Historical background of arbitration

The arbitration method of dispute settlement was known in Europe from the ancient times and even then the arbitrators would have to be people external to the parties of the dispute.

According to information reaching us from the Greek lawyer of the first century BC Diodorus of Sicily, in a dispute between the Athenians and Megaryans of Salamis, three judges from Sparta had been elected to settle the dispute.²⁴⁴ In ancient times the state, cities, religious associations and other entities in which the parties can trust could play the role of arbitration courts. In the Middle Ages in Europe, the Pope, the higher clergy, law faculties of universities, parliaments, the Emperor of the Torah, consuls and individuals played this role.

242 For example, in December 2015, the National Centre for Human Rightsin cooperation with UNDP, Office of the OSCE Project Coordinator in Uzbekistan, the Konrad Adenauer Foundation, the Friedrich Ebert Foundation and other national institutions of Uzbekistan organized the International Conference on the theme “Ensuring protection of the rights and freedoms – major direction of democratic renewal and modernization of country:

experience of Uzbekistan”, Tashkent 2015.

243 UNCAC was adopted by the United Nations General Assembly on 31 October 2003 by Resolution 58/4.

244 Kleandrov, Proshloye treteyskix sudov po razresheniyu ekonomicheskix sporov, Treteyskiy sud 2000:5, 64-76.

According to Lazarev, there are four periods of the history of the development of arbitration court institutions:²⁴⁵ The first period begins in the antiquity and continues to the end of the first millennium BC, when arbitration procedure attracted the residents of the ancient East, ancient Greece and Rome. In the second period (XI-XVIII centuries) arbitration procedures were rarely taken because of the unlimited power of monarchs. In the third period (the end of the XVIII until the beginning of the XX century) the establishment of capitalist relations led to the re-development of the institution of arbitration proceedings. As the beginning of the fourth period, which continues to the present time, can be considered the date of the Hague Peace Conferences of 1899 and 1907 and the establishment of the House of a Permanent Arbitration Court.

In his historical-dogmatic work, Volkow investigated the history of the origin of arbitration in Roman law, its development in the Middle Ages (when commercial arbitration courts appeared), as well as in the 18th and 19th centuries during the rapid development of trade.²⁴⁶ However, the emergence of commercial arbitration in its own legal and social understanding and as a kind of modern arbitration can probably be observed since the XVIII century, being known as an active period of development of both law and practice of arbitration. To Komarow and Pogorezky only in the 20th century, commercial arbitration gained wide recognition and the corresponding legal status.²⁴⁷

The origin of arbitration as a way of solving commercial problems lies in mediaeval Western Europe.²⁴⁸ The basic idea of mediaeval arbitration is connected with the story of two traders who are in dispute over a certain price or quality of a good; they had to take a third opinion of a person whom they knew and trusted. So they would finally settle the dispute. People would act in this way “not because of any legal sanction, but because this was expected of them within the community in which they carried on business”.²⁴⁹ People recognised that legal rules and procedures were too strict in those days. Therefore, an arbitration agreement as a method of dispute resolution between the parties had been welcomed by the law. However, the parties were only allowed to consult an arbitrator after the dispute had arisen.

In his book “Arbitration in International Trade” René David stresses the arbitration was mainly conceived of in the past as an institution of peace to maintain harmony between persons who were destined to live together. To him, the arbitrator was a squire, a relative, a mutual friend or a man of wisdom, chosen by the parties who trusted him, and it was expected that he would be

245 Lazarev, Mejdunarodniy arbitrazh, Moscow 1991, pp. 178-179.

246 See Volkow, Torgovii treteiskii sudi. Istoriko-dogmaticheskoye issledovaniye, Moscow 1913.

247 Komarov/Pogorezky, Mejdunarodniy kommercheskiy arbitraj, Kharkov 2009, p. 7.

248 Mustill, Is it a bird…, in: Liber Amicorum Claude Reymond, Paris 2004, pp. 209 et seq.

249 See for example, Redfern/Hunter, Law and Practice of International Commercial Arbitration, 4^th ed., London 2004, p. 3.

