## Facts

- A manufacturer of injection-molded plastic parts entered a long-term supply contract with its customer in 1977.
- The customer drafted a “fast-track” arbitration clause governing disputes.
- The clause gave the customer unilateral power to appoint a purportedly neutral arbitrator.
- The clause required self-representation and excluded lawyers from the arbitration.
- The clause limited each arbitral proceeding’s amount in dispute to 7,000 Deutsche Marks, effectively forcing fragmentation of higher-value claims.
- The contract expressly characterized the arbitration arrangement as drafted in the customer’s favor.
- After the manufacturer became insolvent, a liquidator sought to pursue claims against the customer in ordinary courts.
- The customer invoked the arbitration clause to block court litigation and require arbitration.

## Issues

1. Whether an arbitration agreement is void as contrary to public policy under § 138(1) BGB when it unjustifiably and excessively restricts one party’s access to legal protection.
2. Whether a clause that substantially limits recourse to state courts conflicts with the rule-of-law requirement of effective legal protection in civil disputes.
3. Whether the combined features of unilateral arbitrator appointment, exclusion of counsel, and a low monetary cap render the arbitration clause invalid.

## Decision

- The Federal Court of Justice held the arbitration agreement null and void under § 138(1) BGB.
- The court concluded that the clause, considered as a whole and in light of the parties’ unequal bargaining positions, imposed an unjustified and excessive restriction on the weaker party’s legal protection.
- Because the arbitration agreement was void, the ordinary courts were not barred from hearing the liquidator’s claims.

## Legal Principles

- Under § 138(1) BGB, contractual freedom is limited by fundamental principles of the legal order; agreements are void when their objective content unjustifiably imposes an excessive restriction on protected interests or rights.
- The rule-of-law principle requires effective legal protection in civil disputes, generally including comprehensive factual and legal review and a binding decision by an impartial adjudicator.
- Arbitration agreements are permissible in principle, but they are void when structured to deny meaningful legal protection, especially where one party controls the decision-maker or procedure in a way that defeats neutrality and fairness.
- A clause may be invalid based on the cumulative effect of procedural imbalances, including unilateral appointment of the arbitrator, exclusion of legal representation, and artificial limits on the amount in dispute that impede practical enforcement.

## Conclusion

The court invalidated a heavily one-sided arbitration clause as contrary to public policy because its cumulative procedural restrictions—controlled arbitrator selection, exclusion of counsel, and a low per-proceeding cap—unjustifiably deprived the weaker party of effective legal protection, leaving ordinary courts with jurisdiction.


Judgment of Jan. 26, 1989, BGHZ 106, 336 (BGH 1989)