This obligation to repair upon consumer’s request does not only apply in cases where the product was defective at the time the risk passed to the consumer, but also, for example, where a consumer has damaged the product themselves. Thus, the right to repair exists independently outside the seller's contractual liability under statutory warranty provisions. 

Companies introducing such products from outside the EU, i.e. importers, should consider in their business case that they may be subject to repair obligations: the right to repair will apply to the product irrespective of its origin and therefore to the company commercialising the product in an EU-country s. The directive establishes a special liability system:

• Primarily, the manufacturer is obliged to fulfil the "right to repair" obligations.
• If the manufacturer is established outside the Union, its authorised representative must perform the obligation of the manufacturer.
• If the manufacturer has no authorised representative, the importer of the good concerned is responsible.
• In exceptional cases where there is no importer, the distributor of the goods concerned shall fulfil the manufacturer's obligation.

Each of these parties may subcontract repair services to fulfil their obligation to repair.

Any obligated party must make information about its repair services available to consumers free of charge (at least for the duration of the repair obligation) in a clear, easily accessible, and comprehensible manner. Repairers shall be found by consumers easily through a new online European Repair Platform, which is expected to become operational in 2027.

The obligation to repair applies to the products listed in the implementing regulations under the Ecodesign Directive 2009/125:

• Household washing machines and household dryers
• Household dishwashers
• Refrigerators
• Electronic displays
• Welding equipment
• Vacuum cleaners
• Servers and data storage products
• Mobile phones, cordless phones, and slate tablets
• Household tumble dryers
• Goods containing batteries for light vehicles

1. TARIFF REDUCTION: SIGNIFICANT OPPORTUNITIES – BUT NOT AUTOMATIC

At the core of the agreement is the gradual reduction of tariffs, which to date have been substantial across many sectors. In the automotive industry, tariffs have reached up to 35%; in mechanical engineering, they have often ranged between 14% and 20%; and for chemical products, duties have in some cases been as high as 18%. Under the agreement, these tariffs will be progressively reduced, and in many instances eliminated altogether.

For businesses, this creates tangible competitive advantages in South American markets. However, these benefits are not available automatically. Companies must actively comply with the agreement’s requirements and provide the necessary documentation. It is at this point that the real need for action begins.

2. RULES OF ORIGIN: A PREREQUISITE FOR ANY CUSTOMS DUTY SAVINGS

For customs duties to be reduced or waived under the agreement, goods must comply with the so‑called rules of origin. The decisive factor is whether a product is considered to have preferential origin. These requirements are particularly relevant for exports, as it is the exporter who must demonstrate that the goods meet the applicable criteria in order for tariff preferences to be granted in the country of destination.

In practice, this means that a product must either have undergone sufficient value creation in the country of origin – i.e. a substantial part of its manufacture or processing must have taken place there – or meet specific production or processing requirements. These requirements are precisely defined in the agreement and vary depending on the product category.

In many cases, verifying compliance is complex. The entire supply chain must be taken into account, and origin rules can differ significantly between products. For companies with international supply chains in particular, this raises a key question: do their products meet the relevant origin requirements, or are adjustments to sourcing or production processes necessary?

3. LONG-TERM SUPPLIER DECLARATIONS (LTSDs): THE KEY PRACTICAL TOOL

A crucial aspect of the agreement – and one that is often underestimated in practice – is the long‑term supplier declaration (LTSD). In the context of customs and foreign trade, these are formal declarations in which a supplier confirms to its customer that the goods supplied meet specific rules of origin. LTSDs typically apply to deliveries over an extended period, provided the goods are expected to retain the same origin status.

They form the essential basis on which an exporter can issue a declaration of origin and, in turn, benefit from preferential customs treatment. The EU–Mercosur Agreement introduces changes that directly affect how these declarations must be handled.

What is changing:

• Mercosur countries may be included in LTSDs with effect from 1 May 2026
• The countries must be listed individually (e.g. Brazil, rather than “Mercosur”)
• Existing declarations cannot be reused automatically

In practice, difficulties often arise because many long‑term supplier declarations were issued years ago and have not been reviewed since. As a result, origin information frequently no longer complies with the rules currently in force. In addition, supply chains may have evolved over time without corresponding updates to the supporting documentation.

Incorrect or outdated LTSDs can have significant consequences. These include the loss of tariff preferences, retroactive customs duties, and potential liability towards customers. Issues may also arise in the course of customs inspections or audits.

What companies should do now:

• Thoroughly review and update existing LTSDs
• Ensure Mercosur countries are correctly and individually listed
• Reassess applicable rules of origin
• Clearly define internal responsibilities

4. CONTRACTS, DISPUTES, AND COMPLIANCE: ADJUSTMENTS REQUIRED AS TRADE INTENSIFIES

As trade with Mercosur countries increases, existing contractual arrangements should be reviewed and, where necessary, adapted. Many supply and framework agreements have historically been designed with a primary focus on European markets and often take limited account of the specific characteristics of trade with Brazil, Argentina, Paraguay and Uruguay.

In particular, contractual provisions relating to Incoterms, delivery timelines, transfer of risk and payment terms become more critical when dealing with longer distances and differing commercial practices. At the same time, higher trade volumes inevitably increase the risk of disputes, for example in relation to delivery delays, quality defects or payment defaults. Companies should therefore address potential conflict scenarios at an early stage and clearly determine how and where disputes will be resolved, whether through jurisdiction clauses, arbitration agreements or other dispute resolution mechanisms.

Alongside the economic opportunities, compliance and supply chain requirements are also becoming more demanding. Obligations relating to environmental and social standards, contractual assurances given to business partners, and expanded documentation requirements are no longer limited to large corporations; they are increasingly affecting small and medium-sized enterprises as well. The EU-Mercosur Agreement reinforces this development, making it necessary to systematically review and, where appropriate, adapt existing compliance and governance structures.

5. CONCLUSION: ACT NOW RATHER THAN FIXING ISSUES LATER

The entry into force of the EU-Mercosur Agreement marks the start of an ongoing adjustment process for small and medium‑sized enterprises. While the gradual elimination of tariffs offers considerable economic opportunities, the extent to which these benefits can actually be realized depends largely on effective and compliant implementation in practice.

Particular attention should be paid to the rules of origin and long‑term supplier declarations. Only companies that carefully review and update these instruments – and align their supply chains accordingly – will be able to make full use of the intended preferential treatment. Failing to do so may result not only in the loss of tariff savings, but also in legal risks arising from incorrect origin declarations, retroactive customs duties or administrative penalties.

At the same time, the agreement’s entry into force presents an opportunity to reassess existing legal and organizational structures and adapt them where necessary. If you would like to review whether your long‑term supplier declarations, proofs of origin or contractual arrangements comply with the new requirements, we would be pleased to assist you with legally sound implementation and classification. An early review ensures legal certainty and enables businesses to take consistent advantage of the agreement’s economic benefits from the outset.

Dr Philipp Sahm
Katharina Reichert
Kevin Einert

• Regulations on the Security of Industrial and Supply Chains (Regulation No. 834) 
• Regulations on Counteracting Unjustified Foreign Extraterritorial Jurisdiction (Regulation No. 835)

Both regulations came into force upon publication and expand the legal framework developed since 2020, through which China responds to economic and political pressure from abroad. The previous legal framework prior to the enactment of Regulations No. 834 and 835 included:

• Provisions on Unreliable Entity List (UEL), MOFCOM regulation from September 2020: The UEL is an economic and security policy instrument aimed at sanctioning foreign organizations and individuals that, from China's perspective, jeopardize national sovereignty, security, or development interests, or discriminate against Chinese companies or harm them for non-market reasons (e.g., supply stoppages) or violate applicable trade principles. Sanctions under the UEL include import/export bans, investment bans, entry restrictions for personnel, revocation of work/residence permits, and fines.
• Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (Blocking Rules), MOFCOM regulation issued in January 2021: These rules aim to protect Chinese companies and citizens from the extraterritorial application of foreign laws and to counter  foreign regulations that apply extraterritorially (i.e., outside the territory of the foreign country) and impede Chinese parties in their normal business activities.
  
  The Blocking Rules do not target specific organizations directly, but rather foreign laws, sanctions, embargoes, or export controls that compel companies outside the respective third country to comply and that China deems "unjustified". The rules apply to organizations and individuals in China subject to such foreign regulations. Key provisions include: 
  • Reporting obligation: Affected parties must report if they are impacted by foreign extraterritorial regulations. 
  • Prohibition orders: Chinese authorities can order that the affected foreign regulations must not be followed. 
  • Civil lawsuits: Affected parties can claim damages in Chinese courts if they suffer harm due to the application of such foreign rules. 

  • Exemptions: Companies can apply for permission to comply with foreign regulations.

     

• Anti-Foreign Sanctions Law (AFSL), enacted by the Standing Committee of the National People's Congress of China in June 2021:
  The AFSL is China’s core legal instrument for countering discriminatory or internationally unlawful foreign sanctions. Specifically, it addresses third-country  sanctions targeting China, Chinese organizations, or citizens that are regarded as interference in internal affairs or violations of international law. The AFSL applies to:
  • Foreign states and their authorities. 

  • Organizations and individuals involved in imposing or implementing sanctions against China or supporting or enforcing such sanctions.

    Key countermeasures under the AFSL include: 

  • Sanctions list: Inclusion of individuals/organizations involved in foreign sanctions. 
  • Countermeasures: E.g., entry bans, freezing of assets in China, prohibition of transactions with Chinese partners, other necessary measures. 
  • Extended scope: Countermeasures may apply to affiliated companies and family members. 
  • Enforcement obligations: Organizations and individuals located in China must comply with China’s countermeasures. 

  • Civil lawsuits: Affected parties can claim damages in Chinese courts if harmed by the implementation of foreign sanctions.

     

• AFSL Implementing Regulations issued by the State Council of China in March 2025: These regulations specify, structure, and expand government powers to implement measures under the AFSL. They clarify and broaden measures generally mentioned in the AFSL, particularly:
  • Seizure, confiscation, and freezing of various assets (including financial assets, IP rights, etc.). 
  • Prohibition or restriction of transactions and collaborations (also cross-sectoral, e.g., trade, education, technology). 
  • Possibility of "other necessary measures" (general clause).

Additionally, the regulations focus on institutional and procedural design:

• Responsibilities of various authorities (e.g., foreign, trade, security authorities) are clearly distributed. 
• Introduction and clarification of investigative powers (investigations, evidence collection), decision-making procedures (listing, measure orders), and coordination mechanisms between authorities.

The Blocking Rules do not target specific organizations directly, but rather foreign laws, sanctions, embargoes, or export controls that compel companies outside the respective third country to comply and that China deems "unjustified". The rules apply to organizations and individuals in China subject to such foreign regulations. Key provisions include: 

New Regulations No. 834 and 835

The two regulations No. 834 and 835, introduced in April 2026, add new instruments and consolidate existing mechanisms within the legal framework described above.

What’s new:

• Supply chain information gathering: Organizations are prohibited from conducting supply chain-related investigations or information collection activities in China that violate Chinese regulations. The broad wording potentially covers activities such as ESG audits (e.g., on forced labor or CO₂ footprint assessment), supply chain mapping identifying critical nodes, capacities, or substitution strategies, questionnaires, or on-site inspections of Chinese suppliers by foreign entities. There is also a risk that this restriction under Regulation No. 834 may conflict with due diligence obligations of foreign companies arising from EU/US supply chain requirements.
• Risk of sufficient harm: Chinese authorities may initiate investigations and take measures if foreign organizations or individuals "disrupt normal transactions" or "take discriminatory actions" against Chinese business partners, and such conduct causes or could cause substantial harm to China's supply chains security. Although compliance with foreign sanctions or export controls is not explicitly mentioned, the regulation is broad enough to potentially include business decisions, such as terminating supply relationships or suspending transactions with Chinese business partners, especially if such actions are in response to foreign regulatory requirements. Chinese countermeasures can also apply to entities controlled by foreign organizations, potentially affecting subsidiaries worldwide.
• Malicious Entity List (MEL) and liability extension rules: The "malicious entity" designation is new. It refers to organizations promoting or implementing foreign extraterritorial measures deemed impermissible by China. By including the term "promote," the scope of sanctionable actions extends beyond direct implementation to supportive or advocacy actions. Additionally, the scope is extended to organizations controlled by or affiliated with those listed in the MEL. 
• China’s assertion of extraterritorial jurisdiction: China reserves the right to exercise its jurisdiction over extraterritorial actions with a reasonable connection to China. This marks a shift from a defensive blockade against extraterritorial provisions to proactive actions asserting jurisdiction over foreign activities. In practice, this could mean extending Chinese decisions abroad if the impacts on Chinese companies or interests are deemed sufficiently connected. 
• Criminal liability: Regulation No. 835 also establishes criminal liability for individuals that  violate its provisions, expanding liability beyond previously stipulated administrative measures and travel bans and heightening personal risks for executives based in China. 

What has been consolidated/adjusted:

• The consequences for listed entities (trade restrictions, asset freezes, visa bans, etc.) remain largely identical under the UEL, AFSL, and the new MEL.  
• Regulation No. 834 requires organizations and individuals in China to strictly implement countermeasures taken by the Chinese government. Thus, subsidiaries and executives of foreign companies based in China remain obligated to comply with Chinese countermeasures, even if these directly conflict with foreign sanctions or global compliance guidelines. 
• The core prohibition on complying with foreign measures has existed since MOFCOM’s Blocking Rules and is now also enforced through prohibition orders issued by the Ministry of Justice. 
• The right of Chinese companies to sue parties that comply with foreign measures, derived from the AFSL and Blocking Rules, is reaffirmed.

Outlook and Recommendations
The instruments under the aforementioned norms operate cumulatively, meaning that a specific action can trigger sanctions from various authorities in China. Furthermore, the risk increases that business decisions in China directly conflict with foreign compliance obligations. For example, terminating a contract with a Chinese supplier to comply with US export controls could simultaneously trigger inclusion in the UEL, measures under the AFSL, investigations under Regulation No. 834, measures under extraterritorial jurisdiction under Regulation No. 835, and civil lawsuits by the terminated party. Actions must therefore be considered comprehensively under the existing regulations and not just under one part of the norms. In such cases, it should also be considered whether, for instance, an alternative adjustment/suspension of the contract might be appropriate instead of termination.

Regulation No. 835 includes provisions referring to potential criminal liability under applicable law, thereby expanding liability beyond previously prescribed administrative penalties and travel bans and increasing personal risks for executives in China. If such risks are identified, exposed personnel should refrain from traveling to China. 

Significant uncertainties remain regarding the implementation of the above-mentioned legal provisions. For example, it is unclear what constitutes "disruption of normal transactions," where the boundaries of "impermissible extraterritorial jurisdiction" lie, and what qualifies as "promotion" in connection with the MEL. In the worst case, public advocacy, lobbying, or urging industry peers to sever ties with Chinese companies could be considered "promotion," even if such advocacy does not lead to direct implementation. 

Therefore, companies operating in China should closely monitor how the implementation of these regulations evolves. Already, it is evident that China’s enforcement of countermeasures is increasingly becoming operational practice, as evidenced by the growing number of entries in the UEL and the AFSL sanctions list: the UEL was introduced at the end of 2020, with no entries until February 2023, three entries in 2024, and 67 entries in 2025. By 2025, over 100 entries in the AFSL sanctions list were known. Published cases also show that the option of civil lawsuits under the AFSL/Blocking Rules is being utilized.

Since Regulation No. 834 introduces new restrictions on gathering supply chain information, conducting ESG, forced labor, or supply chain audits in China to comply with EU/US supply chain obligations may conflict with the information-gathering restrictions under Regulation No. 834. Therefore, supply chain audits should be reviewed and, if necessary, adjusted.

