I. Higher Regional Court Munich, Order of 18 June 2018
The decision of the Higher Regional Court Munich (“OLG Munich”) deals with the validity of an arbitration clause in a long-term purchase agreement for particle boards. The contract consisted of a main part and six annexes. Whereas several of the annexes governing essential aspects of the contract were concluded for a fixed period, the main part providing the arbitration clause was not limited in time.
The OLG Munich had to decide whether orders for particle boards placed after the expiry of the time limitation in the annexes were governed by the arbitration clause in the main contract.
II. The Facts of the Case
In May 2012, the parties, an Austrian supplier (“Supplier”) and a buyer seated in Hungary (“Buyer”) entered into a purchase agreement for particle boards (“Contract”). The main part of the Contract provided for arbitration of all disputes “arising out of or in connection with the present contract” according to the ICC Rules with the seat of the arbitration being in Munich.
Annex 1 to the Contract dealt with the thickness of the particle boards and stipulated, among others, the monthly volume, order frequency and delivery period. The annex was valid from 1 May 2012 until 31 August 2012. Equally time-limited was Annex 4 concerning, among others, compliance and environmental issues and Annex 6 regarding the packaging and stacking of the goods. Annex 5 contained a price list and was valid from 1 April 2012 until 31 August 2012. In contrast, the main part of the Contract did not provide for any time-limitation. The 15 clauses of the main part concerned various aspects of the Contract such as price and payment, compliance and environmental issues, delivery details, rights and duties of the parties in case of defective performance, insurance obligations as well a choice of law in favor of the UN Convention on the International Sales of Goods (CISG). Several of the clauses of the main part referred to the respective annexes for further details.
All order of particle boards placed before and after 31 August 2012 were confirmed by the Supplier by way of a written order confirmation. The confirmation referred to the Supplier’s terms and conditions and provided for the exclusive jurisdiction of the state courts in Klagenfurt, Austria.
In February 2016, the Buyer filed a request for arbitration claiming inter alia damages resulting from the delivery of allegedly defective particle boards by the Supplier in 2014. The Supplier disputed the jurisdiction of the arbitral tribunal and – prior to the constitution of the arbitral tribunal – applied to the OLG Munich pursuant to § 1032(1) of the German Civil Procedure Code (“ZPO”) for a determination that the arbitration was inadmissible. The proceedings before the OLG Munich, however, were stayed according to Article VI(3) European Convention on International Commercial Arbitration 1961 (“ECICA”).
The arbitral proceedings continued and the arbitral tribunal rendered an award on jurisdiction in which it confirmed its competence to deal with the case. In return, the Supplier applied to OLG Munich, now under § 1040(3) ZPO, for a declaration that the arbitral tribunal lacks jurisdiction. The Supplier argued that the validity of the arbitration clause in the Contract had expired at the end of August 2012 and that the particle boards in dispute had been purchased on the basis of individual orders not falling under the Contract. As a consequence, according to the Supplier's view, the state courts in Klagenfurt had exclusive jurisdiction over the dispute.
III. The Decision by the Higher Regional Court
The OLG Munich rejected the application by the Supplier under §1040 (3) ZPO as unfounded.
- The Competence of the Court to Rule on Jurisdiction
- Request for a Court Ruling on the Arbitral Tribunal’s Jurisdiction under § 1040 (3) ZPO
The OLG Munich derived its jurisdiction to rule on the competence of the arbitral tribunal from § 1040(3) ZPO. According to this provision, which mirrors Article 16(3) UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL ML”), if an arbitral tribunal which jurisdiction has been disputed considers that it has jurisdiction by way of a preliminary ruling, any party may – within a month after receiving a written notice of the ruling – request the court to decide the matter. As the arbitral tribunal had affirmed its jurisdiction by way of an interim award, the OLG Munich considered the prerequisites for a court decision on the tribunal’s jurisdiction under § 1040(3) ZPO to be fulfilled.
