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Federal Court of Justice (BGH) decision of 9 January 2025 (Ref. I ZB 48/24)
\r\nIn its decision of 9 January 2025 (Ref. I ZB 48/24), the Federal Court of Justice (BGH) held that a contractually agreed arbitration clause is valid even if it provides for the exclusion of the law on standard terms and conditions (AGB law). The consequence of such an arbitration clause opting out of AGB law is that, in the event of a dispute, the parties are not bound by the strict provisions of AGB law; instead, the arbitration rules and the agreement reached are determinative.\r\n\r\nIn contracts between international business partners, the choice of law is often a key issue. If German law is agreed, AGB law must be taken into account. Especially in B2B contracts, this is perceived as an obstacle because the scope for drafting is too severely restricted by general terms and conditions (AGB), according to the commercial law firm MTR Legal Rechtsanwälte, which, among other things, advises on contract law. The arbitration agreement can be concluded in various forms, such as in writing, electronically, or in a separate document; the writing and the document are of particular importance for evidencing the agreement.\r\n\r\nA way out of this situation can be a contractual arbitration clause that provides for the application of German law but also for the exclusion of AGB law (§§ 305 to 310 BGB). The Federal Court of Justice held that the arbitration agreement is valid irrespective of the exclusion of AGB law. The formation of the arbitration clause is governed by the requirements of § 1031 ZPO, which regulates the formal requirements for the validity of the arbitration agreement.\r\n\r\nWithin the contractual provisions, agreeing an arbitration clause in connection with the arbitration rules is of central importance, as it determines the procedural rules and the course of the arbitration proceedings.\r\n
Arbitration agreement in the B2B sector
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DIS arbitration proceedings as a basis for contract drafting
\r\nIn the underlying case, two companies had concluded a contract that included, among other things, construction services. A contractual clause provided for an arbitration agreement under the rules of the German Arbitration Institute (DIS). The parties thereby chose arbitration rules and procedural rules in order to structure the proceedings. In addition, the seat of arbitration and the language of the proceedings were determined as central aspects of the arbitration agreement. In connection with contract drafting, reference was made to the use of model clauses and model arbitration clauses, with the selection of the arbitral institution often being made in coordination with the Chamber of Industry and Commerce or the German Chamber of Industry and Commerce. Under the clause, all disputes were to be submitted to an arbitral tribunal. The parties did choose German substantive law; however, they expressly agreed that the provisions on general terms and conditions were not to apply. In addition, the parties included a severability clause. The contract was therefore to remain valid even if individual provisions might be invalid. In the context of the hearing, the facts of the case were examined comprehensively, with the connection between the legal dispute, the judgment, and the cases to be decided, as well as the matter itself, being the focus.\r\n\r\nWhen a dispute arose, one party applied to the Berlin Higher Regional Court (Kammergericht) under § 1032(2) ZPO for a declaration that the arbitration proceedings were inadmissible. The reason: by waiving AGB law, the possibility of review of certain clauses (e.g., contractual penalties) would be excluded, which in its view violated German law. The Kammergericht dismissed the application. The case thus ultimately came before the BGH.\r\n
The arbitral tribunal as the dispute-resolution body
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Structure and jurisdiction of the arbitral tribunal at a glance
\r\nThe arbitral tribunal is the central body of arbitration proceedings and has the task of making a binding decision on disputes that have arisen between the parties. Unlike state courts, the arbitral tribunal does not act ex officio, but on the basis of an arbitration agreement that the parties either include in their contract at the time of conclusion or incorporate into their contract subsequently. This arbitration agreement governs the arbitral tribunal’s jurisdiction and generally excludes recourse to the ordinary courts.\r\n\r\nAn arbitral tribunal may consist of one or more arbitrators. The parties have the option of selecting the arbitrators themselves or leaving the appointment to a recognized arbitral institution such as the German Arbitration Institute (DIS). The independence and impartiality of the arbitrators are of central importance in order to ensure a fair and appropriate decision in the arbitration proceedings. The selection of arbitrators is often based on their professional qualifications and experience in the relevant field of law.\r\n
Course of the arbitration proceedings and advantages of arbitration