General corporate policies that automatically mandate compliance with foreign sanctions across all global business areas (including Chinese subsidiaries) could be considered "implementation" or "promotion" of impermissible extraterritorial jurisdiction under Regulation No. 835 and should be adjusted accordingly.

Susanne Rademacher

When it comes to distributing products to Indian customers on the ground, German manufacturers - as always - face the choice: make or buy. While the FTA substantially enhances India’s appeal as a strategic manufacturing base - by lowering trade barriers and deepening opportunities for supply‑chain integration, thereby offering European manufacturers commercially compelling pathway to leverage the “Make in India” ecosystem - alternate lighter entry models like distributorship arrangements provide a prudent initial step. It enables manufacturers to commercially assess the Indian consumer market, understand demand dynamics, and calibrate their long‑term investment strategy before committing to on‑ground manufacturing operations. 

European manufacturers can handle distribution themselves, from their home country, to access the Indian market, build distribution networks, and assess commercial viability without the immediate complexity of setting up a full-fledged local entity. They can also establish subsidiaries, branch or liaison offices in India. While establishing a subsidiary, branch or liaison office offers greater operational control and closer supervision over market activities, it typically involves regulatory approvals, compliance with foreign investment and corporate governance requirements, and the need to build local management and operational infrastructure. 

For distributorship, European manufacturers can appoint local companies as distribution intermediaries who know the market. In this context, it is possible for the European manufacturer to agree with its contractual partner in India either that its own (e.g. German) law applies or that Indian law applies. If the contract so provides, the contractual relationships are in principle subject to the same legal rules that would apply if the products were distributed in Germany. Or better still: Section 92c of the German Commercial Code (HGB) grants manufacturers who appoint commercial agents or distributors outside the European Economic Area greater contractual freedom than usual. In such cases, it is possible to deviate from all mandatory provisions of Sections 84 et seq. HGB - at least in the case of individually negotiated contracts. For example, the statutory minimum notice periods do not necessarily apply, and the goodwill indemnity under Section 89b HGB may be excluded or modified. 

Alternatively, the parties may decide that Indian distribution law shall apply. In that case, however, European manufacturers are well advised to seek advice from Indian lawyers regarding local regulatory environment.

While the parties may designate either German or Indian law as the governing law for their distribution arrangement, they retain full autonomy to structure, negotiate, and document a sophisticated cross‑border commercial relationship for commercial flexibility. However, in the Indian context – where no dedicated statute regulates distribution relationships – the practical commercial landscape necessitates the incorporation of appropriate contractual and regulatory safeguards. These safeguards must ensure a durable and compliant business presence in India, operating within the framework of the Indian Contract Act, 1872, and aligned with the on‑ground regulatory realities of the Indian market.

India’s exchange control regime is generally business‑friendly, allowing cross‑border payments such as distributorship fees, commissions, and royalties through established regulatory channels. However, the agreement must still be drafted with care so that its commercial structure and incentive mechanisms do not raise concerns under any Indian law. A clear, balanced, and well‑structured arrangement will support the parties’ commercial objectives while remaining comfortably within India’s regulatory boundaries.

India does not curtail commercial freedom in distribution arrangements; rather, it channels that freedom through a structured compliance framework. For any end‑product to lawfully enter and circulate within the Indian market, European manufacturers must comply with certain mandatory obligations such as certification standards, quality‑control approvals, labelling rules, and sector‑specific registrations. These requirements do not restrict the parties’ commercial choices; they simply ensure that products meet India’s consumer‑protection and regulatory expectations. For European manufacturers, careful structuring at the outset will ensure that commercial flexibility is harmonized with India’s mandatory regulatory environment. Success in India therefore demands both commercial foresight and regulatory discipline.

It is also important to agree that any disputes shall be decided by an arbitral tribunal. By contrast, agreeing on German jurisdiction would have the disadvantage that enforcement of a German court judgment - while theoretically possible - would require a very time-consuming recognition procedure in India, which would, among other things, necessitate bringing a new action. Enforcement of a foreign arbitral award in India is easier, as India (like, for example, Germany) is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Under this Convention, all signatory states have undertaken to enforce foreign arbitral awards within their territory without a renewed, full review of the merits.

India is an attractive enforcement jurisdiction owing to its distinctly pro‑enforcement stance toward foreign arbitral awards. Indian courts refrain from revisiting the merits or reopening factual findings, and the limited grounds for refusal are narrowly interpreted, with the burden placed squarely on the party resisting enforcement. Once enforceability is established, the award is treated as a decree of an Indian court to be executed against the opposite party in India without a fresh trial. For European manufacturers engaging Indian counterparties, this means that a well-drafted arbitration clause is a powerful risk management tool supported by an arbitration/enforcement‑friendly regime.

Oliver Korte
Sonil Singhania (Singhania & Partners LLP )
Jivesh Chandrayan (Singhania & Partners LLP)

Reform of the German Arbitration Law

On 27 January 2026, the German Federal Ministry of Justice presented a revised draft bill to modernize Germany's arbitration framework. While the 2026 version introduces two material modifications compared to the 2024 draft – notably with respect to Sections 55 and 1031 of the German Code of Civil Procedure (ZPO) (Modernisation of German Arbitration Law: Key Changes in the January 2026 Draft | ADVANT Beiten) – it retains the broader reform agenda already set out in 2024.
The overall objective of the reform remains unchanged: to strengthen Germany's position as a competitive place for arbitration, to further harmonize domestic arbitration law with prevailing international standards, and to enhance procedural efficiency in practice. To that end, the draft continues to provide for a number of structural adjustments, including the facilitation of digital proceedings, expressly permitting electronic awards and video hearings, and clearer rules on the publication of arbitral awards (subject to party consent). It also establishes a narrowly tailored retrial mechanism beyond the ordinary set-aside period and clarifies key issues such as multi-party arbitrator appointments, enforcement of foreign interim measures, judicial review of jurisdictional decisions, and the admissibility of dissenting opinions. Collectively, these measures reflect the legislator's intention to modernize German arbitration law in light of international developments and technological process. 

Within this broader framework, the 2026 draft introduces targeted refinements. The revised version of Sec. 55 ZPO now permits reliance on the principle of lex fori and habitual residence of the party concerned, rather than requiring recourse to foreign nationality‑based capacity rules. This approach aligns procedural capacity with modern principles of private international law. 
A further improvement concerns the revised wording of Sec. 1031, Subsection 1 ZPO. Under the draft, arbitration agreements shall be concluded or documented in writing or by any other means of communication that allows the information to be stored. This amendment brings German Law more closely into line with international legal standards while preserving the flexibility required in contemporary commercial practice. 
Taken together, the reform – both in its unchanged core elements and its 2026 refinements – signals a clear policy direction: Germany aims not merely to update its arbitration law, but to position itself proactively within an increasingly competitive global arbitration landscape.

Court of Arbitration for Nazi-Looted Cultural Property: First Cases Underway

The newly established Court of Arbitration for Nazi-Looted Cultural Property began its work in December 2025. It serves as an alternative dispute resolution mechanism for addressing disagreements regarding the restitution of cultural property confiscated as a result of Nazi persecution. Claimants can trigger arbitration unilaterally if public institutions in Germany refuse to return items, utilizing a "standing offer" system. It handles cases of cultural property lost between 30 January 1933 and 8 May 1945 due to persecution on racial, political, religious, or ideological grounds. The court is administered by the German Lost Art Foundation (Deutsches Zentrum Kulturgutverluste) in Magdeburg, with the arbitration office located in Berlin. The panel consists of 36 arbitrators. Its framework was negotiated with the Jewish Claims Conference and the Central Council of Jews in Germany. This institution represents a major shift in Germany's approach to restitution, aimed at providing legal certainty for both claimants and public holders of art. Something which is obviously well appreciated, given that as of February 18, 2026, already two cases have been brought before this institution.

Germany's Commercial Courts

The recent introduction of Commercial Courts in Germany, as part of the broader reform efforts surrounding German arbitration law, cannot be viewed in isolation from developments in arbitration. For decades, arbitration has been the preferred mechanism for resolving complex cross-border commercial or M&A disputes, largely due to its flexibility, international enforceability, specialized decision-makers, and the possibility of conducting proceedings in English. These advantages have increasingly shaped the expectations of multinational companies regarding dispute resolution.
Against this backdrop, the establishment of Commercial Courts represents a deliberate legislative response. By incorporating features traditionally associated with arbitration – such as English-language proceedings, procedural flexibility, specialized senates, and virtual hearings – the German legislator has sought to enhance the competitiveness of its state court system. In doing so, Germany positions its Commercial Courts not as a replacement for arbitration, but as a complementary and, in some cases, competitive alternative within the broader dispute resolution landscape.
Proceedings before Commercial Courts may be conducted in English at the level of certain Higher Regional Courts – a notable innovation within the German judicial system. 
The courts operate through specialized senates, with subject-matter expertise varying by federal state. For instance, two senates at the Hanseatic Higher Regional Court hear commercial disputes with an amount in dispute of EUR 500,000.00 or more, covering areas such as corporate law, post-M&A, banking and insurance law, transport, and shipping. Proceedings may be conducted virtually and offer enhanced confidentiality as well as verbatim transcripts – features traditionally associated with arbitration.
It is therefore unsurprising that the new Commercial Courts have been well received and are widely regarded as a success. Initial experiences suggest that both the Commercial Court and the Commercial Chambers established at certain Regional Courts, such as the Regional Court of Frankfurt am Main, are committed to conducting proceedings efficiently and resolving disputes significantly faster than is typically the case before state courts. 

AI-bitration

The rapid advancement of artificial intelligence has also reached the field of arbitration, bringing significant new developments. AI is increasingly influencing arbitral proceedings by offering transformative tools that promise greater efficiency and enhanced analytical capabilities. While it remains widely accepted that decision-making must rest with human arbitrators, AI's expanding capacity for analysis, interpretation, and drafting raises complex legal, ethical, and practical questions. 
A central issue for arbitral tribunals is whether, and to what extent, arbitration rules permit the use of AI – particularly given that neither international treaties nor most national arbitration laws expressly regulate its deployment. In the absence of legal provisions, parties and tribunals frequently look to institutional guidance. However, such guidance remains in an early stage of development. Examples include the 2024 Guidelines of the Silicon Valley Arbitration & Mediation Center, the SCC's 2024 Guide, and the CIArb's 2025 Guideline. Most recently the American Arbitration Association published its AI Arbitrator focusing on documents-only construction disputes. However, a real arbitrator remains involved and decisive in this procedure.
These initiatives seek to promote the responsible and effective use of AI in arbitration. Yet the existing guidelines remain deliberately broad and preliminary, while technological innovation continues to evolve at remarkable speed. Looking ahead to 2026, the growing relevance of AI in dispute resolution is likely to prompt further institutional guidelines and frameworks. As practical experience accumulates, existing guidelines will be tested, adjusted, and developed further to ensure that arbitral proceedings remain both technologically advanced and firmly anchored in fundamental principles of due process and fairness.

New Arbitration Laws and Rules

Across Asia, 2026, marks a year of significant regulatory reforms. China has introduced comprehensive amendments to its Arbitration Law, effective 1 March 2026. The reform constitutes a strategic step toward modernizing the domestic arbitration framework and further aligning the regime for foreign-related arbitration with international practice. Notable innovations include the nationwide introduction of ad-hoc arbitration, improvements to the recognition and enforcement of foreign arbitral awards, and the incorporation of additional internationally recognized key concepts, including a clearer statutory recognition of the separability of arbitration agreements and enhanced tribunal authority to rule on its own jurisdiction (Kompetenz-Kompetenz) – widely regarded as meaningful progress.
Pursuing a comparable objective of strengthening procedural governance and aligning its framework with internationally recognized best practices, the Asian International Arbitration Centre (AIAC) has introduced the AIAC Suite of Rules 2026. Effective from 1 January 2026, the suite comprises six new or revised sets of rules and guidelines. Key changes include an expanded scope of application, a clarification of party obligations, adjustments to procedural requirements, mandatory disclosure of third-party funding, and revisions concerning arbitrator conduct and tribunal powers.
In Korea, the 2026 version of the KCAB Rules has entered into force. Among the most notable developments are the establishment of the KCAB International Arbitration Court, the introduction of differentiated procedural tracks designed to enhance efficiency, the expansion of virtual proceedings, and the formal recognition of remote hearings.
From a European perspective, the ongoing reform of French arbitration law also merits close attention. The reform, expected to be finalized by autumn 2026, envisaged the codification of a unified and modern Arbitration Code aimed at harmonizing the legal framework and further consolidating France's position as a leading place of arbitration.

Dr. Ralf Hafner
Oliver Korte
Dr. Tobias Pörnbacher

Unfortunately, the other party feels the same way. The other party also does not know the German sales law of BGB and HGB and would thus prefer to agree on its own sales law. It is a deadlock; neither party is willing to budge. 

It was precisely this finding that was the starting point for the creation of the UN Convention on Contracts for the International Sale of Goods (= United Nations Convention on Contracts for the International Sale of Goods, CISG). A supranational law was to be created to serve as a bridge to break the deadlock. And it actually fulfills this task quite well: It is modern, well structured, quite readable even for non-lawyers (with a few drawbacks), somewhat similar to our sales law and thus overall comprehensible – and fair. It does not want to favour any party. That is why the UN Convention on Contracts for the International Sale of Goods is not fundamentally particularly buyer-friendly or seller-friendly. However, there are some features that anyone wishing to make an informed decision about whether to accept or even propose the UN Sales Convention in contract negotiations should familiarise themselves with. The following aspects appear to be particularly important:

Finally, an important practical note because this often goes wrong - anyone who wants to deselect the UN Convention on Contracts for the International Sale of Goods must not only write: "German law applies". This is because the UN Convention on Contracts for the International Sale of Goods is part of German law. A clean formulation would be: "German law applies, excluding the UN Convention on Contracts for the International Sale of Goods". However, whether this is a good solution must be examined on a case-by-case basis. Important criteria for and against can be found above.

Oliver Korte

Ruling

Article 25 (1) of Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters must be interpreted as meaning that a third party, as the assignee of a claim for damages arising from the non-performance of a contract containing a jurisdiction clause, may rely on that clause vis-à-vis the original contracting party, as the assigned debtor of that claim, under the same conditions as those under which the other original party to the contract could have relied on that clause against that debtor, for the purposes of an action for recovery of that claim and without the consent of that debtor, in a situation where, in accordance with the national law applicable to that contract, as interpreted by the national case-law, an assignment of a claim entails a transfer, to the assignee’s assets, not only of the right of claim, but also of the rights attached to that claim, including the right to rely on the application of an agreement conferring jurisdiction set out in that contract, unless the original parties to the contract have expressly agreed that that clause cannot be relied on against them in the event of assignment, to a third party, of a claim arising from that contract.

CJEU, decision of v. 23 October 2025 – C-682/23 – Prorogation de compétence

Facts

E.B. and E. PL., two companies incorporated under Polish law, entered into two contracts on 24 March and 24 July 2017. The first concerned the preparation of a plot of land for the construction of a new wood products factory in Poland. The second governed the performance of construction work for that factory. On 4 March 2017 E. PL. concluded a subcontracting agreement with E. S.A., a company incorporated under Romanian law. On 10 July 2017, the latter in turn concluded a subcontracting agreement with K.P., a company incorporated under Polish law ("Subcontracting Agreement"). The Subcontracting Agreement contains a jurisdiction
clause stating that "any disputes shall be settled by the court having jurisdiction over the registered office of the contracting party" ("Jurisdiction Clause"), without defining the term "contracting party" in more detail. All the agreements are governed by Polish law.

