GTC Law part 1: The challenges of German law governing GTC and the escape route into an individual agreement

A central task of the General Terms and Conditions (GTC) should be to limit and allocate risks in business transactions. However, it is precisely this task that the GTCs under German law hardly fulfil, even in B2B transactions. If a provision in GTC deviates from the guiding principle of dispositive law, in case of doubt it may be not enforceable (see § 307 BGB). The case law of the German courts is restrictive. This means that suppliers and service providers hardly have any leeway with their GTCs. In order to effectively limit and allocate risks, entrepreneurs have to resort to an individual agreement. In practice, however, it becomes apparent that the demarcation between invalid GTC provisions and enforceable provisions in individual agreements is enormously difficult and numerous pitfalls lurk. I present some of them in the following article.

High threshold to prove the existence of an individually negotiated agreement

The case law distinguishes between independent and dependent supplements to standardised contractual terms. Dependent supplements are treated as general terms and conditions. These include, for example, the insertion of name and address in a pre-formulated text. These additions do not make standardized terms to an individual agreement.

Independent supplements, on the other hand, can establish an individual agreement. They reflect the free will of the contracting party. This may be the case if the customer can determine the term of the agreement or can choose between different alternatives of the agreement (so-called choice of tariff). However, the boundaries are sometimes close and depends on whether the customer's decision is recognisably autonomous.

Negotiating or bargaining?

Whether an individual agreement is enforceable depends in many cases on whether there has been active negotiation (“Aushandeln”) or mere passive negotiations or discussions (“Verhandeln”). Active negotiation requires that the provider of the general terms and conditions is seriously prepared to accept changes and substantial modifications. In order to do so, the sometimes far-reaching "non-statutory core content" of a provision must be made available for negotiation in accordance with § 307 (2) no. 1 BGB. In this respect, the other party must be granted freedom of design in order to protect its interests. Only then can such an amendment be classified as actively negotiated and therefore enforceable provision.

Changes according to interests of the contracting party

If the pre-formulated provisions have been amended according to the proposal of the other party, they constitute an enforceable individual agreement. At least this is the current view of the German Federal Supreme Court. For this to be the case, however, the user of the GTC must have granted his customer equal contractual freedom. If, for example, a party states that a certain clause is non-negotiable, then there is no room for individual agreement.

Adopt pre-formulated clauses?

It is disputed when the adoption of pre-formulated clauses is also sufficient to establish an effective individual agreement. The BGH has clarified that active negotiation cannot be replaced by the fact that a pre-formulated clause was merely discussed seriously and extensively".

Moreover, case law considers it necessary that every single provision of an agreement must be negotiated in order to assume a complete and overall individual agreement. This has the consequence that almost every agreement is subject to sub and the contractual freedom is strongly restricted.

Case law makes negotiations difficult

The examples show the pitfalls that lurk when drafting contracts. The case law of the Federal Court of Justice (BGH) makes it considerably more difficult to negotiate contracts individually in a legally secure manner in business transactions. This is a major problem for the acceptance of German law. We support entrepreneurs in the evaluation of risks in general terms and conditions and advise them on the drafting of contracts.

Michaela Witzel, LL.M. (Fordham University School of Law), Certified Expert for IT Law