Bridging linguistic barriers, streamlining international dealings, and reducing costly translations; the demand for German law contracts in English is high. Join us as we delve into the intricate web of crafting legally robust contracts and untangle the complexities that emerge when the universal language of business meets the exactness of German jurisprudence.
English Contracts, German Rules
German is the official and court language in Germany, Austria, Switzerland, and Liechtenstein. In Belgium, Luxembourg, and South Tyrol in Italy, German is used in administrative and court proceedings alongside the local official languages. German law applies to English-language contracts in two scenarios: either the contractual parties mutually agree upon the application of German law, or German law comes into effect following the principles of international private law.
Why choose the English language for a German law document?
There are numerous reasons why German contract documents are drafted in English. Perhaps the contractual partner is from the UK, the U.S., or a non-German speaking country, and wishes to understand the contract without constantly needing to consult a translator. It could be that a German subsidiary has an American parent company looking to standardize all contracts within the corporation in English. The same situation often arises during takeovers: the new English-speaking owners wish to understand the contracts of their companies themselves.
In practice, it also occurs that neither contractual party speaks German, but both desire a neutral jurisdiction in which neither party has the upper hand. Swiss law is frequently chosen under these circumstances, as contractual partners believe the political neutrality of Switzerland is reflected in balanced and neutral civil law.
Non-legal reasons also exist: some companies just want to appear modern. For instance, certain IT companies use English-language contracts even within purely domestic German legal transactions.
Conflict of Laws Principles leading to German Law
For most EU member states like Germany or Austria, the uniform Rome I Regulation governs international private law for contractual relationships. Article 3 contains regulations regarding the choice of law. According to this, choosing German law is possible even without the contractual partners having a specific relationship with Germany or the contract having a particular proximity to German law. The option to choose a legal system that is neutral to the contractual parties is therefore allowed.
An exception only applies „where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen“. In that case, at least the mandatory regulations according to the legal system of this state apply.
(1) A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract.
(2) The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice made under this Article or of other provisions of this Regulation. Any change in the law to be applied that is made after the conclusion of the contract shall not prejudice its formal validity under Article 11 or adversely affect the rights of third parties.
(3) Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.
(…)
Article 3 Rome I Regulation
Switzerland and Liechtenstein follow their own set of rules.
The Insurmountable Language Barrier
What is the crux of the issue? Why is it difficult to describe situations under German law in English?
One reason is that non-native contract drafters proficient in English are not necessarily experts in the respective English law. Just as laypeople who are native English speakers may struggle to express legal concepts accurately, foreign lawyers and contract drafters may not be familiar with the intricacies of e.g. U.S., English, or Hong Kong law. This fact is often obscured by these individuals‘ ability to speak conversational English at a high level. During contract drafting, errors and inconsistencies can frequently creep in, often overlooked by both contractual parties.
However, a far larger issue is that many German legal concepts lack a direct equivalent in English-speaking legal systems. English-speaking legal orders address many situations differently than German law, meaning that entirely different legal concepts may be used to solve problems, or issues that need resolution in German law might not even arise, and thus, no specific legal concept exists.
The German capital offense „Mord“ has different requirements than the criminal offenses of „first degree murder“ or „second degree murder“ in the U.S. states or their common law equivalent, although „Mord“ and „murder“ are clearly etymologically related. Can „murder“ therefore really be the correct legal translation for „Mord„?
Some issues exist solely in German law. In such cases, the English language often has not even developed a rough term for the German legal concept – creating a potential pitfall for misinterpretations of contracts.
German Legal Concepts Absent in English Law
Trennungs- und Abstraktionsprinzip (separation and abstraction principle)
One of the most intriguing peculiarities of German law, particularly from the perspective of English-speaking jurisdictions, is the German principle of separation and abstraction.
According to the German separation principle, obligations under the law of obligations, such as purchase contracts, are strictly separated from in rem dispositions, like transfers, assignments, or set-offs. To fulfill most contractual obligations, a contractual partner must make such a disposition.