By an assignment of claim agreement dated 16 December 2021, concluded with the participation of E. PL., E. S.A. assigned a claim for damages to E.B. ("Claim"). This Claim was said to result from K.P.'s failure to fulfil its obligations under the subcontractor agreement.

On 21 December 2021, E.B. brought an action against K.P. before the Tribunalul Specializat Cluj (Romania) for payment of the Claim including default interest. To justify jurisdiction, E.B. invoked the jurisdiction clause in the Subcontracting Agreement. It assumed that the local (Romanian) court had jurisdiction due to the
registered office of E. S.A.

According to K.P., Art. 7 No. 2 of the Brussels Ia Regulation is applicable to tortious claims. As the damage occurred in Poland, the Polish courts should have jurisdiction. In K.P.’s view, E.B. could not invoke the jurisdiction clause as a third party for contractual claims.

In its judgment of 19 December 2022, the Tribunalul Specializat Cluj dismissed the action due to an assumed lack of jurisdiction. E.B. lodged an appeal against this judgment with the Curtea de Apel Cluj on 11 April 2023. E.B. is of the opinion that the assignee's consent to a jurisdiction clause, regardless of when it was given, would be sufficient to establish its validity vis-à-vis the debtor. The latter would already have consented to it when the contract was concluded. Renewed consent would therefore not be necessary. In such a case, the national court designated by the jurisdiction clause would no longer have to examine whether the assignee had assumed the rights and obligations of the assignor.

K.P. counters that a jurisdiction clause would have effect only between the original contracting parties. Due to its personal contractual nature, it could not be invoked against third parties. Furthermore, Art. 25 of the Brussels Ia Regulation would have to be interpreted narrowly. Therefore, the existence of a jurisdiction agreement would always have to be determined between the parties to the proceedings themselves. The referring court points out that, in the present case, E.B., as the assignee of the claim for damages, is relying on the jurisdiction clause and is thus exercising a right linked to the Subcontracting Agreement which it wishes to assert against K.P. as the debtor of the assigned claim. On the other hand, however, as the assignee of only this individual claim, E.B. would not have assumed all of E. S.A.'s rights and obligations under the contract.

Furthermore, under Polish law, on which E.B. relies, the assignment of a claim would not only lead to the transfer of the claim to the assignee's assets, but also to the transfer of the rights associated with it, including the right to invoke the application of a jurisdiction agreement contained in the contract. However, the assignment of the claim would not mean that the obligations which the assignor has entered into vis-àvis the debtor of the assigned claim would be transferred to the assignee.

In those circumstances, the Curtea de Apel Cluj (Court of Appeal, Cluj) decided to stay the proceedings and to refer the following questions to the European Court of Justice for a preliminary ruling:

(1) Can Article 25 of [the Brussels Ia Regulation] be interpreted as conferring on the assignee of a claim arising from a contract [for the performance of works] the right to enforce the jurisdiction clause in that contract against the original party to the contract, if the assignment contract has, in accordance with the national law applicable to the substance of the dispute, transferred the claim and its ancillary rights, but not the obligations arising from the contract?

(2) In a case such as the one described above, is the opposition of the party that agreed to the jurisdiction clause, against whom the action is brought, relevant for the purpose of determining which court has jurisdiction? In addition, is a new consensus required from that party, prior to or concomitant with bringing a legal action, in order for the third-party assignee to be entitled to rely on the jurisdiction clause?

Grounds

30 [The first sentence of Article 25 (1) of the Brussels Ia Regulation] does not specify whether a jurisdiction clause may be assigned, beyond the circle of the parties to a contract, to a third party, who is a party to a subsequent contract and successor, in whole or in part, to the rights and to the obligations of one of the parties to the initial contract (judgment of 25 April 2024, Maersk and Mapfre España, C-345/22 to C-347/22, EU:C:2024:349, paragraph 47 and the case-law cited) nor whether such a third party may rely on such a clause against one of those original parties. (…)

38 [The] objectives [of the Brussels Ia Regulation] could be jeopardised if the enforceability of a jurisdiction clause in the relationship between one of the original parties to the contract in which that clause appears and a third party to that contract depended on whether it is one of those original parties or that third party who first relies on it by bringing an action before the designated court, which would be the case if that third party could not rely on that clause vis-à-vis those original parties under the same conditions as those under which those original parties could, in accordance with the case-law referred to in paragraph 34 of the present judgment, rely on that clause against that third party.

39 It follows that, in a situation in which an original party to the contract containing a jurisdiction clause has not consented to that clause being relied on against it by a third party to that contract, that third party may nevertheless rely on that clause against that original party if that third party has succeeded to all the rights and obligations of the other original party to that contract. (…)

46 A dispute concerning the recovery of a claim for damages, on the basis of the liability of one of the original parties to the contract containing a jurisdiction clause, on account of an improper performance of that contract, does indeed arise from the legal relationship in connection with which that clause was agreed, with the result that that original party cannot be surprised to be sued before the court designated by that clause for the purposes of that recovery, even if that claim for compensation has been assigned to a third party to the contract. (…)

48 Consequently, it must be held that, in the event of assignment of a claim arising from a contract containing a jurisdiction clause, the assigned debtor, who is the original contractual partner of the assignor, must remain, in principle, bound by that clause.

49 The fact remains that, first, that original contractual partner must also not be placed in a less favourable situation as a result of that assignment of claim. In other words, that clause must be interpreted as preventing any situation in which that contractual partner could be sued before courts other than those before which the other original party to the contract could have brought proceedings under that clause. (…)

54 [Absent] of (…) an express agreement, in the event of assignment of a claim arising from a contract containing a jurisdiction clause, the assigned debtor, who is the original contractual partner of the assignor, must remain bound by that clause and cannot unilaterally oppose its application where the assignee of that claim brings proceedings, before the court designated under that clause, aimed at recovering that debt.

55 In the present case, E. S.A. and K.P., as the original parties to the subcontract in question, agreed, by means of the jurisdiction clause at issue, that the ‘court within whose jurisdiction the contracting party has its registered office’ would have jurisdiction to hear disputes arising from that contract, including as regards the claim for damages in question, arising from that contract. First, it is apparent from the order for reference that E.B., as the assignee of that claim, brought proceedings before the same court as that before which E. S.A could have brought proceedings under that clause if E. S.A. had not assigned that claim to E.B., with the result that K.P. does not appear to be placed in a less favourable situation as a result of that assignment. Second, it is not apparent from the file before the Court that those original parties agreed that, in the event of an assignment of a claim arising from the subcontract in question, that clause could not be relied on against them by the assignee. Therefore, subject to verification by the referring court, it appears that, in the context of the dispute in the main proceedings, E.B. is entitled to rely on that clause against K.P. in order to obtain recovery of the claim for damages in question.

56 In the light of all of the foregoing considerations, the answer to the questions referred is that Article 25 (1) of the Brussels Ia Regulation must be interpreted as meaning that a third party, as the assignee of a claim for damages arising from the non-performance of a contract containing a jurisdiction clause, may rely on that clause vis-à-vis the original contracting party, as the assigned debtor of that claim, under the same conditions as those under which the other original party to the contract could have relied on that clause against that debtor, for the purposes of an action for recovery of that claim and without the consent of that debtor, in a situation where, in accordance with the national law applicable to that contract, as interpreted by the national caselaw, an assignment of a claim entails a transfer, to the assignee’s assets, not only of the right of claim, but also of the rights attached to that claim, including the right to rely on the application of an agreement conferring jurisdiction set out in that contract, unless the original parties to the contract have expressly agreed that that clause cannot be relied on against them in the event of assignment, to a third party, of a claim arising from that contract.

Comments

1. The Sixth Chamber of the ECJ has decided that the assignee of a claim (in this case a claim for damages) has the right under Article 25 (1) of the Brussels Ia Regulation to invoke the jurisdiction clause agreed to in the original contract against the debtor. This also applies if the debtor has not again explicitly agreed to the clause. The decision ultimately strengthens legal certainty by increasing the predictability of the jurisdiction clause and is therefore welcomed.

2. The present decision further extends the rights of the assignee. In earlier cases (ECJ, judgment of 27 February 2025, Società Italiana Lastre, C-537/23, EU:C:2025:120, paragraph 34 and the case law cited therein = IWRZ 2025, 145 Anm. Fervers), the ECJ already emphasized that agreements on jurisdiction must be interpreted narrowly due to the exceptional nature of Article 25 of the Brussels Ia Regulation. Until now, the ECJ had merely decided that a jurisdiction agreement remains effective if a third party has expressly assumed all rights and obligations (see, ECJ, judgments of 21 May 2015, CDC Hydrogen Peroxide, C-352/13, EU:C:2015:335, BeckEuRS 2015, 477022, paragraph 65, and of 18 November 2020, Delay-Fix, C-519/19, EU:C:2020:933, BeckEuRS 2019, 665356, paragraph 47 and the case law cited therein).

3. However, the ECJ's decision could mean more work for courts. National courts must now carefully examine whether the assignee has acquired all rights in the present case and how the assignment has been contractually structured. This can only be done on a case-by-case basis.

4. The decision strengthens the rights of the assignee. In practice, when assigning a claim, it should be clearly specified in the contract which rights (not only in relation to jurisdiction clauses) are attached to the claim, particularly in the interests of the debtor as the original contracting party.

5. It might also be conceivable to transfer the reasoning behind the decision to the assignment in connection with arbitration clauses. According to Article 1 (2) (d) of the Brussels Ia Regulation, arbitration clauses do not fall within the scope of the Regulation. However, in its reasoning, the ECJ refers to the legal nature and the assertion of ancillary contractual rights by the assignee. Since arbitration clauses are generally considered to be ancillary contractual rights, it is not unreasonable to transfer the principles of the decision. Accordingly, the assignee can also invoke an arbitration clause in accordance with the principles laid down in the decision.

6. While, according to the prevailing view in German jurisprudence and legal scholarship, an arbitration clause is transferred to the assignee (see FCJ, judgment of 2 October 1997 – III ZR 2/96, NJW 1998, 371; Wolf/Eslami, in BeckOK, 58 ed. 9/2022, Sec. 1031 m.n. 10), it would benefit a unified legal understanding within the European Union if the ECJ, irrespective of the application of the Brussels Ia Regulation, would also apply these general principles to arbitration clauses as well.

Oliver Korte
Dr Tobias Pörnbacher

_{The article originally appeared in IWRZ 2026, p. 47 ff.}

Such claims can be very expensive: In the case of commercial agents, the claim may be an average annual commission, and in the case of distributors, the equivalent (calculation: complicated – more on that another time). 

Manufacturers often want to avoid such claims: the distributor has earned well during the cooperation. Why should he still receive money after that? The perspective of the distributor is exactly the opposite: Where would the manufacturer be without us? We built up the market for him in the first place. So, it is only fair that we participate in it now, when the harvest is brought in. 

If manufacturers want to prevent having to pay indemnity after the end of the contract, then they must first know what the requirements are for this and, if necessary, design the contract accordingly. The decisive course is set in the drafting of the contract. And conversely, it is important for distributors to recognise which arrangements generate - or prevent - an indemnity claim.

In particular, the following approaches may be particularly important:

1. Section 89b of the German Commercial Code can only be applied if German law is applicable. In the case of cross-border contractual relationships, a court located within the EU would apply the law of the state in which the distributor has their "habitual residence" (Art. 4 para. 1 f) Rome I Regulation), unless the parties have agreed otherwise. If this country is Germany, what is explained in the following paragraphs applies. If this country is not Germany, then a different law applies. Both parties to the contract would then do well to determine whether or not there is an indemnity claim for distributors in that other country. This varies greatly around the world (in Belgium, for example, it is expensive, in England there is no indemnity, in Austria the analogy requirements are different than in Germany). Whether the parties, if the distributor is active in Germany, can effectively agree that another legal system applies, is disputed, if and to the extent that this results in no indemnity claim arising. The Berlin Court of Appeal (Kammergericht) ruled (indirectly) in 2025 that this was permissible and valid. However, other courts are not bound by this decision. In any case, in a constellation where both parties are German and where no other relevant elements are located outside Germany, such a choice of law would clearly not be effective with regard to the indemnity claim (Art. 3 para. 3 Rome I Regulation). It can be attractive for manufacturers to choose a foreign legal system that does not have an indemnity claim for distributors. And distributors should therefore (also) from this point of view not consider the choice of law to be of only secondary importance and, if necessary, insist on the application of German law.
2. If, according to the above statements, German law is to be applied, the question arises as to whether the criteria for analogy are met, i.e. the prerequisites for the provision of section 89b German Commercial Code applicable to commercial agents to be applied in the specific case. It is necessary for the contractual relationship to be so similar to a commercial agent relationship that it is appropriate to apply commercial agents law in this respect. The case law proceeds in two stages:
   1. At the first stage, it is verified whether the distributor is integrated into the manufacturer's sales organisation in the same way as a commercial agent. This is usually done with the help of a catalogue of criteria, which is used to check the written contract and the established contractual practice. The overall picture is decisive, not necessarily that all criteria can be affirmed. Important criteria include the existence of a sales obligation, the allocation of a contract territory, control rights of the manufacturer, reporting obligations of the distributor, etc. The manufacturer who wants to avoid an indemnity claim may consider how demanding he wants to make the catalogue of obligations of the distributor and, if necessary, waive obligations that are less important to him if this reduces the probability that he will have to pay indemnity one day. Conversely, the distributor could work to ensure that the contract provides for intensive integration. However, he should take into account that it is likely to seem strange and suspicious if he asks for the imposition of further obligations. Such approach would probably only be able to work if the distributor submits the first draft of the contract.
   2. At the second stage - i.e. only if the first stage (see paragraph above this) has been affirmed - the courts then examine whether the distributor was or is contractually obliged to transfer the customer base, i.e. to transmit the necessary customer data to the manufacturer that enables the manufacturer to contact the customers without significant intermediate steps. It is important to note that the prevailing opinion (at least still) requires that it be a contractual obligation. According to this, it is not sufficient that the manufacturer actually knows the customers, e.g. because the market is so small, or the distributor transmits the customer data without being asked. All of this is criticised and controversial for good reasons, and it may be that this analogy feature will be abandoned or modified in the foreseeable future. At present, however, one should still expect a court to demand such a contractual obligation. If a contractual obligation does not exist, there is no indemnity claim. And this results in several possibilities for the manufacturer to avoid having to pay indemnity by drafting the contract: He can simply refrain from providing for such an obligation in the contract. It is even better to explicitly write in the contract that the customer data should not be transmitted (e.g. in the context of any reporting obligations). But beware: You have to live it that way and as a manufacturer you must not demand the submission of customer data. Otherwise, there is a risk that a court will derive a tacitly agreed obligation to transfer the customer base from the lived contractual practice. If the contract does not provide for an obligation to transfer and the manufacturer asks for customer data, the distributor may conversely consider whether he complies with this request despite the fact that the obligation does not exist, and documents everything thoroughly and thus gives himself an improved chance of receiving indemnity later. Sometimes, of course, the manufacturer wants to have the customer data. But even then, there are approaches whose pursuit prevents the arising of an indemnity claim: For example, it can be regulated that the distributor does not have to transmit customer data, but can transmit it voluntarily - then in return for benefits to be agreed. Here, a certain degree of finesse is required to ensure that the arrangement does not result in an invalid circumvention of case law. It is also conceivable to regulate that the customer data is not to be transmitted to the manufacturer, but to an external marketing agency, and that this agency uses the data for the manufacturer's purposes during the term of the contract, but no longer thereafter. Other approaches that go in this direction are conceivable and, in some cases, have also been tried and tested in court. Distributors who see such provisions in draft contracts should recognise that the avoidance of an indemnity claim can be the background and objective and carefully examine whether they accept this as appropriate and fair or, if necessary, whether they want to demand further consideration. If they are assured in an open discussion that it is not at all a question of avoiding an indemnity claim, it may be advisable to counter this with the demand for an express regulation on the indemnity claim. This will probably be met with little approval, but it may reveal the true motives.
3. If, according to the preceding paragraphs, the application of German law is to be assumed and the two analogical criteria are also met, it could seem tempting from the manufacturer's point of view to simply exclude the annoying indemnity claim at the stroke of a pen by means of a corresponding contractual clause. However, this is not effectively possible if the distributor has to operate within the European Economic Area (EEA = EU + Iceland, Liechtenstein, and Norway), as the German Federal Court of Justice ruled in 2016: The indemnity claim is mandatory for commercial agents (section 89b para. 4 of the German Commercial Code) and this, according to the German Federal Court of Justice, also applies to distributors by analogy. However, the situation is different if the distributor has to operate outside the EEA: In that case, Section 92c of the German Commercial Code (HGB) allows the exclusion of the indemnity claim, at least in individually negotiated contracts. However, it has not been conclusively clarified how this applies to arrangements based on standard terms and conditions.

