Ministry of Justice to modernise German arbitration law

The modernisation of arbitration in Germany has been a frequently discussed topic in recent years. Many calls have been made for reforms to make arbitration more efficient, more cost-effective and more attractive for the parties and to strengthen Germany as a modern arbitration location. In response to these demands, the Federal Ministry of Justice published on 18 April  a paper on the modernisation of the German  arbitration law (available only in German). The twelve key points contained in the paper, as well as four other announced topics, which are to be further discussed, lay the foundation for the drafting of a reform law that is intended to breathe new life into the German arbitration law contained in the 10th Book of the Code of Civil Procedure (ZPO), which was last comprehensively revised 25 years ago.

The proposed amendments include various proposals to make the arbitration process more streamlined, cost-effective and predictable.

Freedom of form for arbitration agreements in commercial transactions

The planned amendments to section 1031(5) ZPO relate to the conclusion of arbitration clauses in contracts. Under German law, the conclusion of an arbitration clause is currently subject to certain formal requirements. Under the planned amendments, an arbitration clause would be valid if it is contained either in a document signed by the parties or in a letter, fax or e-mail exchange providing evidence of the agreement. This is intended to eliminate doubt regarding the conclusion of arbitration agreements by electronic communication. At the same time, it is planned that a simplified oral conclusion of arbitration agreements would be possible in commercial transactions. For consumer arbitration agreements, however, the current high level of protection is to remain as it is. The aim is to create more clarity and certainty for parties in order to avoid disputes about the validity or enforceability of such clauses. This can save the parties time and money and increase the efficiency of the arbitration process.

English as language of proceedings also in case of transition to state proceedings

According to the key points, it is planned that in applications for a declaration of enforceability or setting aside of arbitral awards, the arbitral award and the documents from the arbitral proceedings that are relevant for the respective court proceedings can also be submitted in English. It will also be possible to submit documents from the arbitral proceedings that are important for the judicial taking of evidence or for the performance of other judicial acts pursuant to section 1050 of the Code of Civil Procedure in English. This serves to make the proceedings more efficient and saves the parties the costs of translations if the court sees no need for them.

This fits in with the ministry's efforts to allow more use of the English language in proceedings before German state courts. Last week, the ministry published a draft law aiming to make German courts fit for negotiations in international commercial disputes and introducing new 'commercial courts'.

Improving transparency through the publication of arbitral awards

It is planned to also allow the publication of arbitral awards by law if the parties agree to this. The publication of arbitral awards would be limited to cases that deal with important legal issues or are of considerable public interest and serve transparency and the further development of the law.

Improving the enforceability of arbitral awards

One of the most important changes proposed is to simplify and streamline the enforcement of arbitral awards. The current recognition and enforcement procedure is often time-consuming and costly. Simplifying the procedure would significantly reduce the time and costs involved in enforcing arbitral awards. This would also give the parties more certainty and predictability with regard to the enforceability of arbitral awards, which would increase the attractiveness of arbitration as a method of dispute resolution. Here, however, it must be ensured that the arbitral process remains fair, transparent and impartial, and that parties continue to have access to effective remedies in the event of procedural errors or other issues. Changes are planned for a better interlocking of enforcement and annulment proceedings.

Digitisation of the process

The paper proposes increased digitisation of proceedings, in particular through the use of electronic communication and digital technology. Specifically, it is proposed that arbitral proceedings could be conducted entirely electronically, including the submission of evidence and documents, as well as the conduct of hearings and the rendering of awards. However, any data protection concerns or risks of cyber attacks must be addressed, for example, through provisions to ensure the security and confidentiality of electronic documents and guidelines for the use of digital technologies in arbitration. The use of digital technology can make German arbitration more efficient, accessible and secure without compromising the fundamental principles of fairness and due process.

Introduction of an emergency arbitrator

Another proposed measure to improve efficiency is the planned introduction of emergency arbitrator provisions. This would allow parties to request an arbitrator to take interim measures such as interim injunctions and protective orders before the arbitral tribunal is constituted, in order to protect their rights and interests at the earliest possible stage of the arbitral proceedings.

Under the current system, parties have to wait until the arbitral tribunal is constituted before they can apply for interim relief. This can lead to significant delays, especially in urgent cases where immediate action is required to protect a party's interests. Some institutional arbitration rules already provide for a so-called emergency arbitrator. The appointment of an emergency arbitrator is subject to certain conditions under the current system, including the requirement that the parties have agreed to the emergency arbitrator in their arbitration agreement or in a separate agreement. The appointment process is also subject to certain time limits to ensure that it does not unreasonably delay the arbitral proceedings.

Implementation still open

The planned modernisation of German arbitration law is intended to increase the flexibility and efficiency of the statutory arbitration procedure and make it a more attractive option for resolving disputes. Through streamlined procedures, the possibility of virtual hearings and the introduction of emergency arbitration rules, parties will have more control over the proceedings, which may lead to faster and more cost-effective results. However, it remains to be seen how many of the proposed measures will make it into the draft bill.