Arbitration - Germany

Background

The Higher Regional Court of Frankfurt am Main held in a decision of May 12 2007 that a partial arbitral award which confirms the basis of a claim for damages but reserves judgment regarding the amount of the damages and an arbitral award dismissing a counterclaim (conditional upon the same factual issues as the claim) as unmerited do not constitute a (final) arbitral award and, as such, cannot be the subject of proceedings for annulment before the state courts.

Facts

The claimant and respondent had concluded a share purchase agreement (SPA) regarding the sale of a subsidiary of the respondent to the claimant. The SPA contained a Deutsche Institution für Schiedsgerichtsbarkeit eV (DIS) arbitration clause. The claimant subsequently tried to postpone the closure of the SPA because of various unclear financial details of the target. However, the respondent was not willing to postpone the closure and instead terminated the SPA and sold the company to a third party for a lower price than had been agreed in the SPA with the claimant.

The respondent subsequently initiated arbitral proceedings against the claimant (ie, the respondent became the claimant in the arbitral proceedings and the claimant became the respondent and counterclaimant), demanding compensation of the damages suffered as a result of the less advantageous sale of the target to the third party. The claimant in turn filed a counterclaim for damages suffered due to the respondent's unjustified termination of the SPA and sale of the target to the third party.

The arbitral tribunal passed an arbitral award in which it confirmed the basis of the claimant's liability towards the respondent for damages resulting from a breach of duty under the SPA and reserved its decision on the amount of damages to a subsequent arbitral award. Further, the arbitral tribunal dismissed the counterclaim.

The claimant requested the annulment of the arbitral award before the higher regional court pursuant to Section 1059 of the Code of Civil Procedure, on the basis that its right to due process had been violated by the arbitral tribunal as it had not given the claimant sufficient opportunity to present its case.

Decision

The higher regional court held that the arbitral award regarding the basis of the claimant's liability towards the respondent could not be the subject of proceedings for annulment before the state courts as it did not constitute a final and binding arbitral award pursuant to Section 1059, but rather only an interim award.

The court argued that an arbitral award in the sense of Section 1059 is given where the decision of the arbitral tribunal fully and finally resolves a dispute or a separable portion thereof. However, this is not the case where an interim award is limited to individual issues of a dispute - for example, regarding the admissibility of the claim or preliminary questions of substantive law. The court argued that the same is true for an arbitral award confirming only the basis of a claim for damages, at least in cases in which the arbitral tribunal must still decide on the amount of the damages. The outcome of the dispute or a separable portion thereof is not settled in its entirety by the partial arbitral award on the basis of the claim. Rather, the arbitral tribunal could still dismiss the entire claim if it should come to the conclusion that the amount of damages is zero as no damages occurred.

Further, the court held that the claimant's request for annulment of the arbitral award which dismissed the counterclaim was also inadmissible here, although this part of the arbitral award was already a final decision. The court argued that the counterclaim was not a separable part of the dispute because the merits of both the claim and the counterclaim depended on the same factual issues. The court also argued that conflicting decisions regarding the annulment of the arbitral award could occur if the state courts were to admit a request for the annulment of the award regarding the dismissal of the counterclaim and to admit only subsequently a request for the annulment of the final award regarding the claim. The court finally held that any procedural time limits regarding filing a request for annulment of the arbitral award dismissing the counterclaim would commence only once the final award on the claim had been rendered.

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