Oliver Korte

But is this actually possible without restrictions? The ‘Ingmar’ ruling by the European Court of Justice and subsequently also by German courts may give rise to doubts in this regard. In the ECJ's Ingmar decision of 9 November 2000 (Case C-381/98, confirmed by the "Unamar" decision of 17 October 2013, Case C-184/12), the ECJ ruled that the commercial agent's right to indemnity was a matter of (overriding) mandatory international law (. This mandatory claim may not be circumvented by deviating rules on jurisdiction or choice of law. In a nutshell: If the commercial agency agreement provides that a non-European law is applicable and a non-European court has jurisdiction, the commercial agent may, under certain conditions, be able to ignore this if it is to be expected that he will therefore not be awarded an indemnity claim and nevertheless sue in the EU and invoke European law.

Whether this Ingmar ruling also applies to distributors is disputed in legal literature. I believe (and others believe) that it does not (Westphal/Korte, Vertriebsrecht [Distribution Law], 2nd ed. 2023, ch. 27 margin no. 32). And this is how the Berlin Court of Appeal has now seen it in a recent decision (reference order of 1 July 2025, file no. 2 U 37/22). It is probably the first published court statement on this issue. In this specific case, a service agent (i.e. a commercial agent who brokers service contracts for a third company) was involved, not distributor. However, the decision also applies without restriction to distributors - these are also expressly mentioned. The court argued that it could be assumed that Delaware law, as applicable under the contract, did not recognise a claim for indemnity. However, the Ingmar case law was still not applicable as the content of the contractual relationship between the parties was not covered by the EU Commercial Agents Directive. This was because the object of the business was the provision of services while the EU Directive is limited to agents brokering contracts relating to the sale of goods. It is not applicable to service agents or distributors. In this respect, there are no standardised regulations in the EU anyway: In some EU states, distributors are entitled to indemnity, in others not. Hence, a lower level of protection in this respect is permissible under European law. Accordingly, a foreign manufacturer may agree with the European distributor or service representative that a non-European court has jurisdiction and that non-European law is applicable. Of course, the final word has not yet been spoken until the ECJ has had the opportunity to rule on the issue.

Oliver Korte

These tariffs affect all sectors, but one of the most affected in Europe is the automobile sector, particularly in Germany: cars will now be taxed at 25%. The most affected sector in France are aeronautics, with 7.9 billion euros of exports in 2023, pharmaceuticals with 4.1 billion euros in 2023 and alcohol (especially wine) with 3,9 billion.

In addition, differentiated and higher tariff rates will apply on goods from the French overseas territories: Guadeloupe, Mayotte, Guyane and Martinique will be subject to a 10% tax in addition to the 20% levied on the rest of France, while Réunion will be subject to a total tax of 37%. Tariffs of 50% will be imposed on products from Saint-Pierre-et-Miquelon and 10% on those from French Polynesia, as these islands have not been considered part of the EU by Trump.

Commission President Ursula von der Leyen said she was ready to negotiate but was also ready for confrontation if necessary to assert the EU's interests and values. She said that the Commission is working on countermeasures. Several European heads of state are also working on measures to be adopted.

ADVANT has a team of international trade and national security attorneys, and government relations professionals ready to help European companies. Our dedicated team has decades of experience supporting clients across a range of industries – ranging from steel, chemical, rubber, mining, and agricultural products.

Prof. Dr Rainer Bierwagen
Christian Hipp
Dr Dietmar Reich
Gábor Báthory

Once investors have invested in a company, it is common for founders to agree on what is known as vesting clauses. A vesting clause is a contractual provision stating that a founder only acquires the right to certain shares over a fixed period of time, which usually lasts three to four years. Vesting arrangements aim to bind the founders to the company and motivate them to continue to contribute their full expertise. If a founder leaves the company before the end of the vesting period, such founder will only retain the shares earned up to that point during the vesting period. The first shares are, however, often only released after the first year (known as cliff). The Berlin Higher Regional Court (Kammergericht Berlin, KG) recently ruled that a termination clause in the form of a vesting provision for a start-up may be valid. The clause in question stipulated that a shareholder must transfer such shareholder's shares to the co-shareholders at their request if the shareholder's employment relationship with the company is terminated within the first year of the vesting period.

Facts

In the appeal proceedings, the parties disagreed on the shareholder status of the claimant, who was a co-founder of C-GmbH. This company, originally founded as an entrepreneurial undertaking with limited liability, known as Unternehmergesellschaft or UG, signed an investment agreement with investors investing EUR 1.373 million in return for the issue of shares. As part of the deal, the founders agreed to vesting and had to define a corresponding exit provision for their holding company, which stipulated that the founders would lose all shares if their employment contracts were terminated within the first year of the three-year vesting period. The claimant was released from his duties and negotiated his resignation for six months, which was finally confirmed by regular termination. The claimant felt that the purchase option for his shares was contra bonos mores and therefore invalid. The Berlin Regional Court (Landgericht Berlin) dismissed his claim in the lower instance. The claimant's appeal to the Berlin Higher Regional Court was unsuccessful.

Decision of the Berlin Higher Regional Court

The Berlin Higher Reginal Court in its notice to the parties found, among other things, that a termination clause in the form of a vesting schedule is valid if the intention is to link a founder's shareholder status in a start-up company with his continued commitment to the company.

Background and Reasoning

The Berlin Higher Regional Court (Kammergericht Berlin, KG) initially refers to rulings of the German Federal Court of Justice (Bundesgerichtshof, BGH). The BGH considers termination clauses in which the other shareholders of a GmbH (i.e. a private limited liability company under German law) are granted the right to exclude a co-shareholder from the company without objective reason to be null and void. The affected co-shareholder is no longer in a position to exercise his membership rights in the company and meet his membership obligations. This is because the possibility of free termination can actually be interpreted by him as a disciplinary tool ('Damoclean sword') and prevent him from exercising his membership rights. Termination clauses are only justified in exceptional cases if there is an objective reason. If the behaviour of a shareholder is reproachable, it is much easier to objectively justify a termination (bad leaver event). If, however, the termination is not based on reproachable behaviour - as is the case here with the regular termination (good leaver event) - the requirements for the objective justification of a termination clause are higher. However, it is always necessary to analyse all the relevant circumstances of the individual case.

The Berlin Higher Regional Court makes it clear that it could be justified to completely force a founder out of his shareholder position during the first year of the three-year vesting period by means of a cancellation clause. It is true that the founder may lose the rewards of his previous contribution to the (future) success of the company. However, a certain period of time, in this case the first year, may be used to resolve any differences between the shareholders and find workable compromises.

According to the Court, such arrangements were in the interests of both the investors and the founding shareholders: investments in start-ups involve uncertainty for investors, particularly as to whether the company will successfully survive the start-up phase. Investors needed to rely on the founders to continue to contribute their expertise and hard work to the company, particularly because the founders could not offer them any traditional collateral. At the same time, there might be an interest in subjecting the founders to a probation period to avoid having to be more restrictive with regard to placing trust or calculating with an increased failure risk as part of the investment decision.

The KG not only considers the perspective of the investors and their financial risk, but also emphasises that the vesting rule is in the ex-ante interest of the founders. The crucial factor was that the (urgently needed) financial resources could be raised and (future) disagreements among the shareholders could be resolved as easily as possible without the need for the successive retransfer of shares. In this important phase for the company, it was therefore justified to link the continuation of the founder's shareholder status with his continued commitment to the company.

Practical Advice

This decision makes it clear that a termination clause may be effective even when there is no reproachable behaviour, provided there are objective justifications. The notice by the Berlin Higher Regional Court to the parties is fully consistent with the past BGH decisions on termination clauses. The BGH had already previously assumed objective legitimate grounds in several individual cases, such as the temporary 'probation period' of a new partner in a joint practice.

A vesting provision also usually includes arrangements for the amount of severance pay. However, the KG leaves it open whether a severance payment at the nominal price is appropriate in the case of a good leaver clause, as an appropriate severance payment could replace the agreed one. According to established case law, the market value settlement is the standard case. There are limits to the restrictions that may be imposed. In practice, deductions are often made as a percentage of the market value depending on the leaver event. It seems reasonable to assume that bad leavers would lose 40% and good leavers 20%. A distinction is also made as to whether shares that have already been vested are lost or whether only unvested shares are to be transferred back. For bad leavers, a settlement at nominal value is common, as this corresponds to the acquisition costs. In the case of a good leaver, usually only unvested shares are retransferred at nominal value.

Severance pay at the nominal price or with a small premium may also be justified for good leavers. The KG emphasises that the start-up gains considerably in value through investor capital, while the founders have to earn this value over time. 

In practice, it is advisable to use fall-back clauses for retransfers. These stipulate that the lowest permissible severance payment applies if a court declares the original severance payment provision invalid.

Berlin Higher Regional Court, notice of 12 August 2024 – 2 U 94/21

Christian Burmeister
Damien Heinrich

^{This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.}

The LkSG, which was passed in 2021 by the grand coalition government of the time and deals with companies' obligations to protect human rights, has now been in force for almost two years. Nevertheless, it once again is the subject of many a political debate. Mostly in connection with the topic of red tape and red tape reduction. One could almost get the impression the LkSG had been identified as the main cause of the German economy's problems and that everything would be fine once it was removed. It was suggested that the LkSG 'had to go' (Federal Chancellor Olaf Scholz). There was even talk of chain saws to 'cut away' the Act (Economics Minister Habeck). Beyond the pithy political statements, however, there was some confusion as to the details of what should actually be implemented and how. The 'growth initiative' of the traffic-light coalition initiated in the summer of 2024, which is now a thing of the past, could certainly be understood to merely restrict the scope of the LkSG's application (see Initiative for Growth of the Federal Government of 5 July 2024). According to this initiative, only those companies that must be registered under the requirements of the CSDDD as of 2027 should be subject to the LkSG. In 2028 and 2029, the LkSG's application should then be expanded again in line with the requirements of the CSDDD.

The growth initiative also referred to the fact that the law on the implementation of the Corporate Sustainability Reporting Directive (CSRD) planned for the second half of 2024 would remove the specific reporting obligation set out in the LkSG for companies that prepare a sustainability report in accordance with the CSRD. The corresponding draft bill of the German government was submitted to the Bundestag, the German parliament, in September 2024 (see BT-Drs. 20/12787 (available only in German)). Although the EU Commission has already initiated infringement proceedings against Germany for not having transposed the CSRD into national law in Germany in time (i.e. by June 2024), it is unclear whether this bill will still be passed in the current legislative period after the German traffic-light coalition has failed. This has unpleasant consequences for all those companies that have prepared themselves to produce a mandatory sustainability report in accordance with the CSRD for the first time for the 2024 reporting year. As the CSRD reporting obligation can probably no longer be introduced retroactively for the 2024 reporting year in 2025 (at least according to the IDW in a newsletter to its members dated 14 November 2024 (only available in German)), companies may have to re-plan at short notice and submit a 'non-financial report' again for 2024 to comply with the still existing legal situation. This would render companies' extensive preparations for CSRD reporting obsolete for the time being. Also, the originally planned liberation from parallel reporting under the German LkSG would not materialise either, with the result that these companies would have to prepare an LkSG report for 2024 in addition to the non-financial report. This 'back and forth' is highly unlikely to generate any enthusiasm in corporate circles. 

The Bundestag is now once again addressing the issue of a complete abolition of the LkSG, after a draft by the CDU/CSU parliamentary group for a 'Supply Chain Due Diligence Obligations Cancellation Act' ('Lieferkettensorgfaltspflichtenaufhebungsgesetz') (BT-Drs. 20/11752 (available only in German)) failed only two months ago (in October 2024) due to the opposition of the former traffic-light coalition, after the AfD parliamentary group's attempt had been unsuccessful in early 2024. Following the end of the traffic-light coalition, the CDU/CSU parliamentary group has reintroduced a draft for a 'Supply Chain Due Diligence Obligations Cancellation Act' ('Lieferkettensorgfaltspflichtenaufhebungsgesetz') (BT-Drs. 20/14015 (available only in German)). And now that it has left the Federal Government, the FDP parliamentary group has also introduced a draft bill to repeal the LkSG with the meaningful name 'Supply Chain Freedom from Bureaucracy Act' ('Lieferkettenbürokratiefreiheitsgesetz') (BT-Drs. 20/14021 (available only in German)). The drafts were discussed in the Bundestag in first reading on 5 December 2024 and referred to the relevant committees (for more details see German Bundestag - discussion of drafts to repeal LkSG (available only in German)). It will be interesting to see the outcome of these two current drafts within the short time left of the legislative period, and of the draft CSRD Implementation Act (CSRD-Umsetzungsgesetz), which is already slightly more advanced in the legislative process, (and the numerous other ongoing legislative procedures). 

Even if, in our experience, most of the companies affected have basically come to terms with the LkSG, upgraded their personnel and implemented the necessary due diligence measures, a very dangerous potential earthquake fissure is opening up in day-to-day business. Driven by current political statements, the view that the LkSG does not need to be taken so seriously (any more) is evidently growing at management level. After all, it has already been announced at the highest level that the LkSG is 'going away', especially as there seems to almost be a rare cross-party consensus on this. The situation with the LkSG is, however, somewhat different to that relating to the CSRD Implementation Act. This is because sustainability reporting in accordance with the CSRD still has to be transposed into national law; there will be no mandatory sustainability reporting before then. The LkSG, on the other hand, has been national law for some time, with the result that the addressees of the regulations must fulfil the human rights and environmental due diligence obligations set out therein. And this will remain the case, regardless of the current political discussion, until the Bundestag has passed a law to repeal the LkSG and such law has come into force. However, for the reasons outlined above, it is uncertain whether this will happen in the short term.

For the management, the LkSG will therefore remain part of their general compliance obligations until further notice. In other words, the management is responsible for ensuring that the laws applying to the company (including, for the time being, the LkSG) are indeed observed by the company. If, however, in view of the current political discussion and the expected or anticipated future repeal of the LkSG on this basis, the management now lets go of the reins and company-internal measures to implement the LkSG are no longer pursued with the necessary vigour, it risks coming into conflict with its obligation to comply with the LkSG, which definitely is still currently in force. The (debatable) prediction that the LkSG will soon be repealed does not make any difference in this context. This is because the LkSG contains ongoing obligations, i.e., for example, that the company must perform an event-based risk analysis at any time a reason to assume such risk arises. Preventive measures, too, must be implemented on an ongoing basis. 

