The German Ministry of Justice's draft bill to modernise the German arbitration law, presented on 27 January 2026, has been refined in a key aspect. The previous draft was published one and a half years ago in June 2024. As lawmakers prepare the text for parliamentary debate, two provisions have attracted particular attention: the reworking of Sec. 1031 of the German Code of Civil Procedure (Zivilprozessordnung "ZPO") concerning the form requirements for arbitration agreements and the introduction of a new Sec. 55 ZPO on procedural capacity in cases with foreign elements. These changes reflect a clear policy direction toward aligning Germany's arbitration regime with international practice while addressing practical concerns raised during the consultation process.
Germany's current arbitration framework in Book 10 of the ZPO dates back to 1997 and was based on the UNCITRAL Model Law in its 1985 version. After more than 25 years, the legal landscape has shifted significantly, for example regarding digitalisation. This evolution prompts the Federal Government to adapt the law to modern needs, improve procedural efficiency and enhance Germany's attractiveness as an arbitration venue. The reform process has been shaped by developments including the 2006 revision of the UNCITRAL Model Law, reforms in other jurisdictions, updated institutional rules and the ongoing digitalisation of procedural law.
The reform introduces several central innovations. These include the establishment of specialized Commercial Courts with English-language proceedings for arbitration matters under Sec. 1062 (5), 1063a, and 1065 (3) ZPO-Draft, along with procedural facilitation through English-language submissions pursuant to Sec. 1063a and 1063b ZPO-Draft. The draft embraces digital practice by permitting electronic arbitral awards and video hearings under Sec. 1054 (2), (5), 1064 (1), 1047 (2), and (3) ZPO-Draft. Additionally, it introduces the publication of anonymised awards subject to party consent or non-objection under Sec. 1054b ZPO-Draft and creates a narrowly framed retrial mechanism that operates even after set-aside deadlines have expired under Sec. 1059a ZPO-Draft.
The legislation also provides clarifications addressing multi-party appointment of arbitrators under Sec. 1035 (4) ZPO-Draft, enforcement of foreign interim measures under Sec. 1025 (2) and 1041 (2) ZPO-Draft, judicial review of both positive and negative jurisdictional decisions under Sec. 1040 ZPO-Draft, and the admissibility of concurring or dissenting opinions under Sec. 1054a ZPO-Draft.
In substance, the reform remains deliberately modest. Compared with the June 2024 draft (Draft bill on the modernization of the German arbitration law of the Federal Government of Germany | ADVANT Beiten), the version of 27 January 2026 differs in only two aspects: Sec. 1031 ZPO and Sec. 55 ZPO. These two amendments form the core of the following analysis.
The original Sec. 1031 ZPO-Draft limited formal requirements for arbitration agreements to consumer contracts only, proceeding on the assumption that parties in commercial transactions do not require the protective function of form. The abolition of formal requirements was intended to reflect modern commercial realities, particularly complex supply chains and framework agreements where the parties involved and their respective obligations may evolve over time, making the inclusion of a formal arbitration clause at an early stage impractical.
This approach attracted substantial criticism during the consultation process and parliamentary hearing. Practitioners emphasised that complete freedom of form entails significant risks and legal uncertainty. Without clear formal requirements, evidentiary problems would likely arise, and disputes over (i) whether an arbitration agreement has been concluded and (ii) its precise content would become more frequent, particularly in complex contractual structures. Cultural and linguistic differences in international transactions were highlighted as further factors increasing the risk of misunderstandings.
A further concern related to the enforceability of arbitral awards under the 1958 New York Convention, which requires arbitration agreements to be signed by the parties or contained in written communications such as letters or telegrams. Critics warned that arbitral awards based on purely oral or implied arbitration agreements could face serious obstacles in international enforcement proceedings. Additionally, the draft's reliance on the distinction between consumers and entrepreneurs was regarded as impractical, as the definition of "consumer" is difficult to apply in practice and particularly opaque for foreign parties.
Reflecting this criticism, the revised Sec. 1031(1) ZPO-Draft abandons complete freedom of form. It now requires that arbitration agreements are concluded or at least documented in writing or by any other means of communication that allows the information to be stored and reproduced at a later stage. This approach seeks to preserve flexibility for modern commercial practice while restoring the evidentiary and legal certainty functions traditionally served by formal requirements. Although it remains unclear which means of communication are sufficient to fulfil the form requirement, this amendment of Sec. 1031(1) ZPO represents a welcome improvement over the previous draft.
The current version of Sec. 55 ZPO governs the procedural capacity of foreign parties and remains based on nationality. It provides that a foreign party who lacks legal capacity under the law of its home state is nevertheless deemed capable of conducting legal proceedings if it possesses such capacity under the law of the court seized. In contrast, the new Sec. 55 ZPO-Draft abandons the nationality-based approach and links procedural capacity to habitual residence. A party who does not already have the capacity to conduct proceedings in its own name pursuant to Sec. 51 and 52 ZPO is deemed capable if it has party capacity under the procedural law of the state of its habitual residence.
This amendment was necessary following the reform of Article 7(2) EGBGB, which no longer determines legal capacity by reference to nationality but instead by habitual residence. Since under Sec. 51 and 52 ZPO a party's legal capacity is decisive for its capacity to be a party to proceedings, the continued reliance of Sec. 55 ZPO on citizenship created a systematic inconsistency. While substantive legal capacity was already residence-based, procedural capacity for foreigners still depended on nationality.
The new Sec. 55 ZPO-Draft resolves this conflict by harmonising the connecting factors and aligning procedural capacity with modern private international law. It simplifies judicial practice by allowing German courts to rely on lex fori procedural concepts and habitual residence rather than having to determine and apply foreign nationality-based capacity rules. This synchronisation enhances legal certainty, particularly in cross-border disputes and international arbitration-related court proceedings.
Overall, the modernisation of German arbitration law remains evolutionary rather than revolutionary. While the reform introduces a range of procedural improvements aimed at efficiency, digitalisation and international accessibility, the comparison between the June 2024 and January 2026 drafts shows that only two adjustments were ultimately required. The recalibration of Sec. 1031 ZPO restores legal certainty through a flexible documentation requirement, while the new Sec. 55 ZPO harmonizes procedural capacity with contemporary conflict-of-laws principles. Together, these targeted changes demonstrate the legislator's willingness to modernize German arbitration law without sacrificing predictability or enforceability.
Dr Ralf Hafner
Dr Tobias Pörnbacher, LL.M.
