An arbitration clause means: no state court
An arbitration clause (Schiedsklausel) submits disputes to a private arbitral tribunal instead of the ordinary courts (§ 1029 ZPO). In German contract practice — above all on larger construction projects, in contracts with general contractors and in cross-border deals — references to the rules of the DIS (German Arbitration Institute) or the ICC are standard.
Between businesses such a clause is effective even when it sits in the other side’s standard terms. The law merely requires a form that documents the agreement — a signed contract or an exchange of correspondence is enough (§ 1031 ZPO). Stricter protection applies only to consumers, for whom the arbitration agreement must be contained in a separate, personally signed document.
The consequence of signing is serious: if you sue your contractual partner before a state court despite the clause and the other side invokes it before arguing the merits, the court will dismiss the claim as inadmissible (§ 1032(1) ZPO). The only exception: the arbitration agreement is null and void, inoperative or incapable of being performed.
The case before the Federal Court of Justice: a solar plant, a penalty clause and the AGB review switched off
The background of the decision of 9 January 2025 was a VOB-based contract from 2020. The contractor undertook works for a carport solar power plant to be built in the Netherlands, among them the driving of precast concrete foundations. The contract provided for a penalty for missing the contractual deadlines, capped at 10 percent of the net contract sum, and chose German law with the exclusion of the UN Convention on Contracts for the International Sale of Goods.
In the arbitration clause the parties submitted all disputes to arbitration under the DIS rules — a sole arbitrator, seat in Berlin, German as the language of the proceedings. Added to this was one sentence with real weight: the parties expressly waived any reliance on the application of §§ 305–310 BGB, the provisions governing the review of standard business terms (AGB).
The contractor filed an arbitration claim for roughly 3.2 million euros in outstanding remuneration. The principal responded with counterclaims of up to 1.35 million euros — for defects, delay and precisely that contractual penalty. Before a tribunal was constituted, the parties mediated without success. Then the contractor changed course: since a 10 percent penalty cap in standard terms is excessive under the case law of the Federal Court of Justice, and the contract forbids the tribunal to apply the AGB rules, arbitration would risk enforcing a clause that a state court would strike down. The whole arbitration clause, so the argument, was therefore invalid. The contractor applied to the Kammergericht in Berlin for a declaration that arbitration proceedings were inadmissible (§ 1032(2) ZPO).
The Kammergericht held the application admissible but unfounded (decision of 24 June 2024, 12 SchH 6/23). The Federal Court of Justice dismissed the appeal and confirmed: the arbitration clause is valid.
First holding: filing your own arbitration claim does not forfeit the right to have the clause reviewed
Before reaching the merits, the court settled a procedural point of real practical value. Until the arbitral tribunal is constituted, either party may ask a state court to declare arbitration proceedings admissible or inadmissible (§ 1032(2) ZPO). The principal argued that the contractor was acting inconsistently — first suing before the tribunal, then attacking its jurisdiction.
The court disagreed. Filing an arbitration claim, even without any reservation, does not deprive a party of the right to have the arbitration agreement examined by a state court afterwards. Using the clause does not imply giving up its review. Nor did it matter that the application reached the Kammergericht more than a year after the arbitration claim — the only time limit is the constitution of the tribunal, and a period of mediation conducted with both parties’ consent changes nothing.
Two practical lessons follow. First, doubts about the validity of an arbitration clause can be clarified even after arbitration has been initiated. Second, the window is hard: once the arbitrators are appointed it closes for good, and what remains is the jurisdictional debate before the tribunal itself.
Second holding: the arbitration agreement lives a life of its own
The heart of the decision concerns the relationship between the submission to arbitration as such and the accompanying procedural arrangements — the number of arbitrators, the seat, the language and, here, the waiver of the AGB review. The court confirmed the principle of separability: the validity of the arbitration agreement does not depend on the validity of the parties’ agreements about the conduct of the proceedings. Even if the waiver of §§ 305–310 BGB were invalid, the arbitration clause survives.
The mechanics work in either scenario. If the disputed provisions qualify as standard terms, the invalidity of one clause does not bring down the rest — the remainder of the contract stays binding (§ 306(1) BGB). If they were individually negotiated, the consequences of partial invalidity follow § 139 BGB — and in the case at hand everything indicated that the parties wanted arbitration regardless of the fate of individual procedural provisions, which the contract’s severability clause additionally confirmed. An arbitration clause between businesses is, in itself, no unfair term either — submitting disputes to arbitration does not unreasonably disadvantage the other side.
The court also addressed an older line of case law under which an arbitration clause in standard terms could fail where the composition of the tribunal did not guarantee the correct application of mandatory law. That concern was aimed at tribunals staffed without lawyers and without institutional safeguards. Under the DIS rules the problem does not arise: if the parties cannot agree on the arbitrator, the DIS appointment committee nominates one, which guarantees a professionally qualified tribunal. And the legislature already removed, back in 1997, the provision of the civil procedure code that tied the validity of an arbitration agreement to the procedural balance between the parties — making clear that the arbitration agreement is in principle independent of the arrangements about the proceedings themselves.
What the court did not decide: whether the waiver of the AGB review actually works
Precision matters here, because some headlines went further than the decision itself. The Federal Court of Justice did not rule that the exclusion of §§ 305–310 BGB is effective. It ruled only that this question is not for the state court reviewing the arbitration clause. Whether the waiver binds the parties and whether the tribunal will apply the 10 percent penalty cap — that is for the arbitral tribunal to assess in the proceedings.