Inadequate implementation of the LkSG may constitute an administrative offence and accordingly lead to a fine of up to 2% of annual global sales. If such a fine were to be imposed, the question (that has not yet been answered from a legal perspective) would immediately arise as to whether the company can (and possibly must) seek recourse against the individual members of the management on the ground of inadequate implementation of the LkSG, which may have caused the fine. Even if D&O insurance cover is in place, the defence against such a liability claim by the company is not exactly a pleasure for the defendant director. Not to mention other consequences beyond any personal liability. A prudent and conscientious director (according to the legal model of section 93 of the German Stock Corporations Act (Aktiengesetz, AktG) should therefore ensure implementation of the LkSG for as long as the current political discussion remains a discussion and the LkSG remains applicable law.

The potential hope that the supervisory authority responsible for monitoring the implementation of the LkSG (Federal Office for Economic Affairs and Export Control, Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA) will no longer so intensely engage with the LkSG in view of the current political discussion and that any insufficiencies will therefore not lead to a fine seems unfounded to us in this generalisation. In September 2024, the Ministry of Labour and the Ministry of Economic Affairs announced the implementation of an 'Immediate programme for sub-legislative measures for the practical application of the LkSG' ('Sofortprogramm für untergesetzliche Maßnahmen zur praxisnahen Anwendung des LkSG')(for more information in German please follow this link). However, this does not affect the statutory monitoring of compliance with the LkSG by BAFA. Nor the fact that BAFA is said to have meanwhile initiated some 40 (!) administrative offence proceedings in connection with the LkSG.

Dr. Daniel Walden
Dr. André Depping

The Forced Labour Regulation is explicitly not intended to create any additional human rights due diligence obligations for economic operators that are not already provided for in Union or national law. Rather, the Forced Labour Regulation is intended to complement the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D), which is to be transposed into national law by mid-2026, and the human rights due diligence obligations for certain (large) EU and non-EU companies to be introduced by mid-2027 at the latest (cf. our German blog post from March 18, 2024: EU Supply Chain Act: Agreement and agreement text | ADVANT Beiten) or alongside the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG, see the commentary on the LkSG by Depping/Walden). In contrast to the aforementioned "due diligence laws", the Forced Labour Regulation contains a general ban on products made with forced labour (see our German blog post from 14.03.2024 EU Regulation banning forced labour is coming (and EU Supply Chain Act perhaps still?) | ADVANT Beiten). In order to avoid the sanctions that could be imposed in the event of a breach of the ban, the companies concerned have an economic incentive to ensure that the products they sell are not made with forced labour.   

1. Rules for economic operators, the Commission and the Member States

The ban is aimed at economic operators. This is any natural or legal person or association of persons who places or makes available products on the Union market or exports products, regardless of their registered office, company size, sector or similar. In future, the authorities designated by the Member States or the Commission will monitor whether economic operators comply with the obligations under the Regulation - i.e. not placing on the market, not making available and not exporting the relevant products.

For cooperation and communication between the authorities and the Commission, the Commission coordinates the work on the Union network. The Commission provides a website, the forced labour single portal. In particular, helpful information is to be published on this portal. This includes, for example, guidelines still to be drawn up by the Commission (including with regard to due diligence obligations in relation to forced labour), a database still to be set up for areas and products with a risk of forced labour and notifications in connection with inspections and bans. The monitoring authorities are going to use these, for example, to transmit data in connection with investigations.

2. Official investigations

In future, economic operators must be prepared for preliminary and main investigations and field inspections by the competent monitoring authorities. As part of the preliminary investigation, they must provide the competent monitoring authority with documentation on their measures to identify, prevent, mitigate or even end the risk of forced labour in their operations and supply chain at short notice. If there are reasonable grounds for suspicion, the authority will initiate a main investigation, which is accompanied by in-depth inspections. The authorities should apply a risk-based approach to the investigations. They use information from various sources and apply the following criteria:

• the scale and severity of the suspected forced labour, including whether forced labour imposed by state authorities could be a concern.
• the quantity or volume of products placed or made available on the Union market.
• the share of the part of the product suspected to have been made with forced labour in the final product.

The lead competent authority may respond differently if it determines that the product under investigation was produced with forced labour. Depending on the product and the type of violation, it can, for example, prohibit the placing on the market or making available of the product or request the economic operator to prove that forced labour in the supply chain has been eliminated within a certain period of time. Fines can also be imposed.

The Commission is responsible if the suspected forced labour takes place outside the EU. If the forced labour takes place on the territory of a member state, the authority there has lead responsibility. They may cooperate with other competent authorities and request information.

3. Challenges for economic operators

All economic operators should (also) take a critical look at the supply chain of their products with regard to the EU Forced Labour Regulation and the sanctions that may be imposed in the future for violations of the ban on forced labour (in addition to fines, in particular the ban on further distribution of the products in question). To this end, they can also make use of the tools provided by the Commission. In future, companies should monitor their supply chain and document this in order to prepare for investigations. They must be able to make their findings available within a few working days in order to be able to refute the suspicions of the respective authority that justify the preliminary investigation as far as possible. In particular, companies that are subject to the Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) can draw on their already established risk management measures and supplement them accordingly.

4. Outlook

The Forced Labour Regulation is intended to open new possibilities for the authorities to intervene in EU law, such as the detention of products, and thus take a further step towards combating forced labour. Once the Regulation has been signed by the President of the European Parliament and published in the Official Journal of the European Union, the Forced Labour Regulation will enter into force on the day after publication. It will apply three years after its entry into force, i.e. probably at the end of 2027.

Dr Daniel Walden
Prof. Dr Rainer Bierwagen
Dr André Depping

^{1 See the press release of the Counsil and the English version of the Regulation}

If a managing director and an authorised signatory (a Prokurist) each grant a power of attorney for the commercial register as 'grantor' in two separate deeds, it cannot be assumed that the power of attorney is granted on behalf of the GmbH. If the applicant refuses to submit the additional documents requested by the registration court, the application for registration must be rejected.

In German limited liability companies, GmbHs, powers of attorney for commercial register matters are granted by as many members of the managing board as are needed to represent the company. These powers of attorney must be notarised. In a GmbH with joint representation, usually two managing directors, or one managing director together with one authorised signatory (Prokurist), are authorised to represent the company. In a recent decision, the Dusseldorf Higher Regional Court made it clear that two separate powers of attorney for commercial register matters, one signed by a managing director and one signed by a Prokurist, are not sufficient for a valid power of attorney. Because in a company with joint representation, two separate powers of attorney do not clearly establish that the undersigned intend to act on behalf of the represented GmbH.

Facts

The applicant is a notary authorised to act on behalf of the GmbH and filed for registration in the commercial register of a joint authorisation to represent the company in legal transactions (Gesamtprokura) for four individuals. The shareholders' agreement of the GmbH provided for joint representation. Two managing directors, or one managing director together with one Prokurist, were entitled to represent the company. B, in the role as an authorised representative of C (one of the managing directors of the GmbH) and D (Prokurist of the GmbH), signed the application for an entry in the commercial register. The request was accompanied by copies of two authorisations, in which C and D as 'grantors' each separately granted B power of attorney. The registration court initially dismissed the application with an informal interim order on the basis that B's power of attorney had not been proved to the registration court in due form. The applicant refused to submit further documents, whereupon the registration court issued the interim order against which an appeal was brought.

Decision by the Dusseldorf Higher Regional Court

The appeal was successful, but only temporarily. The Dusseldorf Higher Regional Court decided, among other things, that B had not been validly authorised. Moreover, the registration court should not have decided by way of an interim order but should have dismissed the application for registration after the applicant's refusal to submit the requested documents.

Background and Reasoning

The Higher Regional Court first clarified that the GmbH may in fact be represented by an authorised person for its registration request. Requesting the registration of a joint authorisation to represent the company in commercial matters (Prokura) in the commercial register is not a strictly personal obligation of a managing director. The senate points out that a registration requires a power of attorney certified by a notary (section 12 (1) sentence 3 of the German Commercial Code (Handelsgesetzbuch,HGB)). In a GmbH, such power of attorney is granted by as many members of the management board as are needed to represent the company.

In this respect, the Dusseldorf Higher Regional Court concludes that the powers of attorney granted by C and D are invalid, as they conflict with the stipulation on the joint representation of the GmbH. One managing director (here C) and one authorised signatory (Prokurist, here D) who each appear as 'grantors' in separate powers of attorney cannot validly grant power of attorney to a third party (here B) for commercial register applications on behalf of the GmbH. As (i) the power of attorney was not signed jointly by C and D, and (ii) the term 'grantor' used in both powers of attorney was not explicit, it cannot be assumed to imply that the power of attorney was supposed to be granted on behalf of the GmbH.

Furthermore, the registration court should have declined the request earlier, i.e. once the unsuccessful informal interim order had been issued. The interim order is an instrument for the registration court to demand the removal of obstacles to registration such as an incomplete filing. The applicant, however, refused to remove the obstacle after an (informal) interim order, insisting on the applicant's original request instead, which the Higher Regional Court finds must be considered a final refusal. This constituted a final obstacle which in turn had to result in a decline of the request for registration.

Practical Advice

In principle, powers of attorney do not have to be in the same form as the legal transaction to which the power of attorney relates (section 167 (2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB)). In derogation from this principle, powers of attorney for commercial register applications must be certified by a notary (section 12 (1) sentence 3 HGB). A representation by power of attorney for commercial register matters is, however, inadmissible, if the applicant has to make strictly personal affirmations - for example as a newly appointed managing director of a GmbH (section 39 (3) of the German Limited Liability Companies Act (GmbH-Gesetz,GmbHG)

In order for a power of attorney to be valid for the entry of the joint authorisation in the commercial register, the power of attorney must be signed by as many members of the company's management board as are required for the company's representation (i.e., if necessary, together with an authorised signatory (Prokurist). The applicant submits the original copy of the power of attorney to a notary who will submit it as an electronically certified copy, together with the actual application, to the registation court.

Two separate powers of attorney, each signed individually by the managing director and an authorised signatory as 'grantors', do not suffice in the case of a joint representation scenario. It is therefore necessary to explicitly clarify in the power of attorney that the authorised persons act on behalf of the GmbH (rather than acting as 'grantors' themselves). We further recommend that the authorised persons sign one and the same power of attorney.

Should the registration court issue an interim order (even an informal one), demanding that the applicant complete the registration filing, the applicant should think twice about refusing to give the requested information and insisting on the original filing. A refusal leads to a rejection of the registration request, with fees still being charged. Until an entry has been made, the applicant can still informally withdraw (revoke) the registration request at any time, which comes at a lower cost than a rejection.

Dusseldorf Higher Regional Court, decision of 29 August 2024 - 3 Wx 115/24

Christian Burmeister
Damien Heinrich

This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.

Bremen Higher Regional Court (OLG), judgment of 17 March 2023 – 2 U 32/20

Where the purchase is a commercial B2B transaction, the buyer has a duty under section 377 of the German Commercial Code (Handelsgesetzbuch, HGB) to inspect the goods: the buyer must inspect the goods immediately upon receipt to determine whether they are the correct goods, whether the seller has delivered the contractually agreed quantity and whether the goods have any material defects. Such inspection must be made without undue delay once the buyer has received the goods. There is no general definition of the period between delivery and inspection that can be deemed 'without undue delay'. Crucial factors include the nature of the goods, the sector, the size of the business, the organisation of the business and the need for a complex investigation. In the case of perishable goods, only a few hours may be allowed for the inspection of the goods. For complex technical products, an inspection within one to two weeks may still be considered 'without undue delay' in certain cases.

The type, form and scope of the inspection again depend on the nature, quantity and intended use of the goods. The costs incurred for the inspection, the time required, the risk of damage resulting from a defect and the technical inspection options available to the buyer must also be taken into account. The scope of the examination must be within the bounds of what is usual and reasonable. There is no need for an 'all-round inspection' for all potential defects in the goods. For larger quantities of goods, testing in the form of representative random samples is usually sufficient. Where successive and partial deliveries are made, however, the buyer must check each individual delivery separately.

If the buyer discovers defects when inspecting the goods, the buyer is obliged to notify the seller of the defects immediately − this is known as the obligation to give notice of defects. When doing so, the buyer must inform the seller of the nature and extent of the defect. Where larger quantities of goods are involved, a rough estimate of how many individual items are estimated to be defective must always be given. If there are several defects, all defects must be reported. A separate notice of defects must be issued for each partial and successive delivery. As a rule, general complaints are not enough. The notification of defects does not require any particular form, unless agreed otherwise in the relevant contract. It is, however, recommended that the written form be observed as a form of proof. After all, in the case of any doubt, it is the buyer's responsibility to prove that the seller was informed of the defect. Here it is sufficient for the protection of the buyer's rights that the buyer has sent the notification of defects in good time. The actual notification period directly follows the investigation period. Due to today's modern means of communication, it normally is no more than one to two working days. Defects in perishable goods such as fruit or flowers must be notified much earlier, in some circumstances within a few hours.

If the buyer fails to notify recognisable defects or fails to do so in good time, the buyer will lose all claims and rights based on defects that were not notified or were notified too late. This includes all warranty claims in the broadest sense with regard to defects that would have been recognisable if the goods had been properly inspected. If a defect that could not be recognised during a proper inspection of the goods is discovered later, the buyer must notify the seller of the defect as soon as it is discovered. Otherwise, the goods will be deemed approved with this hidden defect; the buyer will lose all rights and claims with regard to such defect.

The Bremen Higher Regional Court recently dealt with questions relating to the obligation to inspect for and give notice of defects in commercial sales of goods.

Background

In the matter at issue, the buyer claimed damages from the seller for the delivery of defective stainless steel elements. To no avail. Some stainless steel components were indisputably defective. Yet, the Bremen Regional Court dismissed the action because the buyer did not report the defect until 15 days after delivery of the stainless steel components and the associated test certificates.

Some of the stainless steel elements were defective because, contrary to the contractual agreement, they did not come from properly registered and certified manufacturers. The corresponding test certificates clearly showed this. The buyer could have discovered and reported the defect if the test certificates had been checked properly and in time. The buyer had in fact performed random checks. Representative samples are, however, only suitable for identical bulk goods to satisfy the inspection obligation. Rather than supplying similar bulk goods, however, the seller had supplied various types of steel elements for the manufacture of complex pipe systems, in different dimensions and strengths. When inspecting the delivery of a large number of parts of different types and dimensions from several manufacturers, the buyer must not merely take random samples if the buyer can verify the agreed quality by comparing documents and a simple visual inspection, as otherwise there is a risk of considerable consequential damage. This was the case here. It was foreseeable for the buyer that the installation of the various stainless steel components would lead to considerable installation and removal costs if defects were found. It would have been possible for the buyer to recognise the defects with reasonable effort by checking the test certificates. The promise of a certain quality by the seller does not release the buyer from the buyer's obligation to inspect the goods and give notice of defects. A (particular) confidence in the existence (or absence) of the relevant quality based on the seller's guarantee does not mean that the buyer may blindly rely on the guarantee and waive the inspection or may exercise less care.

The duration of the investigation period to be granted is influenced by the fact that the investigation depends on the submission of accompanying technical documents. A notification of defects within two weeks, starting from delivery of the goods or from receipt of the test certificates, whichever was later, was nevertheless required. As the buyer did not give notice of the defect until 15 days after receiving the goods and the separately transmitted test certificates, this was no longer 'without undue delay'. The buyer has therefore failed to fulfil the obligation to give notice of defects in due time. As a result, the buyer has lost all warranty rights (section 437 of the German Civil Code (Bürgerliches Gesetzbuch, BGB)) with regard to defects that would have been recognisable during a proper inspection. The same goes for all claims, within the broadest meaning of the word, that are based on defects that could have been recognised during a proper inspection.