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able to devise a satisfactory solution for the dispute.²⁵⁰ Arbitration agreement and arbitral award had no real legal effect in accordance with Roman law. This issue was solved through making

“double promise” (compromissum).²⁵¹ It played a great role in making penalty to be payable in the case of non-execution of the arbitration agreement or of the arbitral award by a party. Thus, the court could enforce the payment of the penalty in case of non-compliance, but it could not enforce the arbitration agreement itself.²⁵²

Krause also states that in Roman law existing disputes might be arbitrated, but no effect was given to agreements to refer future disputes to arbitration. This attitude was maintained by the canon law.²⁵³ The ancient Germanic law, however, recognized the binding nature of agreements to submit future disputes to arbitration, granting a stay of proceedings where a party resorted to the courts in violation of such agreement.²⁵⁴

The reception of the Roman law in Germany led to some limitations of arbitration in considering the existing disputes, since the Roman-canonical “compromissum” displaced the major part of German rules. In the result of territorial sovereignty during the XVII and XVIII centuries and the development of the ordinary courts rather than arbitral tribunals, the practice of submitting disputes to arbitration disappeared.²⁵⁵ The restrictions by the Judicial Codes of Bavaria (1753) and of Prussia (1794)²⁵⁶, which hindered the development of arbitration in Germany, were removed only after the enactment of the German Code of Civil Procedure in 1879²⁵⁷ allowing to conclude arbitration agreements for the submission of future disputes and to authorize the courts to appoint arbitrators.

Germany has a long tradition of arbitration; arbitration is widely used in particular in the areas of commerce and business.²⁵⁸ The German arbitral system has been historically practiced by merchants, since the country lacked a centralized government for centuries. Latest editions of German arbitration acts, established at the end of the 19^th and the beginning of the 20^th century²⁵⁹ and today’s commentators declare that “arbitration tribunals have at all times been

250 David, Arbitration in International Trade, Deventer 1985, p. 29.

251 Some scholars argue that Roman law never gave effect to agreements to submit future disputes. The com-promissum required that the arbitrators should be appointed at the time of the agreement. Such agreement to submit existing disputes to arbitration was not enforceable in classical times; nor was an award. See Lorenzen, Commercial Arbitration – International and Interstate Aspects, Yale Law Journal 43:5 (1934), 716-765.

252 See David (supra n. 250), pp. 84-85.

253 Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland, Berlin 1930, p. 3.

254 Ibid., p. 39.

255 Cf. Lorenzen (supra n. 251), p. 721.

256 Ibid.; see also Krause (supra n. 253), p. 84.

257 Lorenzen (supra n. 251), p. 721.

258 Hanefeld, Germany, in: Weigand (ed.), Practitioner’s Handbook on International Commercial Arbitration, 2^nd ed., Munich 2010, pp. 475-542.

259 See for example, Ingenberg (Hrsg.) Preussische Schiedsmannsordnung, Münster 1948; Schiedsmanns-Ordnung vom 29.03.1879, 8. Aufl. Berlin 1880; Kaufmannsgericht Berlin, in: Magistrat Berlin (Hrsg.), Berliner

regarded as an urgent necessity by the community of merchants and legislation has always granted them a place alongside the ordinary courts”.²⁶⁰

The arbitration law on the federal level was first codified in the 10^th Book of the German Code of Civil Procedure (Zivilprozessordnung – ZPO) in 1879, which adopted a favourable approach to arbitration. It consisted of 24 sections, and was to a large extent already based upon the same principles of arbitration as “party autonomy” and “limited court intervention”, which underlined the critical parts of the UNCITRAL Model Law on International Commercial Arbitration.²⁶¹

German commentators state that at the end of XIX century arbitration agreements were taken into consideration though it was signed before or after the dispute arose, which could exclude the courts’ jurisdiction. At the same time, arbitral awards were treated equally as court judgments, which could be refused to be enforced only through few grounds. The award was not reviewed on the merits. The disputing parties had been authorized with a great freedom arranging their arbitration proceedings. All of those basic principles formed the general principles, recognized nowadays. Thus, even under few modifications, in particular the rules for recognition and enforcement of foreign arbitral awards, the initial German Arbitration Law of 1879 was effective during a long period of time, until the latest perfection of it on 1 January 1998.²⁶²

Since the uniform arbitration legislation was promulgated in the late 19^th and early 20^th century, the German courts supported the arbitral process simultaneously, including pioneering the development of what would later termed as the “doctrine of separability” to facilitate the enforcement of arbitration agreements.²⁶³ However, in the following decades, the German courts acted to guard their rights with extreme jealousy. For instance, the courts were too inclined to set aside arbitral awards focusing on even a minor failure to comply with the provisions of the ZPO. Legal scholars consider that the mistrust of arbitration and respective commentaries developed with particular vigour by German courts between the two World Wars. Nevertheless, besides the hostile attitudes of the domestic courts, Germany ratified the Geneva Protocol on Arbitration Clauses from 1923 on 5 November 1924 and the Geneva Convention on the Execution of Foreign Arbitral Awards from 1927 on 1 September 1930,

Gemeinderecht, 2. Aufl., Berlin/Heidelberg 1915, pp. 292-330. Moreover, scientific and practical monographs, such as Bangert, Die Bindung des Schiedsgerichts an das materielle Recht, Osnabrück 1932, explained the essence, tasks and the principals of the functioning of arbitration courts.

