GERMANY Law and Practice Contributed by: Patricia Nacimiento, Catrice Gayer, Lara Panosch and Theo Pauthonier, Herbert Smith Freehills Kramer LLP
3.3 National Courts’ Approach In assessing which law governs the validity of an arbi - tration agreement, the Federal Court of Justice follows a structured approach grounded in Article V(1)(a) of the New York Convention, as clarified in its judgment of 26 November 2020 (I ZR 245/19). As a starting point, if the parties have expressly desig - nated a particular legal system to govern the arbitra - tion clause, that choice will generally be upheld – even if it diverges from the law applicable to the underlying contract. Where no explicit choice is made, the court will examine the circumstances to determine whether an implied choice of law can be inferred from the agree - ment or the broader contractual context. If neither an express nor an implied choice is evident, the fallback rule is to apply the law of the arbitral seat. This default ensures predictability and aligns with international practice, particularly where the seat has a close connection to the arbitration proceedings. Germany is an arbitration-friendly jurisdiction and arbitration agreements are enforced by courts, as long as they are not null and void (ex tunc invalidity, eg, for lack of the required form), inoperative (ex nunc inva - lidity, eg, where the arbitration agreement was termi - nated) or incapable of being performed. Where some provisions of an arbitration agreement are erroneous (eg, where it designates a non-existent arbitration institution), German courts will attempt to give effect to the arbitration agreement by way of supplementary interpretation ( ergänzende Vertragsauslegung ). 3.4 Validity German arbitration law follows the principle of separa - bility, under which the arbitration clause is treated as legally distinct from the main contract (Section 1040 (1), second sentence ZPO). This means that the arbi - tration agreement must be evaluated independently in terms of its existence, validity and scope. As a result, the arbitration clause does not automatically become invalid if the main contract is found to be void or termi - nated, and the enforceability of the arbitration agree - ment remains intact even if the underlying contract ceases to exist. However, the principle of separability
However, there are statutory exceptions. For instance, disputes concerning the existence of residential leas - es within Germany fall outside the scope of arbitration (Section 1030 (2) ZPO). The arbitrability of patent-related issues – particularly in the context of licensing agreements – has sparked considerable debate. While the enforceability of pat - ent validity determinations remains contentious, Ger - man courts have acknowledged the arbitrability of certain IP-related claims, at least between the parties involved. For instance, the Regional Court of Munich I (25 May 2021, 21 O 8717/20) upheld the arbitrability of a claim involving the transfer of a contested European patent application, along with a related declaratory damages claim. Corporate disputes have been the subject of a series of landmark rulings by the Federal Court of Justice, known collectively as the Schiedsfähigkeit decisions: • The court initially rejected the arbitrability of chal - lenges to shareholder resolutions in limited liability companies (GmbH), citing concerns over the bind - ing effect of arbitral awards on non-participating shareholders (29 March 1996, II ZR 124/95, “ Schiedsfähigkeit I ”). • The court later reversed its earlier stance, recog - nising the arbitrability of such disputes, provided that the arbitration procedure ensures equivalent protection to that offered by state courts. This includes safeguarding minimum participation rights and ensuring access to legal remedies for all affected parties (6 April 2009, II ZR 255/08, “ Schiedsfähigkeit II ”). • The court then extended the procedural safeguards established in Schiedsfähigkeit II to disputes within partnerships (eg, Kommanditgesellschaften ), affirming that similar standards apply (6 April 2017, I ZB 23/16, “ Schiedsfähigkeit III ”). • The court clarified that these enhanced require - ments apply only where the partnership agreement stipulates that disputes over resolution validity are to be resolved with the partnership itself, rather than among individual partners (23 September 2021, I ZB 13/21, “ Schiedsfähigkeit IV ”).
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