11/1/21, 9:32 PM German Federal Court of Justice applies CISG to validity of the arbitration agreement - Global Arbitration News

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German Federal Court of Justice applies CISG to

validity of the arbitration agreement
By Dr. Markus Altenkirch - February 4, 2021 Author: Dr. Markus Altenkirch and Johannes Hagmann

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The arbitration agreement is a separate agreement from the substantive agreement (= doctrine
of separability). As a result, the arbitration agreement can be governed by a different law from
substantive agreement. What law governs the arbitration agreement if the parties have not
explicitly chosen a law for the arbitration agreement? The answer is a continuing matter of
debate.[1]

Another matter of debate is whether the CISG can govern the arbitration agreement. The matter
arises – in particular – if both parties to the arbitration agreement are from CISG contracting
states. Most courts and scholars argue that the CISG can govern the formation of the arbitration
agreement. Articles 19 and 81 CISG speak in favour of this position. Art. 19 (3) CISG states that
adding dispute settlement terms to an offer constitutes a material alteration. Similarly,

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11/1/21, 9:32 PM German Federal Court of Justice applies CISG to validity of the arbitration agreement - Global Arbitration News

Art.  81  (1) sent.  2 CISG stress that dispute settlement agreements are not impacted by an
avoidance of the contract. This shows that the CISG expressly deals with dispute resolution
clauses. The minority view argues that the CISG does not deal with the formation of the
arbitration agreement because Art. 4 CISG limits the scope of the CISG to the formation of sale
contracts.

In its decision of 26  November  2020, the German Federal Court of Justice (“BGH”) had the
opportunity to take a stance on this debate.[2]

Factual Background
The parties entered into a contract for the supply of spices. In a letter confirming the order of
1,500 kg of mace flowers, the Dutch seller referred to the “Verbandsbedingungen der
Nederlandse Vereniging voor de Specerijhandel”, the general terms of the Dutch Spice
Association (“NVS-Terms”). The NVS-Terms contain a dispute resolution clause providing for
arbitration in Amsterdam. The NVS-Terms designated the law of The Netherlands to govern the
contract and expressly excluded the application of the CISG to the contract.

The seller did not attach the NVS-Terms to the confirmation letters sent to the German buyer.
Neither did the buyer sign the order confirmations that included the reference to the NVS-Terms.

When the buyer filed a suit against the seller before a German court, the seller objected against
the jurisdiction of the German courts and relied on the arbitration clause included in the NVS-
Terms.

The BGH’s decision on the validity of the arbitration

agreement
The BGH dismissed the seller’s objection. It found the alleged arbitration agreement invalid on
formal grounds.

The law applicable to the formal validity of the arbitration agreement is, according to the BGH, (i)
the general principles as laid-down in Art.  II  (2) NYC and (ii) the requirements pursuant to
Section 1031 German Code of Civil Procedure (“ZPO”) which is an adoption of the UNCITRAL
Model Law 1985 (with certain modifications), and (iii) the law applicable to the arbitration
agreement. The latter two laws were applicable pursuant to Art. VII  (1) NYC. Art.  VII  (1) NYC
states: “The provisions of the present Convention shall not … deprive any interested party of any
right he may have to avail himself of an arbitral award in the manner and to the extent allowed
by the law or the treaties of the country where such award is sought to be relied upon.”

Firstly, according to the BGH, the criteria of Art.  II  (2) NYC were not met. The parties had not
concluded an “agreement in writing“.

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11/1/21, 9:32 PM German Federal Court of Justice applies CISG to validity of the arbitration agreement - Global Arbitration News

Secondly, the requirements of German law were also not fulfilled. The formal validity of an
arbitration agreement is governed by Section 1031 ZPO which is an adoption of Art. 7  (2)
UNCITRAL Model Law 1985. Section 1031 ZPO states:

“(1) The arbitration agreement shall be contained either in a document signed by the parties or
in an exchange of letters, telefaxes, telegrams or other means of telecommunication which
provide a record of the agreement.

(2) The form requirement of subsection 1 shall be deemed to have been complied with if the
arbitration agreement is contained in a document transmitted from one party to the other party
or by a third party to both parties and – if no objection was timely raised – the contents of such
document are considered to be part of the contract in accordance with common usage.

