How are General Terms and Conditions incorporated in Cross-border Transactions?

In order to incorporate General Terms and Conditions in a transaction between German companies, it is sufficient to make reference to their applicability and to ensure that the other party had an opportunity to review them. If, however, the customer or supplier is located abroad, reference must be made to the Terms and Conditions in the language of the negotiations. Moreover, the Terms and Conditions should be handed over to the other party and there should be proof thereof.

Background

The German plaintiff supplied upholstered furniture to the defendant based in the Netherlands. Invoking its General Terms and Conditions, the plaintiff brought an action for payment of the purchase price before a German court. The defendant argued that the plaintiff's General Terms and Conditions were not incorporated effectively into the contract. After having heard the evidence, the court was convinced that the defendant had already been made aware of the General Terms and Conditions in Dutch during the preliminary negotiations (which were held in Dutch). Furthermore, the plaintiff had provided the price list along with the General Terms and Conditions in German and English to the defendant.

The Judgment of the Higher Regional Court of Hamm dated 19 May 2015; Docket No. 7 U 26/15

According to the Higher Regional Court of Hamm (Oberlandesgericht – “OLG”), the plaintiff's General Terms and Conditions had been incorporated effectively into the contract. The court held that in business transactions, it is sufficient under German law if the user of the General Terms and Conditions makes reference thereto in connection with the contract being entered into, and if the other party has the opportunity to review them. For these conditions to be fulfilled it is necessary, but also sufficient, that express reference is made to the General Terms and Condition in a language that the other party understands. It is not required for the text of the General Terms and Conditions to be submitted in the language of the negotiations, or in a global language, unless expressly requested by the other party. However, the OLG Hamm was not required to make a final decision on whether a copy of the General Terms and Conditions must be provided or not, because in the present case, the Terms and Conditions were handed over in German and English, which the defendant had not reprimanded.

Comment

The decision of the OLG Hamm clearly shows how important it is to properly incorporate the General Terms and Conditions. Unless there is a framework agreement between the parties, key provisions such as choice of law or jurisdiction are contained solely in the General Terms and Conditions. Therefore, the effective incorporation of the General Terms and Conditions is crucial for the choice of the court of jurisdiction. In Germany, a non-contested reference to the Terms and Conditions available on the Internet or, upon request, from the buyer/seller is sufficient and also common practice. This reference can be made during contract negotiations or at the signing of the contract, however not only upon issuing of the invoice.

With regard to a foreign contractual party, the reference regarding the applicability of the General Terms and Conditions must be made in the language of the negotiations (which is generally English). Moreover, a copy of the General Terms and Conditions must be provided to the foreign party, or the parties must have previously agreed that the contract shall be governed by German law. This is often neglected in practice. The OLG Hamm - as well as some of the literature - appears to hold the view that providing a copy of the General Terms and Conditions is dispensable. Until this question is settled by the Federal Court of Justice (Bundesgerichtshof – “BGH”), a copy of the General Terms and Conditions should be provided, as was the case in the present case, and its provision documented, preferably by a brief confirmation in a framework agreement. On this occasion, the parties should also consider negotiating an efficient limitation of liability, which cannot be agreed effectively in the General Terms and Conditions.