General Terms and Conditions and What That Means for Localizing Contracts to German Law

When you’re asked to localize contracts coming from a U.S. legal background so that they function under German law two very different legal worlds collide. Things just work differently over here. And things word differently over there. We draft our contracts differently, we use different language (which is why simply having a translator go over your documents just won’t cut it, much less asking uncle Google), our concept of selling and licensing software is nowhere near the “this software is licensed not sold” was of thinking, and so on and so forth. Nothing wrong with that, but it provides for some hard going sometimes.

One of the more peculiar concepts of German contract law is that of or our “Law on General Terms and Conditions” (Google Translator tells me that in English that should be “Legal terms and conditions of” which isn’t even close, so there…). In a nutshell, the idea is this: If, as a company, you work with standard contracts, i.e. a set of contractual documents that you have in your drawer all drafted to best fit your particular interests and ready to pull out for every new customer you want to do business with, the terms and conditions of those contractual documents are subject to the so-called “content control” (we Germans like control, as is well known). “Content control” (for lack of a better translation) means that the vast majority of your well thought-out terms and conditions are only valid and able to shape the contractual relationship with your customer if they pass a test to the effect that the terms must not be “unreasonably disadvantageous” (i.e. overly unfair) for your client. The “official” translation of the term in section 307 of the German Civil Code says

 “An unreasonable disadvantage is, in case of doubt, to be assumed to exist if a provision

 1.         is not compatible with essential principles of the statutory provision from which it deviates, or

2.         limits essential rights or duties inherent in the nature of the contract to such an extent that attainment of the purpose of the contract is jeopardized.”

Do read the sections up to section 310, if you’re interested. The translation is dubious (as are mine), but you’ll get a pretty good idea what the whole thing is about.

The thinking behind this is that if one of the parties works with pre-drafted standard contract forms, there is a good chance that the other party is at a considerable disadvantage with regard to what the contractual relationship will look like in the end. That is most obviously true in B-to-C scenarios, but also applies between companies, even such of comparable size and economic power.

As a result of the “content control” you’re effectively restricted on what clauses you can use in your standard contracts: Or, to be more precise, if you use clauses that don’t pass the test, they are

  • invalid and won’t be applied to the contractual relationship; and
  • are subject to coming under attack from your competitors (less likely, because they will mostly want to use the very same kind of clauses) or consumer protection institutions or other comparable associations.

The latter just happened to Facebook, for example, who were dragged before the District Court of Berlin over (inter alia) a variety of its terms and conditions – and lost (sorry, court decision is availabe in German, only).

Now, it is not always easy to decide what to do with the terms and conditions issue in U.S. companies’ dealings in the German market. Some, and I very consciously so, just take their original terms and conditions, translate them with more or less quality, use them unchanged, and to see what happens. That is very understandable especially if you’re doing your business worldwide in mass markets and don’t want to work with different sets of agreements. In addition, the choice of a U.S law enables you to in many cases avoid the whole German terms and conditions issue. But it’s not always that easy. When you’re trying to sell to really large enterprises you might not be able get your preferred choice of a U.S. law. And in B-to-C dealings, German law “protects” the consumer prescribing that German law, if it protects the consumer better, will continue to apply (i.e. in spite of a contractual clause to the contrary). In those cases you might have to deal with the somewhat alien concept of the “content control”.

It’s not that bad, though. Really. It’s just different.


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