(3) The reference in a contract complying with the form requirements of subsection 1 or 2 to a
document containing an arbitration clause constitutes an arbitration agreement provided that the
reference is such as to make that clause part of the contract.

…”

The crucial question was whether the requirements of Section 1031(3) ZPO (= Art. 7 (2) sent. 3
UNCITRAL Model Law 1985) were fulfilled. Was there a contract between seller and purchaser,
which referred to a document containing an arbitration clause, i.e. the NVS-Terms?

In order to assess whether there was a contract, the BGH applied the CISG. Under the CISG, the
mere reference to the NVS-Terms in the confirmation letter was, however, insufficient. The NVS-
Terms did not become a component part of the contract. In the absence of a specific terms and
conditions regime, the Court applied the general rules of contract interpretation of the CISG. The
Court neither identified an indication for a mutual agreement in the course of the parties’
negotiations (Art.  8  (3) CISG) nor did it establish that a reasonable third person would have
understood the arbitration clause as component part of the contract (Art. 8 (2) CISG).

Thirdly, the BGH found that the law governing the substantive validity of the arbitration
agreement was the law of The Netherlands. The BGH extracted from Art.  V  (1)(a) NYC the
conflict of laws rule that the law governing the substantive validity of the arbitration agreement
was the law expressly chosen by the parties for the arbitration agreement or – if there is no such
choice – the law of the seat, i.e. here The Netherlands. The BGH again applied the CISG as the
Dutch law for cross-border sales agreements, and not the domestic law of The Netherlands.

In an obiter dictum, the BGH expressly addresses the separability principle and reinforces that
the arbitration agreement did not “automatically” follow the decision on the material scope of the
contract under the CISG. Only after the fruitless application of Art.  II  (2)  NYC and due to the
more-favourable-right rule, leading to the application of German arbitration law, did the question
of an inclusion under the CISG become vital.

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Conclusion
As the judgment shows, while the substantive validity of the arbitration agreement is only
governed by one law (the law chosen by the parties or the law of the seat), the formal validity of
the arbitration agreement is, however, governed by a multitude of laws. It is sufficient if the
arbitration agreement is formally valid pursuant to at least one of these laws.

In spite of the wording of Art. 4 CISG (“[t]his Convention governs only the formation of the
contract of sale“), the BGH applied the CISG also to the question whether the arbitration
agreement has been formed.

[1] Enka Insaat ve Sanayi AS (Respondent) v OOO Insurance Company Chubb

(Appellant)  [2020] UKSC 38 (https://globalarbitrationnews.com/the-supreme-court-in-enka-v-
chubb-on-the-law-applicable-to-the-arbitration-agreement-the-buck-stops-here/); cf. also
Kröll/Mistelis/Perales Viscasillas CISG, 2nd ed. 2018, Art. 4 Rn. 32, 33; Sulamerica CIA Nacional
De Seguros SA & Ors v Enesa Engenharia SA & Ors [2012] EWCA Civ 638 [5]-[32].

[2] “Mace-Flower Decision”, BGH decision dated 26.11.2020 – I-ZR 245/19

(https://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?
Gericht=bgh&Art=en&Datum=Aktuell&Sort=3&nr=112973&pos=19&anz=619).

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Dr. Markus Altenkirch

Dr. Markus Altenkirch LL.M. is a member of the Dispute Resolution team in the Frankfurt office of Baker McKenzie
where he focuses on international arbitration. He currently represents clients in ICC, DIS, and CIETAC arbitrations.
Markus primarily advises on Post-M&A as well as construction disputes.
Markus teaches at the University of Mainz
and regularly publishes in the field of international arbitration. He is a contributor and editor for Global Arbitration
News.
Markus Altenkirch can be reached at Markus.Altenkirch@bakermckenzie.com and +49 69 2 99 08 232.

Johannes Hagmann

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11/1/21, 9:32 PM German Federal Court of Justice applies CISG to validity of the arbitration agreement - Global Arbitration News

Johannes Hagmann is a member of the Dispute Resolution team at Baker McKenzie in Frankfurt. He is currently a
law clerk.

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