Germany to become more attractive for arbitration proceedings

Last week, the German government passed a draft law to modernise arbitration law. The reform is intended to modernise German arbitration law and make Germany more attractive as a location for international arbitration proceedings. The government's draft is closely based on the draft bill published by the Federal Ministry of Justice in February 2024, but has also taken up some points of criticism from practitioners.

One significant change to the current arbitration law is the move to enable form-free arbitration agreements in the B2B sector. In contrast to the draft bill, however, the government's draft has dropped the requirement to be able to demand a written record of this agreement or even to be able to sue for it.

In order to make German arbitration tribunals more modern and attractive for businesses from abroad, it should also be possible to conduct oral hearings by video in future and issue court decisions electronically.

"The use of video conferencing was already common practice in arbitration law, but now the law also clarifies that this more cost-efficient way of conducting proceedings is possible," Sandra Gröschel, a Munich-based arbitration expert at Pinsent Masons, said.

In addition, the government's draft provides that an arbitrator may set out their dissenting opinion on the arbitral award or its reasoning in a dissenting opinion, unless the parties agree otherwise. The dissenting opinion shall not form part of the arbitral award but will be recorded in writing and signed by the arbitrator.

It should also be easier to publish arbitration awards and dissenting opinion in future, as the consent of both parties is deemed to have been given if no objection to publication is raised within three months of the arbitration tribunal's request to do so. Practitioners had spoken out against such a fiction of consent. The draft bill had provided for a shorter period of only one month.

In addition, state courts are to consider documents in English in future if they are presented with a case that has been heard by an arbitration tribunal. As arbitration tribunals often conduct proceedings in English, but state courts only accepted documents in German, all documents previously had to be translated and notarised. According to the planned new regulations, a court may only order a translation in individual cases if there is a "need" for it.

The government's draft is closely linked to another legislative reform, which aims to establish so-called Commercial Courts at several German higher regional courts, which will conduct proceedings entirely in English.

"Commercial courts offer specialised and speedy decisions in commercial law disputes, which greatly increases the attractiveness of Germany as a court location," emphasises Lisa Oettig, also an arbitration expert at Pinsent Masons.

The draft bill still has to go through various stages of the legislative process. It is therefore not expected to come into force until the end of 2024 at the earliest. It remains to be seen what further changes will be made to the draft.