GERMANY Law and Practice Contributed by: Patricia Nacimiento, Catrice Gayer, Lara Panosch and Theo Pauthonier, Herbert Smith Freehills Kramer LLP
However, all existing German BITs were concluded before 2014. The UNCITRAL transparency rules do not apply to investor–state arbitration under these treaties. In order to enable the application of the UNCITRAL transparency rules to legacy agreements, the so- called Mauritius Convention was enacted. It extends the application of the UNCITRAL transparency rules to existing investment protection agreements (see also 1.2 Arbitration Conventions ). German arbitration law imposes no inherent restric- tions on the types of remedies that may be granted in a final award. In the absence of limitations agreed upon by the parties, arbitral tribunals are empowered to award any relief that a competent state court could grant in comparable proceedings. This includes, but is not limited to, compensatory damages, orders for specific performance, declaratory relief, and interim measures. Punitive damages, however, are contrary to ordre pub- lic and may not be awarded by a Germany-seated arbitral tribunal, even when applying the substantive law of another state. 8. Damages and Valuation 8.1 Remedies The arbitral tribunal’s authority is confined to the scope of the claims submitted by the parties. Relief granted beyond the bounds of the pleadings constitutes an ultra petita ruling, which may expose the award to annulment or refusal of enforcement under Section 1059 (2) No 1 (c) ZPO and Article V(1)(c) of the New York Convention. 8.2 Methodologies for Quantum Assessment The most popular and recognised valuation method in domestic courts is the capitalised earnings meth- od ( Ertragswertverfahren ). The procedure is laid out in the IDW S1 standard, an authoritative guideline for business valuation published by the Institute of Public Auditors in Germany. This method focuses on future maintainable earnings, capitalised using a risk- adjusted discount rate. The German Supreme Court
( Bundesverfassungsgericht ) has deemed the method constitutional. The internationally recognised discounted cash flow method (DCF) is equally recognised under the IDW S1 Standard. In practice, German auditors typically perform one method as the primary valuation and use the other as a cross-check to validate the outcome. Market-based approaches are not an independent method under the IDW S1 standard. They are used as a cross-check or secondary method and based on comparable company or transaction multiples (eg, EV/ EBITDA). It is less common as a standalone method in German court proceedings due to data limitations and subjectivity in selecting comparables. The net asset value/liquidation value is backward- looking in nature and solely considers the sum of the individual assets in contrast to the DCF method. As a result, its application is limited to insolvency, real estate or asset-heavy industries. 8.3 Recovering Interest and Legal Costs Germany generally follows a “costs-follow-the-event” approach (English rule). Parties are entitled to recov- er legal and expert fees and arbitral institution costs. Under Section 1057 of the Code of Civil Procedure, arbitral tribunals in Germany are vested with broad discretion to allocate the costs of the proceedings, unless the parties have agreed otherwise. In exercis- ing this discretion, arbitral tribunals are expected to consider all relevant circumstances, with particular emphasis on the outcome of the dispute. However, arbitral tribunals increasingly factor in addi- tional considerations when determining cost alloca- tion. These may include procedural conduct such as obstructive tactics, the handling of jurisdictional objections, excessive document production requests, or non-compliance with procedural orders. As a result, a party may be ordered to bear a portion of the arbitra- tion costs – including arbitrator fees and legal expens- es – regardless of the substantive outcome. German arbitration law is silent on the question of interest. If and to what extent interest will be awarded
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