At the end of the road there remains a safety valve. An arbitral award is subject to limited state control in enforcement or setting-aside proceedings: the court intervenes where recognising or enforcing the award would produce a result irreconcilable with fundamental principles of the German legal order — the ordre public (§ 1059(2) no. 2 lit. b ZPO). The court signalled that disregarding the AGB provisions can, in extreme cases, lead to exactly that — for instance where an applied clause can no longer be regarded as an expression of contractual self-determination or produces intolerable consequences. But that is a narrow gate with a high threshold, not a second instance.
The real stake: a penalty clause that would fall before a state court
The dispute was not about an abstraction. Before a state court, a penalty for missing deadlines stipulated in the principal’s standard terms with a cap above 5 percent of the contract sum unreasonably burdens the contractor — the whole clause is then invalid and no penalty is owed at all (Federal Court of Justice, judgment of 23 January 2003, VII ZR 210/01). A 10 percent cap, as in the parties’ contract, would therefore be indefensible before a state court.
In arbitration with the AGB review switched off, the fate of the same clause is open. The same logic applies to other typical standard-term provisions that often fall before state courts: extended limitations of liability, the shifting of design risks onto the contractor or excessive securities. This is exactly why the combination of arbitration plus a waiver of §§ 305–310 BGB changes the economics of the entire contract — and disputes on this front usually start where they always do: around the final invoice (Schlussrechnung) and allegations about the quality of the works.
A contract with an arbitration clause on the table — what to check before signing
Who administers the proceedings (DIS, ICC, ad hoc) and how many arbitrators there are — that drives the costs. The seat and the language, because they determine the real burden of running the dispute. Whether the clause is accompanied by a waiver of §§ 305–310 BGB or other interventions in the procedural rules. The amount and caps of contractual penalties and the limitations of liability — without the AGB review they may be applied as written. Advances on the arbitrators’ fees and administrative charges are payable up front. And keep in mind that arbitration is single-instance — there will be no appeal.
What this means for a foreign company doing business in Germany
- An arbitration clause is not boilerplate decoration. It binds you even when it sits on page forty of a general contractor’s standard terms. After signing, the road to a state court is in principle closed.
- Count the costs before you sign. Arbitration can be faster and is confidential, but the advances on fees and administrative charges must be paid up front, and the decision falls in a single instance.
- A waiver of the AGB review raises the stakes of the whole contract. Penalty clauses and liability limitations that would fall before a state court may survive in arbitration. Read the final clauses as carefully as the unit prices.
- Raise doubts early. A state-court review of the clause is available only until the tribunal is constituted (§ 1032(2) ZPO) — your own arbitration claim does not forfeit that right, but the appointment of the arbitrators closes the window for good.
- Negotiate before signing, not after the dispute. Deleting the waiver of §§ 305–310 BGB, lowering the penalty cap to 5 percent or agreeing to arbitrate only above a value threshold are realistic asks. Having the contract reviewed by a lawyer before signing costs a fraction of one lost issue in the dispute.
Frequently asked questions
Does an arbitration clause in standard terms bind me at all?
Between businesses, yes. A form documenting the agreement is enough, and the clause may sit in general terms and conditions (§ 1031 ZPO). The clause is not unfair merely for being an arbitration clause. Stricter form requirements — a separate, personally signed document — protect consumers only.
I signed a contract with an arbitration clause. Can I still sue before a state court?
If the other side invokes the clause before arguing the merits, the court will dismiss the claim — unless the arbitration agreement is null and void, inoperative or incapable of being performed (§ 1032(1) ZPO). Until the tribunal is constituted you can, however, apply for a declaration on the admissibility or inadmissibility of arbitration (§ 1032(2) ZPO).
What exactly does the waiver of §§ 305–310 BGB mean?
These are the provisions on standard business terms: content review of pre-formulated clauses, catalogues of prohibited terms, rules on incorporating standard terms into the contract. The waiver is meant to stop the arbitral tribunal from reviewing the contract’s clauses for unfair disadvantage. Whether such a waiver is effective, the Federal Court of Justice left open — the tribunal itself will decide.
Is a contractual penalty capped at 10 percent of the contract sum valid?
In the principal’s standard terms, before a state court, no: a cap above 5 percent of the contract sum for missed deadlines renders the entire clause invalid (VII ZR 210/01). An individually negotiated provision may be assessed differently. In arbitration with the AGB review excluded, the outcome is open — and that is precisely what is at stake in such a clause.
I lost in arbitration because of a clause a state court would have struck down. Is that the end?
Not necessarily, but the threshold is high. An award can be attacked in setting-aside proceedings or resisted at the enforcement stage if the result violates the ordre public (§ 1059(2) no. 2 lit. b ZPO) — for example where an applied provision can no longer be reconciled with fundamental principles of the legal order. It is a safety valve for extreme cases, not a second instance.
This overview draws on the decision of the Federal Court of Justice of 9 January 2025 (I ZB 48/24), the preceding decision of the Kammergericht of 24 June 2024 (12 SchH 6/23), the judgment of the Federal Court of Justice of 23 January 2003 (VII ZR 210/01) as well as §§ 1029, 1031, 1032 and 1059 ZPO and §§ 139, 305–310 BGB. This article is for information purposes and does not replace legal advice in an individual case.