Comments and Practical Advice

The ruling of the Bremen Higher Regional Court illustrates the need to know the requirements and the rights and obligations in connection with the obligation to inspect for and give notice of defects in B2B transactions. Reasonable inspection of goods and corresponding notification of defects immediately upon receipt of the goods are indispensable in commercial transactions.

The law does not state exactly how and when the goods are to be inspected. It is therefore advisable to reach individual agreements regarding deadlines and the type and manner of the inspection in order to avoid discrepancies and disputes in advance. It is also permitted to entirely exclude the buyer's obligation to inspect for and give notice of defects − for example with regard to the outgoing goods inspection taking place at the seller's premises. This, however, requires an individual agreement; general terms and conditions or standardised quality assurance agreements will not suffice.

There are particularities in cross-border commercial sales. If the buyer and the seller have not made a choice of law, the obligation to inspect the goods and notify defects is generally determined by the law applicable at the seller's registered office. As a rule, the UN Convention on Contracts for the International Sale of Goods then applies first. The UN Convention also distinguishes between the obligation to inspect the goods and the notification of defects. However, the requirements and the content of the regulations are not synchronised. The UN Convention on Contracts for the International Sale of Goods is more buyer-friendly than German law with regard to the obligation to inspect for and give notice of defects − in particular, the notice period under the UN Convention is much more generous from the buyer's point of view.

Lisa Werle

_{This post also appears in the Haufe Wirtschaftsrechtsnewsletter.}

Importers of products listed in Annex I of the CBAM Regulation will be required,

• during the transitional period from October 2023, to determine and calculate the direct and indirect emissions generated during the production of the imported goods,
• to report quarterly on direct and indirect CO₂ emissions in the country of origin and the carbon price paid in the third country (CBAM report),
• to register as a so-called CBAM declarant, being authorised to import products subject to CBAM from January 2026 and to acquire the necessary CBAM certificates.

The companies must submit their first reports by the end of January 2024.

In detail:

CBAM and the European Green Deal

Four years ago, in 2019, the European Union as a pioneer in the fight against the climate crisis, set itself the goal of achieving CO₂ neutrality by 2050, delivering on the commitments under the Paris Agreement. The European Green Deal is the overarching strategy implemented by more than fifteen new laws or changes to existing legislation, the so-called 'Fit for 55' package. The goal is to reduce net greenhouse gas emissions by at least 55 % by 2030, compared to 1990 levels.

The 'Fit for 55' package² establishes the CBAM together with changes to the current EU Emissions Trading System (ETS). The CBAM should equalize the carbon price between domestic and foreign products.

In accordance with the applicable legislative procedure, the European Commission put forward a draft which was discussed by the European Parliament (EP) and the 27 Member States in the Council. The draft was welcomed by the EP's Environment, Public Health and Food Safety Committee (ENVI) but the EP rejected the proposal as not ambitious enough. It took several months to find a compromise.

Historical and legal context

The EU has an Emissions Trading System (ETS)³ for more than fifteen years and CBAM is designed to function in parallel with this system, complementing it for imported goods.

The ETS puts a cap on the amount of greenhouse gases companies are allowed to emit. Within the cap it is possible to buy emission allowances that can be traded with. Some of the allowances are auctioned, however, the rest of the allowances are given for free by the European Commission to certain sectors at risk of carbon leakage.

Carbon leakage refers to the problem of companies relocating their production offshore, to countries with fewer environmental protection. CBAM addresses this issue, so that EU efforts to reduce greenhouse gas emissions are not undermined by production shifts causing increased emissions in non-European countries or by importing more CO₂-intensive products.

Even without counting the emissions caused by imports, the EU accounts for around 8 % of global carbon dioxide emissions. It would be counterproductive and against the objective of the Paris Agreement to decrease emissions in the EU while importing more carbon-intensive products from non-EU countries.

How the CBAM works

Under the CBAM, carbon pricing is done through the instrument of CBAM certificates, similar to ETS allowances. "CBAM certificate" means a certificate in elec-tronic format corresponding to one ton of embedded emissions in goods. Importers of certain energy-intensive goods must buy CBAM certificates to be allowed to import those goods into the EU. The required number of CBAM certificates corresponds to the total embedded emissions of the imported goods.

If a company has already paid a CO₂ price for its emissions in the country of origin, Article 9 of the Regulation provides for the possibility of offsetting against the number of CBAM certificates to be surrendered.

According to Art. 2 of the Regulation, third countries can also apply for an exemption from the CBAM if they have an equivalent carbon pricing mechanism or if there is a link with EU emissions trading system. Imports of goods from these third countries are then outside the scope of the Regulation. This already applies to goods originating in Iceland, Liechtenstein, Norway and Switzerland.

Such a linkage could also be considered in the future between the EU and the UK. Following the UK's withdrawal from the European Union, the UK has introduced its own emissions trading scheme. Currently, the UK and the EU are thinking about linking their emission trading schemes. Indeed, a final decision has not yet been made.

Under the ETS free emission allowances are to be phased out for some EU producers and the product scope of the ETS and CBAM shall converge. First, the allocation of free ETS allowances will be phased out from 2026 and completely discontinued from 2034. In addition, the scope of the ETS will also be extended to aviation and shipping from 2024, and to road transport and buildings from 2027. For the aviation sector, no more free certificates will be made available from 2026. Moreover, a shortage of allowances is planned to increase the prices for emission allowances according to the principles of the market mechanism.

CBAM transition phase

The CBAM Regulation is applicable since 1 October 2023. Articles 32 et seq. of Regulation (EU) 2023/956 provide for a gradual introduction. Under EU law, the legal basis of the CBAM is Article 192 para. 1 of the Treaty on the Functioning of the EU (TFEU), which allows the Union to act to achieve the environmental and climate objectives specified in Article 191 para. 1 TFEU.

CBAM started with importer reporting obligations in October 2023. Companies must now request access to the CBAM Transition Registry to submit quarterly reports. Under a European implementing regulation adopted in August⁴, companies must report for the first time by the end of January 2024. Failure to do so will result in penalties between €10 and €50 for each ton of unreported emissions. The actual penalty will be determined pursuant to Art. 16 para. 3 of the Implementing Regulation and can increase if the duration of non-reporting exceeds six months.

The information required in the report includes, in particular, the quantity of goods imported in tons, the total amount of direct and indirect CO₂ emissions per ton of each type of goods, and the CO₂ price paid for the imported goods in the country of origin, if any.

The submitted report can be modified until two months after the end of the relevant reporting quarter. For the first two reporting periods, a modification is possible until 31 July 2024.

In principle, the reporting obligation rests on the importer within the EU of the CBAM goods. However, the importer can transfer the reporting obligation to an indirect customs representative (e.g., the transport company) with consent. Furthermore, the reporting obligation applies directly to the indirect customs representative when the importer is located outside the EU.

CBAM fully effective starting 2026

Once CBAM is fully effective starting 1 January 2026, both EU and non-EU companies importing goods into the EU subject to CBAM will be required to apply for the status of authorised CBAM declarant and purchase CBAM certificates. The price of CBAM certificates is calculated based on the weekly average auction price of EU-ETS allowances, expressed in €/ton of carbon dioxide emitted. If an EU importer can prove that it has already been paid a carbon price during the production of the imported good, the importer will only have to pay the difference between the amount paid and the price of a CBAM-certificate.

Economic consequences and legal issues

As regards the economic consequences in the EU, the emissions-intensive industry considers that the lack of relief of the ETS burden for exports with the simultaneous expiry of the free allocation of certificates leads to imbalance and the increased risk of relocation of industries. While EU-based manufacturers of emission-intensive raw materials would be protected from imports originating in countries with lower carbon dioxide prices, the export of emission-intensive raw materials from the Union would hardly be economically viable, as the production costs would no longer be competitive in international comparison without free allocation of allowances. The U.S. Inflation Reduction Act (IRA) of August 2022 has raised additional concerns about a new subsidy race as well as a debate about the competitiveness of the European Union.

With respect to political considerations, several countries have already voiced their concerns, ranging from CBAM violating trade agreements to decrying it as blatant protectionism. Brazil, South Africa, India and China have stressed the negative implications for developing countries.

In particular, many concerns have been voiced about the compatibility of CBAM with international law. However, a CBAM compatible with the General Agreement on Tariffs and Trade (GATT) is not per se impossible and could be justified on environmental grounds. It could qualify as a border adjustable internal measure under GATT Article III or, if found to be discriminatory, could be justified under the general exceptions of GATT Article XX, relating to the conservation of ex-haustible natural resources (GATT Article XX(g)) or necessity to protect human, animal or plant life or health (GATT Article XX (b)).

Upcoming steps

To fulfil the reporting obligations, companies must first check and identify whether and which imported goods are subject to CBAM. Decisive are the CN codes of the respective goods listed in Annex I of the Regulation, and further guidance is given with sectoral factsheets.⁵

In a second step, importers must obtain all CBAM-related information from their suppliers. The Taxation and Customs Union Directorate-General (TAXUD) published guidance documents for importers in the EU and their suppliers outside the EU, together with templates.⁶

The contractual transfer of the reporting obligation to an indirect customs representative and the related contractual hedging of risks (e.g., in relation to late or inaccurate reporting) must be considered.

If there is an own reporting obligation, access to the CBAM Transitional Registry must be requested.
The quarterly reports must then be completed and submitted no later than one month after the end of the quarter in question, first time at the end of January 2024. If the required information is not yet available, the respective importer may use default values made available and published by European Commission for the transitional period until 31 July 2024.

Prof. Dr Rainer Bierwagen
Gábor Báthory

¹ Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, http://data.europa.eu/eli/reg/2023/956/oj and Commission Implementing Regulation (EU) 2023/1773 of 17 August 2023 laying down the rules for the application of Regulation (EU) 2023/956 of the European Parliament and of the Council as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period, http://data.europa.eu/eli/reg_impl/2023/1773/oj
² See European Commission, COM/2021/550, 14 July 2021
³ See https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en
⁴ Commission Implementing Regulation (EU) 2023/1773, http://data.europa.eu/eli/reg_impl/2023/1773/oj
⁵ See https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism/cbam-sectoral-factsheets_en
⁶ See https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en

Background

The judgment of the German Federal Court of Justice (Bundesgerichtshof, BGH) of 26 November 2020 on whether and to what extent the UN Convention on the International Sale of Goods (CISG) applied to arbitration agreements caused significant legal uncertainty. The Court looked closely at the formal requirements for the effective agreement of an arbitration clause and the conditions for integrating the General Terms and Conditions (CTGs) into the contract under the CISG. In this respect, the BGH confirmed its previous jurisprudence that, under the CISG, the CTGs must be sent or otherwise made available to the other party for them to be considered a component of the contract. In contrast to German law, the mere possibility to obtain the CTGs, such as by clicking on a link on the seller’s homepage, is insufficient. This is particularly important when the CTGs contain an arbitration clause. The BGH leaves the question of whether and to what extent the governing law selected by the parties in a contract also determines the law applicable to the arbitration clause (so-called arbitration statute). The French Cour de cassation answered this question in its judgment of 28 September 2022 and assessed the effectiveness of the arbitration clause – contrary to the English court that was also involved in the same case – based on French substantive law.

1. The German perspective: Judgment of the BGH of 26 November 2020 in Case No. I ZR 245/19

Brief facts of the case

The BGH was asked to decide on an objection to the application of an arbitration agreement under § 1032 (1) of the Civil Process Code (Zivilprozessordnung, ZPO). Under this provision, the defendant has until the start of the oral proceedings before the state court to file a plea that the claim is inadmissible and the court does not have jurisdiction because an arbitration agreement determines that the dispute must be decided by a court of arbitration.

Two companies located in Germany and the Netherlands had a dispute about compensation claims arising with respect to a sale and purchase agreement for goods. The contract was formed from orders from the purchaser and a document entitled “Contract of Sale” (Verkaufskontrakt), in which the seller, a spice trader located in the Netherlands, confirmed the order. The confirmation letter noted that all sales and contracts were subject to the General Terms and Conditions of Sale and Delivery. However, the purchaser was not sent these GTCs. The terms of the Dutch Association of Spice Trade (“NVS-Bedingungen”) were also not enclosed. The NVS Bedingungen contained a choice of law clause that subjected the contract to Dutch law, without application of the UN CISG, as well as an arbitration clause in favour of an arbitration court of the Dutch association in Amsterdam.

The District Court (Landgericht) issued a default judgment in written pre-trial proceedings, which the defendant appealed. In the appeal, the defendant raised the arbitration agreement. The Court dismissed the claim as inadmissible because it held arbitration clause in the NVS Bedingungen effectively formed part of the contract. The claimant appealed. The Court of Appeal held that the plea that an arbitration agreement existed was groundless so that the claim before the District Court was admissible. It referred the case back to the District Court. On further appeal to the BGH, admitted by the Appeal Court, the defendant sought to preserve the judgment of the District Court dismissing the claim.

The BGH confirmed the judgment of the Court of Appeal. The defendant’s second appeal was unsuccessful.

The judgement of the BGH of 26 November 2020 in case no. I ZR 245/19

The BGH held that the action before the District Court was admissible. In accordance with § 1032 (1) of the ZPO, the defendant could not rely on the arbitration agreement because the arbitration agreement was not effectively agreed. Under § 1025 (2) of the ZPO, § 1032 of the ZPO is also applicable where the place of arbitration is in another country, in this case, the Netherlands.

Raising the plea that an arbitration provision applied before the start of the oral hearing

The plea that the court did not have jurisdiction because of an arbitration agreement was raised before the start of the oral hearing. Through the objection to the default judgment, the proceedings reverted to the status before the defendant’s default. The plea that an arbitration agreement applied, first raised in the statement of opposition (Einspruchsschrift), was thus not delayed under § 1032 (1) of the ZPO and not precluded. The objection does not have to be raised within the deadline for the statement of defence.

Form requirements for an arbitration agreement

Under Art. II (1) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Arbitration Convention), any arbitration agreement must be in writing. In accordance with Art. II (2) of the New York Arbitration Convention, this includes an arbitration clause in a contract signed by both parties or an exchange of letters between the parties. A unilateral declaration, such as the confirmation letter signed by just one party in this case, is not sufficient.

Under the most-favoured-nation principle (see Art. VII (1) of the New York Arbitration Convention), an arbitration agreement can also be effective when the national or substantive law selected by national conflict of law rules applies fewer demands and is, therefore, more favourable. This was not the case here.

The form requirements for an arbitration agreement under § 1031 of the ZPO are also not fulfilled. Under § 1031 (2) and (3) of the ZPO, a reference to a document containing an arbitration clause shall suffice (here: the NVS-Bedingungen). This does not apply here because the arbitration clause was not effectively included in the contract.

The conditions for effectively making an arbitration clause in the GTCs part of the contract

The BGH held that the question of whether the arbitration clause was effectively part of the contract must be assessed under the UN CISG. As both Germany and the Netherlands are signatories to the CISG, the parties to the contract for the supply of goods have their registered office in a contracting state. Therefore, the UN CISG applies pursuant to Art. 1 (1) (a) of the CISG. Accordingly, for GTCs – here the arbitration clause – to effectively form part of a contract they must be provided to the other party or otherwise made accessible. This was not the case here. The arbitration clause, therefore, was not an integral part of the contract.

