Around the globe, governments are competing to convince businesses to choose their country as the place for dispute resolution. With its recently presented Draft Bill for the Modernisation of Arbitration Law, Germany aims to increase its attractiveness as a seat of arbitration. Will they achieve this aim? Is Germany catching up with or maybe even getting ahead of one of its main competitors: Switzerland? To find out, we compare the most significant German proposals with current Swiss arbitration law.
Adopting the Swiss approach
Let’s start with the German proposals clearly in the realm of just catching up. The German Draft Bill proposes to
- clarify that interim measures adopted by foreign arbitral tribunals are enforceable in Germany;
- allow for challenges of awards not only when the tribunal affirms but also when it denies its jurisdiction;
- grant courts that appoint an arbitrator in multi-party arbitrations the power to appoint all arbitrators, including the arbitrator to be appointed by the other side, to ensure equal treatment;
- introduce a remedy for vacating awards even after the deadline for a regular challenge if the arbitration procedure is tainted by a significant procedural problem, such as when forged documents or criminal conduct have influenced the decision.
Swiss law already contains very similar provisions since at least 2021. Indeed, the German Federal Ministry of Justice explicitly referred to Switzerland as a role model in this regard. Germany is lagging behind on these points, and its Draft Bill is merely an attempt to catch up.
However, other challenges to the front-runner make for a more exciting race:
English language
The German Draft Bill is especially ambitious about introducing the English language in state court proceedings related to arbitration (e.g. nomination of arbitrators, enforcing interim measures, annulment, etc.):
- Only in exceptional cases may a German state court require translating an English-language document into German.
- Proceedings concerning an arbitration may be conducted in so-called “Commercial Courts” and be held fully in English.
- Also appeals against Commercial Court judgments to the German Federal Court of Justice may be conducted fully in English.
These proposed provisions are very progressive and, on paper, seem to go beyond current Swiss law. However, as a practical matter, they will not provide Germany with a decisive advantage vis-à-vis Switzerland: Party submissions to the Swiss Supreme Court, which decides all challenges against arbitral awards, can already be filed in English, too. In addition, even though Swiss law does not expressly dispense with the New York Convention’s requirement of presenting a translation of arbitral awards, the Swiss Supreme Court found that Swiss courts usually do not need translations of full awards in English.
Loosening of form requirements for arbitration agreements
Another move proposed by the German Draft Bill concerns the form required for arbitration clauses. Both jurisdictions currently require that an arbitration agreement be concluded in a form such that it can be evidenced by text. The Draft Bill goes a step further, allowing orally concluded arbitration agreements for commercial transactions if they are concluded or documented by any communication medium which allows accessing them later. This allows for more flexibility while avoiding lengthy disputes about the existence and content of the arbitration clause that might arise if no form whatsoever is required. Since the Swiss form requirement is already quite liberal, the German solution will not move the needle significantly but constitutes a small win nevertheless.
Miscellaneous
Beyond these proposals, the German Draft Bill suggests several further clarifications and minor innovations. For instance, it proposes to expressly clarify that hearings can be conducted via video conference, which has already been accepted practice in both jurisdictions. Awards may be published in anonymized or pseudonymized form with the consent of the parties, which, crucially, will be assumed to have been given if the parties do not object within three months. But because the provision is subject to party agreement and most arbitration rules contain more restrictive provisions on the publication of awards, this innovation is unlikely to produce major effects. Another proposal is that arbitrators may submit dissenting opinions unless the parties agree otherwise. While such clarifications may be helpful, they mostly just confirm the status quo and will not provide Germany with a significant competitive edge.
And the winner is ….
Altogether, the German Draft Bill is a big step in the right direction. It will make arbitration in Germany more attractive to international companies than it is today. To make even more progress, the German legislator should consider further reforms and, in particular, remove one of the main hurdles for German arbitration stemming from German substantive law, namely the mandatory application of the law on general terms and conditions even to disputes among business parties. In the meantime, while the race for the most attractive place of arbitration is getting closer, Germany is unlikely to overtake Switzerland just yet. Because, notwithstanding the discussed new regulations, Switzerland retains very significant advantages in arbitration matters, which lie in particular in the fact that arbitral awards rendered by Swiss arbitral tribunals may be reviewed by state courts only to a very limited extent and that such review is carried out comparatively swiftly.