Current case law

No independent procedure for taking evidence if an arbitration agreement exists

An independent procedure for taking evidence, pursuant to section 485 para. 2 of the German Code of Civil Procedure (Zivilprozessordnung – ZPO), is inadmissible if the parties have entered into an arbitration agreement pursuant to section 18 para. 4 of the German Construction Contract Procedures Part B (Vergabe- und Vertragsordnung für Bauleistungen – Teil B) and the subject of evidence is the same for the arbitrator's expert opinion and the independent procedure for taking.

Background

This case involves a dispute arising from the existence of defects in the construction of a new motorway bridge. Shortly after the defendant had initiated a contractually agreed arbitration procedure, pursuant to section 18 para. 4 of the German Construction Contract Procedures Part B, the applicant applied for the initiation of an independent procedure for taking evidence pursuant to section 485 para. 2 of the German Code of Civil Procedure. The Regional Court rejected this application, and the appeal to the Higher Regional Court on points of law were unsuccessful.

Decision

The question at issue was what is the relationship between the arbitration agreement and the independent procedure for taking evidence. The Federal Court of Justice ruled that the conduct of an independent/autonomous proceeding for taking evidence generally failed because there was no legitimate interest. It was held that by entering into the arbitration agreement, the parties had sufficiently expressed that they would not have recourse to the public courts, but rather submit to an arbitrator's expert opinion in the event of a dispute. This corresponds to the basic principle of private autonomy.

Additionally, the Federal Court of Justice did not accept the objection that in arbitration proceedings there was no possibility of a third party notice and,, as section 18 para. 4 of the German Construction Contract Procedures Part B was a binding expert opinion procedure within the meaning of section 204 para. 1 no. 8 German Civil Code, there were no particular hardships as a consequence of unresolved questions of limitation.

(Federal Court of Justice, decision of 26 January 2022 – VII ZB 19/21)

Practical tip

• It remains open as to whether or not the respondent is required to actively raise the objection of the arbitration agreement’s existence in order to make the independent procedure for taking evidence inadmissible., Rather, the decisive factor should be whether the parties have expressly or impliedly amended the arbitration agreement, for example, by accepting the court’s jurisdiction without objection (rügeloses Einlassen).

Caution with arbitration clauses in the articles of association

If the articles of association of a partnership stipulate that disputes, on defects in resolutions are to be settled by the partnership before an arbitral tribunal and not between the partners, the minimum standards for the validity of arbitration agreements developed for the German limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) shall apply.

Background

In this dispute, both the applicants and the respondent were limited partners of a German company in the legal form of a GmbH & Co KG. The articles of association included a provision regarding disputes on defects in resolutions, in which resolutions of the partners' meeting were "contestable" within a two-month period and objections against the minutes of the partners' meeting were to be raised against the company. An arbitration clause provided that "all disputes arising out of the partnership relationship" were to be decided by an arbitral tribunal. The respondents pursued an action for exclusion against one of the applicants before an arbitral tribunal and requested that applicants 1 and 2 be ordered to agree to the exclusion of applicant 3 from the partnership for good cause. Following the complaint of the three limited partners, the arbitral tribunal declared itself competent by way of an interim decision. However, the Higher Regional Court of Cologne found that the arbitral tribunal was not competent and set the interim decision aside. The Court concluded that the arbitration clause was contrary to public policy pursuant to 138 para. 1 of the German Civil Code as it did not meet the minimum requirements for disputes on defects in resolutions. Furthermore, using section 139 of the German Civil Code, the Court refused to uphold the arbitration clause in part since, due to the uniform character of the arbitration clause, a split jurisdiction would be contrary to the interests of the parties concerned and the spirit and purpose of the arbitration clause. The respondents lodged an appeal on points of law against this decision.

Decision

The Federal Court of Justice ruled that the principles developed for the legal form of a German limited liability company (GmbH) regarding the minimum requirements for arbitration agreements, which also cover disputes on defects in resolutions, could only be applied to partnerships to a limited extent.