\r\nThe arbitration agreement must be in writing and must clearly provide that, in the event of a dispute, the arbitral tribunal has jurisdiction. It may be a separate arbitration contract or an arbitration clause forming part of a more comprehensive contract. The form and content of the arbitration agreement are governed by the Code of Civil Procedure (ZPO), in particular in Book Ten (§§ 1025 et seq. ZPO). Compliance with these formal requirements is a prerequisite for the validity of the arbitration agreement and thus for the arbitral tribunal’s jurisdiction.\r\n\r\nThe proceedings before the arbitral tribunal are governed by arbitration rules that are either individually agreed by the parties or prescribed by an arbitral institution such as the DIS. The arbitration rules set out the procedural rules, the parties’ rights and obligations, and the course of the arbitral proceedings. This gives the parties a high degree of flexibility and allows them to tailor the proceedings to their individual needs.\r\n\r\nA key advantage of arbitration lies in the efficiency and confidentiality of the proceedings. Arbitration proceedings are generally faster and less costly than state court proceedings. In addition, the dispute remains between the parties, as the hearings and decisions are not public. Arbitration therefore offers an attractive alternative to traditional court proceedings, particularly in cross-border contracts.\r\n\r\nInternationally, arbitration is particularly recognized through the 1958 New York Convention. This Convention ensures that arbitral awards can be recognized and enforced in more than 160 states. For companies operating internationally, this is a decisive advantage, as they can rely on a dispute resolution mechanism that functions worldwide.\r\n\r\nIn Germany, arbitration is comprehensively regulated in Book Ten of the Code of Civil Procedure. As the leading arbitral institution, the DIS offers, with its Arbitration Rules, a proven framework for conducting arbitral proceedings and appointing arbitrators. Companies benefit from the DIS’s experience and neutrality and can thus resolve their disputes efficiently and with legal certainty.\r\n\r\nOverall, arbitration constitutes a flexible and efficient alternative to state court litigation. The arbitration agreement forms the basis for the arbitral proceedings and governs the jurisdiction of the arbitral tribunal. Particularly in international commerce, arbitration is an established instrument for resolving complex disputes.\r\n
Arbitration agreement effective – separability is decisive
\r\nThe Federal Court of Justice (BGH) confirmed the decision of the Berlin Higher Regional Court (KG Berlin) and dismissed the appeal on points of law. In the BGH’s view, the arbitration agreement remains effective even if the procedural agreement—specifically, the exclusion of the law on standard terms and conditions (AGB law)—should be questionable. Decisive is the separability of the arbitration clause. The arbitration clause is an independent part of the contract that remains valid even if other parts of the contract may be open to challenge. A breach of AGB provisions or an invalid choice-of-law clause therefore cannot automatically invalidate the arbitration agreement.\r\n\r\nIn addition, the BGH clarified that, in proceedings under § 1032 before the state court, as a matter of principle only the arbitration agreement itself is reviewed, but not the entire design of the substantive law or the validity of specific choice-of-law clauses. The only relevant point is whether the arbitration agreement was concluded in due form. In court proceedings, it is possible to raise an objection to the arbitration agreement in order to have its validity reviewed. The arbitration clause generally results in the exclusion of recourse to the ordinary courts, underscoring the significance of this provision for the parties. Under § 1032 ZPO, the court must not dispute all details, but only the validity of the arbitration agreement itself. The more in-depth review—e.g., the question of whether the exclusion of AGB law is permissible at all—lies, by contrast, with the arbitral tribunal. Within the framework of the arbitration agreement, the parties may also choose ad hoc arbitration or agree on specific arbitration rules, such as the DIS Arbitration Rules, in order to structure the proceedings flexibly and independently of institutional requirements.\r\n
No blank check
\r\nWhat is decisive for the Karlsruhe judges’ decision is the principle of party autonomy: as a rule, the contracting parties are free to decide which law they wish to apply. In arbitration, this choice can also be structured in such a way that certain regulatory provisions, such as here the law on standard terms and conditions (AGB law), are not intended to apply. Arbitration clauses receive particular attention especially in cases of conflict and in labor disputes, since in such cases the regulation of the language of the proceedings, the seat of arbitration, and the hearing plays a central role.\r\n\r\nThe BGH emphasizes that this freedom is not equivalent to a general blank check to circumvent statutory protection mechanisms. In such cases, the arbitral tribunal’s decision and award as well as the specific matter in the arbitral proceedings take on particular importance, since the use of arbitration clauses and information about the nature of the conflict are relevant for later recognition or enforcement by third parties. The exclusion of AGB law is not per se unlawful, but it may later, when an arbitral award is being recognized or enforced, be reviewed by a state court for compatibility with the principles of the German legal order (ordre public).\r\n
Increased scope for drafting
\r\nWith this decision, the BGH has strengthened the scope for drafting arbitration agreements. An express choice of German law together with an exclusion of AGB law therefore does not call the arbitration agreement itself into question. Party autonomy thereby gains significance, particularly in B2B contracts with a cross-border connection. At the same time, however, the BGH underscores that this freedom is not a blank check. This should be taken into account without fail when drafting contracts.\r\n\r\nEspecially when drafting contracts, it is advisable to use model clauses and model arbitration clauses, such as those found in Annex 4, in order to ensure legal certainty.\r\n\r\nIn addition, when drafting arbitration clauses, it is crucial to use the correct information in order to avoid later disputes.\r\n\r\nMTR Legal Rechtsanwälte advises on contract drafting and on international contract law.\r\n\r\nFeel free to contact us!”
