The planned modernization of German arbitration law brings a few specific improvements

No formal requirements for arbitration agreements – except with consumers

In order to be valid, currently an arbitration agreement must be contained in a document signed by the parties or another verifiable form. The draft bill proposed to remove this requirement for commercial transactions and only provided for confirmation in text form upon request.

The government bill goes even further, planning to remove the formal requirements altogether and to make arbitration agreements free from any requirements in terms of their form. This is a welcome development insofar as the previous plans would have raised new problems, as the definitions of "commercial transaction" and "text form" would have been unclear in international arbitration proceedings.

The new freedom in terms of form for arbitration agreements, even outside of commercial transactions, allows parties to use all forms of digital communication, among other things. This strengthens party autonomy and will indeed be helpful in all cases where the previous formal requirements may not have been adhered to perfectly but the content of the arbitration agreement is otherwise clear.

However, new disputes and difficulties in terms of proof are inevitable if one party claims an oral or implied arbitration agreement, whereas the other party disputes its conclusion or content. The party claiming the existence of such arbitration agreement must then not only provide evidence of its existence, but also prove which seat of arbitration, which number of arbitrators, which language of the proceedings, which arbitration institution (if any) etc. was agreed. This could considerably prolong arbitration proceedings.

Furthermore, in the case of an oral or implied arbitration agreement, the subsequent arbitral award may be difficult to enforce internationally.

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) requires that the contract containing the arbitration clause or the arbitration agreement be "signed by the parties or contained in an exchange of letters or telegrams" (e-mails are treated as telegrams). Although this convention also permits simpler rules ("most favored nation clause"), this only helps if such rules apply in the state of enforcement.

Therefore, for the sake of legal certainty and subsequent enforceability, it is recommended that the mutual declarations on the arbitration agreement continue to be recorded at least in a form that enables permanent evidence of the arbitration agreement and its content.

However, in contrast to the general freedom of form for arbitration agreements, under the government bill the existing framework (including form requirements) will remain in place for consumers. If a consumer is involved, an arbitration agreement is, as before, only valid if it is drawn up in a separate document in compliance with the written form requirement or if it is contained in a notarized deed.

In practice, this could lead to problems if a counterparty’s status as consumer is not detected in commercial contracts. Where arbitration agreements are otherwise completely free of form requirements, this issue may be overlooked even more often.

Furthermore, in view of the new freedom of form, parties could possibly raise an arbitration defense in court proceedings in the future and base this on an arbitration agreement that was allegedly concluded orally or implied. To avoid this, it may be advisable to include an express jurisdiction clause and to exclude oral ancillary agreements in the contract.

German court proceedings on arbitral awards may be conducted in English - but not completely

German court proceedings in connection with arbitration proceedings, in particular for setting aside arbitral awards or declaring them enforceable, are to take place before the commercial courts in the future under the government bill. These special instances for international disputes before the higher regional courts are provided for in the law from April 2025; proceedings may be conducted there in English in certain cases.

The German legislature has thus responded to the international preference for court proceedings to be possible in English. It is also helpful that a verbatim transcript of the oral hearing before the commercial courts can be prepared instead of the short court summary that is otherwise standard practice in Germany.

It currently remains to be seen where in Germany these commercial courts will be established. The obvious locations would be at the higher regional courts in Düsseldorf, Hamburg, Frankfurt, Munich, Stuttgart and Berlin. In this context, it would be advantageous if several federal states were to set up joint commercial courts, so that these would have jurisdiction across the whole country.

Proceedings before the commercial courts can be conducted in English in particular if both parties so wish. This would save both time and the costs of translations and interpreters. However, this principle will not always be adhered to; even in the first instance translations will be necessary at certain points. The parties may also speak in German at the oral hearing if the other party does not object. And where third parties are involved, they too may object to use of English. Ultimately, the commercial court decision must be published together with a German translation.

