Federal Supreme Court: Unrestricted Review of Arbitral Awards in Antitrust Matters

by Lena Rindfus, Stefan Horn and Peter Bert

In a recent decision, the Federal Supreme Court (Bundesgerichtshof) held that German courts have jurisdiction to fully review arbitral awards applying competition law, if such an award is before them in enforcement or setting aside proceedings. The prohibition of a révision au fond, that is, a substantive review of the arbitral award by the ordinary courts, which is part of both the German domestic arbitration law and the New York Convention, does not apply in that context. Hence, lengthy and complex arbitral proceedings could end up being just “first instance proceedings” on their way to the ordinary courts if they relate to competition law matters.

Facts of the Case

The Federal Supreme Court rendered its decision in setting aside proceedings pursuant to Sec. 1059 para. 2 no. 2 b) German Code of Civil Procedure (ZPO). The applicant had applied to the Frankfurt Court of Appeals (Oberlandesgericht Frankfurt am Main) to set aside an arbitral award issued against it. The respondent is the owner of the Büdingen Forest, in which two quarries are located. The first quarry was leased to a competitor of the applicant, the second quarry was leased to the applicant.

In 2017, the respondent terminated the lease before the contractually agreed end of the lease period. According to the Federal Supreme Court’s findings, its objective in terminating the lease was to “induce” the applicant to sell its quarry operations to its competitor, which would then operate both quarries. By eliminating the applicant, a price war between the quarries would be avoided and the respondent stood to increase its profits.

The Federal Cartel Office (Bundeskartellamt) took up the matter. In a 2019 settlement, it imposed fines on the respondent. The Federal Cartel Office held that the respondent had acted contrary to the prohibition under Sec. 21 para. 2 no. 1 German Competition Act (GWB) of threatening other undertakings with disadvantages in order to induce them to engage in conduct which is unlawful under the provisions of the GWB and contrary to the prohibition under Sec. 21 para. 3 no. 2 GWB to force an undertaking to merge with another undertaking. According to the Federal Cartel Office’s findings, the respondent intended to use the threat of termination to induce the applicant to continue operating the second quarry in the future on the basis of a joint venture with its competitor.

Limited or full judicial review?

The question at the core of the Federal Supreme Court’s decision is whether the prohibition of révision au fond also applies in competition law cases, that is, to what extent the arbitral award is subject to review by the ordinary courts.

In the original setting aside proceedings, the Frankfurt Court of Appeals had taken the view that the fact that the mandatory provisions of European and German competition law were part of the ordre public did not justify an unrestricted review of the arbitral award under competition law. In its opinion, it was incompatible with the nature of arbitration as an autonomous form or private dispute resolution to grant the ordinary courts the powers to conduct a révision au fond.  Any review by the ordinary courts was to be limited to the question whether there was a manifest (offensichtlich) violation of fundamental public policy decisions (ordre public) as expressed in the competition provisions at hand (OLG Frankfurt am Main, 22 April 2021, 26 Sch 12/20).

The Federal Supreme Court held otherwise. In its view, arbitral awards are subject to an unrestricted review in fact and law by the ordinary court as regards the application of Sec. 19 to 21 GWB. The Court followed its earlier case law, dating back to the 1960s, prior to the enactment of Germany’s new arbitration law in 1986.

The full review of the arbitral award is also not precluded by the fact that, according to the established case law of the Federal Supreme Court, an arbitral award is only contrary to public policy if its recognition or enforcement leads to a result that is “manifestly” incompatible with essential principles of German law:

“Nothing else follows from the fact that, according to the case-law of the Federal Supreme Court, an arbitral award is only contrary to public policy if its recognition or enforcement leads to a result that is “manifestly” incompatible with essential principles of German law. For this is the case if the arbitral award violates a provision that regulates the foundations of ordinary life or if it is in intolerable contradiction to German concepts of justice. Since the prohibitions under Sec. 19, 20, 21 GWB are among the elementary foundations of the legal order and the fundamental provisions of competition law, the recognition or enforcement of the arbitral award according to these principles would per se be contrary to public policy (ordre public) if it is based on an erroneous application of these provisions. Indeed, the recognition and enforcement of such an arbitral award would lead to a result that would be “manifestly” incompatible with essential principles of German law. No legal system can accept that violations of its most fundamental norms are confirmed by its own courts, regardless of whether or not these violations are manifest or obvious. Insofar as the application of such elementary rules of the legal order is at issue, the prohibition of révision au fond therefore does not apply, so that a review of the award on the merits is required.” (quotations omitted)

The Federal Supreme Court drew on legislative history to support its view:

“The unrestricted review of the arbitral award with regard to such competition provisions, which form part of the elementary foundations of German law, also is in line with the intention of the legislator. Sec. 91 para. 1 GWB in the version applicable until [1997] provided that arbitration agreements on future legal disputes arising from the contracts or decisions mentioned therein in detail are null and void if they do not grant each party a right to choose between arbitration and the ordinary courts. One reason for the abolition of the provision was that the arbitral tribunal had to observe the (mandatory) provisions of competition law in the same way as the ordinary court and that the arbitral award was subject to control by the ordinary courts with regard to compliance with these provisions in the context of the annulment and enforceability declaration proceedings.”

Practical consequences

Given this decision of the Federal Supreme Court, it is now clear that arbitral awards based on competition law are fully reviewable by the ordinary courts in fact and law. Specifically, the Federal Supreme Court states that public policy also includes the prohibited conduct of dominant undertakings under Sec. 19 GBW, the prohibited conduct of undertakings with relative or superior market power under Sec. 20 GWB and the prohibition of boycotts as well as the prohibition of other conduct restricting competition under Sec. 21 GWB.

Thus, arbitral awards issued by an arbitral tribunal seated in Germany or awards which have to be recognised and enforced in Germany are subject to appellate review by the ordinary courts if the decision was based on the application of competition law provisions.

Against this background, contracting parties should consider this factor when entering into an arbitration agreement. There will always be the risk that the losing party in the arbitral proceedings commences setting aside proceedings and thus will be able to initiate de facto appeal proceedings. However, in long-term contracts, the parties will not always be able to foresee the relevance of competition law provisions ex ante – this present case may well be an example of this: the contractual relationship dated back to the 1960s.

The choice of a foreign seat of arbitration does not solve the problem if the foreign arbitral award subsequently has to be recognised and enforced in Germany

Sports arbitration is particularly “prone to danger”. Especially in the wake of the Pechstein case law (see here in the blog), the relationship between the monopolistic sports federations and the athlete is often subject to competition law scrutiny.

As readers of this blog are well aware, arbitral proceedings have considerable advantages over ordinary court proceedings, such as flexibility, non-publicity, speed and international recognition of arbitral awards under the New York Convention. However, if the arbitration is potentially only a first instance subject to full appeal proceedings in the ordinary courts, that may change the parties’ assessment. It remains to be seen whether the prohibition of a révision au fond will be overruled for other areas of the law as well. The decision reviewed here was issued by the Anti-trust Law Senate of the Federal Supreme Court, and not by the First Civil Senate, which normally has jurisdiction over arbitration matters. Hopefully, in the not too distant future, the First Civil Senate will have an opportunity to clarify the matter in an appropriate case.

Federal Court of Justice (Bundesgerichtshof), order (Beschluss) dated 27 September 2022, file no. KZB 75

Illustration: Werner H. Schmidt, Frankfurt am Main, Stamp 50 Jahre Bundeskartellamt, marked as public domain, more details on Wikimedia Commons

Leave a Reply

Your email address will not be published. Required fields are marked *

4 + three =

This site uses Akismet to reduce spam. Learn how your comment data is processed.