The abstraction principle takes it a step further, stating that obligations and dispositions are legally effective independently of each other. In other words, a disposition does not become ineffective merely because the underlying obligation is ineffective or because there is no underlying obligation at all.
Under German law, entirely abstract dispositions without a legal obligation are possible. On the other hand, obligations are also possible that, due to the lack of disposition possibilities, can realistically never be fulfilled. Thus, in German law, it is possible to sell other people’s goods or make short sales, as long as these are not particularly regulated, like financial products.
The specialized field of the law of unjust enrichment contains many regulations to eliminate unjust enrichment and reverse injustices.
This peculiarity of German law has implications for contract drafting. In German law, there is a substantial difference between the contractual phrasing „the party assigns“ and „the party is obliged to assign„. In the first case, the assignment is present as a disposition, while in the second case, the other party might have to legally enforce the declaration of assignment if necessary. These distinctions often blur in English-language contract drafting.
Erfüllungs- und Verrichtungsgehilfe (liability for third-party conduct)
German law outlines differing responsibilities for third-party conduct. Depending on whether a breach of contract is involved or the tort liability that does not require any privity of contract, there are varying conditions for when one must be accountable for a third party’s behavior, and different legal terminologies apply.
The term „Erfüllungsgehilfe“ refers to individuals enlisted by a contract party to fulfill contractual obligations, as per Sec. 278 of the German Civil Code (Bürgerliches Gesetzbuch – BGB). This is comparable but not identical with the principal’s liability for the acts of agents.
The term „Verrichtungsgehilfe“ refers to individuals who cause damage to someone else while carrying out tasks for another, as defined in Sec. 831 BGB. This is comparable but not identical with vicarious liability and the respondeat superior doctrine.
Especially when contract parties arrange their liability in a contractual relationship they often use terms like „Erfüllungsgehilfe„. In English-language contracts, the appropriate terminology must be used to denote the correct legal concept.
Termination of Contracts
Like other legal systems, German law recognizes numerous legal concepts that can terminate a contractual relationship. Among these are:
English language also recognizes many terms for contract termination, each of which can have different prerequisites and meanings depending on the jurisdiction:
These terms can often lead to misunderstandings in translation.
Unconscionability
German law recognizes the legal concept of Sittenwidrigkeit. Pursuant to Sec. 138(1) BGB, legal transactions are null and void if they violate good morals. This legal concept is closely related to the common law concept of ‚unconscionability‚. Unlike in the United States, where the unconscionability defense typically requires both procedural and substantive unconscionability, the German definition is broader. Immoral content of a contractual provision alone suffices. Superior bargaining power is not required. Contractual clauses, which might be permissible under U.S. or English legal understanding, could already reach the limit of unconscionability in the eyes of German courts.
In addition, German law stipulates certain specifics regarding permissible clauses. For instance, a liability exclusion in advance for intentionally inflicted damages is ineffective under Sec. 276(3) BGB. The possibility of limiting liability is severely limited under German law. On the other hand, disclaimers and warranty and liability regulations in German contracts do not need to be in conspicuous language.
Significant Differences Even Among German-Speaking Legal Systems
The legal systems of German-speaking countries differ significantly in certain areas and have legal concepts that do not exist in the other jurisdictions. These include, for example, the Swiss concept of Integritätsentschädigung, a capital compensation for accident victims; the Austrian principle of Stille Annahme, which signifies contract acceptance through silence; and the German concept of Kaufmännisches Bestätigungsschreiben, the confirmation of a verbal contract conclusion.
U.S. and UK Legal Concepts with No German Equivalent
Just as in the reverse scenario, there are numerous legal concepts from the English-speaking legal sphere that are not known in the German-speaking legal orders. This is largely due to the English-speaking legal world being mainly influenced by common law, while German-speaking countries, as civil law jurisdictions, place more emphasis on codification.
These legal concepts include the following:
The more specific the legal area in question, the more the regulations tend to differ.
