The first part of this series of articles illustrated that a waiver of German law of general terms and conditions in proceedings before state courts in Germany is always ineffective for domestic matters. If the matter has a foreign connection, the parties can choose the law of a country with more flexible laws on general terms and conditions, although the isolated exclusion of only this part of the law is still likely to be inadmissible.
The following article deals with the question of the mutually agreed upon exclusion of the application of the law of general terms and conditions in proceedings before arbitration tribunals. This requires some differentiation:
1. Acceptance of the exclusion by (German) arbitral tribunals
First of all, the question arises whether and how a (German) arbitral tribunal itself takes into account the exclusion of the law of general terms and conditions. To start with the rules of the respective arbitration institution are decisive. For example, the DIS (German Institution of Arbitration) stipulates in Art. 24.1 of the DIS Arbitration Rules 2018: “The parties may agree on the rules of law to be applied in the case.“. Art. 24.3 of the same states: “In its decisions, the arbitral tribunal is bound by contractual agreements between the parties […].”
Accordingly, it is to be expected that arbitral tribunals will accept an exclusion of the law of general terms and conditions under the DIS rules (subject to the following comments on judicial enforceability). However, as arbitration awards are not regularly published, there is no reliable data on this. Regardless, it can be assumed that as a rule the arbitral tribunals will adhere to the exclusion, if agreed upon by the parties, provided that they do not create an unenforceable arbitral award (see below).
2. Reviewability by state courts
Since no arbitration award is an end in itself but shall enable the winning party to enforce the awarded claims, the question arises as to the extent to which arbitration proceedings that include a waiver of the law of general terms and conditions can be reviewed by the state courts. The BGH dealt with this question in its decision of 09.01.2025 (BGH, decision of 09.01.2025, Ref. I ZB 48/24):
a) Invalidity of the arbitration clause (Section 1032 (2) ZPO)
The proceedings before the BGH were based on an application pursuant to Section 1032 (2) Code of Civil Procedure (ZPO). This states:
Until the arbitral tribunal has been formed, a request may be filed with the court to have it determine the admissibility or inadmissibility of arbitral proceedings.
The BGH actually ruled on this (and only on this, i.e. on the admissibility of the arbitration proceedings) in the decision cited above – but very clearly. The claimant was of the opinion that the exclusion of the law on general terms and conditions between the parties also led to the inadmissibility of the arbitration proceedings.
The BGH denied this and made it clear that the validity of the arbitration agreement was independent of the validity of the GTC exclusion clause. The choice of law was to be separated from the arbitration agreement as a procedural agreement. A potentially invalid procedural agreement could not automatically affect the arbitration agreement. The arbitration agreement as such therefore exists separately from the validity of the parties’ contractual agreements on the course of the arbitration proceedings.
The BGH thus ruled very clearly that the arbitration clause is effective in such a constellation and that the parties must definitively go through arbitration proceedings where they must have their dispute decided, answering all the questions raised – including those on the efficacy of the exclusion.
b) Enforceability / annulment of a subsequent arbitration award (Section 1059 (2) no. 2, lit. b) ZPO)
The decision of the BGH does not contain a conclusive statement on how to treat an arbitral award in which the arbitral tribunal recognize a contractual exclusion of the law of general terms and conditions.
However, the decision does contain a few pointers in this regard. Is seems that Section 1059 (2) no. 2, lit. b) ZPO would then come into consideration. This presupposes that “the recognition or enforcement of the arbitration award leads to a result that is contrary to public policy (ordre public)“. This could be the case if an arbitral tribunal considers a contractual provision to be valid, the conclusion of which can no longer be justified as an expression of contractual self-determination or leads to results that are simply intolerable.
These statements represent a continuation of the BGH decision of October 30, 2008 (case no. III ZB 17/08), in which the annulment of an arbitration award was set against very high hurdles. According to the ruling, the annulment of an arbitration award requires the award to lead to results that are clearly incompatible with the fundamental principles of German law. For this to be the case, it would have to violate a norm that regulates the foundations of state or economic life or be in an unacceptable contradiction to the German concept of justice.
Although the BGH did not expressly rule on the validity of the limited choice of law (German law excluding the law of general terms and conditions), this ruling removes some uncertainties:
An invalid choice of law does not automatically jeopardize the arbitration agreement. Furthermore, an arbitration award based on such a choice of law can only be challenged if it leads to a result that is incompatible with public policy. Overall, the BGH’s ruling strengthens legal certainty in the case of limited choices of law pursuant to Section 1051 ZPO. However, this recently gained freedom must not be exploited without limits. Sections 138 (ineffectiveness of immoral provisions) and 242 BGB (requirement of good faith) still apply – both standards from which today’s law of general terms and conditions was developed.
the stated assessments are not only applicable to cases with a foreign connection, similar to the matter at hand, but even more so to purely domestic constellations.
Conclusion
The exclusion of the law of general terms and conditions in choice of law clauses remain contestable, even if they are dealt with in arbitration proceedings. However, judicial review is limited to ordre public breaches, which allows more flexibility compared to the strict law of general terms and conditions.
