Does the arbitral tribunal have endless time to render its final award? Or might the losing party have a ground to challenge an award because the tribunal needs too much time for it?
The Higher Regional Court (OLG) Frankfurt am Main had to decide whether a delay of almost one year constituted grounds for setting aside an arbitral award (OLG Frankfurt am Main, Beschluss vom 17.05.2021 – 26 Sch 1/21 – openJur). The award in the ad hoc arbitration was rendered almost one year after the last oral hearing, and hence, according to the claimant, violated claimants’ procedural rights.
Background of the case
The arbitral tribunal conducted an oral hearing on 12 November 2019, during which evidence was taken, experts and witnesses were heard.
On 9 November 2020, the arbitral tribunal issued an award, ordering the respondent to pay damages.
The respondent to the arbitration applied to the Frankfurt Higher Regional Court to set aside the award. It relied on the following grounds:
- The arbitral award violated procedural ordre public under § 1059 para 2 no 1 of the German Code of Civil Procedure (ZPO), because it was not rendered within the three-week period applicable to the ordinary state courts (§ 310 I 2 ZPO).
- Secondly, the respondent argued that the award had been issued without scheduling a hearing for the announcement of the award (so called Verkündungstermin).
The Higher Regional Court of Frankfurt dismissed the application for setting aside and declared the arbitral award enforceable. The arbitral tribunal had issued its award approximately one year after the oral hearing. However, this was considered to be no violation of procedural public policy.
Under § 310 I 2 ZPO a judgement in German state court proceedings must generally be issued no later than three weeks after the last oral hearing. The three-week time limit of § 310 I 2 ZPO however is not applicable to arbitration proceedings. Its applicability was also not agreed. Even if this provision was applicable, it would not justify the annulment of the award. This provision does not regulate the individual procedural rights of the parties, but affects both parties in the same way if an arbitral award is issued late. Therefore, it does not seem justified from the point of view of an equality of arms of the parties to open a possibility of setting aside which typically only favours the party which loses according to the result of the award.
Even if there is a late award, it would still have to be determined whether the delay of the award actually had an effect on the award (1059 II 1 d ZPO). It could be considered that the award could have been influenced by the arbitral tribunal’s lack of memory of the oral hearing. In that case, however, it should not be possible to determine whether a lack of memory would not have influenced the award even if it had been made within a period of time that could just be considered reasonable.
In addition, the parties do have a means of protection against the protraction of the arbitral proceedings: they could at any time apply to the competent Higher Regional Court to declare the termination of the arbitrator’s mandate because the arbitral tribunal did not fulfil its duties within a reasonable period of time (§1038 (1) ZPO).
The arbitral tribunal also did not have to schedule a date for the announcement of the award (so called Verkündungstermin). §1054(4) ZPO only requires the “transmission” of a copy of the award signed by the arbitrators to each of the parties, but no special hearing for the announcement of the award .
The decision clarifies that the strict rules for German state courts do not apply for arbitration proceedings in Germany.
However, parties are not helpless. Arbitration rules of most arbitral institutions provide time limits for arbitral tribunals to render an award. According to Art. 31 ICC Arbitration Rules, the arbitral tribunal must render its final award within six months, and according to Art. 37 DIS Arbitration Rules, the award should normally be transmitted to the DIS within three months after the oral hearing. However, the arbitration rules provide for a reduction of the arbitrator’s fee as a sanction for delay (Art. 37 sentence 2 DIS Arbitration Rules). These rules do not provide a basis for annulment.
A different result could be reached if a time limit for the issuance of the award is part of the arbitration agreement between the parties. This could be the case if the parties have expressly agreed in the arbitration clause on a binding time limit for the issuance of the award or if a procedural order has been issued, in which at the same time a binding party agreement is to be seen (OLG Frankfurt, order of 17.02.20211-26 Sch 13/10). A challenge could then be based on the fact that the arbitral tribunal breached a party agreement. Therefore, extreme caution should be exercised when setting such deadlines.