260 See Born, International Commercial Arbitration, Alphen aan den Rijn 2009, p. 49.

261 Böckstiegel/Kröll/Nacimiento, Germany as a Place for International and Domestic Arbitrations: General Overview, Transnational Dispute Management 6:1 (2009), 3-61.

262 Ibid.

263 See for details, Born, International Arbitration: Cases and Materials, 2^nd ed., Austin et al. 2014.

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which had been a relevant promotion for recognition and enforcement of cross border commercial arbitration clauses and arbitral awards. Subsequently, Germany participated in the negotiation of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), and became one of the signatory parties on 10 June 1958. It then ratified the Convention on 30 June 1961. Further, Germany signed and ratified the European Convention on International Commercial Arbitration of 21 April 1961 on 27 October 1964. Under these multilateral arbitration conventions, Germany has gradually changed its previous practice and reduced judicial obstacles to both domestic and international commercial arbitration under its territory.

Like in the former socialist countries, international arbitration was not of great importance to the lawmakers in the German Democratic Republic (GDR). The organization of international arbitration before the German Re-Unification was exclusively exercised by the Court of Arbitration at the Chamber of Foreign Trade of the German Democratic Republic.²⁶⁴

The revised German arbitration law which came into force on 1 January 1998 was adopted to better facilitate domestic and international arbitration proceedings in Germany,²⁶⁵ that is, this law provided a new arbitration environment fit for modern domestic and international dispute resolution. In the result of the 1998 reform, the old German arbitration law was totally replaced by a new arbitration law based on the UNCITRAL Model Law on International Commercial Arbitration of 1985²⁶⁶. The German Arbitration Act was modelled after the Model Law to answer the international standards in the sphere of arbitration. One of the guiding principles in drafting the revised law was indeed to keep at a minimum any changes to the Model Law that would inevitably be necessary to accommodate existing national laws.²⁶⁷ The lawmakers of Germany were persistent in maintaining this principle so that German law does not bear unwelcome surprises for the ignorant arbitral party.²⁶⁸ As Wagner noted “the implementation of the UNCITRAL Model Law was not a product of a new legal design, but merely translations of the original rules of the UNCITRAL Model Law”.²⁶⁹ The new provisions of German

264 Remarks by Melis in the Chapter “The Effects of Changes in Eastern Europe on International Arbitration”, in:

Proceedings of the 2^nd Joint Conference “Contemporary International Law Issues: Opportunities at a time of momentous change”, held in The Hague, July 22-24, 1993, Dordrecht/Boston/London, pp. 182-185.

265 Rützel/Wegen/Wilske, Commercial Dispute Resolution in Germany, Munich 2005, p. 111.

266 UNCITRAL Model Law on International Commercial Arbitration (UN documents A/40/17, Annex I and A/61/17, Annex I), as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006, available at https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf.

267 Berger, Das neue Recht der Schiedsgerichtsbarkeit / The New German Arbitration Law, Köln 1998, pp. 44-45.

268 Wilske/Chen, International Arbitration Practice in Germany, Comparative Law Yearbook of International Business 2004, 641-656.

269 See for more details Wagner, Germany, in: Weigand (ed.), Practitioner’s Handbook on International Commercial Arbitration, Munich 2002, pp. 685-830.

arbitration law count not only for international arbitrations but for all types of arbitrations in Germany.

The 10^th book of the German Code of Civil Procedure (§§ 1025-1066 ZPO) as an essential federal law²⁷⁰ constitutes the legal framework for arbitration. It represents a complete codification²⁷¹ and an “overhaul” of the then existing legal arbitration regime,²⁷² which was widely recognized as anachronistic. It was argued that there are no current plans for law reform since the German law of arbitration has just been overhauled completely.²⁷³

Referring to the specific contents of the new arbitration law, the basic framework and contents of the UNCITRAL Model Law has been incorporated in. It is appreciated that “from the various provisions of the law, some characteristic features of the German arbitration law can be traced.

These include the principle of territoriality, the prevailing role of party autonomy, the guarantee of due process and effective proceedings and the limitation of court interference. In concert with the generally arbitration friendly approach adopted by German courts, these features shape the practice of arbitration in Germany.”²⁷⁴ With the perfected arbitration law and the efficient court assistance, which insists invoking the more-favourable-right provision under Art. VII (1) of the New York Convention, barriers to international commercial arbitration will be further reduced or eliminated in Germany.

Jorg Risse argued that “the reason for this trend (suitable for arbitration) is not only the acceptance of the well-known and arbitration-friendly Model Law. Germany as a designated place of arbitration compares favourably with its international competitors given its very efficient court system that willingly supports arbitral tribunals, if required.”²⁷⁵