If an appeal is subsequently filed with the German Federal Court of Justice (Bundesgerichthof, BGH), it cannot be guaranteed that the proceedings can be continued in English. The civil panel at the BGH must agree to this and "may decide, at its own discretion, whether to comply with a corresponding application or whether it prefers to pursue the proceedings in German".

In the latter case, everything must then be translated into German; the cost savings are negated, and international parties can only participate in the oral hearing indirectly via interpreters. Hopefully the panels of the BGH will exercise their discretion in this respect in a considered manner.

Further sensible amendments planned - but relating only to specific details

The government bill also provides for some improvements to certain details of arbitration proceedings, for example:

• Courts should also be able to decide on the existence and validity of the arbitration agreement in an application regarding the admissibility or inadmissibility of arbitration proceedings. This is a helpful clarification.
• The formation of an arbitral tribunal in multi-party proceedings is to be regulated more precisely. This corresponds to similar provisions in numerous rules of arbitration and now also provides a framework for ad hoc arbitration proceedings.
• If an arbitral tribunal determines that it lacks competence, its decision could be overturned before a public court. This also eliminates a previous loophole.
• Measures for interim relief by arbitral tribunals would be easier to enforce, even if the seat of arbitration is outside Germany. This facilitates the enforcement of such measures in Germany and promotes the effectiveness of international arbitration proceedings.
• Oral hearings before arbitral tribunals may also be conducted virtually via video conference. This is already the case in practice; the government bill provides the imprimatur for this.
• If an individual arbitrator's view deviates from the majority in an arbitral award, a concurring or dissenting opinion would be admissible, something that was not previously provided for under German arbitration law. This clarification ensures the enforceability of arbitral awards.

The legislature has modified its plans in two other areas compared to the previous draft bill:

• There are still plans to publish arbitral awards in anonymized or pseudonymized form if the parties do not object. However, they will now be accorded three months (instead of one month) to object.
• In the event of retrial, the government bill now explicitly lists the reasons when it is to be admissible: particularly in extreme cases such as document forgery, false statements or other criminal offences, and if relevant documents are subsequently identified. Retrials should also only be permitted up to five years after the arbitral award became final and nonappealable. This time limit is a welcome development in particular, as it offers legal certainty.

A few desired reforms are as yet unfulfilled

Overall, the government’s plans are largely helpful in light of the legislature's goal of making Germany a more modern, attractive and competitive venue for arbitration on the international stage. However, they are still not sufficient to fully achieve this goal.

For example, if the declaration of enforceability for arbitral awards can be made in English, but still must be drawn out over two instances, the time and costs involved will be considerable. In Switzerland and Austria (whose arbitration law reforms are mentioned in the bill), only one instance is provided for reviewing arbitral awards in annulment and enforcement proceedings. A concentration of jurisdiction at the German Federal Court of Justice would also be desirable here.

Above all, however, a revision of the German law on general terms and conditions in the business-to-business sector would be necessary in order to strengthen Germany as a venue for arbitration. If this legal framework remains as strict and impractical as it is at present, parties will continue to try to opt out of it, and will continue to select a seat of arbitration outside Germany to avoid it.

Summary

The government bill contains a few sensible, specific provisions that will improve German arbitration law in practice. Parties should not necessarily make use of the complete freedom of form for arbitration agreements proposed; declarations at least in text form remain useful.

On the other hand, the improved enforceability of measures for interim relief, the clarification on virtual hearings, the admission of concurring or dissenting opinions and the ability to conduct court proceedings in English are particularly welcome developments.

However, these rules only concern a few specific issues that are not necessarily decisive for international parties when choosing a seat of arbitration. If the legislature wishes to significantly strengthen Germany as a venue for arbitration, it should also provide for only one judicial instance to review arbitral awards and, above all, make the law on general terms and conditions in the business-to-business sector more practicable.

It remains to be seen to what extent the Bundestag revises the bill. Usually, an expert hearing is held in the Legal Affairs Committee on such projects.