- Request for a Court Ruling on the Arbitral Tribunal’s Jurisdiction under § 1032(2) ZPO
Interestingly, the application for a court decision on the tribunal’s jurisdiction under § 1040(3) ZPO had not been the first attempt of the Supplier to receive a state court ruling on this issue. Immediately after the initiation of the arbitration, still before the constitution of the arbitral tribunal, the Supplier had made an application under § 1032(2) ZPO.
§ 1032(2) ZPO which has no equivalent in the UNCITRAL ML allows a party – already prior to the constitution of the arbitral tribunal – to request a state court determination on whether or not arbitration is admissible. The Supplier’s attempt to benefit from § 1032(2) ZPO, however, failed as a consequence of the applicability of the ECICA.
According to Article VI(3) ECICA, where a party has initiated arbitration before any resort is had to a court, courts of Contracting States which had been subsequently asked to deal with inter alia the question whether the arbitration agreement had lapsed, “shall stay their ruling on the arbitrator's jurisdiction until the arbitral award is made, unless they have good and substantial reasons to the contrary”. The ECICA provisions were applicable according to Article I(1)(a) ECICA as the arbitration clause was (i) concluded for the purpose of settling disputes arising from international trade (ii) between parties having their seats in Contracting States (Hungary and Austria).
Article VI(3) ECICA reserves the competence of arbitral tribunals to have the first say on their jurisdiction where arbitration has been initiated prior to state court proceedings. Whereas Article VI(3) ECICA directed the OLG Munich to wait with a decision on the request under § 1032(2) ZPO until an award was rendered by the arbitral tribunal, it is questionable whether the court was supposed to wait for a final award or could decide on the competence of the arbitral tribunal after the latter had rendered an interim award on its jurisdiction. Assuming that an interim award was sufficient, the application of the Supplier pursuant to § 1040(3) ZPO would not have been necessary. This is because, once the arbitral tribunal renders an award in terms of Article VI (3) ECICA, the jurisdiction of the state court to decide on the competence of the arbitral tribunal automatically resumes. It is likely, however, that the Supplier did not want to run the risk that, contrary to this approach, the interim award on jurisdiction could have been considered not equal to an “arbitral award” in terms of Article VI(3) ECICA and thus decided to file a request under § 1040 (3) ZPO as a matter of precaution.
- The Law Applicable to the Validity and Interpretation of the Arbitration Clause
The OLG Munich noted that whereas Article I(2)(a) ECICA provides formal requirements for arbitration clauses, the Convention contains no substantive rules regarding the existence, validity, interpretation and scope of arbitration agreements. Article VI(2)(a) and (b) ECICA merely contain a conflict of laws rule stating that the validity shall be examined under the law to which the parties have subjected their arbitration agreement and, in the absence of any indications in this regards, under the law of the country in which the award is to be made.
According to the OLG Munich, the question of whether orders for the particle boards placed by the Buyer in 2014 were subject to the arbitration agreement in the Contract was a matter of interpretation of the parties’ will at the time of conclusion of the Contract in 2012. The court left open the question whether the interpretation was governed by the CISG providing specific rules for international sales contracts or rather by the German Civil Code (“BGB”) as the principles for interpretation in the respective provisions (Art. 8 CISG and §§ 133, 157 BGB) were largely identical.
- The Interpretation of the Arbitration Clause
According to the OLG Munich, the relevant question of interpretation in the dispute was the following: What was the meaning of the term “present contract” in the arbitration clause in the main part of the Contract? Did the parties intend to apply the arbitration clause merely to orders within the volume and time limit prescribed in Annex 1 of the Contract or was the arbitration clause – together with all other clauses in the main part of the Contract – rather supposed to form a framework agreement (Rahmenvertrag) for an unlimited period of time and thus to also apply to orders placed after the expiry of the time limit in Annex 1?
