Contracts

International Contracts

International trade and services involve a wide variety of trans-border business models ranging from the cross-border provision of goods or advice and the posting of employees abroad to the establishment of permanent business enterprises in Germany. It embraces both business-to-business and business-to-consumer transactions. The variety of the business activities gives rise to a variety of legal relationships between the business partners as well. Because the obligations between contracting parties are always governed by national law, the choice of the national legal system plays a key role in the resolution of legal disputes.

Where international contracts are concerned, the first issue to be addressed when legally assessing cross-border business relationships is: which country has jurisdiction? This is discussed in our section on the German judicial system. If Germany has jurisdiction, the legal system governing the contractual relationship is primarily determined pursuant to the provisions of Art. 27 et seq. of the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch - EGBGB). This act implements the terms of the European Convention on the Law Applicable to Contractual Obligations (Rome Convention 1980) into German law.

The basic rule is that the contracting parties are free to choose which national law is to govern their contractual relationships (Art. 27 EGBGB). If no choice is made, the contract will generally be governed by the law of the country of the habitual residence of the debtor. If consumer protection rights are involved, the contract is - by operation of law - governed by the law of the country of the consumer's habitual residence, which cannot be waived.

Where contracts of sale are concerned, the contracting parties may agree on the application of the CISG (United Nations Convention on Contracts for the International Sale of Goods) in order to avoid having to make a choice of law. Although the provisions of the CISG have been incorporated into various national law regimes, they are exactly the same in 72 countries and are therefore likely to be acceptable to both parties. For more information on this, please refer to our site on International Contracts of Sale.