Von: Heyo Eyiah, Anna Kopylova
The right to beard in court is an important procedural principle (guaranteed by the principle of fair trial and laid down in Art. 103(1) of the German Constitution). An alleged violation of the right to be heard in court is probably the most frequent ground for challenging arbitral awards in Germany and often used to circumvent the prohibition of a révision au fond.
The following court decisions of the past year illustrate how high the limits are to be set for a violation of the principle of the right to be heard, which automatically constitutes a violation of German ordre public.
The right to be heard vs. révision au fond: Frankfurt Higher Regional Court, November 2020
In this case, the Frankfurt Higher Regional Court had to rule on the extent to which damages for balance sheet manipulation had to be paid under a warranty and indemnity insurance policy. The arbitral tribunal ruled that such damage was not covered by the insurance policy. In the court proceedings, the underlying party claimed that the arbitrators had violated its right to be heard in the previous arbitral proceedings. The allegation was that the tribunal had ignored witness statements regarding important clauses of the insurance policy and ultimately deviated from the factual and legal opinions communicated in the proceedings, thus rendering a surprise decision that the parties could not prepare for.
The Frankfurt Higher Regional Court held that it was not within its competence to question the arbitral tribunal’s assessment of the evidence even if it was clearly flawed. With respect to the surprise decision, the court referred the party to its own pleadings, in which it had taken a comprehensive position on allegedly surprising issues.
The court repeated the established principle that a violation of the right to be heard in court can only be assumed if a very high threshold is met:
The requirement to be heard in court obliges an (arbitral) tribunal to take note of and consider the submissions of the parties to the proceedings. Art. 103 para 1 GG (German Constitution – Grundgesetz). Art. 103 para. 1 GG is, however, only violated if it is clear in the individual case that the (arbitratral) tribunal has not complied with this obligation. In principle, it is to be assumed that (arbitral) tribunals have taken note of and considered the party submissions received from the parties. Tribunals are not obliged to deal explicitly with every submission in the reasons for the decision. A violation of Art. 103 para. 1 GG therefore requires that in the individual case special circumstances make it clear that factual submissions of a party were either not taken note of at all or were not considered in the decision.
This decison (Frankfurt am Main, 26 November 2020 – 26 Sch 14/20, BeckRS 2020, 35848) again confirms that German courts give high priority to the prohibition of a révison au fond and will only assume a violation of public policy in very extraordinary circumstances.
Iura novit curia – the court knows the law: Frankfurt Higher Regional Court, June 2020
In this case, arbitration proceedings had been initiated, because a German manufacturer of medical devices intended to terminate its agreement with a Hong Kong-based distributor because the distributor had failed to obtain re-certification of the products for the Chinese market. The German manufacturer argued that the termination of the contract was declared effective as of December 31, 2014. In contrast, the distributor argued that the termination did not contain a reason and was incorrectly addressed, so it would have to be considered invalid.
In its ruling, the arbitral tribunal did not follow any of the party’s assesments. Rather, it referred to the automatic termination on December 31, 2014, as the requirements for continuation were lacking. However, the German manufacturer had never raised this point before and from the witness statemens it became clear that both parties had the common understanding that a termination notice was required to terminate the contract.
In the enforcement proceedings of the Frankfurt Higher Regional Court, the Hong Kong distributor pointed out that this would be a violation of the principle of the right to be heard and that enforcement was not possible. However, the Frankfurt Higher Regional Court declared the arbitration award enforceable. The court held that the tribunal is not bound by the parties’ understanding of the law.
Whether or not the distribution agreement in the case in dispute could only be terminated by a notice of termination is the result of a legal assessment and can therefore not be (tacitly) agreed by the parties. The parties cannot exclude an own legal assessment of the tribunal by an admission of legal relationships or by a concurring statement of legal views.
This decision is a confirmation of the legal principle of “iura novit curia”, the court knows the law, which expresses the principle that the court is bound by the facts as agreed by the parties, but not by the law. (Frankfurt am Main High Regional Court, 18 June 2020 – 26 Sch 11/19, NJOZ 2020, 1275). This decision deals with the highly controversial topic of “iura novit curia” in international arbitration. At least for German courts, one my assume that tribunals are not bound by the parties’ views on legal issues.