Answer ... The law applicable to the arbitration agreement is primarily determined by the parties’ agreement. Where the parties have failed to make an explicit stipulation to this effect, the applicable law is derived from the jurisdiction in which the arbitration has its seat. If the seat is in Germany, German substantive law will apply (see Section 1059, paragraph 2(c) of the Code of Civil Procedure). If the seat is in a different country, the substantive law of that country will govern the arbitration agreement for the purposes of enforcing the foreign award (see Section 1061, paragraph 1 of the Code of Civil Procedure, in connection with Article V, paragraph 1(a) of the New York Convention).

Answer ... The German Arbitration Act fully respects the principle of party autonomy, including with respect to the substantive law applicable to the dispute. It explicitly provides that the arbitral tribunal is to decide on the matter in dispute in accordance with the statutory provisions that the parties have designated as applicable to the legal dispute (Section 1051, paragraph 1 of the Code of Civil Procedure). Unless the parties have expressly agreed otherwise, the designation of the laws or legal system of a specific state is to be understood as a direct referral to the substantive law of that state, and not to its conflict of laws rules.

Where the parties have failed to determine the applicable substantive law, the tribunal is called to apply the substantive law of the state to which the subject matter of the proceedings has the closest ties.