06/07/2024
Written by Jochen BAUERREIS Lawyer & Rechtsanwalt and Viviane EBERSOLD Lawyer & Rechtsanwältin
Legal background
In our "Special Report: Germany 2024", we are today discussing, on the basis of a ruling by the First Civil Chamber of the Court of Cassation of 27 September 2023 (no. 22-19.859), the problem of arbitration clauses (arbitration agreements) often included in national and/or international business contracts in that - under both French and German law - the parties to such a clause are obliged to implement it in the event of a dispute, even if one of them is unable to pay.
Facts of the case
In this case, two parties had entered into a licence agreement containing an arbitration clause. Subsequently, in the context of a dispute between the licensor and the licensee, the licensor invoked the clause. As the licensee was in receivership, its liquidator argued that the arbitration clause was inapplicable on the basis of Article 1448 of the French Code of Civil Procedure, as the cost of the arbitration procedure was likely to be disproportionate to the financial resources of the party in receivership. As a result, the party in liquidation risked being deprived of its right to effective access to a judge within the meaning of Article 6.1 of the European Convention on Human Rights.
The Court of Cassation's reasoning
The Cour de cassation did not follow this line of argument and held that the arbitration clause was applicable without infringing the right of access to the courts, insofar as the impecuniosity of one of the parties was not such as to preclude implementation of the clause and it was not argued that a prior attempt to initiate arbitration proceedings had failed, in the absence of a remedy for the financial difficulties alleged by the liquidator.
Scope of the decision
Thus, although a party bound by an arbitration clause may not be in a position to finance arbitration proceedings (which in practice are often very costly), it will have to comply with the clause, even if it fails for lack of financial resources, provided that it has previously agreed to this by subscribing to a clause providing for it.
Franco-German comparison
The German courts have ruled in the same vein: once an arbitration clause has been signed, each party must comply with it, even if one of them is in receivership and does not have the financial resources to carry it out. In such a case, the liquidator cannot oppose the implementation of the clause (BGH 28.02.1957 – VII ZR 204/56; BGH 25.04.2013 – IX ZR 49/12).
Our Alister Avocats – German Desk team is at your disposal to provide you with its cross-border assistance and expertise so that you can take the necessary steps to comply with the new regulations under German law.
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