In a decision of 16 January 2020 (court case no. I ZB 23/19), the German Supreme Court rendered a decision about the right to be heard in court in the context of proceedings to determine the admissibility of arbitration proceedings. Although this decision concerned an appeal against a state court decision of the Higher Regional Court of Frankfurt/Main, the rational behind it would also apply to arbitration proceedings as well.
The facts of the case were as follows: A Chinese manufacturer of car tops and a German supplier of plastic frames concluded a supply contract in 2012 and a supplementary agreement in 2015. The supplementary agreement was agreed for the period from 2016 to 2018 and covered certain minimum quantities to be supplied during the term of the supplementary agreement. Only the supplementary agreement contained a DIS arbitration clause.
The Chinese manufacturer intended to start arbitration against the German supplier and filed an application with the Higher Regional Court of Frankfurt/Main to confirm the validity of the arbitration clause and especially the applicability of the arbitration clause also to the main supply contract from 2012.
The Higher Regional Court of Frankfurt/Main ruled that the arbitration clause in the supplementary agreement applied also to the main supply agreement from 2012 because an interpretation of the clause and the parties’ intention showed that there would be no reasonable grounds to divide possible disputes between the parties between arbitration and state courts, so a goal- and interest-oriented interpretation of the clause would lead to the interpretation that the arbitration applies to both the supplementary agreement of 2015 and the main supply contract from 2012.
The Supreme Court lifted that decision and ruled as follows:
The right to be heard in court, which is guaranteed by art. 103 of the German Constitution, causes an obligation of the court to consider all relevant arguments of the parties and reflect this in the reasons of the decision. In the case at hand, the Higher Regional Court of Frankfurt/Main had not sufficiently shown in its reasoning that it considered the arguments of the defendant that the application of the supplementary agreement was limited to the period from 2016 to 2018. In particular, the defendant in the proceedings had argued that the arbitration clause could not apply to disputes arising before conclusion or after termination of the supplementary agreement. The Higher Regional Court had not considered these arguments in the required depth.
Comment:
This decision shows (at least) two points: First, as always, it is important to carefully draft an arbitration clause to avoid an unnecessary dispute about its scope. In the case at hand, apparently there was no clear wording as to whether the arbitration clause should extend to the main supply contract or not. As it would have been very easy to add respective clarification, this matter shows again that arbitration clauses do not always get the attention they would deserve.
Second, the German Supreme Court set a high threshold for courts of lower instances and (possibly) arbitral tribunals. When drafting a judgement or arbitral award, it is always difficult to decide to what extent it is necessary to repeat and consider arguments of the parties that do not convince the court or tribunal. This case shows that it can be dangerous and affect the validity of the decision if arguments are left unconsidered. So, to be on the safe side, a judge or arbitrator should show that he considered arguments of the parties, albeit briefly: In an older decision (BGH 26.09.1985 – III ZR 16/84), the German Supreme Court had stated that an arbitral tribunal is bound by less strict rules than a state court, however, even in the older decision the BGH had confirmed that the arbitral tribunal must consider all relevant arguments of the parties and show this in the award by (at least) briefly mentioning these arguments.