Interim measures in English seated arbitrations - do they measure up?
Interim measures in German seated arbitrations – do they measure up?
Market Insight 07 July 2022 07 July 2022
UK & Europe
This is the final article in Clyde & Co’s international arbitration series covering the availability of interim measures across various European jurisdictions. In this piece, Counsel Georg Scherpf, Senior Associate Styliani Ampatzi, and Trainee Yannik Jeremias from our Hamburg and Dusseldorf offices provide the legal and procedural perspective in Germany.
With commercial arbitration incrementally encroaching on state courts competence to provide interim relief, this article outlines both the possible interim relief in German state courts – during a pending arbitration – as well as the possibilities to obtain such relief from the arbitral tribunal.
When the German arbitration law was reformed in 1998, provisions regulating the interim relief in arbitration were adopted. Arbitral tribunals now have the power to order interim relief under German law (section 1041 of the 10th book of the German Code of Civil Procedure, hereafter “CCP”).
Competent bodies to order interim measures
Following the example of the 1985 UNCITRAL Model Law (“Model Law”), the German arbitration law allows both the German courts and arbitral tribunals, to issue measures of interim relief in support of the arbitration proceedings. The competence of arbitral tribunals is based on the Model Law, Article 17, in its original 1985 version, and is set out in section 1041 para 1 CCP. The respective concurrent competence of the German courts follows Article 9 of the Model Law and is found in sections 1033 and 1041 para 2 CCP.
While parties can exclude the jurisdiction of the arbitral tribunal to provide interim relief, it is disputed, under German law, if the same applies to the jurisdiction of the German courts. The German Federal Court of Justice has yet not taken a position on this issue. However, according to the prevailing opinion, the parties may too, exclude the jurisdiction of the German courts to order interim relief. To do this, the Parties must state the exclusion of the respective competence of the courts explicitly. Including an arbitration agreement into their contracts alone does not suffice. The reasoning behind this is that since the parties may agree to exclude a claim from legal proceedings altogether (pactum de non petendo), the parties may agree on the exclusion of only the interim relief all the more.
As long as neither competence is excluded, the party seeking interim relief may choose whether it turns to the arbitral tribunal or a German court seeking interim protection. There are, however, differences between the two alternatives concerning both the application procedure as well as the remedies available and their effect that should be carefully considered when deciding on how to proceed.
Interim measures ordered by German courts
Pursuant to section 1033 CCP the agreement to arbitrate does not preclude a court from granting interim relief before or after the arbitral proceedings have been commenced.
Moreover, German courts may issue measures of interim relief irrespective of whether the arbitration is seated in Germany or not. This is regulated explicitly in section 1025 para 2 CCP.
However, German courts may only grant interim measures which are available in German litigation proceedings. These are:
- Attachment order (Arrest, section 916 CCP). The attachment is ordered to secure the enforcement of a monetary claim against the debtor’s property where an enforceable title does not exist (yet).
To substantiate its request for an attachment order, the applicant has to have a prima facie case against the debtor (Arrestanspruch) and demonstrate that there are objective reasons to fear that without the order, the enforcement of any award on that claim would be frustrated or become considerably more complicated (Arrestgrund). A debtor’s difficult financial situation alone does not justify an application for attachment. However, if there are indications that the debtor plans to transfer assets to another jurisdiction, attachments are commonly ordered. Yet, the threshold to obtain such an order remains generally high.
- Interim injunction (einstweilige Verfügung, sections 935 et seq. CCP). Interim injunctions serve to secure a non-monetary claim until a decision is made in the main proceedings. Interim injunctions are permissible to prevent the change of existing circumstances (protective injunction, Sicherungsverfügung) or to regulate an interim condition in relation to a disputed legal relationship (regulatory injunction, Regelungsverfügung). The court determines at its own discretion which orders are necessary to achieve the relief sought. It then orders the respondent to either carry out or refrain from carrying out a specific act.
The party requesting the interim injunction must again prima facie prove its claim (Verfügungsanspruch) and establish the urgency of the interim injunction (Verfügungsgrund).
