Arbitration agreements under the New York Convention and their contractual incorporation – Legislation Review

The core of legal work is also always the analysis of case law – after all, knowledge of important high court decisions provides considerable legal certainty for any future casework.

Today’s focus is a decision of the German Federal Court of Justice (BGH) on the CISG (UN Convention on Contracts for the International Sale of Goods) in connection with terms and conditions – specifically the decision BGH I ZR 245/19, ruling of 26.11.2020. In its ruling, the Federal Court of Justice had to decide on the substantive conclusion and formal validity of an arbitration agreement in cross-border commercial transactions.

The defendant is a spice supplier based in the Netherlands from which the plaintiff’s (buyer) policyholder based in Germany ordered powdered mace. In the context of the orders, the defendant sent the purchaser confirmation letters in each case in which it referred, among other things, to the terms and conditions of the Dutch Spice Trade Association, which contained an arbitration clause. These letters were not signed by the buyer. Nor were the association’s arbitration conditions (to which the letter referred) attached to the letters.

When the plaintiff sought to recover from the defendant before the district court for allegedly contaminated mace, the defendant referred to the arbitration agreement. After the District Court dismissed the claim with reference to the validity of the arbitration agreement, the Court of Appeal, on the other hand, considered the arbitration defense to be unsubstantiated. The defendant appealed against this ruling.

The appeal (at the German Federal Court of Justice) was unsuccessful. The court held that the arbitration clause was not effectively incorporated. The court’s postion was, there was no arbitration agreement actually signed by both parties; the unilateral signing of the confirmation letter by the defendant with the mere reference to the association conditions was not sufficient for this. Moreover: The legal framework of the relevant New York Convention also did and does not permit inclusion, even under its “opening clauses”.


Looking deeper into the decision, the following points must be remembered for similar cases:

  1. The basis of the decision and also the central procedural focus of all cases affected by arbitration agreements is the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). This convention regulates the conditions under which member states mutually recognize arbitral awards and declare them enforceable.
  2. According to relevant UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), an arbitration agreement must always be incorporated properly. Here, the arbitration agreement was not validly concluded in the first place. According to Art. II (2) UNC, there should have been a reciprocal signature (“The term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”), which, however, has been proven not to have taken place. The one-sided signature of the confirmation letter simply does not suffice in the absence of actual correspondence. At least a written response from the other party would have been required, but this was lacking.
  3. And The Convention even has an “open door” here in Art. VII (1) UNC (“The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the contracting states nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon”) – which, according to a kind of most-favored-principle, affirms that a form is valid also when it exist under the domestic law or treaties of the country in which it is asserted – in this case, under German law. The Federal Court of Justice (BGH) on this: Art. VII (1) UNC allows the application of more recognition-friendly national rules for domestic arbitral awards also to foreign arbitral awards. But even this does not help here. The relevant norm under national German law in this case is 1031 ZPO (and not, in this case, § 305 BGB, which is relevant for the general law on general terms and conditions). Here, It is indeed the case that the defendant’s confirmation constitutes a commercial letter of confirmation meeting the requirements of § 1031 (2) ZPO. According to § 1031 (3) ZPO, however, the general requirement for the incorporation of general terms and conditions must then be met. Because this is an international sale of goods – and because the UN Convention on Contracts for the International Sale of Goods is part of German national law – the Federal Court of Justice took an overall view of the German law on general terms and conditions and the CISG here (specifically Art. 8 CISG) – and ultimately refused to allow it to be included. According to Art. 8 (3) CISG, effective incorporation may result from the negotiations between the parties, the practices existing between them or international customs (Art. 8 (3) CISG). Moreover, it is to be taken into account how a “reasonable person of the same kind as the other party” would have understood the offer (Art. 8 (2) CISG). Also according to this, the Federal Court of Justice does not conclude that the NVS terms and conditions are validly included.
  4. The CISG is only (at least indirectly) applied here, because in the absence of compliance with the form of Art. II (2) UNC, the “detour” via the most-favored-nation principle of Art. VII (1) UNC to the national substantive law or conflict of laws had to be taken.
  5. Another important issue of clauses on the place of jurisdiction in international commercial transactions was not addressed in the decision, namely that of conflicting terms and conditions. Here, too, the effective agreement plays an elementary role and, in particular, also the stricter requirements of inclusion in the unified law (such as in the EUGVVO and the CISG) than in the case of non-unified German law.Among other things, however, because an effective opt-out of the CISG is rather the exception in the case of a collision of terms and conditions of purchase and sale, parties to international commercial transactions are advised to make explicit and unambiguous agreements with regard to jurisdiction clauses (for further details, see Bomsdorf/Finkelmeier, Allgemeine Geschäftsbedingungen im internationalen Handel, RIW 305, 2021).

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