Choosing a Particular Country’s Laws for Contractual Matters
When businesses enter into contractual discussions with another party, they can often choose the country whose laws will govern the contract. Companies can achieve this by including a “choice of laws clause” in the agreement, which will specify which country’s laws will be essential for interpreting and enforcing the contract in case disputes arise.
Some crucial factors will determine the choice of law in such cases, and they are often connected with the specific circumstances of the contract. However, companies should ensure that their priorities and aims are central to such decisions.
Generally, the locations of the contractual parties play a crucial role as it often makes sense to choose the law of that country (or one of those countries if they are based in different countries). However, it is not the only deciding factor. As the contract’s subject matter, the legal system’s predictability and stability and the costs involved are other elements that need to be considered.
The Benefits of German Contract Law for International Business Contracts
Germany’s legal system is reasonably well-established, and that reduces the risks involved. It has clear rules and predictable procedures, which benefit businesses by providing them with contract stability. Companies know what to expect when using German law as the basis of their contractual agreements.
Regarding subject matter, German contract law, for example, is often suited to contracts relating to manufacturing, the auto industry, intellectual property, financing and insurance. With its long and established history, the auto industry, in particular, utilises German law in matters of production, distribution, and sale of vehicle contracts.
Companies often use German contract law in developing, licensing, or selling technology or intellectual property due to the country’s impressive reputation in technology and innovation.
Other factors also play a role in why Germany is an attractive choice for international business contracts, and they include the following:
- Efficiency and cost-effectiveness: German courts are known for their efficiency, which can result in more cost-effective resolutions to disputes.
- Modern and comprehensive legal framework: Germany has a current and comprehensive legal framework that covers a wide range of commercial transactions, including contracts for selling goods, services, and intellectual property.
- Strong protections for parties to contracts: German contract law provides robust protections for the parties, including rules on fair dealing and good faith, which can help safeguard the parties’ interests.
- International recognition: German law is widely recognised and respected internationally, making enforcing contracts in other countries easier.
However, there are challenges involved with choosing German law as the basis for the contractual agreements, and therefore the decision needs to be considered carefully. It is essential to consult with expert contract lawyers in the process and clearly outline the business’s goals and priorities in the discussion.
Our lawyers are ready to provide their considerable services regarding “choice of law” clauses and advise whether Germany’s contract law is appropriate and aligns with the business’s objectives.
The Challenges and Difficulties of German Contract Law for International Business Contracts
Although many positives are involved with choosing German contract law for international business contracts, challenges also need to be recognised. It should be noted that consulting with our professionals can reduce some of the risks involved.
However, it also needs to be considered that the listed challenges are quite general (as are the advantages). Therefore, consulting with expert legal assistance throughout the process is highly recommended. Our team will analyse your contractual matter based on placing your company’s goals and characteristics at the forefront.
Here are some of the challenges that companies may face when choosing German contract law for their international agreements:
- Complex legal system: Although Germany has a comprehensive legal system that is generally predictable, it is highly complex, with a large body of laws and regulations. Without expert legal assistance from qualified professionals in German contract law, it can be challenging for businesses to navigate.
- The German language and potential language barriers: Although it is an obvious problem, it still needs to be listed. German contract law is based on the German language, and the German used in legal contracts is more complex than everyday German. Therefore, it may present challenges for parties to the agreement who do not speak German fluently or are non-native speakers. Even translating the contract can present challenges unless the company hires professional translators for the matter. It can be advised to consult with legal advisors who are experts in German contract law regarding interpreting the contract.
- Cultural differences: Different countries may have different cultural norms and business practices, which may affect how a contract is interpreted and enforced under German law. Some business cultures may see contracts as more flexible than others and believe that renegotiating always plays a more prominent role than it may under German law. Companies need to ensure that they are familiar with the cultural differences between Germany and their country or the country of their business partners.
At Schlun & Elseven Rechtsanwälte, our lawyers are available to advise you in all these aspects and more.
Resolving Disputes under German Contract Law
Although expert advice in contract design can significantly reduce the likelihood of contractual disputes, it is impossible to rule out the possibility of conflicts completely. Therefore, knowing how German law resolves such matters is vital.
Contractual disputes can end up being resolved in litigation through the courts. Contractual parties can file a lawsuit in the appropriate court, and the court will hear the case and issue a judgment based on the facts and the applicable law. Consulting with professional legal experts will ensure that your company pursues this matter correctly.
There are also options, such as alternative dispute resolution (ADR), including arbitration and mediation. ADR is a voluntary process allowing the contractual parties to resolve their dispute through an independent third party rather than the courts. Such ADR mechanisms can be faster and less expensive than litigation and provide a more confidential and informal forum for resolving disputes. ADR also allows business experts, acting as arbitrators, to examine complex contractual cases.
Parties can include an arbitration clause in their contracts to permit this action. In such cases, the parties must agree to submit their dispute to arbitration and to be bound by the arbitrator’s decision.
The Benefits of Working With Our Legal Professionals
At Schlun & Elseven Rechtsanwälte PartG MbB, we are a full-service law firm with offices and conference rooms around Germany.
Our team offers businesses comprehensive legal support and advice from one source. We advise companies across many industries in Germany and support clients worldwide in their dealings with German law.
At Schlun & Elseven, we have a dedicated contract law team with extensive knowledge and experience in dealing with the German legal system. Our services can prove invaluable in navigating the system’s complexities, allowing your company to benefit from its stability and reliability with your contractual arrangements.
Our team will highlight any potential risks that may arise and any opportunities that may be appropriate for your company.
Our lawyers will advise you and support you in contractual disputes. Our lawyers are expert negotiators and often seek to resolve legal conflicts outside the courtroom; such conflict resolution is usually cost-effective and time-efficient. Allow our team to advise you on mediation and arbitration procedures that may be suited to the particular case.
However, not all cases can be resolved outside of court; if necessary, our team can advise in such cases. We are highly familiar with German courts and can advise businesses regarding the German legal system and what they should expect in such cases.
Of course, our lawyers possess the required linguistic skills regarding contractual clauses. We can provide a clear picture regarding interpreting the contracts and advise clients in English and other languages.