In a (yet unpublished) decision of 23 May 2019, the Higher Regional Court of Hamburg established the criteria, when a third-party can rely on arbitration clauses. By this decision, the Higher Regional Court extended the third-party-effect of arbitration clauses not only to beneficiaries (“Vertrag zu Gunsten Dritter”) but as well to third-parties who are just protected by that contract (“Vertrag mit Schutzwirkung für Dritte”).
Hanseatic Higher Regional Court
6 Sch 1/19
…the Hanseatic Higher Regional Court – 6th Civil Senate – decides…
The award made in Los Angeles (California, USA) by the sole arbitrator B., International Centre for Dispute Resolution, ICDR Case No: 01-17-0001-3926, of 2 September 2018, the operative part of which is as follows in the German translation
“7.1 On the basis of the above facts, legal analyses and findings of fact, the arbitrator shall make the following award:
a. The arbitrator shall award the claimants against A. in respect of the claims for breach of contract and negligence compensation for the following economic losses:
-past and future medical expenses of $2,153,837.63; past and future lost profits of $3,387,173; and
-other economic losses amounting to $ 193,453.37.
b. The arbitrator awards P. against A. in respect of his claims for negligence an amount of $ 5,500,000 as compensation for non-material damage.
c. The arbitrator awards interest to the plaintiffs against A. in accordance with California law in the amount of $105,388.67 for the period prior to the award.
d. The arbitrator awards the plaintiffs as the prevailing party against A. $996,673 for attorneys’ fees of the plaintiffs.
e. The arbitrator awards the plaintiffs as the prevailing party against A. for costs of the plaintiffs other than attorneys’ fees an amount of $148,217.61.
f. The arbitrator shall award to the Claimants an amount of $103,900.17 in respect of the arbitrator’s fees and expenses and ICDR administrative fees paid by the Claimants.
g. This final award shall be the complete and final decision on all claims and counterclaims asserted in the course of this arbitration. The arbitrator has considered all arguments of the parties, whether or not they are expressly mentioned in this final award. All claims not expressly granted herein are hereby dismissed.”
shall be declared enforceable in the territory of the Federal Republic of Germany.
Orders the defendant to pay the costs of the proceedings according to an amount in dispute of € 9.917.429,30.
The decision shall be provisionally enforceable.
The applicants request the declaration of enforceability of the award of 2.9.2018 referred to in the operative part of the order, which concerns the applicants’ claims for damages in connection with an accident suffered by the applicant 1).
The applicant 1.) is a DJ who works as a composer and producer of electronic dance music under the artist name P.v.D. The applicant 2.) is a company belonging to the applicant 1.), which he/she consults for the handling and management of his/her business. The defendant organises and hosts concerts and festivals, including until recently the annual music festival “A State of Trance”.
The defendant engaged the applicant 1) for the event “A State of Trance” issue 750, on 27 February 2016 in Utrecht by booking contract of 25 September 2015 (Annex AS 2). The booking contract includes the “Additional Terms and Conditions”, the General Terms and Conditions (AGB), which are expressly referred to. Section 24 of the GTC contains the following arbitration and choice of law clause:
„This Agreement shall be construed in accordance with the laws of the State of California without regard to its application of choice of laws. Any claim or dispute arising out of or relating to this agreement or the breach thereof shall be settled by arbitration in Los Angeles, California in accordance with the commercial rules and regulations then in effect of the American Arbitration Association. The parties hereto agree to be bound by the award of such arbitration and judgement upon the award may be entered in any court having jurisdiction thereof (…)“.
During the appearance of the applicant 1) on the main stage of the event, an accident occurred in which the applicant 1) suffered serious and life-threatening injuries. A black molleton cloth was stretched from the stage, which gave the impression of a solid extension of the stage. When stepping forward, the applicant 1) fell through the cloth about six meters into the depth and hit his head.
After negotiations between the parties on claims for damages by the claimants had failed, the claimants initiated arbitration proceedings in the USA in early 2017 under the rules of the International Centre for Dispute Resolution of the American Arbitration Association. These proceedings were concluded on 2 September 2018 with the final award of Sole Arbitrator B. (Annex AS 1, Annex AS 3 (German translation of the operative part). In it, the respondent was ordered to pay a total of more than USD 12.5 million.
The applicants claim that the Court should
declare the award enforceable.
The defendant, who was served with the application for a declaration of enforceability of the award on 3 April 2019, was given the opportunity to comment on the application. It did not avail itself of that opportunity within the period prescribed.
The application for a declaration of enforceability of the award of 2 September 2018 is admissible and justified.
