Section 1061(1) of the German Code of Civil Procedure (Zivilprozessordnung – ZPO) reads as follows:

The applicant, the insolvency administrator of the German construction company Walter Bau, requested that a foreign arbitral award against the state of Thailand, awarding damages in the amount of €29 million, be declared enforceable. The dispute concerned a Concession Agreement under which Walter Bau had built a highway in Thailand providing access to an international airport. Revenue was to be generated by way of tolls. Any rise in toll fees had to be authorised by the state of Thailand. However, Thailand failed to approve any such rise in toll fees, and instead built alternative routes to the airport and closed the airport for a certain period of time. The insolvency administrator of Walter Bau therefore initiated arbitral proceedings against Thailand under the Germany-Thailand bilateral investment treaty (BIT). The arbitral tribunal seated in Switzerland first confirmed that it had jurisdiction in a partial award which was not challenged. Thereafter, it awarded the insolvency administrator of Walter Bau €29 million in its final award.

The insolvency administrator of Walter Bau went to great lengths to secure execution of the award, including seizing the Thai crown prince's private jet when it was parked at the Munich airport. The Higher Regional Court of Berlin declared the award enforceable on 26 March 2012. This decision was appealed by the state of Thailand to the Federal Court of Justice.

The Federal Court of Justice held that the Higher Regional Court of Berlin had not dealt with the issue of sovereign immunity properly. Therefore, it re-submitted the case to the Higher Regional Court of Berlin for it to determine whether sovereign immunity applies in this case.

The Federal Court of Justice explained that an application to have an award declared enforceable was not a question of execution, but should be seen as the main proceedings, meaning that the principles on sovereign immunity which apply in regular German court proceedings would also apply in award enforcement proceedings. Under the principle of sovereign immunity, a state is not subject to the jurisdiction of another state insofar as sovereign acts are concerned (in contrast to commercial dealings). According to the court, the authorisation of a rise in toll fees was clearly sovereign activity.

The court then noted that the arbitration clause in the BIT might bar Thailand from relying on sovereign immunity in the enforcement proceedings insofar as Thailand had voluntarily submitted to the jurisdiction of the German courts. However, this would only apply if the investment in fact fell under the BIT and its arbitration clause. Thailand's signature under the BIT alone was not enough to establish this.

Therefore, if the arbitral tribunal had erroneously assumed jurisdiction, this would not bind the parties and would not bar the objection of sovereign immunity. The BIT could not be interpreted to mean that the parties had waived sovereign immunity in cases where the BIT did not apply. Furthermore, the court found that Thailand had not waived its right to rely on sovereign immunity by accepting the partial award on jurisdiction and by not attempting to have the award set aside. The court explained that any waiver must generally be declared explicitly and could only be assumed from the behaviour of the parties where the intention to waive rights was absolutely clear.

Therefore, the court held that it was the duty of the lower court to review whether the disputed investment fell under the BIT. It referred the case back to the Higher Regional Court of Berlin for such further review.

The decision provides valuable guidance on the recognition and enforcement of foreign arbitral awards against states in Germany, as well as on the relationship between state immunity and BITs. It shows that states may be able to rely on sovereign immunity even if they fail to appeal the arbitral tribunal's award on jurisdiction. German courts must fully review whether the investment in fact falls under the BIT, regardless of whether a challenge to an award on jurisdiction has been made.