The OLG Munich favored the interpretation of the main part of the Contract as a framework agreement unlimited in time with the consequence that the dispute between the parties regarding particle boards ordered in 2014 was subject to arbitration. According to the OLG Munich, the time limitations in several of the annexes to the Contract merely concerned the validity of the issues dealt with by the respective annexes and did not apply to the main part. By stipulating essential terms in two of the annexes to the Contract – Annex 1 (inter alia thickness and monthly volume of the particle boards) and Annex 5 (price list) – the parties entered into a multi-delivery contract (Sukzessivlieferungsvertrag) on the designated volume of particle boards for the price specified. The existence of the multi-delivery contract and its limitation in time did, according to OLG Munich, however, not preclude the qualification of the main part of the Contract as a framework agreement for an unlimited period of time.
The interpretation was based on the following considerations:
- The Overall Scheme of the Contract
According to the OLG Munich, the overall scheme of the Contract clearly suggested the interpretation of the main part as a framework agreement. According to Clause 1 of the main part, “(…) hereby buys and the supplier hereby sells goods as specified in appendix 1”. The OLG Munich held that, by choosing this wording, the parties included the primary obligations under their purchase agreement into the main part of the Contract. In contrast, the annexes which were referred to in the main part merely specified the precise contents of the primary obligations. According to the OLG Munich, this technique of “outsourcing” the details of the primary obligations to annexes of the main part of the Contract only makes sense if the main part was supposed to constitute a general framework for the sale and purchase of particle boards between the parties which could be adapted during the year according to the needs of the parties.
- The Essence of Several Provisions in the Main Part of the Contract
The OLG Munich further pointed out several provisions in the main part of the Contract, which only seemed to be useful as a part of a framework agreement. One of the cited rules was Clause 3.4, which stipulates a duty of the Supplier to prepare, upon request, every six months a list of all quantities, which had been ordered and delivered to the Buyer. The OLG Munich held that such a periodic duty made no sense if the validity of the Contract was limited to only four months.
- The Negotiations between the Parties
The OLG Munich further referred to the motivation and duration of the negotiations prior to the conclusion of the Contract: Prior to the start of the negotiations, the supply relationship between the parties was based on individual orders. In August 2011, the Buyer informed the Supplier that due to internal guidelines, the sale and purchase of particle boards had to be based on a contract including certain provisions. The Buyer was willing to implement uniform terms into the contracts with all of its suppliers. The OLG Munich held that this motivation would be undermined, had the Contract been only valid for four months. In addition, the negotiations lasted for almost eight months. The OLG Munich pointed out that it seems hard to justify such lengthy negotiations during an ongoing business relationship if they would result in a contract merely relevant for four months.
- Interpretation in Accordance with the Interests of Both Parties
Finally, the OLG Munich considered that the interpretation of the main part of the Contract as a framework agreement was in accordance with the interests of both parties. The Buyer was obviously interested in a unification of the legal frame of its contracts with all its suppliers. According to the OLG Munich, the Supplier also had an interest in concluding a framework agreement as this was mandatory for continuing the successful business relationship with the Buyer. The OLG Munich further considered that the Buyer’s need for flexibility did not contravene an interpretation of the Contract as a framework agreement, as the Buyer’s obligation to purchase a specific amount of particle boards within a certain limit of time for a particular price was subject to periodic agreements such as the ones included in the Annexes 1, 4 and 5 to the Contract.
As the main part of the Contract constituted a framework agreement for an unlimited period, the reference to disputes “arising out of or in connection with the present contract” related to disputes under all supplemental agreements.
The decision of the OLG Munich is a reminder that legal practitioners should keep in mind the provisions of the ECICA when drafting arbitration agreements between parties seated in different European countries and when setting up their procedural tactics once a dispute has arisen between the parties.
In addition, the decision provides useful guidelines for the interpretation of arbitration clauses in long-term contracts. The reasoning of the court applies to the interpretation of other dispute resolution clauses, especially to forum choice agreements. The temporal validity of such clauses depends on the nature of the long-term contract in which they are included. Where the interpretation of a long-term contract shows that it was concluded as a framework agreement, a dispute resolution clause in that contract would, in principle, govern all future individual agreements concluded under the framework contract.
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