Claims for defects in resolutions of a partnership were in principle to be asserted by filing an action for declaratory judgment against the other partners. However, in accordance with the arbitration clause in question, disputes on defects in resolutions had to be settled with the partnership and the partners not involved in the legal dispute would not be directly bound by the arbitral award. Under the law of obligations, however, they were at least indirectly bound. The analogous application of the principles for arbitration agreements for German limited liability companies was justified because of the shortening of legal protection (Rechtsschutzverkürzung).

In addition to the concentration of proceedings, the minimum requirements also include the obligation to provide information in such a way that every partner may join the proceedings as an intervening party and participate in the selection of the arbitrators, unless the selection was made by a neutral body. The arbitration clause failed to meet these minimum requirements, and was therefore contrary to public policy pursuant to section 138 para. 1 of the German Civil Code. Furthermore, the assumption of a simple duty of the company to inform the partners was not sufficient as it did not sufficiently ensure the possibility of participation in the proceedings.

The Federal Court of Justice found that the articles of association of a partnership are to be interpreted subjectively, pursuant to sections 133 and 157 of the German Civil Code, whereas for corporations, they are to be interpreted objectively. Accordingly, the arbitration clause was not completely null and void, but was to be maintained to the extent that it was permissible. For an arbitration clause referring "all" disputes to arbitration indicates, in the objective sense of the wording, that disputes are to be withdrawn from state jurisdiction completely or to the greatest extent possible.

(Federal Court of Justice, 23 September 2021 – I ZR 13/21)

Practical tip

• The partial nullity assumed by the Federal Court of Justice is in doubt. Therefore, either an explicit provision should be made or the arbitration clause should be worded such that it is maintained to the greatest extent permissible and complies with the requirements of the BGH.

Participation in video-transmitted proceedings from abroad

The managing director of a claimant which has its registered office in Switzerland and its lawyers in Germany, may be permitted to participate in a hearing by way of video and audio transmission.

Background

The case related to a release for customs clearance. The managing director of the claimant, which had its registered office in Switzerland, and its attorney of record in Germany, applied to the Administrative Court of Freiburg to participate in the hearing by way of video and audio transmission.

Decision

The Court decided to allow the claimant and its attorney of record to participate by way of video and audio transmission upon its request and to allow the defendant to participate ex officio based on section 102a para. 1 sentence 1 of the German Administrative Procedure Code (Verwaltungsgerichtsordnung – VwGO).

The Court found that despite the claimant’s registered office being in Switzerland and its representatives wanting to participate in the video conference , there was no reason for not permitting access to the video conference. The prevailing opinion is that, in order to preserve territorial sovereignty, video conferences with foreign countries falling within the scope of exercise of state authority (in this case, the judiciary) are, in principle, only permissible by way of mutual legal assistance. However, by allowing the applicants or their representatives, upon their request, to participate in the hearing taking place in the Federal Republic of Germany by way of video and audio transmission, the Court does not exercise its sovereignty in Switzerland, as the participation by way of video and audio transmission would not change anything about the place of the court hearing. Instead, the personal presence in the courtroom would be replaced by the video and audio transmission from and into the courtroom. Furthermore, the video and audio transmission had no (indirect) sovereign effects in Switzerland. This is to be assumed in any case because the applicants, whose personal appearance was not ordered, were only able to make statements in the hearing without a formal interrogation of the parties or requiring evidence. Furthermore, procedural acts could be carried out by their attorney of record – who is connected to the federal territory.

(Administrative Court of Freiburg, 11 March 2022 – 10 K 4411/19)

Practical tip

• This decision was made in the field of public law jurisdiction, where a sovereign act could be assumed more readily than in civil proceedings. In this respect, the arguments raised should apply all the more in civil proceedings.
• The prevailing opinion is, however, that prior authorisation from the state of residence of the persons to be connected is required. In particular, interrogations of witnesses abroad or personal hearings should be interpreted as sovereign acts that require the prior authorisation of the state of residence.