GERMANY Law and Practice Contributed by: Patricia Nacimiento, Catrice Gayer, Lara Panosch and Theo Pauthonier, Herbert Smith Freehills Kramer LLP
3. Substantive Protections and Breaches 3.1 Common Complaints
• protection against unlawful expropriation (Article 4); • free transfer of payments (Article 5); and • umbrella clause (Article 7.2). The 2008 Model BIT contains both state-to-state (Arti- cle 9) and investor–state dispute settlement (Article 10) mechanisms. 2.3 Free Trade Agreements Germany is part of the EU’s free trade structure, includ- ing the Comprehensive Economic and Trade Agree- ment with Canada (CETA), the EU-Japan Economic Partnership Agreement, the EU-Vietnam Free Trade Agreement, the EU-Singapore and EU-Mexico agree- ment. Currently, the EU is negotiating the EU-Austral- ia Free Trade Agreement, which has seen renewed momentum in 2025, with breakthroughs on agricul- tural tariffs and digital trade. There are also ongoing negotiations on an EU-India Free Trade Agreement, with the goal of concluding the FTA by end of 2025. 2.4 Interpretive Aids There are no official commentaries on investment trea- ties or similar official interpretive aids in Germany. 2.5 Investment Laws Germany does not have a national investment law. For relevant laws and their interactions with investment treaties, see 1.2 Arbitration Conventions . 2.6 Arbitration Clauses in Investor–State Contracts While investment contracts with arbitration clauses between a foreign investor and the federal govern- ment or one of the 16 federal states may in theory be concluded in specific contexts, such as large infra- structure or privatisation projects, Germany defers investment protection to its extensive portfolio of BITs, which generally offer more comprehensive and reliable protection mechanisms for investors. Indeed, arbitra- tion agreements in investment contracts can only be entered into by the state in matters for which admin- istrative contracts are admissible in German admin- istrative law, which poses limits to the arbitrability of certain matters (eg, tax) that do not exist under BITs.
Against Germany, breaches of fair and equitable treat- ment and indirect expropriations have been invoked the most. This is due to the nature of the legislative changes that have occurred in the context of Ger- many’s energy transition (see also 1.3 Prevalence of Investor–State Arbitration ).
4. The Arbitral Tribunal 4.1 Limits on Selection
Parties are allowed to freely determine the number of arbitrators, the method of their appointment, and the qualifications they should possess. In domestic arbi- tration proceedings especially, it is not uncommon for professionals such as engineers, accountants or other subject-matter experts to be selected as arbitrators, depending on the technical nature of the dispute. However, this freedom is subject to safeguards. The most significant limitation concerns the impartiality and independence of arbitrators. They are under a continuing duty to disclose any circumstances that may give rise to justifiable doubts in this regard. While there are no statutory nationality requirements, par- ties remain free to impose such conditions contrac- tually. Under Section 1036 (2) German Code of Civil Procedure (ZPO), an arbitrator may be challenged if circumstances exist that give rise to justifiable doubts regarding their impartiality or independence. Beyond this, party autonomy may be restricted by public policy considerations. Any appointment mech- anism that violates fundamental principles of fairness or procedural equality will be deemed invalid. Sec- tion 1034 (2) ZPO introduces a corrective mechanism where the arbitration agreement grants one party a dominant role in the appointment process – such as the exclusive right to nominate the sole or presiding arbitrator. In such cases, the disadvantaged party may, within two weeks of becoming aware of the arbitral tribunal’s composition, request the competent court to intervene and appoint a substitute arbitrator.
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