Track Record: Defence Against Recognition of German Arbitral Award — Solar Panels, TÜV Certificate and the New York Convention

Mr. Vincent Besters represented a Dutch company in international proceedings concerning the recognition of a German arbitral award

In June 2021, the Arnhem-Leeuwarden Court of Appeal issued a decision in a complex international case. Mr. V.M. Besters acted as counsel for ESTG B.V., a Dutch company defending against a request by Turkish company Zahit Enerji Sanayi Ve Ticaret Ltd. to have a German arbitral award recognised and enforced in the Netherlands.

What was the case about?

Zahit (Turkey) had sold and delivered a consignment of solar panels to ESTG B.V. (Arnhem). A dispute quickly arose: the solar panels had been delivered without a valid TÜV certificate from the inspection body. ESTG contended that the certificate subsequently provided did not apply to the panels actually delivered, and refused to pay.

The cooperation agreement between the parties contained an arbitration clause. The dispute was submitted to the Deutsche Institution für Schiedsgerichtsbarkeit (DIS), the authoritative German arbitration institute. On 8 November 2019, the DIS issued an arbitral award in favour of Zahit: ESTG was ordered to pay € 539,446.90, plus interest and costs.

Zahit then requested the Arnhem-Leeuwarden Court of Appeal to recognise this award in the Netherlands and grant leave for enforcement under Article 1075 of the Dutch Code of Civil Procedure and the New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958).

ESTG's defence (Mr. Besters)

Mr. Besters raised a series of defences on behalf of ESTG:

Formal objections:

• The arbitral award was not enforceable in Germany (the country of origin) as no exequatur had yet been obtained there;
• Annulment proceedings were pending before the Oberlandesgericht München, meaning the award was not yet binding.

Substantive grounds for refusal (New York Convention, Art. V):

• The award had not yet become binding on the parties (Art. V(1)(e) of the Convention);
• ESTG had not been given an adequate opportunity to present its case during the arbitration (Art. V(1)(b) of the Convention): the presiding arbitrator had indicated during the hearing that he considered the TÜV certificate invalid, but the DIS had departed from this in the award without giving ESTG the opportunity to submit further evidence;
• The award was contrary to Dutch public policy (Art. V(2)(b) of the Convention) due to this impermissible surprise decision.

Security for costs:

• ESTG had earlier also requested that Zahit provide security under Article 224 of the Dutch Code of Civil Procedure (as a foreign party to proceedings). This request had already been rejected.

What did the court decide?

The court rejected all of ESTG's defences and recognised the German arbitral award:

• No double exequatur required. Recognition in the Netherlands does not require that an exequatur has already been obtained in Germany. A "Final Award" has the same effect in Germany as a final court judgment.
• Pending annulment proceedings do not bar recognition. Only an actual annulment or suspension does so, not the mere pendency of proceedings.
• No breach of the right to be heard. The court held that the DIS had not made an impermissible surprise decision: it was ESTG's own responsibility to submit sufficient evidence in the arbitration proceedings to support its position on the TÜV certificate.
• No conflict with public policy. The threshold for this is high; the conduct of the arbitration proceedings did not cross it.

What does this mean for entrepreneurs in international commercial disputes?

• An arbitration clause has major consequences. Including an arbitration clause in an (international) agreement commits you to a private procedure that is very difficult to challenge.
• The New York Convention facilitates swift cross-border enforcement. An arbitral award made in one of the 170+ contracting states can be recognised and enforced in the Netherlands, even without first obtaining an exequatur in the country of origin.
• Grounds for refusal are limited. Courts review foreign arbitral awards with restraint. Public policy objections are rarely upheld. Procedural complaints (right to be heard) only succeed in cases of obvious violations.
• Document quality defects immediately upon delivery. In commercial disputes about conformity — such as missing certificates — it is essential to record defects in writing immediately and gather evidence.

Case Reference

This post is based on ECLI:NL:GHARL:2021:6243.

Mr. V.M. Besters acted as counsel for respondent/applicant in the independent request ESTG B.V. in this case.