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International Arbitration Law Review

2009

Case Comment

Germany: arbitration clauses in standard form contracts in Germany

Dmitry Marenkov
Subject: Arbitration. Other related subjects: Construction law. Contracts
Keywords: Arbitral tribunals; Arbitration agreements; Arbitrators; Commercial arbitration;
Construction contracts; Germany; Standard forms of contract; Validity
Legislation: Civil Procedure Code (Germany) s.1031(5)
Case: Bundesgerichtshof (III ZR 164/06) Unreported March 1, 2007 (Germany)

*Int. A.L.R. N3 Facts

The respondent had sold a plot of land to the claimant and built a onefamily house on these premises.
The underlying notarially certified contract contained the following clause:
“Arbitration Agreement
(1) All disputes between the parties arising out of the construction contract [‘Bauträgervertrag’] in
accordance with Chapter I shall, when legally admissible, be decided by an arbitral tribunal without
recourse to the ordinary courts of law. Its decisions shall be final and binding.
(2) The arbitral tribunal shall consist of one arbitrator.
The arbitrator shall be Mr. R, chief judge at the Local Court of X. If this arbitrator is not able to accept
the arbitrator's position for factual or legal reasons, the arbitrator shall be appointed by the President
of the Higher Regional Court Hamm on a request of one of the parties. The arbitrator shall in any
case be qualified to work as a judge. Following the commencement of the arbitral proceedings each
party shall be entitled to communicate its objections concerning the identity of the arbitrator to the
other party and to the arbitrator within 14 days after it first learnt about the commencement of the
arbitral proceedings. Otherwise any objections as to the identity of the arbitrator should be excluded
once the arbitral proceedings have started.
*Int. A.L.R. N4 (3) The arbitral tribunal shall determine the procedure in accordance with its dutiful
discretion following the applicable provisions of the Code of Civil Procedure.”1
The claimant brought a claim in the Local Court Unna for an advance payment concerning the repair
of constructional defects. The respondent challenged the jurisdiction of state courts in the light of the
arbitration agreement. The Local Court Unna and the Regional Court Dortmund on appeal dismissed
the claim as inadmissible due to a valid arbitration agreement between the parties.
The claimant initiated appeal proceedings (“Revision”) before the highest appellate court in
Germany--the Federal Court of Justice (“Bundesgerichtshof”).

Held
The German Federal Court of Justice upheld the decisions of the lower courts rejecting several
arguments of the claimant as to the invalidity of the arbitration agreement.
First, it stated that the arbitration agreement met the form criteria provided for by s.1031(5) of the
German Code of Civil Procedure. The required written form was substituted by notarial certification.
The court further held that the arbitration agreement regularly used by respondent in his standard
form contracts did not constitute an undue disadvantage to the claimant. The court referred to its
previous decision stating that the inclusion of an arbitration agreement into standard terms does not
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per se lead to an undue disadvantage to the other party. The user of standard form contracts or terms
is also not obliged to present a special need for the appointment of an arbitral tribunal in any given
case.
However, the court agreed with the claimant that the appointment of a particular arbitrator in standard
terms in para.(2) of the arbitration agreement amounted to an undue disadvantage to the contractual
partner, since the latter was deprived of any influence in the composition of the arbitral tribunal. This
disadvantage, however, did not lead to invalidity of the entire arbitration agreement. The court
stressed the right of a party under German law to request a state court to appoint the arbitrator in
deviation from the nomination made if the arbitration agreement granted preponderant rights to the
other party in constituting the tribunal in *Int. A.L.R. N5 accordance with s.1034(2) of the Code of
Civil Procedure. Pursuant to s.1035(5) of the Code of Civil Procedure the state court shall then
appoint an independent and impartial arbitrator.
Finally the court rejected the claimant's invalidity argument concerning uncertainty of the procedure.
The provision of para.(3) of the arbitration agreement was not held invalid. The court referred to
s.1042 of the Code of Civil Procedure which allows procedural discretion.