Additional Key Differences
In addition to the varying legal concepts and definitions highlighted, there are more differences to consider when drafting contracts:
In German law, a contract partner generally cannot evade the performance of the contract by paying money. Even claims for damages are expressly directed towards restitution in kind pursuant to Sec. 249(1) BGB, i.e., the restoration of the condition that would exist had the damaging event not occurred. Specific performance is the norm and is only unavailable in very few exceptional situations. If one sues for damages in money when performance is still owed, the lawsuit will be lost.
The formation of contracts differs in that German law does not require consideration. The existence and adequacy of a promise in exchange are taken into account when interpreting whether there is an intention to be legally bound by a declaration. However, contract conclusion and later contract amendment without any consideration are possible.
In German law, the requirements for written form differ from those regulated in the U.S. statute of frauds. In particular, there is no value limit comparable to e.g. Sec. 2-201(1) UCC, for a requirement for written form.
German contracts often do not regulate what is already provided for by law. Good contract craftsmanship often foregoes purely declaratory repetitions. Where the law does not provide a regulation or where the contract partners wish to deviate from the legal presets, contractual rules are chosen. This can make contracts incredibly short from the perspective of English-speaking legal systems.
In Germany, there is no equivalent to the Parol Evidence Rule. Even for the interpretation of unambiguous contracts, extrinsic evidence can be used. Courts apply a holistic approach, looking at circumstances surrounding the contract conclusion and previous correspondence between the contract partners. However, the contract document remains a strong indication of the content of the agreement.
What this means
Navigating a German-speaking legal order cannot be effectively accomplished in another language without running the risk of significant interpretation and understanding challenges, especially when the contractual partners involved come from different home jurisdictions. However, this doesn’t mean that using translations in legal proceedings is unfeasible. Below, we will demonstrate how to address and resolve these translation issues.
Multilingual Contracts as a Solution
Parties aware of potential issues often use multilingual versions of contract documents to counteract these translation problems. This approach is particularly prevalent in the context of public international law, where treaties or international agreements are often drafted in two or even more languages of the contracting parties. The most common approach is to print both language versions side-by-side in the same document, placing each provision at the same level.
Establishment of a Binding Language Version
When a contract document contains several language versions of the same agreement, the parties can agree in their contractual autonomy which version should apply.
German Language Version Binding
The simplest solution that provides the greatest legal certainty is to agree that the German language version is binding and to define the English language version as merely declaratory. In this case, only the German language version is used for interpretation.
An alternative is to give priority to the German language version in case of conflicts or ambiguities in interpretation.
Whether the contractual partners can and want to agree on this depends on many factors, particularly the respective negotiation power and the original jurisdictions of the parties.
English Language Version Binding
Contractual partners from non-German-speaking jurisdictions often insist that not the German, but the English language version should be binding, especially when they hold greater negotiation power. This stems from the concern that a German contractual partner will enjoy a home advantage in their domestic jurisdiction, and the other partner often cannot verify whether the proposed German language version truly corresponds to the English translation.
If it is unavoidable that the English language version should be binding or at least have priority in interpretation, parties still have options to cushion legal uncertainties to some extent.
One possibility is to explicitly agree on interpretation according to German legal understanding.
Another option is to mandatorily use a common English language dictionary for the interpretation of unclear terms. The parties will most easily be able to agree on widely used works like Merriam-Webster for the U.S., the Oxford English Dictionary for the UK, Canada, Singapore, and Hong Kong, or the Macquaire Dictionary for Australia.
No Language Version Binding
In cases where contract parties do not specify the priority or binding nature of a language version, there’s no legal rule that grants precedence to a specific version for interpretation. However, courts will at least consider the German version for cursory evaluation purposes.
Unlike what is recommended in private legal transactions, multilingual international agreements often do not designate a binding language version. International agreements with numerous state parties often exist in multiple language versions. For instance, the Primary Law Treaties of the European Union, such as TEU and TFEU, and substantial parts of Secondary Law are available in all 24 languages of the member states. For multilingual international agreements, Article 33 of the Vienna Convention on the Law of Treaties (VCLT) provides interpretation rules that consider all available language versions. However, such interpretations are often associated with significant effort, and courts are not obligated to apply these rules in private contract interpretations.
