Provisional Enforcement of Arbitral Awards in Germany

SchiedsVZUnder German law, you can combine the application for the recognition and enforcement of an arbitral award with an application to allow provisional enforcement measures, such as freezing bank accounts and attaching assets. Pending a decision on the recognition and enforcement of the award, these assets can thus be secured. However, the relevant section of the German Civil Code (Zivilprozessordnung, ZPO) appears to have been imperfectly integrated into the overall system of provisional enforcement, which led to a string of – partly contradictory – court decisions.

Martin Rinscheid and I have authored a – rather technical – case note pointing out some ambiguities in the provisions of the German Civil Code. It is now out in the January 2017 issue of the German Arbitration Journal (Zeitschrift für Schiedsverfahren – SchiedsVZ). Here is the super-short summary: Provisional enforcement of arbitral awards is tricky, but possible. And here’s the English abstract:

Sec. 1063 para. 3 of the Code of Civil Procedure (ZPO) provides that the Presiding Judge of the Division for Civil Matters (Zivilsenat) of a Higher Regional Court (Oberlandesgericht) having jurisdiction over the enforcement of an arbitration award, may allow the  the applicant to pursue provisional enforcement (Sicherungsvollstreckung) of the  the arbitral award until a binding decision on enforceability is made. Based on this provision, the Berlin Higher Regional Court (Kammergericht, as the Oberlandesgericht is called in Berlin) issued an order for provisional execution under an arbitral award. However, the court found itself incompetent to implement its own order by granting the corresponding seizure order (Pfändungsbeschluss).

Provisional execution under the arbitral award may not extend beyond measures securing the final execution. The Presiding Judge has discretion to issue an order on provisional execution taking into account the circumstances of the case, including the security interest und the urgency of the matter. Moreover the prospect of success of the  enforcement proceedings, the effect of the provisional execution on  respondent and the risk of its frustration are to be taken into consideration. In the case at hand the order for compulsory execution was granted. There were no apparent grounds that would prevent a declaration of enforceability of the arbitral award. Moreover, the applicant declared that the assets of the respondent in Germany consisted only of the claims against a third-party debtor that were to be seized. The court, however, dismissed the application to execute the order itself and thus to seize respondent’s claims against the third-party debtor. It decided that it was not competent for enforcement matters within the meaning of Sec. 930 para 1 sentence 3 ZPO since this provision was not applicable to arbitration proceedings and Sec. 1063 ZPO does not directly address the issue of seizure.

Thereupon the applicant applied to the Berlin District Court (Amtsgericht Mitte) to issue a seizure order implementing the order of the Higher Regional Court in accordance with Sec. 794 para. 1 Nr. 4a ZPO. The Berlin District Court dismissed the application. It applied the general provisions on execution  (Sec. 724, 725 and 750 para. 1 ZPO) to the order issued by the Berlin Higher Regional Court. It found that the execution clause (Vollstreckungsklausel) was missing and that the order of the Higher Regional Court had not been served upon respondent. The court rejected the arguments of the applicant, that the special provisions on freezing orders (Arrest) (Sec. 929 para. 1, 3 and Sec. 930 para. 1 sentence 3 ZPO) should apply by analogy in order to implement  the very purpose of Sec. 1063, namely expedited and ex parte execution of the order. .

The applicant appealed the decision of the Berlin District Court before the Berlin Regional Court (Landgericht Berlin). The appellate court decided that the District Court could not refuse the issuance of the seizure order  for the lack of service upon  respondent. According to the court, the Presiding Judge of the Division for Civil Matters of the Berlin Higher Regional Court had ordered provisional execution under the award in full conformity with Sec. 1063 para. 3 ZPO, and hence said decision contained the required execution clause. The legislative intent of Sec. 1063 para 3. ZPO was to grant creditors rapid and surprising access to the assets of the debtor by way of  provisional enforcement. The provision would become meaningless if the order had to be served upon respondent first and the two-week time-period had to expire before actual execution could take place. Therefore the appellate court had no objections to follow the legal position of the Regional Court Verden (Landgericht Verden, Order 6 T 99/04 of 25.6.2004) and to apply Sec. 929 para. 3 ZPO accordingly. The execution must therefore  be possible before service.”

The legislative intent behind Sec. 1063 German Civil Code is clear; the developing case law helps to clarify the path to implementation. In our opinion, however, it would best if the law were clarified by parliament, and we put forward a proposal to that effect. The German Ministry of Justice has started a review of the German arbitration law, to assess the need for reform. It would be an opportunity address that issue.

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