Pursuant to sec 1061 (1) ZPO, the requested declaration of enforceability is governed by the UN Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (BGBl 1961 II p 121 – hereinafter referred to as the UN Convention).
a.) The jurisdiction of the court seized shall be determined by section 1062(1)(4) in conjunction with (2) ZPO. It is a foreign arbitral award. The applicants have submitted and substantiated by the annexes AS 4 and AS 5 that the defendant holds shares in a company (A. Germany GmbH) which has its registered office in Hamburg. The share in a GmbH is also located at the company’s seat (see Zöller/Schultzky, ZPO, 32nd ed., section 23, marginal 10; Patzina in Münchener Kommentar, ZPO, 5th ed., section 23, marginal 19).
b.) the applicant submitted a certified copy of the arbitral award with the application for a declaration of enforceability (Annex AS 1). This satisfies the requirement of section 1064 subs. 1 of the Code of Civil Procedure and Art. IV para. 1 lit. a) UN Convention. It has also submitted a non-certified translation of the operative part (Annex AS 3). The provision of Art. IV, para. 2 UNÜ is thus not complied with. However, this is harmless, because under sec. 1064.1 of the Code of Civil Procedure, German law does not provide for the submission of a translation of the award. In this respect, the applicant is subject to the principle of favourability under Art. VII (1) UNÜ (see BGH NJW-RR 2004, 1504, quoted in juris, para. 10).
The applicant also submitted an uncertified copy of the contract concluded between the parties (Annex AS 2). Clause 24 of the Terms and Conditions (“Additional Terms and Conditions”) contains the arbitration agreement. However, a certified translation has not been submitted. This means that the provisions of Art. IV para. 1 lit. b) and Art. IV para. 2 UNÜ are not satisfied. However, this is also without prejudice, because German law, according to sec. 1064 (1) ZPO, does not provide for the submission of the arbitration agreement together with the translation. In this respect, too, the applicants are subject to the principle of preferential treatment under Art. VII (1) UNÜ (see BGH NJW-RR 2004, 1504, quoted in juris, para. 10).
Grounds for refusal according to Art. V of the UN Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (BGBl 1961 II p. 121) do not apply.
a.) The defendant, who was given the opportunity to make a statement pursuant to sec. 1063 (1) sentence 2 ZPO, has not substantiated any grounds for refusal pursuant to Art. V.1 UN Convention.
b.) There are also no grounds for refusal according to Art. V para. 2 UN Convention.
The subject of the dispute, claims for damages, can be settled by arbitration under German law. The enforcement of the arbitral award is also not contrary to the public order of the Federal Republic of Germany. According to Art. V (2) lit. b) UNCLOS recognition of the arbitral award may be refused – even without an application – if recognition or enforcement of the award would be contrary to the public policy of the requested country. Recognition of an arbitral award is, inter alia, contrary to the German public policy if it has been made although no arbitration agreement has been concluded. According to German legal understanding and German concepts of public policy, nobody may be “condemned” by an arbitral tribunal whose award he did not voluntarily submit to. In this respect, there would be a violation of the principle of the statutory judge and of free access to the (state) court (see OLG Rostock, Order of 22 November 2001 – 1 Sch 3/2000 -, paras nos. 67 – 70, juris; Adolphsen in Münchener Kommentar, ZPO, 5th ed., Annex 1 § 1061 (UN Convention) Art. V marginal no. 72 ).
It is clear from the arbitral award that the respondent did not enter into the arbitral proceedings without objections but contested the existence of an arbitration agreement – in particular with regard to the first applicant. The sole arbitrator affirmed the existence of an arbitration clause in its entirety. However, the Senate is not bound by this assessment because the arbitral tribunal does not have “competence” in this respect (see OLG Düsseldorf, IHR 2015, 18, quoted in juris, para. 49; Zöller/Geimer, loc. cit.) The Senate follows the opinion of the chairman in his decision on the application for enforcement by way of security of 27 February 2019 that (after only a summary examination there) an arbitration clause was validly agreed and confirms the reasoning of the chairman:
(1 ) The wording in point 24 of the Additional Terms and Conditions is clear. According to the first page of the contract (Annex AS 2), these “Additional Terms and Conditions” are expressly included in the contract. The fact that page 6 was only initialled on one page is clearly an oversight, especially since the text of para. 23 ends “in the middle” on page 5 (which is initialled by both sides) and continues on page 6, so that the existence of a further page is obvious. An initial on each page is not a prerequisite for the validity of an agreement. The fact that in the “Streaming and Broadcast Agreement” in para. VII a jurisdiction agreement has apparently been reached (in favour of the “competent court in Los Angeles”) has no impact. It is possible that this jurisdiction agreement only refers to the Streaming and Broadcast Agreement and not to the other agreements. Even if one were to see it differently, a jurisdiction agreement would not exclude an arbitration agreement (see BGH NJW-RR 2007, 1719, quoted according to juris, para. 18 et seq.)
(2) Insofar as the respondent in the arbitration proceedings has referred to the fact that Ms. T. was not authorized to sign the contract on behalf of the applicants, it must be pointed out that the applicant to 1) actually appeared at the festival and thus impliedly approved the agreement.
