I. Initial situtation

A partnership’s attraction as legal form is unbroken for a variety of economic activities. Many family-owned companies as well as some associations of professionals are structured as limited partnerships (Kommanditgesellschaft/KG). If a dispute between partners occurs, the publicity of a potential litigation and its expected duration – there is always the option to appeal – can often be more threatening to the majority than the substance of the opposing partner’s arguments. Arbitration Agreements can avoid these very side effects of a litigation. Arbitration proceedings are non-public. The arbitral award is generally final and binding. There is no appeal against an arbitral award. The fact that partnerships nonetheless relatively rarely provide arbitration clauses for disputes between partners in their articles, could also still be attributed to not negligible procedural insecurities.

II. Arbitrability of disputes regarding shareholders’ resolutions – Arbitrability I and II

The arbitrability of disputes regarding shareholders’/partners’ resolutions under company law has been controversially discussed for decades. Until recently, the BGH had addressed this matter in (only) two fundamental decisions in 1996 (“Arbitrability I”) and in 2009 (“Arbitrability II”), however, both decisions addressing shareholders’ resolutions in GmbHs. In “Arbitrability I” the court’s concerns prevailed, particularly due to a lack of a regulation comparable to §§ 248 para. 1 sentence 1, 249 para. 1 sentence 1 German Stock Corporation Act (AktG) in German Arbitration Law. According to these regulations under Stock Corporation Law which likewise apply to limited liability companies, the court’s judgment has an erga omnes effect, i.e. it becomes effective and binding for everyone, including shareholders who did not participate in the proceedings. In addition, the BGH saw the risk of contradictory arbitral awards regarding the same shareholder resolution as long as it was not guaranteed that different arbitration requests regarding the same shareholders’ resolution were concentrated with and handled by the same arbitration court.
In “Arbitrability II“ the BGH further developed its previous decision and generally recognized for the first time the arbitrability of disputes regarding shareholders’ resolutions in GmbHs, ruling that the necessary erga-omnes-effect of an arbitral award can be achieved by accordingly structuring the arbitration agreement, i.e. by structuring the arbitrational proceedings in a way comparable to the legal standard offered by state courts. For this purpose the BGH has set up four requirements:

1. All shareholders would have to agree to the arbitration agreement;
2. All shareholders would have to have the possibility to participate in the arbitration proceedings;
3. All shareholders should be enabled to contribute to the process of appointing an arbitrator;
4. Contradictory arbitral awards should be avoided by concentrating all pending arbitration requests with one arbitration court.

III. All good things come in threes? – Arbitrability III

With its decision of 6 April 2017 (“Arbitrability III”) the BGH declared the principles developed in Arbitration II to be generally applicable to arbitration agreements in partnerships as well. At a first glance, this appears to be welcomed, as the arbitrability of disputes regarding resolutions in partnerships has now been generally recognized for the first time by the BGH. However, the BGH poses some riddles for the practice by ruling that the principles carved out in “Arbitrability II“ shall only apply to partnerships “if there are no discrepancies from corporations“.
Between commentators it has quite predominantly been assumed up till now that the underlying differences of disputes regarding resolutions under partnership law were opposed to the applicability of the principles of the decision “Arbitrability II”. Partnership law does not provide for an erga-omnes-effect of a court decision corresponding to §§ 248, 249 AktG. An action brought against a partners’ resolution must therefore generally be directed against the opposing partners and not – unlike actions brought by GmbHs – against the company. The court’s judgment does only act between the parties to the legal dispute, i.e. between the disputing shareholders. The judgment has no direct effect on those partners who were not involved in the proceedings. Thus, in contrast to a GmbH there were no fundamental concerns in the literature up till now against the arbitrability of disputes regarding partners’ resolutions. In this respect, the difficulties are more in the complexity and the error rate of multiparty arbitral proceedings and the corresponding arbitration agreements, especially when constituting the arbitration court.  Against this backdrop it remains unclear how to categorize the BGH rulings in “Arbitrability III“, especially since the court did not further explain its approach.

IV. The impacts of “Arbitrability III” in practice

The BGH decision offers the opportunity to critically review already existing arbitration agreements in partnership agreements, especially regarding the provisions on forming an arbitration court. It remains to be seen, whether it is further necessary to amend already existing arbitration clauses regarding the Arbitrability II rules or whether the missing erga-omnes-effect of the judgment under partnership law is a special characteristic of partnerships within the meaning of “Arbitrability III”. For newly concluded arbitration agreements it might be recommendable to contractually modify the statutory complaint mechanism against partners’ resolutions from the start and to implement procedural rules corresponding to those under the Law on Limited Liability Companies. In particular, it would be advisable to provide that actions have to be brought against the company and not against the opposing partners. For the further structuring of the arbitration proceeding, reference can be made to the “Supplementary Rules for Corporate Law Disputes“ published by the German Institution of Arbitration (DIS) in 2009 as a reaction to the “Arbitrability II” decision, which since have been widely accepted in practice. As long as the BGH does not clarify its “Arbitrability III” decision, this seems to be the safest way for effective arbitration agreements for disputes regarding resolutions in partnerships.