Comment
This decision of Germany's highest appellate court deals with a number of interesting issues
concerning the validity of arbitration agreements under German law. It gives a good example of the
arbitration-friendly stance of German courts.
First, the Court left the question open as to whether arbitration agreements used in standard form
contracts--in addition to the requirements of the German arbitration law contained in ss.1029-1033 of
the German Code of Civil Procedure--are also subject to the strict rules applying to the contents of
standard terms under German law (ss.305-310 of the German Civil Code). These provisions comprise
a narrow framework aiming to avoid undue disadvantages to the contractual partner of the user of
such standard terms. There are some decisions of the lower courts on this matter while the German
Federal Court has yet to make a determination on this issue. In the current case, the court did not see
a necessity to make a determination stating that even if ss.305-310 of the German Civil Code were
applicable, there would be no undue disadvantage with the arbitration agreement staying valid.
In deviation from the UNCITRAL Model Law, German arbitration law comprises a special form
requirement for arbitration agreements involving consumers. Section 1031(5) of the German Code of
Civil Procedure reads as follows:
“Arbitration agreements to which a consumer is a party must be contained in a document which has
been personally signed by the parties. The written form pursuant to subsection 1 may be substituted
by electronic form pursuant to section 126a of the Civil Code. No agreements other than those
referring to the arbitral proceedings may be contained in such a document or electronic document;
this shall not apply in the case of a notarial certification.”
German law considers a natural person who in regard of a certain transaction is deemed to act
beyond his professional entrepreneurial activities to be a “consumer” (s.13 of the German Civil Code).
On the one hand, s.1031(5) of the German Code of Civil Procedure shows that arbitration
agreements with consumers are in principle admissible under German law. On the other hand, this
provision is called on to protect consumers from arbitration agreements hidden in some complex
contracts. In order to sharpen a consumer's awareness of the conclusion of an arbitration agreement
which excludes a recourse to state courts it demands a separate document signed by both parties
setting out the arbitration agreement. However, as laid down in the last sentence of s.1031(5), a
separate arbitration agreement is legally superfluous where the contract is notarised. German
notaries have the duty to explain to the parties all significant provisions of a contract including their
implications. Hence, a notary will regularly disclose the consequences and effects of the conclusion of
an arbitration agreement to both parties.
In the current case, the claimant was deemed to qualify as a “consumer” under German law, but the
notarial certification substituted the written form requirement.
*Int. A.L.R. N6 The arbitration-friendly approach of German courts is also reflected by other findings
of the Federal Court of Justice. The court confirmed its position that an arbitration clause in a
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standard form contract could not of itself constitute an inappropriate discrimination against the
contractual partner. The court, referring to s.1042(4) of the German Code of Civil Procedure, also
underlined the flexibility of arbitration proceedings and the wide procedural discretion of the arbitral
tribunal. Reflecting art.19(2) of the UNCITRAL Model Law, s.1042(4) reads:
“Failing an agreement by the parties, and in the absence of provisions in Book 10 [of the Code of Civil
Procedure], the arbitral tribunal shall conduct the arbitration in such manner as it considers
appropriate.”
The most interesting feature of this case, however, deals with the issue of the unilateral appointment
of a particular arbitrator in a standard form contract used by one of the parties. The German Federal
Court of Justice deviated from a decision of a lower court (Higher Regional Court Celle of November
4, 1999) stating that such an appointment practically deprives the other party of any influence in the
formation of the arbitral tribunal. However, this lack of balance in the composition of the arbitral
tribunal does not lead to the invalidity of the arbitration agreement. The new German arbitration law
which was enacted in 1998 comprises a provision allowing a request to a state court regarding the
appointment. Section 1034 (2) of the German Code of Civil Procedure reads as follows:
“If the arbitration agreement grants preponderant rights to one party with regard to the composition of
the arbitral tribunal which place the other party at a disadvantage, that other party may request the
court to appoint the arbitrator or arbitrators in deviation from the nomination made, or from the agreed
nomination procedure. The request must be submitted at the latest within two weeks of the party
becoming aware of the constitution of the arbitral tribunal. Section 1032 subs. 3 applies mutatis
mutandis.”
The Federal Court of Justice therefore emphasised the claimant's right to approach a state court
pursuant to s.1034(2) of the German Code of Civil Procedure and rightly dismissed his action as to
the invalidity of the arbitration agreement.
There is no equivalent provision in the UNCITRAL Model Law which German arbitration law has
implemented. According to the official explanatory statement to the German arbitration law the
German legislator was inspired by s.1028 of the Netherlands' Code of Civil Procedure. It shall be
noted that the respective application to the court is subject to a two-week time limit. This two-week
period begins when the party first learnt of the composition of the arbitral tribunal and corresponds to
the two-week term of s.1037(2) of the German Code of Civil Procedure applicable to the challenge of
arbitrators.
German Office of Foreign Trade (bfai), Cologne
Int. A.L.R. 2009, 12(1), N3-6

1. Unofficial translation: The German original read as follows:“ Schiedsvertrag. (1) Über alle Streitigkeiten aus dem
Bauträgervertrag gemäß Abschnitt I. zwischen den Parteien soll, soweit gesetzlich zulässig, unter Ausschuss des
ordentlichen Rechtsweges ein Schiedsgericht entscheiden, dessen Entscheidung endgültig und verbindlich ist. (2) Das
Schiedsgericht besteht aus einem Schiedsrichter. Schiedsrichter ist Herr R., Vorsitzender Richter am Landgericht …
Sollte dieser Schiedsrichter aus tatsächlichen oder rechtlichen Gründen nicht bereit oder in der Lage sein, das
Schiedsamt zu übernehmen, so benennt der Präsident des Oberlandesgerichts Hamm auf Antrag einer der Parteien
den Schiedsrichter. Dieser muss in jedem Fall die Fähigkeit zur Richteramt haben. Nach Einleitung des
Schiedsgerichtsverfahrens hat eine Partei, die Einwendungen gegen die Person des Schiedsrichters hat, diese binnen
14 Tagen von der Kenntnis der Einleitung des Schiedsgerichtsverfahrens der anderen Partei und dem Schiedsrichter
mitzuteilen. Anderenfalls sind nach Eröffnung des Schiedsverfahrens Einwendungen gegen die Person des
Schiedsrichters ausgeschlossen. (3) Das Schiedsgericht bestimmt das Verfahren nach den einschlägigen Vorschriften
der Zivilprozessordnung nach pflichtgemäßem Ermessen.”

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