Arbitration of International Futures Disputes under German Law

Abstract

A recent decision of the German Federal Supreme Court ( Bundesgerichtshof or BGH) has significantly changed the law relating to arbitration of disputes arising from trading on foreign futures markets. In the case the BGH allowed enforcement of an arbitral award rendered by a Dutch tribunal, notwithstanding precedent which had found arbitral agreements relating to foreign future transactions not to be binding under German law. By its ruling the BGH eliminated an important public policy challenge which the German courts have often used in futures cases to block enforcement of arbitral agreements and awards. German law has traditionally taken a restrictive position towards futures trading. Following wild speculation on futures markets in the 19th century, strict legislation was adopted which made contracts arising from futures trading, including that done on foreign exchanges and subject to foreign law, unenforceable in many instances.1 Relying on this legislation, the German courts would then invoke public policy ( ordre public ) to permit Germans who had speculated on foreign futures markets to avoid arbitral agreements, agreements choosing foreign law, or enforcement of foreign arbitral awards.2 For example, in one case3 decided in 1987 the German plaintiff had signed an agreement (including an arbitration clause) with the German subsidiary of Merrill Lynch relating to the purchase of commodity futures in New York. After sums he had paid to Merrill Lynch were used to cover heavy losses on his account, the plaintiff sued the firm for their return. The BGH reversed and remanded the lower court's holding in favor of the plaintiff, on the grounds that various factual findings had not been made and that the court had committed certain errors in applying the law of commodity futures. However, the BGH did uphold its conclusion that the arbitration clause was invalid according to German stock law, …