. To that end, the draft bill allows English-language documents originating from the arbitral proceedings to be submitted in arbitration-adjacent court proceedings (such as annulment or enforcement) without German translations.

Going one step further, the draft bill is linked to simultaneous legislative efforts to expand the prevalence and competences of commercial courts in Germany. Before such courts, the parties could opt to conduct arbitration-adjacent court proceedings entirely in English.

Digitalisation and further modernisation measures

A few additional points central to the proposed amendments:

• With digitalisation in mind, the draft bill clarifies the legality of virtual hearings and would dispense with the requirement of wet-ink signatures of arbitral awards, allowing arbitral tribunals to sign by qualified electronic signature.
• The draft bill furthermore clarifies that arbitrators may render dissenting or concurring opinions, a point that was, as reported earlier, brought into question by a controversial decision of the Higher Regional Court Frankfurt in 2020.
• Noting that “commercial arbitration increasingly has been looking for ways to make arbitral proceedings more transparent without impinging on their confidentiality”, the draft bill includes a provision on the publication of awards, stating that the arbitral tribunal may publish the award with the consent of the parties and that such consent shall be deemed to be given unless a party objects to publication after the tribunal requests such consent.
• The draft bill recognises the prevalence of multi-party arbitration and includes a default mechanism for appointing arbitrators (“joined parties are to jointly make the appointment of an arbitrator that is incumbent on them”).
• The draft bill creates an extraordinary legal remedy – a “request for retrial of the case” – allowing for an arbitral award to be set aside by a court also after the three-month period to seek annulment has lapsed, if circumstances that would be grounds for retrial in litigation are met (e.g. if a judgment was obtained by criminal offence in connection with the legal dispute or where documents were falsified).

Ideas not implemented in the draft bill

In addition to its core proposals, the 2023 key issues paper raised four additional ideas the ministry wanted to subject to “open-ended examination”. Of those ideas, only the clarification regarding dissenting opinions has made it into the draft bill. Provisions on emergency arbitrators, joint chambers between multiple Higher Regional Courts for arbitration-related proceedings and shifting of responsibility for court assistance in taking evidence from local courts to Higher Regional Courts were not realised.

Outlook

The proposals put forward by the ministry have largely been received as welcome clarifications and carefully considered evolution of existing arbitral law. The biggest changes do not interfere with the arbitral process but seek to make German arbitration-related court proceedings more user friendly, especially for international parties.

The Federal Ministry of Justices has called on stakeholder comments by 14 March 2024. The ministry has published an English translation of the draft bill, easing the international arbitration community’s ability to weigh in on the proposal and reinforcing the government’s commitment to boost Germany’s attractiveness as a venue for arbitration. A draft ministerial bill is typically revised several times prior to being adopted as a government bill and submitted to the legislature for a vote.