THE AUTHORS:
Georg Scherpf, Head of Arbitration (Germany) at Clyde & Co
Victor Gontard, Senior Associate at Clyde & Co
Introduction
For some time, it was inconceivable for German State courts to assist a foreign court in pre-trial discovery. However, things changed last summer [2022] when the German legislator amended the provisions implementing the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters dated 18 March 1970 (The Hague Convention) into domestic law, allowing under certain conditions a German court to assist a foreign court in such proceedings.
These recent developments raise the broader question of the extent to which the approach to document production in German-seated arbitration proceedings remains guided by its civil law heritage. While German-seated domestic arbitration proceedings are still marked by a more restrictive approach to document production, international arbitrations seated in Germany seem to benefit from an alignment with internationally accepted standards.
Disclosure in German Civil Proceedings
The disclosure of documents in German State court proceedings is characterized by an absence of discovery-like principles found in common law jurisdictions (Cf. Ausforschungsverbot). Therefore, parties, in principle, only disclose documents on which they intend to rely. There is no duty for a party to put “all cards on the table” or even disclose documents that could be detrimental to their own case. Whereas courts in common law countries tend to follow a fact-finding approach to reach a somewhat more “absolute truth” when deciding a case, German civil courts tend to rely, with few exceptions, on the “relative truth” resulting from the cross-referencing of the respective submissions and disclosures of the parties. Although the German Code of Civil Procedure (Zivilprozessordnung, ZPO) provides for a duty to tell the truth (Wahrheitspflicht, Section 138 ZPO), this only prohibits parties from knowingly making untrue statements or deliberately distorting facts. It does not oblige (procedurally) a party to disclose documents that are detrimental to their case.
Where facts are disputed, the burden of proof is usually on the party making allegations. If a party alleging facts fails to substantiate them, it will generally be considered by the court as having failed to discharge its burden of proof – exceptions include the shifting of the burden in certain circumstances. That said, civil law tradition does not preclude the judge from taking an active part in the disclosure process by ordering a party to provide material evidence of its allegations. However, such powers are exercised with restraint and generally only in respect of very specific and identifiable documents (Section 142 ZPO).
Although the original disclosure principle of Section 142 ZPO was limited to the requirement for parties to produce documents that support their allegations, it has been broadened since its implementation in 2002. It now provides that the court may order a party (or third party) to produce documents which it has in its possession and to which it or the opponent has referred, irrespective of who must discharge the burden of proof. Pursuant to Section 427 ZPO, failure to comply with such a court order may result in the counterparty’s allegations being deemed proven (“adverse inference”).
However, the German Federal Court of Justice (Bundesgerichtshof – BGH) has ruled in favour of a restrictive interpretation of the practical scope of Section 142 ZPO. According to the court, this provision should only be used to obtain evidence. It cannot be used as a tool to discover new facts. In this respect, the decision of the BGH remains consistent with civil law tradition limiting document production to supporting allegations of the parties in civil proceedings.
Despite this deeply rooted legal tradition, the German legal system has recently somewhat opened the door to – at least – supporting discovery ordered by foreign courts. This results from amendments to the Implementation Act to the Hague Convention (Gesetz zur Ausführung) which initially provided that letters of request for mutual assistance concerning the production of evidence in a pre-trial phase should not be executed in Germany. With effectiveness as of 1 July 2022, Section 14 of the Implementation Act has been amended to allow the execution of requests for mutual assistance regarding pre-trial discovery measures, subject to certain conditions being fulfilled. Although theoretically paving the way for German courts to assist foreign courts in pre-trial evidential procedures, practical implications of such an evolution remain limited. Indeed, amended provisions of the implementation act limit pre-trial production to documents that are in the possession of one party to the proceedings.
Document Production in German Seated Arbitration
Cultural differences between civil law and common law procedural traditions are less pertinent in international arbitrations seated in Germany, which are largely in line with internationally accepted principles and best practices. Indeed, document production in international arbitration proceedings is rarely handled differently in Germany relative to most other jurisdictions. More restraint is usually exercised by arbitrators and tribunals in purely domestic arbitrations.
a. International Arbitration Seated in Germany
In international arbitrations seated in Germany, parties often agree to document production in accordance with or guided by the provisions of the International Bar Association Rules on the Taking of Evidence in International Arbitration (“IBA Rules of Evidence”). More recently, the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration (“Prague Rules”) have gained increasing traction among international arbitration practitioners as an alternative to the IBA Rules. Whereas the IBA Rules provide for broader document production mechanisms, the Prague Rules remain more in line with the restricted approach to document production specific to civil law tradition. However, experience with the Prague Rules remains limited due to their relatively recent publication (December 2018) and the fact that parties often stick with the “usual suspects” that provide for wider requests to produce documents – after all, it is the facts that decide cases!
Even where an agreement on document production has not been reached, it is accepted practice in international arbitrations seated in Germany that there ought to be some form of document production to reveal those facts and ensure the legitimacy of the arbitral process.
Parties may also opt for institutional arbitration e.g., under the rules of the German Arbitration Institute (Deutsche Institut für Schiedsgerichtbarkeit, “DIS”) – the latest version of which was published in 2018 (“DIS Arbitration Rules 2018”).
