In cross-border business relationships, the parties are regularly interested in agreeing on provisions for potential disputes already at the time of the conclusion of the contract and in submitting these, for example, to the jurisdiction of an arbitral tribunal. The rules on arbitration in Sections 1025 et seqq. of the German Code of Civil Procedure (Zivilprozessordnung, ZPO) show that arbitration does not stand above or outside the judiciary or the state's duty to provide justice but is part of the legal system. The decisions of the arbitral tribunal are dependent on the recognition of public courts for their enforceability, although there is scope for private autonomy. In the recognition or reversal of arbitral awards, the question regularly arises as to whether the procedural rights guaranteed by the rule of law have been observed in the arbitral proceedings. Thus, there is international agreement that the reversal of an arbitral award is possible only within narrow limits, in particular if essential guarantees of the rule of law have been violated. One of the essential principles to be observed in arbitration proceedings is the preservation of the ordrepublic.
The Federal Court of Justice had to decide on the following facts in proceedings concerning an appeal on a point of law:
The applicant and the respondent had concluded a contract for the dismantling of a plant for the production of plastics by the respondent, which was to receive remuneration of EUR 1,9 million for that work. The parties agreed on an arbitration clause in the contract, according to which the arbitration rules of the International Chamber of Commerce in Paris (ICC) would apply. German was agreed as the language of the proceedings. The respondent subsequently withdrew from the contract and sued the applicant for reimbursement of advance payments made before the arbitration court. In the course of the oral hearing before the arbitral tribunal in Berlin, a managing director of the respondent was heard as a witness in German by video conference without an interpreter. Since the managing director was not sufficiently proficient in German, his co-manager translated some of the questions for him into his native language Persian. Ultimately, the arbitrators upheld the payment claim for the most part.
The applicant felt that its right to a fair trial had been violated because the arbitral tribunal had not prevented the witness from being influenced by his colleague and filed a petition for the reversal of the arbitral award with the higher regional court. The higher regional court dismissed the petition based on Section 1059 (2) of the German Code of Civil Procedure (Zivilprozessordnung, ZPO). This is the subject of the applicant's appeal on a point of law.
The Civil Panel I of the Federal Court of Justice dismissed the applicant's appeal on a point of law. In the opinion of the court, the fact that the arbitral tribunal did not prevent the managing director from making statements in Persian did not constitute a violation of Section 1059 (2) No. 2 (b) case 2 ZPO. According to this provision, an arbitral award may be reversed if the court determines that the recognition or enforcement of an arbitral award will lead to a result contrary to public order (ordre public). The Federal Court of Justice did not express any objections to a hearing in German without an interpreter, since the arbitral tribunal did not, after all, deviate from the stipulated language of the proceedings, which is German. The language of the proceedings was also not violated in this case because only isolated statements made by the co-managing director of the defendant to the witness were translated into Farsi. Furthermore, the applicant did not submit that the arbitral tribunal had based its decision on statements by the witness other than those made in German. A violation of the procedural principle of ordre public could also not be justified by the applicant's complaint that the arbitral tribunal did not prevent the managing director from making statements in Persian. This objection, which was to be taken into account ex officio, was to be affirmed only if the arbitral award violated a mandatory provision of domestic law which, moreover, "is the expression of a value judgment of the legislature that is fundamental to the legal system", the court held.
Similarly, there was no infringement of the principle of procedural equality of arms (Article 3 (1), Article 20 (3) of the German Basic Law (Grundgesetz, GG), which had also to be examined as part of ordre public. The concept of equality of arms is to be understood as an expression of the principle of the rule of law and the general principle of equality in civil proceedings. It ensures the constitutionally guaranteed equality of the procedural position of the parties before the court. Accordingly, the courts must give the parties to the proceedings the same opportunity to present everything that is relevant to the court's decision and to assert independently all procedural pleas in law necessary for the defence against the attack of the respective other party. From this follows likewise the duty to preserve the equality of the parties by an objective, fair conduct of negotiations, by unbiased readiness for the utilisation and evaluation of the mutual submissions, by impartial application of the law and by correct fulfilment of other procedural obligations. Behind the procedure of examination of witnesses in the public courts is the general principle that the court must orientate the proceedings towards the purpose of establishing the truth and prevent interventions by the parties that jeopardise the achievement of the purpose. This principle applies equally to arbitral tribunals.
In the opinion of the Civil Panel I of the Federal Court of Justice, the potential violation of the duty incumbent upon the arbitral tribunal to prevent interventions by the parties in the context of the examination of witnesses that would jeopardize the establishment of the truth did not in any case reach the weight required for a violation of the constitution, so that it could remain open whether the Higher Regional Court had violated the applicant's right to be heard pursuant to Article 103 (1) of the Basic Law. According to the Federal Court of Justice, it was in any case excluded that the submission on the conduct of the witness, which was claimed to be ignored, would have led to a decision that was more favourable for the applicant.
The decision of the Federal Court of Justice impressively demonstrates the essential procedural principles to be observed in the work of the arbitral tribunal. In principle, it is hardly possible to attack arbitral decisions beyond the problem areas identified by the Federal Court of Justice and the further grounds for reversal under Section 1059 ZPO. In general, it is not very likely that one will be successful relying on the argument of a violation of the procedural ordre public, as the hurdles for this are very high. The standards are, inter alia, respect for the right to be heard, fair proceedings and procedural equality of arms. At the same time, the decision of the Federal Court of Justice shows once again that any settlement of a dispute outside the system of public jurisdiction must of course be measured against the standards of constitutional law and, in particular, that the ordre public must be observed.