Arbitration - Germany

On February 20 2007 an arbitral tribunal confirmed the validity of an arbitration clause included in the claimant's general terms and conditions by way of an interim award in a commercial arbitration pursuant to the Arbitration Rules of the German Institution of Arbitration.(1)

Facts

The claimant initiated arbitration proceedings against the defendant regarding payment claims for the delivery of a machine in February 2006 on the basis of an arbitration clause made pursuant to the Arbitration Rules of the German Institution of Arbitration, included in its general terms and conditions. According to the arbitration clause, the claimant was also entitled alternatively to initiate proceedings before the state courts. While the claimant's initial order confirmation did refer to its general terms and conditions, these were only subsequently forwarded to the defendant together with an amended order confirmation, which was not signed by the defendant. However, the general terms and conditions of the claimant were also available on the Internet.

The defendant challenged the jurisdiction of the arbitral tribunal on the basis that the arbitration clause was invalid because:

• he had not signed the amended order confirmation with which the general terms and conditions had been forwarded;
• he was not a merchant in the sense of the Commercial Code;
• the reference to the general terms and conditions did not contain any indication regarding the inclusion of an arbitration clause;
• the arbitration clause was not prominently displayed in the general terms and conditions; and
• the choice between arbitration and litigation granted unilaterally to the claimant constituted an unreasonable disadvantage for the defendant and was therefore void according to the laws on general terms and conditions.

Decision

The arbitral tribunal confirmed its jurisdiction in the interim award and held that the general terms and conditions and the arbitration clause included therein had become a valid part of the contractual relationship between the parties.

The tribunal argued that the reference to the general terms and conditions in the order confirmations was sufficient for their inclusion, even if they were not or were only subsequently forwarded to the defendant, who did not know their content. The tribunal argued that an arbitration clause can be included by referring to general terms and conditions that contain such a clause, pursuant to Section 1031(3) of the Code of Civil Procedure, and that it is sufficient in this respect if the other contractual party can reasonably gain access to the general terms and conditions referred to by the first party. This occurred in the present case, as the claimant's general terms and conditions were undisputedly available on the Internet. Further, the court argued that if one party does not have to be at all aware of the content of the general terms and conditions referred to, neither an indication in the reference regarding the inclusion of an arbitration clause nor the prominent display of the clause in the general terms and conditions is required for the clause to be valid.

The fact that the defendant had not signed the amended order confirmation was irrelevant according to the tribunal, as a signature would have been required only if the respondent had been a consumer. The arbitration laws in Sections 1029 and following of the Code of Civil Procedure require only arbitration agreements with consumers - that is, persons entering into an agreement neither for business nor commercial but only for private reasons - to be set out in an independent and signed contractual document. However, the respondent was a carpenter and had purchased the machine in question for business purposes.

The tribunal further held that the arbitration clause did not constitute an unreasonable disadvantage to the defendant. While the arbitration clause granted the claimant the right to choose between arbitration and litigation, this would constitute an unreasonable disadvantage only if the claimant could have exercised this choice after the initiation of arbitral proceedings by the defendant and thus could 'torpedo' such arbitral proceedings against itself. However, this was not the case because the choice granted to the claimant applied only if the claimant initiated proceedings.

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