Comparative Guides

Welcome to Mondaq Comparative Guides - your comparative global Q&A guide.

Our Comparative Guides provide an overview of some of the key points of law and practice and allow you to compare regulatory environments and laws across multiple jurisdictions.

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4. Results: Answers
International Arbitration
The tribunal
How is the tribunal appointed?

Answer ... By default, the tribunal consists of three arbitrators. In this case each party will appoint one arbitrator and the two party-appointed arbitrators will then jointly nominate the presiding arbitrator. If the parties opt for a sole arbitrator, he or she will be nominated mutually by the parties. However, the parties are free to agree on a (lower or higher) number of arbitrators and the appointment procedure.

If one party, both parties or, as the case may be, the party-appointed arbitrators fail to nominate an arbitrator, the nomination will be made by the state court upon application. The state court must select a person who is impartial and independent and fulfils the qualifications that the parties may have defined in this regard.

For more information about this answer please contact: Nicholas Kessler from Orrick
Are there any requirements as to the number or qualification of arbitrators in your jurisdiction?

Answer ... With respect to the number of arbitrators, see question 24.

To be selected as an arbitrator, a person must be impartial and independent. However, he or she need not necessarily have a legal education or background. The only other limitation (apart from impartiality and independence) provided by law is that if, under the arbitration agreement, one party is entitled to a superior selection right, the other party can refer to the state courts for the selection process in order to ensure a level playing field between the parties.

For more information about this answer please contact: Nicholas Kessler from Orrick
Can an arbitrator be challenged in your jurisdiction? If so, on what basis? Are there any restrictions on the challenge of an arbitrator?

Answer ... An arbitrator can be challenged based on reasonable doubts as to his or her impartiality or independence. In addition, a party can have recourse to the state courts based on an arbitrator’s inactivity or on the absence of the qualifications agreed by the parties.

For more information about this answer please contact: Nicholas Kessler from Orrick
If a challenge is successful, how is the arbitrator replaced?

Answer ... Once an arbitrator has been successfully challenged and removed from the tribunal, the substitute arbitrator will be nominated under the same procedure which applied to the selection of his or her predecessor. The parties may agree on a different replacement procedure.

For more information about this answer please contact: Nicholas Kessler from Orrick
What duties are imposed on arbitrators? Are these all imposed by legislation?

Answer ... The arbitrators are obliged to do everything necessary to resolve the dispute between the parties. In this context, they must consider all aspects of the matter and materials that could be relevant to the outcome of the arbitration. If an award is challenged before the state court, it is an arbitrator’s duty to comply with the clarification of all facts that could lead to the challenge.

These are all contractual obligations which are agreed through the arbitrator’s contract with the parties. The German Arbitration Act itself sets out no statutory duties of arbitrators.

For more information about this answer please contact: Nicholas Kessler from Orrick
What powers does an arbitrator have in relation to: (a) procedure, including evidence; (b) interim relief; (c) parties which do not comply with its orders; (d) issuing partial final awards; (e) the remedies it can grant in a final award and (f) interest?

Answer ... (a) Procedure, including evidence?

In the absence of an agreement by the parties to this effect, the tribunal is free to conduct the proceedings in the manner which it deems appropriate. In doing so, it must ensure that the parties are treated equally and given sufficient opportunity to present their case.

Unlike the courts, arbitrators are not limited to hearing certain types of evidence. Hence, it is possible for the tribunal to have the parties testify as witnesses or to order the cross-examination of witnesses (which is not permitted in German state court litigation).

(b) Interim relief?

Once the tribunal has been constituted, it has the power to grant interim relief or to order conservatory measures. However, unlike state courts, tribunals do not have the power to enforce such relief. This requires the involvement of the state courts.

This is why parties often revert to the state courts for interim relief and conservatory measures. Notwithstanding the arbitral agreement, the state courts remain competent to grant such relief before and during the arbitration proceedings.

(c) Parties which do not comply with its orders?

The tribunal has no power to enforce compliance with its orders, but it can draw adverse inferences from non-compliance. For instance, if a party fails to abide by a fixed deadline, the tribunal may sanction such behaviour by treating the submission and the assertions made therein as delayed and hence precluded (see question 30). Furthermore, the tribunal may take into consideration any obstructions of the arbitration when deciding on the allocation of costs.

(d) Issuing partial final awards?

The tribunal can issue partial awards at any point during the proceedings. Such awards have final and binding character as to their subject. If the character of the decision is not final, a partial award may not be issued.

(e) The remedies it can grant in a final award?

Just as in litigation before the German courts, the arbitrators are bound by the procedural principle of ne ultra petita - that is, they cannot grant other remedies than those formally sought by the parties. Hence, the tribunal is bound not only in terms of quantity, but also in terms of quality when deciding which remedies to grant to which party. Otherwise, there are no general limitations with respect to the types of relief that a tribunal can grant, as opposed to a state court.

(f) Interest?

The German Arbitration Act does not provide for special legal grounds to grant interest. In most cases, interest is awarded on a substantive law basis (eg, delay damages; late payment). It is highly disputed if, in the absence of such a substantive law basis, the tribunal may award procedural interest by analogy to Section 104 of the Code of Civil Procedure.

For more information about this answer please contact: Nicholas Kessler from Orrick
How may a tribunal seated in your jurisdiction proceed if a party does not participate in the arbitration?

Answer ... The tribunal is competent to sanction a party that culpably does not participate in the arbitration. In this context, the German Arbitration Act provides that if the claimant fails to file its claim in due time, the tribunal shall terminate the proceedings. This decision has no blocking effect - that is, the same matter can still be resolved through another arbitration. If the defendant fails to respond to the claim within the specified timeframe, the tribunal may continue the proceedings without treating this fact as an admission of the claims.

However, since the negative consequences will affect a party’s constitutional right to be heard, the tribunal should be - and in practice usually is - rather cautious in sanctioning non-participation. Even though the German Arbitration Act contains provisions that might force the tribunal to sanction a non-participating party (eg, by treating a belated submission as precluded), at least in situations of grave delay, the tribunal must also appreciate the opposing party’s interest in the speedy resolution of the dispute.

In any event, if the tribunal decides to sanction non-participation, it should pay regard to the following considerations:

  • The timeframes for action must be calculated on reasonable grounds;
  • The non-compliance must not be excused by adequate grounds;
  • The consideration of the late submission must objectively lead to a delay in the resolution of the dispute; and
  • The delay must not have been caused by an inadequate procedure of the tribunal.

For more information about this answer please contact: Nicholas Kessler from Orrick
Are arbitrators immune from liability?

Answer ... Arbitrators are not immune from liability. Even though the German Arbitration Act contains no special provisions in this respect, the arbitrators are bound by the contractual obligations they entered into with the parties and, in the case of institutional arbitration, with the institution. Any violation of these duties can lead to damage claims. However, most of these contracts or institutional rules provide for a certain limitation of the arbitrators’ liability; and even where such disclaimers are missing, it is widely acknowledged that an arbitrator should bear no stricter liability than a state court judge, so that the arbitrator’s judgment is not biased for fear of personal liability. Against this background, in the overwhelming majority of cases, the potential liability of an arbitrator is practically limited to criminal acts, such as an intentional miscarriage of justice.

For more information about this answer please contact: Nicholas Kessler from Orrick
International Arbitration