The B2B sector generally considers the German statutory provisions governing general terms and conditions to be too strict. Applying them to long-term energy supply contracts, for example, may raise questions about the validity of price adjustment clauses. In a recently published decision of 9 January 2025 (I ZB 48/24), the Federal Court of Justice has now largely permitted the exclusion of these provisions in arbitration agreements.
Law on general terms and conditions as a competitive disadvantage for B2B business in Germany
The German statutory provisions governing general terms and conditions have faced criticism ever since they were introduced. They are widely regarded as being too rigid, particularly in B2B transactions, and are even considered to put Germany at competitive disadvantage. While the strict prohibitions on certain clauses in sections 308 and 309 Civil Code (Bürgerliches Gesetzbuch, “BGB”) do not apply directly in B2B transactions (section 310(1) BGB), they have nonetheless been increasingly applied by courts when reviewing general terms and conditions in B2B transactions via the general provision in section 307 BGB – a trend that has become more pronounced in recent years. There have long been calls to reform the law on general terms and conditions as applicable to B2B transactions, most recently in connection with the introduction of the Act to Strengthen Germany as a Forum for Litigation (Justizstandort-Stärkungsgesetz) (see our article Justizstandort-Stärkungsgesetz – Einführung von Commercial Courts und Englisch als Gerichtssprache | Gleiss Lutz (German only)). The “Internal Affairs and Law” (Innen und Recht) working group has taken up the issue of possible reform in the current coalition negotiations, but it remains to be seen whether and to what extent this will actually bear fruit.
Law on general terms and conditions and long-term B2B energy supply contracts
The statutory provisions governing general terms and conditions frequently play a role in B2B energy supply contracts as well, especially when it comes to price adjustment clauses which are often indispensable in long-term supply relationships as a means of splitting the risk of future price changes driven by ever-changing market conditions between the contractual partners. In this context, a review under the provisions governing general terms and conditions is carried out alongside a review under the Price Clause Act (Preisklauselgesetz) and may in certain cases introduce additional requirements to be met by price adjustment clauses (see for more information our article Price adjustment clauses in long-term B2B energy supply contracts: Is there a wave of lawsuits looming? | Gleiss Lutz).
One possible solution: Excluding the law on general terms and conditions in arbitration agreements
A solution that has long been suggested is that companies should include an arbitration agreement in their contracts in which they specify German law as the applicable law but expressly carve out the provisions governing general terms and conditions (sections 305 – 310 BGB).
The majority of legal commentators consider such an approach to be permissible, at least in cases involving foreign parties or jurisdictions. This is based on section 1051 Code of Civil Procedure (Zivilprozessordnung, “ZPO”), which allows parties to arbitration proceedings to determine the “statutory provisions” that are to “apply to the substance of the legal dispute”. The prevailing opinion in the legal literature is that the term “statutory provisions” indicates that the parties may choose the parts of German law that apply. The only restriction would be that this cannot lead to an outcome that would be incompatible with public policy in Germany. It is less clear whether this approach is valid in matters involving Germany only – given that the exclusion of mandatory statutory provisions is unlawful pursuant to Article 3(3) Rome I Regulation – but the prevailing view holds that it is permissible then, too, because Article 3(3) Rome I Regulation does not directly apply to arbitral tribunals.
Federal Court of Justice largely eliminates uncertainty
With its ruling of 9 January 2025 (I ZB 48/24), the Federal Court of Justice has largely eliminated any remaining uncertainty relating to such arbitration agreements.
The decision dealt with an arbitration clause in a contract concluded between the parties in accordance with the German Construction Contract Procedures (“VOB/B”), under which the contractor was to carry out work for a solar carport system to be built in the Netherlands. The parties had agreed that German law would apply, including in any arbitration proceedings, while also specifying that they “waived the right to invoke the application of sections 305 to 310 BGB” in such arbitration proceedings.
First, the Federal Court of Justice ruled that the arbitration clause was valid regardless of the validity of the choice of applicable law. It argued that – as an agreement on procedure – the choice of law was to be separated from the arbitration agreement and a potentially invalid agreement on procedure could therefore not affect the validity of the arbitration agreement. Second, the Federal Court of Justice held that an arbitral tribunal has to take account of the (carved-out) choice of law and independently assess whether it is valid. According to the Federal Court of Justice, a state court’s role would be limited to reviewing in subsequent enforcement or annulment proceedings whether the enforcement of the decision made on the basis of the (carved-out) choice of law would lead to an outcome incompatible with public policy.
Even though the Federal Court of Justice therefore did not have to rule directly on whether the carved-out choice of law (German law without the law on general terms and conditions) was valid, its decision eliminates a number of uncertainties. First, there is no longer a risk of the arbitration agreement also being deemed invalid in the case of a carved-out choice of law. Second, a state court can only overturn an arbitral tribunal’s decision that the carved-out choice of law is valid if the enforcement of the decision would lead to an outcome incompatible with public policy. An arbitral tribunal should however be able to avoid a violation of public policy even without applying the German law on general terms and conditions. The decision therefore provides much more legal certainty to arbitral tribunals to rule, on the basis of section 1051 ZPO, that the choice of German law with the exclusion of the law on general terms and conditions is valid.
Conclusion
The Federal Court of Justice’s decision will likely result in a significant increase in the number of arbitration agreements with a carved-out choice of law now that excluding the provisions on general terms and conditions in this way has been put on a much more legally sound footing. However, the only way to remove all possible doubt would be for German legislators to reform the law on general terms and conditions and allow this to be excluded in B2B contracts, at least those between large companies. This would mean that not only arbitral tribunals but also state courts would have to take this exclusion into account in cases where German law applies. It remains to be seen whether the coalition government currently being formed will follow that route.
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