2. The French perspective: the judgment of the Cour de cassation of 28 September 2022 in Case No. 20-20.260

Brief facts of the case

In 2001, a Lebanese company, Kabab-Ji concluded a Master Franchise Agreement with a Kuwaiti company, Al-Homaizi Foodstuff Co (AHFC). The agreement licenced the use of the “Kabab-Ji” brand in Kuwait and provided for the agreement of individual contracts for each point of sale over ten years. The agreement expired in 2011 and the parties did not extend it. During the term of the agreement, AHFC was restructured and a holding company, Kout Food Group (KFG) was established. The franchisor, Kabab-Ji approved the restructuring in 2004, expressly agreeing that the restructuring would not otherwise affect the conditions agreed in the contracts between the parties. The Master Franchise Agreement contained a governing law clause selecting English law, as well as an arbitration clause selecting the rules of arbitration of the International Chamber of Commerce (ICC), located in Paris. However, the agreement did not contain a clear choice of law provision concerning the law applicable to the arbitration agreement.
 
In 2015, the franchisor commenced arbitration proceedings against KFG, the successor of the original contracting party. It alleged that the Kuwaiti master franchisee had not performed its contractual obligations and used the acquired know-how without authorisation to develop its own restaurants. An arbitration award from 2017 sentenced KFG to pay compensation to the franchisor, Kabab-Ji.  While Kabab-Ji (unsuccessfully) commenced proceedings before the English courts to enforce the arbitration award, KFG filed an action for annulment of the arbitration award in France. KFG appealed the judgment of the Paris appeal court (Cour d’appel de Paris), which confirmed the arbitration award, to the Cour de cassation. In particular, KFG accused the Appellate Court court of not using English law to assess the effectiveness and applicability of the arbitration clause, despite the governing law clause in the contract between Kabab-Ji and AHFC.

Judgement of the cour de cassation of 28 September 2022 in case no. 20-20.260

The Cour de cassation confirmed its jurisprudence on the law applicable to arbitration clauses. Accordingly, an arbitration clause should be considered independently from the rest of the agreement. The effectiveness of such a clause primarily depends on the common will of the parties. The governing law clause contained in the agreement does not offer any cause to also apply the governing law clause to the arbitration clause. If the parties do not agree on a specific choice of law clause, under French international private law, any conflict of law connection is not considered; instead the material provisions developed under international arbitration law apply.

These material provisions grant the arbitration courts broad powers. This includes the possibility to extend the arbitration clause (extension d’une convention d’arbitrage). Accordingly, an arbitration agreement can apply to a legal dispute between parties, which have not signed the agreement. This requires the parties to have taken part in the contractual negotiations, to have influenced them, or for there to be some other way that their agreement to the arbitration agreement can be determined. The arbitration court, therefore, had the right – based on this material provision – to assume jurisdiction.

3. Comment

Arbitration awards are internationally recognised and enforceable under the New York Arbitration Convention. Arbitration clauses are therefore often used in international supply agreements to avoid the hurdles of recognition and the enforcement of awards before state courts in countries outside the European Union, where the rules are not uniform. For the arbitration clause to be effective and fulfil its function in the case of a dispute, a few things must be kept in mind when using GTCs. Where the UN CISG applies, strict requirements apply to the inclusion of GTCs in agreements: the GTCs must actually be sent to the foreign contracting partner. A reference to the ability to view the CTGs online via a link on the homepage of the vendor may be sufficient under German law but is not sufficient under the CISG. In addition, the CTGs must either be in the common language of the contract and negotiations between the parties, or they must be in the native language of the recipient. If a German purchaser corresponds with a French vendor in French, for example, CTGs in English will not fulfil these requirements. English is not recognised as the universal contract language everyone must master. Neither the CTGs nor any arbitration clause they contain has effectively been made part of the contract.

The law applicable to the arbitration clause requires a separate connection, i.e., it will be determined separately. The law applicable to the rest of the contract does not necessarily apply. In the past, the BGH also applied the law selected in the governing law clause to the arbitration agreement; the BGH expressly left this decision open in the current case. In the Kabab-Ji case, the Court de cassation held that the arbitration agreement is generally not covered by the law applicable to the rest of the agreement in line with the governing law clause. The English court took a different view and refused to enforce the French arbitration award. In cases of doubt, therefore, international agreements should contain an arbitration agreement that expressly states which law applies to the arbitration agreement. 

Dr Birgit Münchbach
Etienne Sprösser

The language of court in Germany is German. Pleadings, therefore, must be drawn up in German. In fact, evidence may be submitted in its original language. The court, however, may require a translation. Court proceedings are in principle conducted in German as well. In order to counter-act an "escape" of companies to other jurisdictions and arbitrations, several higher regional courts and regional courts have included English-language chambers in the schedule of responsibilities since 2010, for instance, in Hamburg, Frankfurt am Main or most recently in 2021 in Berlin as well. These pilot projects, however, have failed to gain acceptance. Plans for introducing so-called commercial courts are now presented throughout Germany for the first time with the key points published on 16 January 2023. Thereby, the justice and business location Germany should be sustainably strengthened and the challenges of a globalised world with international trade and commerce should be met.

Proceedings conducted in English

The innovations do not only provide for the introduction of so-called commercial courts. Pursuant to the key point paper, the German federal states should also be able to provide that certain trade disputes can be conducted completely in English before selected regional courts. It should also be possible that appeals and complaints are negotiated completely in English at the higher regional courts. For this purpose, special senates should be set up.

So far, the German Courts Constitution Act provides that the court language is German. If it is negotiated with the participation of persons who have no command of the German language, an interpreter has to be involved. The involvement of an interpreter may only be omitted if all persons participating in the process have a sufficient command of the foreign language and agree.

There is so far the possibility to hold an oral hearing in English under the aforementioned conditions. Pleadings, protocols, and decisions, however, necessarily must be drafted in German. There is no exception. In the future, it should not only be possible that proceedings are held in English. It should also be possible that pleadings are submitted in English. This also facilitates the examination of English-language evidence such as contracts. Neither the contract itself nor the essential passages must be translated in the pleading. This immensely simplifies, for instance, the interpretation of contractual provisions.

Commercial courts

First instance special senates (so-called commercial courts) should be set up at the higher regional courts for large scale economic disputes. These commercial courts can be addressed directly from a threshold of an amount in dispute of one million euros, for instance, and if all parties agree. Then, the parties may skip the regional court as an instance and litigate directly at the commercial court. The commercial courts are composed of judges who have a very good command of English. For the proceedings before commercial courts, the possibility should in addition be given to prepare a verbatim record, as it is already known from the arbitration. The parties should already be able to read this verbatim record in the proceedings.
It should be possible to lodge an appeal before the German Federal Court of Justice (BGH) against the decision of the commercial courts. If the proceedings before a commercial court are conducted in English, comprehensive proceedings in English should also be possible - in agreement with the responsible senate of the BGH.

The enforceability of English decisions of the regional courts as well as of the commercial courts and of the BGH should be ensured by means of translations into German. In order to facilitate the further development of the law, the translations should also be published.

Video hearings

During the corona pandemic, online court proceedings were increasingly conducted. A first step towards the modernisation of court proceedings already became evident here. The use of video conferencing technology has already proven its worth. Therefore, its use and distribution should now not be scaled back again. The objective is to extend online proceedings in the ordinary jurisdiction as well as in the specialised jurisdiction, to make them more flexible and, above all, to make them more practicable.

Protection of business secrets

In the future, business secrets should receive more extensive protection than before in civil proceedings. This is to be achieved by extension of the rules of procedure of the German Trade Secret Protection Act (Geschäftsgeheimnisschutzgesetz) to all civil proceedings. Court proceedings are in principle open to the public in Germany. So far, the general public could only be excluded in the course of a court hearing if an important business secret was discussed. In the future, it should be possible to advance the protection of business secrets to the time the action is filed. It should not be possible to use or disclose information classified as confidential outside court proceedings.

Remarks

The proposals of the German Federal Ministry of Justice to strengthen the courts in economic disputes are to be welcomed. Their legislative implementation is open, however, desirable. So far, the ordinary jurisdiction in Germany offers few contemporary process instruments for large international economic disputes Key problems such as the recognition of German judgments in part not existing in third countries so far - in particular China - should also be addressed in this context through diplomatic channels.

Moritz Kopp LL.M.
Chiara-Lucia Peterhammer

BGH, Judgement of 06 October 2022 - VII ZR 895/21

Brief summary of facts

The parties to the dispute argued about the payment of work wages. The Plaintiff's lawyers sent an e-mail ("first e-mail") to the Defendant on 14 December 2018 at 09.19 a.m. In this e-mail, the Plaintiff had its lawyers state that the claim from the final invoice still amounted to EUR 14,347.23 and that, in addition, only legal fees in the amount of EUR 1,029.35 would be claimed as damages for delay. In another e-mail sent on 14 December 2018 at 09.56 a.m. ("second e-mail"), its lawyers clarified less than an hour later that the first e-mail should be disregarded as a final review of the amount of the claim had not yet been carried out by the Plaintiff. The right to assert further claims remains reserved according to the e-mail. On 17 December 2018, the Plaintiff submitted a higher final invoice in the amount of EUR 22,173.17. A few days later, on 21 December 2018, the Defendant transferred to the Plaintiff EUR 14,347.23 on the main claim and EUR 1.029,35 to reimburse the legal fees. The Plaintiff filed an action for payment of the difference of EUR 7,825.94 between the first and the second final invoice.

The Regional Court dismissed the action. The appeal before the Higher Regional Court also remained unsuccessful for the Plaintiff. In the appeal before the BGH, the Plaintiff sought payment of the differential amount.

BGH, Judgement of 06 October 2022 - VII ZR 895/21

The BGH confirmed the decision of the Regional Court and the Higher Regional Court; the appeal was without success. The BGH considered the first e-mail to be an offer by the Plaintiff to conclude a settlement. According to the Court, the Defendant accepted the settlement offer by making the payment a few days later. Thereby, the legal relationship between the parties was completely replaced by the new agreement on a reduced work wage, the settlement (so-called novation). The offer made in the first e-mail was binding because it had been received by the Defendant and had become effective upon receipt (cf. Section 130 (1) German Civil Code (BGB)). The second e-mail was not to be regarded as a valid revocation within the meaning of Section 130 (1) sentence 2 BGB (see below).

The background to the Court's reasoning is the difference between the acceptance period of an offer (Section 147 (2) BGB) and the revocation period of an offer (Section 130 (1) sentence 2 BGB). In each case, it is a matter of making offers to absent parties. A contract is concluded by offer and acceptance. The acceptance period is the time during which an offer is binding and can be effectively accepted. The revocation period is the period of time during which an offer can still be withdrawn by revocation. The revocation period ends with the receipt of the declaration of intent. This means that revocation is only possible before or at the same time as receipt of the declaration of intent (cf. Section 130 (1) sentence 2 BGB). The acceptance period, on the other hand, runs until the time when the recipient's response can normally be expected, cf. Section 147 (2) BGB. In the present case, the BGH confirmed that the offer made by the Plaintiff could be accepted within an acceptance period of approximately two to three weeks.

Receipt of a Declaration of Intent by E-mail

Since the revocation of an offer is only possible until the receipt of the offer, the revocation period decisively depends on the receipt. According to settled case-law, a declaration of intent among absent parties (e.g. an offer transmitted by e-mail or mail) is deemed to have been received if it has reached the recipient's sphere of influence in such a way that the recipient has the opportunity to take note of the content of the declaration under normal circumstances. According to the Federal Court of Justice, an e-mail that is received on the recipient's mail server within normal business hours, i.e. is made available to the recipient ready for retrieval, is already delivered when it is received on the recipient's mail server. Whether the e-mail is actually retrieved, opened, and read by the recipient is irrelevant. The only decisive factor is the possibil-ity of taking notice.
Therefore, the first e-mail, with which the settlement offer was made, was already delivered on 14 December 2018 at 9.19 a.m. The second e-mail, which was received 37 minutes later, therefore did not constitute an effective revocation of the settlement offer. This is because a revocation of the settlement offer was no longer possible after receipt. The settlement was reached by transferring the offered amount on 21 December 2018 - i.e. still within the acceptance period of two to three weeks. This leads to the effective conclusion of the contract or, in this case, to the conclusion of the settlement. There is no legal basis for a later additional claim for the difference, as the Plaintiff asserts in the lawsuit. The contract concluded between the parties, on which the Plaintiff's original claim for payment of the higher work wage was based, was replaced by the settlement, which reduced the work wage claim. Furthermore, the BGH clarified that the acceptance of an offer that was unsuccessfully revoked - due to being too late - did not violate the principle of good faith and was thus effective.

Background

With its ruling, the German Federal Supreme Court decided on the extremely practice-relevant, yet so far unresolved question of the receipt of a declaration of intent by e-mail. The decision relates to the receipt of e-mails during normal business hours. The question of when an e-mail is received when sent outside normal business hours or on public holidays has not yet been clarified. The facts of the case decided by the BGH did not give rise to a need to clarify this question.

There are different opinions on when an e-mail can be expected to be retrieved in the course of business when it is received outside business hours. It is predominantly argued that the receipt then takes place on the following business day, at the latest by the end of business hours. It is generally agreed that actual knowledge of the content of the e-mail is not required for receipt.
For the sake of comparison: According to prevailing opinion, a declaration of intent transmitted by letter is delivered when it is received in the recipient's letterbox. The digital counterpart to the letterbox is the mail server. According to the BGH, the server is already within the recipient's sphere of influence.

Note

It is encouraging that the BGH has now ruled on the previously unresolved question of the receipt of an e-mail, the most common type of communication in business transactions. However, some legal questions remain unanswered: The BGH's decision only relates to business transac-tions. It remains unclear whether and to what extent the principles on the receipt of e-mails also apply to private individuals.

In practice, the problem of the burden of proof still remains. It is often not technically feasible to prove that an e-mail was stored on a (third-party) server. However, this is a prerequisite for the receipt. Not every server supports the automatic sending of a transmission confirmation. A read receipt is not suitable because it is up to the recipient to send it or not. Moreover, the fact that the e-mail was actually noticed is irrelevant for the receipt. However, mere proof that the e-mail was sent, and that no non-delivery notification was received is not sufficient to prove receipt. This is because there is no legal presumption that an e-mail sent arrives at the recipient's server, any more than there is a presumption that a letter arrives at the recipient.

The BGH's decision also demonstrates that once an offer has been validly made, it is in fact not revocable when transmitted by e-mail, as the e-mail arrives on the recipient's incoming server within seconds, is ready for retrieval and has thus been delivered. If one wishes to reserve the right to make changes to the offer, it is therefore recommended to make this clear by means of an appropriate disclaimer. For example, the offer could be marked "without recourse" or "subject to change". This is the only way that a unilateral adjustment is still possible at a later point in time. This applies to offers in general. After all, even if the offer is sent by regular mail, it must be expected that it will be accepted quickly by the recipient. The revocation or amendment of the offer then is too late.

Dr. Birgit Münchbach

The Terreal businesses to be acquired by Wienerberger are expected to generate revenues of EUR 740 million and a run-rate EBITDA of approx. EUR 100 million in 2022. The enterprise value of the respective Terreal businesses amounts to EUR 600 million, subject to customary adjustments. The acquisition agreement was signed at the end of December, marking the start of the exclusive negotiation phase. The closing is expected to occur in the course of 2023.

The merger control part of the transaction is led by ADVANT Beiten partners Uwe Wellmann and Christoph Heinrich who are jointly responsible for German merger control and coordinate a team of law firms in various jurisdictions. Cross-border merger control advice is provided in cooperation with, inter alia, ADVANT Altana in France, Binder Grösswang in Austria, Woźniak Legal in Poland and Radovanović Stojanović & Partners in Southeastern Europe.

