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Constitutional Limits on Externally Determined Arbitration Agreements in German Law
Constitutional Limits on Externally Determined Arbitration Agreements in German Law
Introduction:
In a landmark decision dated June 3, 2022, the Federal Constitutional Court (Bundesverfassungsgericht) of Germany delineated significant constitutional limits on externally determined arbitration agreements. This decision, arising from the high-profile Pechstein case, emphasizes the necessity for such agreements to adhere to the right to a fair trial. This principle applies not only to sports arbitration but extends to commercial arbitration, threatening nullity if violated.
The Pechstein Saga: A Background
The Pechstein case centres around Claudia Pechstein, a German speed skater and five-time Olympic champion. She was suspended for two years by the International Skating Union (ISU) due to alleged doping based on increased blood counts, which she claimed were due to an inherited condition. Pechstein challenged the suspension through the Court of Arbitration for Sport (CAS), a process she was compelled to accept under ISU’s competition conditions. After losing her appeal, Pechstein's case went through various courts, including the Swiss courts and the European Court of Human Rights (ECtHR), eventually reaching the German Federal Constitutional Court.
Key Aspects of the Pechstein Decision:
The Pechstein Decision underscores the constitutional limits on externally determined arbitration agreements, highlighting the right to a fair trial. This right is enshrined in the German Constitution and is balanced against the freedom of contract and private autonomy.
Right to a Fair Trial:
The right to a fair trial inherently includes access to state courts. While arbitration agreements can limit this access, they must be legitimized by the freedom of contract, which is not applicable when one party unilaterally determines the terms. In such scenarios, a balancing of interests is necessary. For sports arbitration, the need for uniform sports jurisdiction and effective anti-doping policies may justify these limitations. However, in commercial arbitration, legitimacy depends on individual circumstances and mutual interests.
Principle of Publicity of Oral Hearings:
A crucial aspect of a fair trial is the principle of public hearings. Externally determined arbitration agreements that exclude public hearings are scrutinized against this principle. Public hearings are essential unless specific exceptions apply, such as those listed in Article 6 of the European Convention on Human Rights. In Pechstein’s case, her interest in publicly defending herself was deemed paramount. Conversely, in commercial disputes, confidentiality may take precedence, especially when business secrets are involved. The court criticized the CAS Code of Sports-related Arbitration for violating the principle of publicity, as it narrowly defines the right to publicity, excluding legal persons. Similarly, the 2016 DIS Sport Arbitration Rules fall short in this regard. On the other hand, commercial arbitration rules like the 2021 ICC and 2018 DIS Arbitration Rules lack explicit provisions for public hearings, suggesting the need for contractual amendments or regulatory changes.
Principle of Neutrality and Impartiality:
The court highlighted the importance of neutrality and impartiality of arbitrators. The CAS Code was found wanting, as the selection of arbitrators is influenced by sports federations and Olympic committees, raising concerns about impartiality. The decision suggests alternatives like open lists of arbitrators or neutral selection bodies to enhance fairness. In commercial arbitration, organizations are generally neutral, avoiding such conflicts.
Consequences and Implications:
The decision affirms that violations of fair trial rights can render arbitration agreements null and void. For domestic awards, this may lead to partial invalidity, replaced by statutory provisions. Foreign awards, result in invalidity and non-recognition, impacting enforcement. The ruling suggests that current arbitration rules, especially the CAS Code, need revisions to comply with the principles of publicity and neutrality. For commercial arbitration, incorporating these principles into arbitration rules or through contractual provisions is essential, potentially even requiring legislative action.
Conclusion:
The Pechstein Decision significantly clarifies the limits of externally determined arbitration agreements under German law, reinforcing the right to a fair trial. This landmark ruling calls for a review of arbitration rules by international organizations to ensure compliance with these constitutional principles, thereby strengthening the rule of law in both sports and commercial arbitration.
- This decision, arising from the high-profile Pechstein case, emphasizes the necessity for such agreements to adhere to the right to a fair trial.
- The Pechstein Decision underscores the constitutional limits on externally determined arbitration agreements, highlighting the right to a fair trial.
- Public hearings are essential unless specific exceptions apply, such as those listed in Article 6 of the European Convention on Human Rights.
