Missing Signature of an Arbitrator – BGH I ZB 34/23
An arbitral award can, in exceptional cases, be valid even if only two out of three arbitrators have signed it. This was clarified by the German Federal Court of Justice (BGH) in its decision of July 11, 2024 (Case No.: I ZB 34/23).
Arbitration proceedings have both advantages and disadvantages compared to court proceedings. For instance, an arbitral award may, in some cases, be easier to enforce than a court judgment. However, an arbitral award is generally only valid if it has been personally signed by all arbitrators. If an arbitrator is unable to provide their signature personally, a note of unavailability and the reason for it must at least be provided, according to the business law firm MTR Legal Rechtsanwälte, which advises its clients on litigation and arbitration matters.
The BGH has now ruled that an arbitral award may exceptionally be valid even if it has been signed by only two of the three arbitrators.
Significant Claim for Damages
The case concerned a legal dispute between two corporations. The claimant had acquired seven business divisions from the other company. For each of these divisions, the respondent prepared a Financial Fact Book (FFB) and assumed liability for it. The FFBs included an identical clause stating that “all disputed claims for damages” would be finally decided by an arbitral tribunal. According to the clause, the tribunal consists of three arbitrators, with each party having the right to appoint one arbitrator.
The claimant alleged that the respondent had breached its guarantees regarding the FFBs and therefore sought damages of €1.6 billion in arbitration.
“Signature Could Not Be Obtained”
The arbitral tribunal dismissed the claim. However, the award was signed only by two arbitrators. The signature of the arbitrator appointed by the claimant was missing. Instead, below the pre-printed name of the arbitrator, there was only the note: “signature could not be obtained.”
The claimant applied for the annulment of the arbitral award or, alternatively, for a declaration that the award was invalid. The claimant argued that its right to be heard had been violated during the arbitration proceedings. Moreover, no reason was provided for the missing signature of the arbitrator. Therefore, the arbitral award was invalid.
Formal Requirements for Arbitral Awards
The Higher Regional Court (OLG) of Frankfurt had rejected the annulment application but confirmed the invalidity of the award due to the missing signature. Both parties appealed this decision.
The BGH initially determined that an arbitral award that does not meet formal requirements does not constitute an arbitral award within the meaning of Section 1059(1) of the German Code of Civil Procedure (ZPO). In the present case, however, the formal requirements, including providing a reason for the missing signature of one arbitrator, were fulfilled. The OLG Frankfurt had assumed that no reason was given for the missing signature of the arbitrator. This assessment was incorrect. According to the BGH, the note that the “signature could not be obtained” already constituted a reason for the missing signature within the meaning of Section 1054(1), second sentence, ZPO.
Absolute Majority is Sufficient
The BGH further clarified that, under Section 1054(1) ZPO, the signature of the absolute majority of arbitrators is required but also sufficient. This provision aims to prevent individual arbitrators from blocking the issuance of a valid arbitral award. The requirement to provide a reason for a missing signature, according to the revised Section 1054 ZPO, should not be limited to instances where the signature could not be obtained but should also allow other reasons for a missing signature, the Karlsruhe judges explained. Consequently, a valid arbitral award was present in the case at hand, the BGH ruled.
The BGH has strengthened the significance of arbitration. Whether a court proceeding or arbitration is the better option for resolving a dispute depends on several factors that must be carefully considered.
MTR Legal Rechtsanwälte has extensive experience in litigation and also advises on arbitration proceedings.
Feel free to contact us!