Finally, the German courts may order the applicant to provide reasonable security (sections 921 and 936 CCP). The court shall decide on reasonable security irrespective of a request of the opposing party. Pursuant to section 110 CCP, nationals of foreign states (non-EU/EEA member states) who appear as plaintiffs before German courts must provide the defendant with security for the costs of the proceedings at the latter's request. It is disputed whether the obligation to provide that kind of security can also be imposed in interim relief applications. The currently prevailing opinion rejects this (see Regional Court Berlin, Judgement of 5 March 1957 – 64 S 21/57, FHZivR 5 Nr. 19942). According to another opinion, however, the provision of security should be considered at the latest when oral proceedings are held (Leible, NJW 1995, 2817; Schulz in Münchener Kommentar zur ZPO, 6th Ed. 2020, § 1041 margin no. 4).
Interim measures ordered by arbitral tribunals
Section 1041 para 1 CCP regulates:
“Unless otherwise agreed by the parties, the arbitral tribunal may order at the request of a party, such interim measures or measures of protection as it considers necessary in respect of the subject matter of the dispute. The arbitral tribunal may require either party to provide reasonable security in connection with such a measure.”
The arbitral tribunal may order interim measures as it considers necessary once it has been fully constituted. The wording of section 1041 para 1 CCP does not restrict arbitral tribunals to only order interim measures available in German litigation proceedings. In this regard, the powers of the arbitral tribunals, technically, exceed the possibilities of the German courts. However, the competence of the tribunals is inherently restricted as they do not wield any state authority. Yet, the arbitral tribunal may in theory order any interim measure if that measure is non-coercive and has a factual connection to the arbitrated claim. The applicant should succeed with its request before the arbitral tribunal if it has a prima facie claim and demonstrates the claim being in danger of being frustrated as well as the urgency of the interim measure. Lastly, the tribunal can order both the applicant as well as the respondent to provide a security. The security must not be requested by the parties but can be ordered by the arbitral tribunal ex officio. The tribunal can order a security if the opposing party to the one having requested the interim relief may suffer damage due to the measure ordered. The amount of the security must be reasonable. The decisive factor in determining the appropriateness is the maximum amount of the potential damage.
In the interest of effective legal protection, the arbitral tribunal may also decide without an oral hearing and without hearing the opposing party to the one requesting the interim relief, unless the parties have agreed otherwise. Section 1042 CCP does not prevent this since it does not grant the right to be heard to a greater extent than before the state court. Therefore, it is not excluded that the arbitral tribunal grants a hearing only after the order has been issued and, if necessary, revokes or amends the measure, as a court would also do. It should be noted, however, that in court proceedings, the requirements for issuing a temporary injunction without hearing the opposing party have been considerably tightened in order to maintain procedural equality (see Voit in Musielak/Voit, ZPO, 19th Ed. 2022, § 1041 margin no. 3).
A further confirmation of the above position of German law regarding the possibility of deciding ex parte on a request for interim relief could be considered Article 25 para 2 DIS Arbitration Rules, which regulates:
“In exceptional circumstances, the arbitral tribunal may rule on a request pursuant to Article 25.1 without giving prior notice to or receiving comments from the other party, if otherwise it would risk frustrating the purpose of the measure. In such case, the arbitral tribunal shall notify the other party of the request, at the latest, when ordering the measure. The arbitral tribunal shall promptly grant the other party a right to be heard. Thereafter, the arbitral tribunal shall confirm, amend, suspend, or revoke the measure.”
Although the opposing party needs, in principle, to be heard before the tribunal makes its decision, an exception of that rule is accepted where the purpose of the measure is in risk of frustration. In fact, an order without prior hearing is sometimes the only way to secure the effectiveness of an interim measure. In practice, however, proceedings under Art. 25.5 are rather impractical and therefore not common due to the enforceability issues that a measure ordered ex parte by a tribunal raises. There is no case law on whether ordering interim relief without hearing the opposing party violates the right to be heard.
Enforcement of interim measures issued by arbitral tribunals
Interim measures issued by an arbitral tribunal are not directly enforceable. Their enforcement must be approved by the courts first. Section 1041 para 2 CCP regulates:
“On request by a party, the court may permit the enforcement of a measure pursuant to subsection (1), unless an application for a corresponding measure of temporary relief has already been filed with a court. It may recast the order if this is necessary for the enforcement of the measure.”
While the courts will not decide on the merits of the application, they will review the interim measure for errors of judgement and the validity of the arbitration agreement (see Voit in Musielak/Voit, ZPO, 19th Ed. 2022, § 1041 margin no. 7; Münch in Münchener Kommentar zur ZPO, 6th Ed. 2022, § 1041 margin no. 41 et seq.). Pursuant to the above provision, the courts may modify interim measures ordered by an arbitral tribunal if they find it unsuitable for enforcement (section 1041 para 3 CCP).