(3) The Senate does not follow the objection of the respondent in the arbitral proceedings that the arbitration clause only applies to the second applicant and not to the first applicant. It is true that the contract argues that the contract should in fact only be concluded between the second applicant and the respondent. The contract speaks of an “agreement” between P. v. D. GmbH (as producer) and A. E. BV (as Purchaser). The applicant 1) is mentioned as an “artist”. It is stated that the producer “furnishes the services of the artist”. On page 2 of the contract there are only two lines of signatures, namely for the Producer (the applicant 2)) and the Purchaser (the respondent), not for the artist (the applicant 1)). The fact that the stamp used contains the name “p. v. d.” in bold type and the name P. v. D. GmbH in smaller type does not necessarily indicate, in the opinion of the Senate, that the stamp should also refer to the first applicant. It can also simply be the short name of the applicant 2) (without addition of the company form). However, this does not render the arbitration clause ineffective. On the one hand, there is the possibility of an arbitration agreement in favour of third parties (see OLG Düsseldorf, SchiedsVZ 2006, 331, quoted in juris, para. 28; Musielak/Voit, ZPO, 5th ed., § 1031, para no. 3; Stein/Jonas/Schlosser, ZPO, 23rd ed, § section 1029, para 70; Zöller/Geimer, loc. cit., section 1031, para 18; Lachmann, Handbuch für die Schiedsgerichtspraxis, 3rd ed., para 503; Münch, loc. cit. in Münchener Kommentar, ZPO, loc. cit.) Apart from this, the arbitration clause shall apply to the beneficiary third party if a contract is concluded in favour of a third party within the meaning of sec. 328 et seq. BGB (see Münch in Münchener Kommentar, ZPO, loc.cit., § 1031, para no. 18; Stein/Jonas/Schlosser, loc.cit, § 1031, marginal 70; Baumbach/Lauterbach/Albers/Hartmann, ZPO, 77th ed., § 1029, marginal 23; Lachmann, loc. cit., marginal 502, Schwab/Walter, Schiedsgerichtsbarkeit, 7th ed., Chapter 7, marginal 36). This also applies to the beneficiary of a contract with protective effect in favour of third parties (see Stein/Jonas/Schlosser, loc.cit., § 1029, marginal 70).
The contract regulates various rights of the applicant to 1) (as “Artist”). For example, in para. 4 at the end there is a reference to “consent of the Artist”. Paragraph 13 of the Additional Terms and Conditions mentions a limitation of liability in case of a breach of contract by the “Artist”. In para. 16 lit. a) the “Artist” is included in the agreed insurance cover. In Clause 17, a release from liability is also agreed in favour of the “Artist”. In Clause 18, an exemption from liability is also agreed in favour of the “Artist”. In this respect, a “contract in favour of third parties” can be assumed. As far as the accident in question is concerned, para. 1 of the “Additional Terms and Conditions” is relevant, according to which the defendant is obliged to provide a “safe environment” for the performance. In this context, the first applicant is included in the protective effect of the contract. Then the arbitration clause has also been effectively agreed for him.
In the present case, Californian law (and thus common law) is applicable, not German law. However, the extension of an arbitration clause to third parties is also recognised in the case law of the US courts (see the evidence in Stein/ Jonas/Schlosser, loc.cit., Appendix to § 1061, para 85, footnotes 245 and 252). In the decision “Thomson CSF v. Evans & Sutherland Computer Corporation” of 24. 8. 1995, the US Court of Appeals, Second Circuit, ruled that a contracting party is bound by an arbitration clause upon request (“insistence”) of a third party (not party to the contract) if the points in dispute which the third party wishes to have decided are sufficiently intertwined with the contract (“intertwined”), which contains the arbitration clause (“In these cases, a signatory was bound to arbitrate with a nonsignatory at the nonsignatory’s insistence because of the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the nonsignatory’s obligations and duties in the contract and the fact that the claims were intimately founded in and interwined with the underlying contract obligations”) (quoted according to “caselaw.findlaw.com/us-2nd-circuit/1305040.html”) These requirements are fulfilled here: The applicant 1) has had an accident during his performance, paid for by the defendant, in a fall from the stage, for whose safety the defendant was responsible.
The decision on costs is based on Section 91(1) of the ZPO. The decision concerning the Provisional enforceability follows from section 1064(2) of the ZPO.
The amount in dispute shall be determined by the senate in accordance with the value of the arbitral award without interest and costs (see Zöller/Herget, loc. cit., 32nd ed., sec. 3 ZPO Rz 16 “Arbitration Proceedings”): Value in dispute in the main proceedings (p.69 of the award [Annex AS 1]): $ 2,153,837.63 + $ 3,387,173.- + $ 193,453.37 + $ 5,500,000.- = $ 11,234,463.90. Reference rate of the ECB on 18 February 2019 (receipt of application)= 1.1328 = € 9,917,429.30.
(For a similiar decision in which third-party effect was declined see: https://kdb.legal/en/whether-a-shipper-can-be-dragged-into-arbitration-by-another-shipper-on-the-same-vessel/)