FEDERAL GOVERNMENT PLANS STATE ARBITRATION COURTS

Prof Hohlbein, given the international interdependence of the German economy and the legal disputes that are likely to arise as a result, it sounds like a good idea to discuss controversial legal opinions with a view to reaching an agreement before courts of arbitration.

Yes, that is basically correct, especially as the classic alternative, civil litigation, is inevitably a contentious process. And that in up to three instances. 

What exactly is the new draft law about?

The government's draft act, “Justizstandort-Stärkungsgesetz” – the title is somewhat unwieldy – aims to modernise arbitration law and, among other things, to allow English-language state arbitration proceedings at higher regional courts (Oberlandesgerichte) in special senates, that is, Commercial Courts.

These new senates are to have jurisdiction as courts of first instance for certain listed civil disputes between entrepreneurs and for disputes in connection with the acquisition of a company. The Commercial Courts are to be independent of the normal court structure and can be freely consented to by the parties if the value in dispute is at least one million Euro. The proceedings can optionally be conducted in English, the international language of commerce, and can be continued in English before the Federal Supreme Court (BGH), if necessary.

... does that mean application of German law in English, a maximum of two state instances – and that with full judicial independence?

Yes, in the future arbitration proceedings can also be conducted swiftly before state courts with the recognised expertise of German judges. And unlike private arbitrators, state judges are only subject to the law.

Why is the law being introduced now?

On the one hand, the legislative initiative stems from the current coalition agreement, according to which English-language expertise is to be created for international commercial and economic disputes. Secondly, the trend plays a role.

Hang on. Trend? What do you mean by that?

Well, in the last 20 years, the number of new civil law cases brought before the two courts of first instance each year has fallen by almost 50%. At about the same time, alternative forms of dispute resolution (ADR) have gained in importance. This is especially so for commercial mediation and arbitration proceedings.

Can you give specific case numbers?

Although the number of new civil law cases before the local and regional courts has declined, they currently amount to around 1,000,000 per year. The number of arbitration cases heard before various arbitration courts was – as far as can be seen – very low, has risen substantially and is now in the lowest single-digit percentage range of cases heard before the civil courts.

But then ADR proceedings are rather insignificant, aren't they?

I wouldn't say that. The ADR trend-increase is too distinct for that.

If there is this development, what do you think are the reasons for the increase in consensual dispute resolution?

German civil proceedings are perceived as complicated, lengthy and expensive. The provisions of the Code of Civil Procedure alone comprise 1120 articles. ADR proceedings are usually confidential, which on the one hand does not help a transparent development of the law, but on the other hand the proceedings can be quick, inexpensive and self-determined.

So it is a good thing that federal legislation wants to show its international colours when it comes to arbitration courts.

Yes, the intention is to be welcomed.

Do I hear a certain reluctance there?

Due to its concurrent legislative power, the federal government has taken the initiative and presented a legislative proposal empowering the federal states to introduce the new law. This makes the federal government look energetic, but it does not have to tackle the arduous task of implementation itself.

Now the federal states are expected to strengthen Germany’s reputation as an international court location and give it recognition and visibility in international competition with foreign commercial and arbitration courts. However, it is questionable whether this can be achieved with law only.

It almost sounds like a "contract at the expense of third parties" or the allocation of tasks in our federal system, which has been observed more frequently recently. What exactly is your reservation?

Firstly, with regard to your contractual comment: I can understand that the legal mechanics are reminiscent of a contract to the detriment of third parties. However, the civil law term does not quite fit here, as the federal government grants the federal states an option of implementation – which can be accepted or not.

Now to the reservation. Specialised senates will have to be set up from scratch at the higher regional courts. In an initial assessment, the federal states have rated the additional costs for the realisation of the reform as negligible. However, this could prove to be optimistic. After all, there are a lot of details to be considered: the premises need to be of the highest technical standard, there must be no staff shortages, a wide range of subject matter has to be covered, judges and judicial staff need to have an excellent command of English and the administrative restrictions arising out of the court structure must be overcome.

I am just imagining what it might be like when someone calls a court at three o'clock in the afternoon, speaks English and wants to be put through to the Commercial Court. What do you think needs to be done?

Too many federal states could be tempted to establish a Commercial Court out of misguided eagerness. It is important to avoid an overambitious patchwork of state courts. A few, perhaps a handful of comfortably equipped commercial courts and a technical upgrade of local and regional courts would be desirable. However, such a "double boom" is not to be expected due to a lack of funds. More likely is a showcase solution for Commercial Courts (Champions League) on the one hand and digitally suffering courts of first instance (domestic league) on the other hand although these courts deal with 99% of cases. Without funding that matches the ambition of the federal government, the successful implementation of the proposed legislation will be a challenge. And I wish everyone involved much success in this endeavour!

Thank you for the interview!        

The questions were asked by Lüneburg alumnus Mathias Paulokat, MBA. The business law graduate (FH) is a press spokesman in the banking industry.

The article leading to this interview has been published in the special issue on reinsurance of the Zeitschrift für Versicherungswesen, ZfV, 2023, issue 21, p. 620 et seq., where it also covers insurance and reinsurance aspects.

Here you can find more information about Prof Dr Bernhard Hohlbein and Leuphana Law School.