The M&A work stream was led by E+H (Vienna, Graz). ADVANT Beiten partner Dr. Mario Weichel took over its German part and together with a multidisciplinary team performed the legal due diligence on the Creaton business. ADVANT Altana was responsible for the French due diligence.

Advisers to Wienerberger:
ADVANT Beiten: Uwe Wellmann (Berlin) and Christoph Heinrich (both lead partners, both Competition law), Dr Mario Weichel, Maximilian Matusewicz (both Corporate/M&A), Cathleen Laitenberger (Competition Law), Anja Fischer (Real Estate), Katrin Lüdtke and Philipp Früh (both Public Law), Christian Hess (IP), Michael Ziegler and Petra Fendt (Finance), Chiara Peterhammer (Commercial, all Munich), Nima Valadkhani (Commercial), Wolf J. Reuter (Employment Law) and Dr Ariane Loof (Data Protection, all Berlin).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Uwe Wellmann
Lawyer
ADVANT Beiten
+49 30 26471-243
uwe.wellmann@advant-beiten.com

The ADVANT Beiten team around lead partner Dr Sebastian Weller provided full support for the complex transaction across practice groups and offices: from the preparation and structuring of the transaction (including due diligence), to the negotiation, implementation and closing of the transaction including antitrust notification.

Medline is a leading global healthcare company that manufactures and distributes high-quality medical and surgical products. Medline Europe was founded in 2011 and operates branches, as well as production and distribution centres throughout Europe.

Asid Bonz is a leading supplier to clinics and hospitals in Germany, offering high-quality products for surgery, anaesthesia, ward care and urology. Asid Bonz was founded in 1811 and is known worldwide for having developed the first anaesthetic ether. In 2021, Asid Bonz achieved a turnover of more than 30 million euros and supplied more than 1,100 hospitals in Germany.

With similar business models and excellent customer service, the two companies are an excellent strategic fit. In the future, Medline will make the Asid Bonz brand available to its broad European customer base outside of Germany. Within Germany, Asid Bonz sales representatives will have access to selected Medline products to further expand their partnership with customers.

Advisor to Medline International B.V.:
ADVANT Beiten: Dr Sebastian Weller (Corporate/M&A, in charge), Nico Frielinghaus (Corporate/M&A), Dr Tassilo Klesen (Corporate/Commercial), Markus Schönherr (Corporate/M&aA), Dr Patrick Hübner (Investment Control), Peter Weck (Labour Law), Dr Andrea Pomana (Antitrust), Christoph Heinrich (Antitrust), Marco Mirceta (Antitrust), Mathias Zimmer-Goertz (IP), Christian Döpke (Data Protection), Dr Marion Frotscher (Tax), Simon Bauer (Tax), Katrin Lüdtke (Public Law), Sascha Opheys (Subsidies).

Advisor to Medi-Globe Europe:
White & Case: Dr Stefan Koch, lead partner

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
Frauke.Reuther@advant-beiten.com

Dr Sebastian Weller
Lawyer
ADVANT Beiten
+49 (211) 51 89 89 - 134
Sebastian.Weller@advant-beiten.com

In the judgement, the 20th Civil Chamber of the Regional Court of Bonn agreed with the defendant's argument that a withdrawal from the contract could not be made without first setting a deadline.

The defendant supplier had participated in the open-house procedure of the Federal Ministry of Health for the procurement of protective equipment in the corona pandemic and delivered 2 million protective masks. According to the opinion of the 20th Civil Chamber of the Regional Court of Bonn, the defendant is entitled to the purchase price for all protective masks. According to the court, it was irrelevant whether the protective masks were defective, as the defendant was entitled to subsequent performance. However, the plaintiff had not set the defendant such a deadline for subsequent performance, so that it could not subsequently withdraw from the purchase contract for the protective equipment. Furthermore, the plaintiff could also not invoke a transaction for delivery by a fixed date. In return, according to the opinion of the 20th Civil Chamber of the Regional Court of Bonn, the defendant is entitled to the outstanding part of the purchase price, which was asserted by way of counterclaim by the defendant.

The clear ruling of the Bonn Regional Court should also strengthen the position of the other suppliers in the open house proceedings, whose claims are still pending before the Bonn Regional Court. ADVANT Beiten represents a large number of medium-sized companies in the enforcement of claims against the Federal Republic of Germany arising from contracts for protective equipment.

Advisor to Supplier:
ADVANT Beiten: Moritz Kopp (in charge, Munich), Juliane Schöttler (Frankfurt), Dr. Philipp Sahm (Frankfurt), Alexander Braun (Munich), (all Commercial/Litigation).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Moritz Kopp
Lawyer
ADVANT Beiten
+49 89 35065-1303
Moritz.Kopp@advant-beiten.com

Founded in 2014, the Berlin-based start-up JUNIQE specialises in prints and posters by artists and is excellently positioned in the market. Since its foundation, JUNIQE has received more than 20 million euros in capital from shareholders, including well-known names such as Vorwerk Ventures, High-Tech Gründerfonds and the Cewe Foundation. The founders of JUNIQE leave the operational management but remain closely associated with the company in an advisory capacity. The JUNIQE location in Berlin and the brand will be retained. The number of MYPOSTER employees increases by 70 to 350 with the takeover.

MYPOSTER was founded in 2011 and has experienced rapid growth in recent years. The MYPOSTER group includes the brands myposter, Kartenliebe, ArtPhotoLimited and its own production company Printhouse. The takeover of JUNIQE is MYPOSTER's largest acquisition to date and represents a milestone for the company. MYPOSTER will further develop JUNIQE's business model strategically and innovatively and thus expand it into an even stronger provider in European e-commerce.

Advisors to MYPOSTER:
ADVANT Beiten: Dr Sebastian Weller (in charge, Corporate/M&A/Venture Capital, Dusseldorf), Dr Martin Rappert, Dr Julia Offermanns, Nico Frielinghaus, Dr Winfried Richardt, Markus Schönherr (all Corporate/M&A, alle Dusseldorf), Tassilo Klesen (Corporate/Commercial, Berlin), Wilken Beckering (Corporate/Commercial, Dusseldorf), Lelu Li (Commercial, Berlin), Thomas Herten (Real Estate, Dusseldorf), Peter Weck (Labour Law, Dusseldorf), Christoph Heinrich (Antitrust, Munich), Mathias Zimmer-Goertz (IP, Dusseldorf), Christian Döpke (Data protection, Dusseldorf), Helmut König (Tax, Dusseldorf), Jan Christian Mohrmann (Tax, Frankfurt), Dennis Grimmer, Vivienne Sulek (both Financial Due Diligence, both Dusseldorf).

Advisors to JUNIQE: Osborne Clarke (Nicolas Gabrysch, Alexandra Nautsch)

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr. Sebastian Weller
Lawyer
ADVANT Beiten
+49 (211) 51 89 89 -134
Sebastian.Weller@advant-beiten.com

The new regulations mainly affect the B2C area but also have effects on the B2B area. As a result, contracts, terms and conditions and processes must be adapted to the new regulations.

The most important changes due to the implementation of the Directive 2019/771 are briefly summarized below:

1. New requirements for the conformity of goods, sec. 434 German Civil Code (BGB)
According to the new definition of material defect, goods are considered as free of material defects if they comply with the subjective requirements, the objective requirements, and the assembly requirements (including installability) upon transfer of risk. Nevertheless, contractual deviations due to quality agreements are still possible. In B2C contracts, however, only if the consumer was explicitly informed before submitting his contract declaration that a certain feature of the product deviates from the objective requirements and the deviation is expressly and separately agreed in the contract. It is therefore not sufficient to include such an agreement in terms and conditions.

2. Changes regarding the subsequent performance claim and in the supplier recourse
Further changes affect the claim for subsequent performance, Sec. 439 German Civil Code (Bürgerliches Gesetzbuch - BGB). Among other things, an obligation to take back the defective product at the seller's expense is included in the event of subsequent delivery.
At the same time, the regulations on supplier recourse were expanded to include the reimbursement of these take-back costs. Furthermore, the supplier's obligation to pay compensation for seller's expenses due to a breach of an update obligation when purchasing goods with digital elements have been added. Finally, the maximum limit of the suspension of expiry of five years since delivery of the product from the supplier to the seller has been abolished (Sec. 445 b (2) German Civil Code (BGB)).

3. Changes in the purchase of consumer goods
Numerous changes can be found in the special regulations for the purchase of consumer goods (Sec. 474 ff. German Civil Code (BGB)). In the future, for example, a consumer is entitled to assert his warranty rights when he was aware of the defect at the conclusion of the contract.

• Withdrawal costs
  In addition, there are some new regulations for the rescission from the purchase of consumer goods. If the customer withdraws due to a defect, the entrepreneur must bear the costs for returning the purchased product. If the consumer proofs that he sent the product back to the purchaser this is already considered as the actual return of the purchased product. In the future, an entrepreneur will therefore not only have to bear the costs of the return but will already have to reimburse the purchase price when the consumer proofs sending back the product.
• Formal requirements
  The new law also introduces special information obligations for the seller in Sec. 476 German Civil Code (BGB). For example, there are new prerequisites for an effective shortening of the limitation period for used items. In the future an explicit notice and a separate agreement with the consumer will be necessary. The same applies to negative quality agreements.
  In the future, increased formal requirements will also apply to guarantee declarations in accordance with Sec. 479 (3) German Civil Code (BGB). Sec. 479 now regulates in detail what content a guarantee declaration must have. Nevertheless, a violation of this regulation does not affect the effectiveness of the guar-antee obligation.
• Reversal of the burden of proof
  There is a change in Sec. 477 German Civil Code (BGB) regarding the previously applicable six-month reversal of the burden of proof in the event of defects. This is now being extended to one year in favor of the consumer. In the future, one year after delivery of the purchased product, a defect is considered as already having existed when the purchased product was handed over. It is to be expected that this change will lead to an increased number of warranty cases in the future.

4. New B2C regulations for products with digital elements and digital products
Extensive new regulations can also be found in the sale of products with digital elements (Sec. 475b et seq. German Civil Code (BGB)) and consumer contracts for digital products (digital content and digital services) (Sec. 327 et seq. German Civil Code (BGB)). In this area, there are new obligations to provide updates and to inform the customer about the availability of such updates.

5. Recommendation
In the next weeks, every company should review contracts, terms and conditions and processes and, if necessary, adapt them to the new regulations. The first thing to do is to check which products are distributed and to whom they are distributed. In the B2C area, additionally the regulations of Sec. 474 et seq. German Civil Code (BGB) apply, which for example contain special information obligations (Sec. 476 German Civil Code (BGB)). As far as digital elements are provided the special regulations of Sec. 475b et seq. German Civil Code (BGB) apply in the B2C area additionally. If digital content or services are provided, the applicability of the new Sec. 327 et seq. German Civil Code (BGB) must be considered. When revising general terms and conditions, special attention should be paid to the adaptation of regulations on warranty law. In the context of the adaptation of processes, the new information obligations of Sec.476 German Civil Code (BGB) must be observed.

Dr Julia Offermanns

The coronavirus "SARS-CoV-2" is becoming an increasing burden for human beings and the economy. In view of the rapid development, an illness of employees or the official order of quarantine can lead for the contractor to the fact that obligations can no longer be met fully. But also principals may be subject to cooperation duties which they possibly can no longer fulfil. Claims of the respective other contracting party may be the consequence.

In the light of recent events, we provide you with a brief overview of the main questions arising in this context. Below you will also find a list with recommendations which we have compiled based on the legal requirements and our experiences.

1. Information requirements

As soon as it becomes evident that the fulfilment of contractually owed duties is delayed or stopped, you should inform your contract partners immediately and as a precautionary measure.

Many agreements contain information requirements, for instance for the case that there is a threat of default of performance.

If information requirements are not explicitly regulated in an agreement, then they may also stem from statutory provisions. Since each contracting party is obliged to be considerate of the interests of the other party.

If the contracting party concerned does not sufficiently comply with these contractual or statutory duties, then contractual penalties may be set off. In addition, claims for damages are impending.

2. Obligation to provide services

For many contractors, the question arises at what point in time they are no longer obliged to provide services and whether this applies permanently or only temporarily.

As is so often the case: It depends on the particular case. Under no circumstances, however, contractors should assume in general that they are no longer obliged to provide services. Claims for damages of the principals may be impending.

2.1 Contractual guarantees

In many cases, contractors have assumed a contractual guarantee for the provision of services, in particular a provision of services at a certain point in time. Depending on the content, this can result in a liability without fault in the event of services not provided or not provided in time.

2.2 Contractual clauses on force majeure

Many agreements provide for so-called force majeure clauses. In the event of force majeure, these clauses should exempt the parties from their service obligations partially or entirely, often limited to the duration of the event.

Force majeure is an event inflicted from outside which cannot be averted even with the utmost diligence that can reasonably be expected and which cannot be attributed to the spheres of the contracting parties. The consequences of epidemics may lead to the assumption of force majeure in individual regions. Whether and when you are actually exempt from a service obligation - and to which rights your contract partner is entitled in this case - depends on the arrangement of the clause, its effectiveness, the applicable law and the specific circumstances of the case.

Agreements should be examined for the existence and the effectiveness of force majeure clauses. Nevertheless, you should not recklessly rely on a force majeure clause under no circumstances. In many cases, these clauses are for the purposes of clarification only and they do not extend the release from the service obligation of the parties beyond the legal requirements. In addition, a general classification of the coronavirus as a case of force majeure is not possible.

2.3 Impossibility to provide services

German law requires that a debtor does no longer have to provide a service if the provision of the service is impossible for him/her. This can also apply temporarily. The debtor may also refuse the performance if the debtor´s necessary expenditure is grossly disproportionate to the interest in performance of the creditor.

In the event of a loss of personnel, individual services or entire projects may be quickly jeopardised. It involves a lot of effort to find suitable replacement staff. Also due to other circumstances, the provision of services can be disrupted or - allegedly - be made impossible.

Nevertheless, the principle applies here too: For your own safety, do not assume in general that you are not obliged to the provision of services. The legal requirements for an "impossibility" or a disproportionate effort of the provision of services are high. If you wrongly refuse the provision of services, you may be exposed to claims for damages - and apart from that you may be further obliged to provide Services.

3. Liability, rescission, termination, contractual adjustments

If you cannot meet your service obligations, this may result in claims for damages of the other party.

Please note: In principle, the law assumes that you are also responsible for the deficient provision of services. You will possibly have to provide evidence that you did not cause the failure to provide services with deliberate intent or with gross negligence.

It can only be determined on a case-by-case basis which diligence requirements can be expected and which operational measures are to be taken. However, please document all measures in order to be able provide evidence in the case of dispute that you were not at fault if you were no longer able to provide a service.

In addition, deficient provision of services may lead to a contractual or statutory right of rescission or right of termination. In the worst case, for instance in case of corresponding contractual provisions, a warning of the other party is not even necessary for this purpose. The assessment whether and to what extent an agreement can be terminated or the other party can rescind, depends on many factors. In the individual case, also a - mutual - right to contractual adjustments may exist.

Our recommendations:

• Please examine your contractual relationships for the existence of:
  - guarantees
  - force majeure clauses
  - contractual penalties
  - information requirements
  - cooperation duties
  - service times

• Carry out a risk assessment on the basis hereof. Do not hastily assume - despite a force majeure clause - that you are no longer obliged to provide services.
• Inform your contract partners early on threatening failures to provide services: By contacting your principals early, a constructive environment and solutions for both sides can be created.
• Document all operational measures taken to maintain your business operations. In the event of a dispute, you will possibly have to set out and prove these measures.
• Examine whether for the case of a closure of the company or failures to provide services an insurance exists which covers possible damages on your part.

Should you have any further questions, please do not hesitate to contact our experts.