The courts may, on request, set aside or amend their order of enforcement of the arbitrators’ interim measures (Higher Regional Court Thüriger, Judgement of 24 November 1999 - 4 Sch 3/99, OLG-NL 2000, 16). This is the last line of defence for the respondent against the interim measure.
Where to apply for interim measures
While deciding where to apply for interim relief, the following considerations should be made:
- Interim relief ordered by German courts are directly enforceable. Interim measures granted by an arbitral tribunal must be approved for enforcement by a state court first.
- If the applicant seeks to enforce interim relief issued by the arbitral tribunal but has already filed an application for a corresponding measure with a court, the court will not permit the enforcement of the measure (see Voit in Musielak/Voit, ZPO, 19th Ed. 2022, § 1041 margin no. 6). Although there is no jurisprudesnce yet on a situation similar to that in the UK case of Gerald Metals S.A. v Timis & Ors  EWHC 2327 (Ch).
- The German courts may only order interim relief which is available under the lex fori. An arbitral tribunal is not limited in this respect and its orders may allow for more flexibility in some situations. However, the enforcement of a tribunal ordered measure, which is unavailable to the German courts, might prove complicated.
- The German courts may grant interim relief on an ex parte basis, without hearing the other party. While the same might be possible for an arbitral tribunal, the enforcement of a measure ordered by a tribunal without hearing the opposing party is, as discussed above, unclear.
- The arbitral tribunal has jurisdiction only once it has been fully constituted. Thus, the parties may need to sit tight for interim relief. Many arbitral institutions provide for an emergency arbitrator (e.g., Article 29 ICC Arbitration Rules, Appendix II SCC Arbitration Rules, Article 9B of LCIA Arbitration Rules) or – in addition – for expediated formation of the tribunal (see, for example, Articles 5 and 9A LCIA Arbitration Rules). The DIS Arbitration Rules do not include a similar provision. Nevertheless, the German arbitration law does not prevent the parties from contractually agreeing to emergency arbitration seated in Germany. This could be done either by a specific agreement (identifying an appointing authority) or by reference to the provisions of another set of arbitration rules providing for emergency arbitration.
- The applicant will be required to prima facie prove his application. This task might turn out to be more challenging before an arbitral tribunal than a court since the arbitral tribunal is prevented from accepting affidavits for the purpose of establishing prima facie evidence, since it is not an authority empowered to take affidavits in lieu of an oath (see Schütze, Institutionelle Schiedsgerichtsbarkeit, DIS-Schiedsordnung, Art. 25 margin no. 3).
Compensation for the order of unjustified interim measures
A party to the arbitration enduring an unjustified interim measure is entitled to compensation irrespective of whether a German court or the arbitral tribunal ordered the measure.
If the interim measure was ordered by a tribunal, section 1041 para 4 CCP applies:
“Where a measure ordered pursuant to subsection (1) proves to have been unjustified from the outset, the party that has obtained its enforcement is under obligation to compensate the opposing party for the damage the latter has suffered as a result of the measure being enforced or as a result of their having provided security in order to avert the enforcement. The claim may be asserted in the pending arbitral proceedings.”
In relation to interim relief ordered by a state court, section 945 CCP stipulates a similar liability.
A compensation due to improper ordered interim relief requires that the application for the measure was unjustified already at the time it was ordered. It is possible to assert the claim for compensation in the pending arbitral proceedings.
In Germany, when a party needs to obtain an interim relief, in most cases it will be advisable to apply directly to the state courts. Obtaining interim measures from an arbitral tribunal bears the risk of delaying the urgent relief sought and, in some cases, where the interim measure significantly deviates from the options available to state courts, the measure may not be enforced at all (two-step process). There may also be due process considerations at play when trying to seek ex parte relief from an arbitral tribunal (section 1041 CCP, Article 25.2 DIS Arbitration Rules).
Arguably, the better way is, for the time being, to avoid ex parte decisions of tribunals in light of enforcement considerations.
Nonetheless, each case is to be assessed in its specific context. For that, the parties should seek support from an experienced counsel.
This article is the final piece in this series on interim measures. In the coming weeks, we will be releasing a new series covering pre-action conduct ahead of arbitration and exploring the position from a number of international jurisdictions.