GERMANY Law and Practice Contributed by: Patricia Nacimiento, Catrice Gayer, Lara Panosch and Theo Pauthonier, Herbert Smith Freehills Kramer LLP
as far as disputes between a member state and an investor from another member state are concerned. Most recently, German courts have also affirmed this for intra-EU investment arbitrations conducted under the ICSID Convention. They took the opportunity to do so based on a particularity of the German arbitration law which allows the respondent in an arbitration to file an application with the Higher Regional Courts to declare an arbitration inadmissible before the arbitral tribunal has been constituted (Section 1032 ZPO). Initially, in April 2022, the Higher Regional Court of Berlin had rejected Germany’s application to declare inadmissible the Mainstream Renewable Power Ltd et al v Germany arbitration that is currently pending before an ICSID tribunal. The Berlin court affirmed that the dispute resolution mechanism established under the Washington Convention is a self-contained legal regime and found that the challenge of the arbitra- tion’s admissibility under Article 1032 ZPO was inap- plicable to ICSID arbitrations. By contrast, in September 2022, the Higher Regional Court of Cologne declared two ICSID arbitrations filed by German investors against The Netherlands inad- missible under Section 1032 ZPO, finding that the arbitration clause contained in Article 26 ECT violates EU law. In doing so, it expressly referred to the Ach- mea judgment of the European Court of Justice. Both Germany in the Mainstream case and the inves- tors in the two cases against The Netherlands, filed for appeal with the German Federal Court of Justice, which rendered its decision on 27 July 2023. The Federal Court of Justice joined the position taken by the Higher Regional Court of Cologne that intra-EU arbitration clauses that refer disputes between the parties to ICSID tribunals contravene EU law and are therefore inadmissible under German procedural law. It is thus to be expected that German courts will no longer recognise and enforce intra-EU awards, regard- less of whether the underlying arbitrations have been conducted under the Washington Convention or other arbitration rules. As of this date, this case law is not expected to have an impact on German courts’ will-
ingness to recognise and enforce other investment arbitration awards. At the same time, German courts are generally reluc- tant to interfere with enforcement of intra-EU awards in non-EU jurisdictions, as demonstrated in the recent judgment of the German Regional Court of Essen con- cerning the enforcement of the RWE Innogy v Spain award in the US. The respondent state requested the German court to restrain the claimant from enforc- ing the intra-EU award in the US, referring to the incompatibility of the award with EU law. The Ger- man court in this case refused to issue such injunc- tive relief with reference to, inter alia, the universal principle of state sovereignty and territoriality, which in the court’s view would have been violated had the German court granted the requested relief in relation to the US enforcement proceedings. 9.2 Approach of the Courts German courts adopt a pro-enforcement stance towards arbitral awards, both domestic and foreign. In practice, the grounds for refusing recognition and enforcement under Article V of the New York Con- vention are interpreted narrowly. German courts have frequently declined to find that a defence exists, even in cases where foreign courts have exercised discre- tion to deny enforcement. In the enforcement context, only violations of international public policy (those that offend Germany’s most fundamental legal principles) will justify refusal. In particular, German courts adopt a strict interpretation of the prohibition of judicial review of the merits of an arbitral award by state courts ( révi- sion au fond ). Where a party invokes a defence under Article V(1) of the New York Convention, German courts may still assess whether the same facts give rise to a viola- tion of procedural public policy under Article V(2)(b) of the New York Convention. This is particularly relevant in cases involving the absence of a valid arbitration agreement or a breach of the right to be heard. See 9.1 Enforcement Procedure for the position of domestic courts in respect of sovereign immunity.
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