GERMANY Law and Practice Contributed by: Patricia Nacimiento, Catrice Gayer, Lara Panosch and Theo Pauthonier, Herbert Smith Freehills Kramer LLP
7. Other Procedural and Evidentiary Issues 7.1 Notice of Dispute and Consultation Period Under Article 11 of the 2008 German Model BIT, the progression toward arbitration involves a so-called cooling-off period and an 18-month local litigation clause. The cooling-off period mandates a written notice of dispute and amicable consultations. The investor must first officially notify the host state of the dispute and subsequently engage in consultations to resolve the matter amicably. The model BIT stipulates a six- month cooling-off period from the date of notice, dur- ing which arbitration proceedings are prohibited. In addition to the cooling-off period, the dispute must be submitted to the competent domestic court at the request of either party. The disputes may be submit- ted to an arbitral tribunal if 18 months have elapsed since initiating domestic proceedings or if both parties agree to arbitration. The 18-month local litigation requirement in German BITs has been the subject of discussion. Notably, arbitral case law shows mixed approaches – some tribunals strictly uphold the requirement as part of the state’s consent to arbitration, whereas others have allowed investors to bypass it using most-favoured- nation (MFN) clauses. For instance, in Siemens AG v Argentina (ICSID Case No ARB/02/8), the German investor invoked an MFN clause to avoid the Argenti- na-Germany BIT’s 18-month local courts requirement, a move the tribunal accepted by importing a more favourable dispute resolution clause from another treaty. 7.2 Confidentiality and Transparency Germany has been an active supporter of increasing transparency in investor–state arbitration. On 11 July 2013, the United Nations Commission on International Trade Law (UNCITRAL) adopted comprehensive new transparency rules for investor–state arbitration pro- ceedings. As a full member of UNCITRAL, the German government actively participated in the drafting of the new transparency rules.
Section 110 (1) of the Code of Civil Procedure, which requires claimants domiciled outside the European Union or European Economic Area to furnish secu- rity for costs upon request in state courts litigation, extends to proceedings seeking the recognition and enforcement of arbitral awards. The Federal Court of Justice (12 January 2023, I ZB 33/22) has given up its previous position and established that Section 110 (1) ZPO applies by analogy to such proceedings. 6. Third-Party Funding 6.1 Prevalence of Third-Party Funding Third party funding is permissible in Germany and not regulated under German law. However, the involve- ment of a non-party funder may raise both confiden- tiality and transparency concerns. To mitigate the risk of unauthorised disclosure, it is standard practice to require funders to enter into confidentiality agree- ments. As regards the attorney-client relationship, German law restricts lawyers’ contingency fees pursu- ant to Section 49 lit. b of the German Federal Lawyers’ Act (BRAO). 6.2 Third-Party Funding Case Law No domestic court decisions exist that concern cur- rent issues of third-party funding in arbitration. 6.3 Disclosure and Security for Costs German law does not obligate parties to disclose third-party funding. In contrast, the European Par- liament passed a resolution in 2022 recommending a Directive to regulate third-party funding, including mandatory disclosure and authorisation systems for funders. However, as of mid-2025, no binding EU legislation has been enacted, and Germany has not independently adopted such rules. Moreover, the involvement of a third-party funding does not trigger a requirement for security for costs under the ZPO, including the German Arbitration Act. State courts, for example, assess such applications on a case-by-case basis, considering factors such as the prima facie likelihood of success of the claim and the financial standing of the plaintiff (see also 5.3 Security for Costs ).
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