How to choose between the new commercial courts in Germany and traditional arbitration

Dr Matthias Schlingmann
CMS Germany, Hamburg
matthias.schlingmann@cms-hs.com

Sören Thaden
CMS Germany, Hamburg
soeren.thaden@cms-hs.com

The introduction of the commercial courts

On 1 April 2025, the Act to Strengthen the Jurisdiction of the German Courts will come into force. It will introduce commercial courts into Germany’s civil justice system and allow the federal states to establish commercial courts at the Higher Regional Courts.

With the commercial courts, Germany is seeking to establish itself as a more attractive jurisdiction for commercial disputes, while at the same time preventing a further shift to arbitration and other jurisdictions, as has been the trend in recent years (particularly in the case of disputes relating to M&A transactions). There are several reasons why parties in international disputes avoid the German civil justice system, such as the lack of confidentiality of German court proceedings (they are generally held in public), the length of proceedings (often extending over several years) or language barriers (proceedings before German courts are conducted in German only).

The commercial courts will be established as specialised senates (ie, divisions) of the Higher Regional Courts. They will have jurisdiction over business-to-business civil disputes where the amount in dispute is €500,000 or more and the parties have agreed to the jurisdiction of the commercial court. They will act as courts of first instance. Their decisions can be appealed directly to the Federal Court of Justice, which shortens the appeal process and thus the length of the proceedings. The federal states may limit the jurisdiction of the commercial courts to certain areas of law, eg, commercial, antitrust or M&A disputes.

At the beginning of the proceedings, the commercial court shall hold an ‘organisation conference’ in which the parties agree on the procedural timetable (eg, deadlines or the date of the oral hearing) in order to further expedite the proceedings. This is modelled on case management conferences, which are a common standard in arbitration. The proceedings may be conducted in English if the parties so agree, and the commercial court may, at the request of a party, classify information as confidential or even exclude members of the public from attending the hearing.

It remains to be seen how exactly the federal states will establish commercial courts. The federal state of Hamburg, for example, has announced that it will establish a commercial court with three senates. Each will focus on corporate law and M&A disputes.

What to consider when choosing between commercial courts and arbitration

The introduction of commercial courts is an important step by the legislature to strengthen Germany as a jurisdiction for (international) commercial parties to resolve complex (international) commercial disputes. Proceedings will be streamlined – ie, faster, conducted in English and closed to the public.

However, the commercial courts will only be a success if parties actually choose the commercial court as their dispute resolution mechanism (and thus decide against arbitration in particular). When choosing between commercial courts and arbitration, parties should consider, inter alia, the following aspects.

If the parties have an interest in keeping their (potential) dispute secret and out of the public domain, arbitration remains the preferred choice. Although the public can be excluded from proceedings before the commercial courts, this power is at the discretion of the court. By contrast, arbitration proceedings are generally closed to the public.

If the contract (and thus the potential dispute) involves parties from outside Europe, such that the potential award may have to be enforced outside Europe too, arbitration may also be the preferable choice. Arbitral awards are generally enforceable under the New York Convention in most jurisdictions around the world. The enforcement of arbitral awards can only be refused under strict conditions (eg, if the right to be heard has been violated). Commercial court judgments, on the other hand, are not enforceable under the New York Convention; rather, enforcement outside Europe will be assessed under the procedural law of each country, which may create further obstacles.

If the parties are looking for a quick dispute resolution mechanism, eg, if the dispute arises out of an ongoing commercial relationship, arbitration is likely to be a more suitable choice, as arbitral awards are final and non-appealable (in contrast to an appeal to the Federal Court with the commercial courts). In addition, arbitration proceedings can usually be concluded within one or two years. It remains to be seen how fast the commercial courts will be.

If, on the other side, only European or even only German parties are involved in the contract and thus the potential dispute, or if the judgment may have to be enforced within the European Union, the commercial courts may indeed be an attractive alternative to arbitration. Judgments of the commercial courts are directly enforceable in the EU under the Brussels Ia Regulation, without the need to apply for recognition and enforcement.

In addition, the German legal system and German judges generally enjoy a high reputation. The judges of the commercial courts come from the Higher Regional Courts and are therefore very experienced. Furthermore, the commercial courts allow for a high degree of specialisation in commercial disputes, eg, M&A disputes.

With regard to the costs of the proceedings, the choice between the commercial courts and arbitration will in most cases not be decisive, although it should be considered that in arbitration the parties can generally recover the full costs of the proceedings (including attorneys’ fees) from the other party in the event of a successful award. In commercial court proceedings, however, even if successful, only the (usually lower) statutory costs are recoverable.

Conclusion

The introduction of commercial courts in Germany will offer an interesting alternative for (international) disputes to standard litigation on the one hand and arbitration on the other. In particular, it will allow international parties to conduct their disputes in English, before specialised judges and with the possibility of an appeal to the Federal Court of Justice, and with judgments easily enforceable throughout the EU.

It will be interesting to see how often parties make use of this new option to settle their (international) disputes.