Regarding production of documents, the DIS Rules grant the arbitral tribunal wide powers to request documents and information to establish the facts relevant to the determination of the case (Article 28.1 of the DIS Rules). Article 28 provides that this power can be exercised ex officio and explicitly states that the arbitral tribunal is not solely bound by the evidence produced by the parties (Article 28.2 of the DIS Rules). In brief, the arbitral tribunal can take initiatives similar to those envisaged in common law countries depending on what is appropriate in any given case. This also corresponds to the wide discretion afforded to the tribunal by German arbitration law under Section 1042 (4) ZPO, despite being described as a limited inquisitorial process” (eingeschränkter Untersuchungsgrundsatz).
b. Document Production in Domestic Arbitration
German-seated domestic arbitration might – at times – be characterised by a more restrictive approach to document production where the decision is left to the tribunal in absence of specific institutional rules or agreement between the parties. That is, a tribunal might well be dissuaded from allowing the parties to request, for example, the search for “categories of documents” and might be guided by the more restrictive approach of the German ZPO regarding disclosure, even though that is not applicable to arbitration. The arbitrator’s discretion may even be limited when it comes to unilateral orders for extensive document production. Ordering, for example, a US-style discovery processes in a domestic German-seated arbitration could arguably be contrary to the lex fori and the German ordre public interne [1].
Privileges
A key practical issue – and difference to other jurisdictions – in relation to the production of documents is the status of professional privileges and the extent to which they may be raised as an objection.
Attorney-client privilege is legally recognised in Germany and enforceable before State courts and arbitral tribunals. Indeed, the German ZPO explicitly recognises an exception to the obligation to produce documents for parties who are entitled to refuse to testify, notably by virtue of their professional capacity (Section 142 (2) ZPO). The attorney-client privilege is covered by this exception (Section 383 (1) Nr. 6 ZPO).
The question of whether this privilege also extends to in-house counsels was left open for a long time in Germany. Since 2016, German law has recognised that in-house counsels may invoke the attorney-client privilege to the extent they are registered with the bar and free to act for clients other than solely their employer. This approach departs from the one traditionally adopted in other continental civil law jurisdictions such as France or Switzerland. In those countries, the lack of independence of in-house counsels vis-à-vis their employers still precludes them, by and large, from benefitting from the attorney-client privilege.
Where international arbitration is concerned, the applicability of such provisions will depend on whether German law applies to evidentiary privileges or not. Where the IBA Rules apply, the arbitral tribunal must consider whether document production might be impacted by any legal privilege, leaving it to the arbitral tribunal to determine which rules should apply (Article 9.2(b) of the IBA Rules). In this respect, Article 9.4 of the IBA Rules provides a series of detailed guidelines aiming at guiding the arbitral tribunal in its determination. However, those guidelines do not prescribe the conflict rules that should resolve this question.
Thus, in practice, this decision rests mostly with the arbitral tribunal itself. Indeed, given that the law applicable to legal privileges cannot be automatically equated with the law applicable to the arbitration agreement, this issue is rarely settled by an express choice of the parties. Although the arbitral tribunal may utilise several methods to resolve the conflict of laws arising from this question, the “closest connection test” generally seems to prevail. Where this happens, the arbitral tribunal reviews and identifies relevant factors linking the issue raised by legal privileges to one specific applicable law (e.g., seat of the arbitration, law applicable to the factual matrix of the case etc.).
Conclusion
Whilst influenced by the civil law tradition generally reluctant to discovery-like document production approaches, international arbitrations seated in Germany provide parties with the opportunity to request documents in line with international arbitral practice. Perhaps, the choice of a German seat could even avoid an excessively broad application of the IBA Rules. After all, the parties choose the seat not only because of the local food. In addition, German courts provide assistance in evidentiary matters (Section 1050 ZPO) and do so even where an arbitral tribunal is seated in another jurisdiction (Section 1025 (2) ZPO). The recent changes to The Hague Convention and more discovery elements found in cases of cartel damages might indicate an incremental change, but for international arbitrations seated in Germany, the practice remains aligned with internationally accepted standards.
Georg Scherpf advises both private and State parties on complex arbitrations and cross-border litigations. His commercial arbitration work covers a broad range of legal issues and sectors including international trade (CISG), corporate disputes (joint venture and post M&A) and energy (particularly offshore wind and construction disputes). His public international law experience includes advising clients in relation to bilateral investment treaties (BITs) and multilateral investment treaties including the Energy Charter Treaty (ECT). He has acted for investors in several complex treaty cases (ICSID, UNCITRAL and ad hoc) relating to infrastructure and energy investments in Spain, Czech Republic, Albania, and Germany. He is part of Clyde & Co’s Global Arbitration Group.
Victor Gontard is a senior associate at Clyde & Co focussing on all aspects of corporate law, especially domestic, international, and cross-border mergers and acquisitions (M&A) as well as on corporate and regulatory insurance-related matters. He is a French qualified lawyer (Paris Bar) and a member of the Munich Bar.
[1] Schütze, Schiedsgericht und Schiedsverfahren, 5th Edition, p. 92
*The views expressed in this article do not necessarily represent those of Clyde & Co as a firm.