Interpretation of treaties authenticated in two or more languages
1. When a treaty has been authenticated in two or more languages, the text is equally authoritative in each
language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall
prevail.2. A version of the treaty in a language other than one of those in which the text was authenticated shall be
considered an authentic text only if the treaty so provides or the parties so agree.3. The terms of the treaty are presumed to have the same meaning in each authentic text.
4. Except where a particular text prevails in accordance with paragraph 1, when a comparison of theauthentic texts discloses a difference of meaning which the application of articles 31 and 32 does notremove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty,shall be adopted.
Article 33 VCLT
By not specifying a binding language version, the parties create additional legal uncertainty.
Definition of Potentially Problematic Legal Terms
Wherever possible, parties to a contract should define legal terms that are particularly problematic or typically lead to interpretive difficulties.
Such definitions can be made for example in a preceeding list, as is common in English-language contracts.
If not just individual terms, but whole legal concepts need to be defined, it can be useful to state the German legal term in brackets after the problematic term in the English version, preferably including a reference to the relevant paragraphs of German law. The contract would then regulate something like: „Terms to which a German translation has been added shall be interpreted as having the meaning of the German term.“
In addition to the legal institutions described above from English-speaking jurisdictions, there is a long list of words that can cause significant translation difficulties for non-native English speakers or translation software, and often lead to unnoticed interpretation problems. These include:
Even the placement of a comma can be decisive for the interpretation of a contract, as demonstrated by the case of Rogers Communications v. Bell Aliant. Contract drafting becomes particularly challenging when contract drafters are non-native English speakers and do not sufficiently understand the comma rules of the English language.
Procedural Risks with English Language Contracts
Despite the challenges described above in accurately portraying German law in the English language, there are also procedural risks when courts interpret contracts written in English. This is the case when the contract is solely in English, or if the English language version of a multilingual contract has been stipulated as binding.
German as the Language of the Court
Under Sec. 184 of the German Courts Constitution Act (Gerichtsverfassungsgesetz – GVG), the language of the court shall be German. Therefore, all court correspondence and oral proceedings are conducted exclusively in German. Additionally, all written submissions directed to the court must be in German. Even if all parties wish to communicate in a different language, such as English, and the court is proficient in that language, the proceedings must still be conducted in German.
The Court’s Power to require a Translation
Contract documents are often introduced as documentary evidence in legal proceedings to prove the precise content of the agreement between parties. For foreign-language documents, Sec. 142(3) of the Code of Civil Procedure (Zivilprozessordnung – ZPO) empowers the court to request a translation. Such translations can only be done by translators who are specifically authorized or publicly appointed.
The court may waive the need for a translation if it is sufficiently proficient in the foreign language. However, courts regularly order a translation if even a single participant is not adequately proficient in the language, which is typically the case with foreign-language contracts.
Such a translation triggers additional costs and usually delays the legal dispute by several months. The most significant consequence is that the translator, while translating the contract into German, performs their own interpretation of the agreement. Their interpretation eventually influences the interpretation later undertaken by the court, leading to an added degree of legal uncertainty.
Interpretation according to Foreign Legal Understanding?
As a general rule, German courts interpret contracts to which German law applies in accordance with German legal principles.
However, according to the somewhat disputed legal viewpoint and case law of the Federal Court of Justice (Bundesgerichtshof – BGH), Germany’s highest court for civil matters, contract clauses typical in English law can also be interpreted in accordance with English legal understanding, at least when the contract in question is not a mere translation of a German contract.
Der Umstand, daß sie – ebenso wie weite Teile des Frachtvertrages – in englischer Sprache abgefaßt ist, besagt – wie oben (II.1.b) ausgeführt – nichts darüber, daß englisches Recht anzuwenden wäre. Damit ist indessen nicht entschieden, daß diese englischsprachige Klausel auch nach deutschem Rechtsverständnis zu interpretieren wäre (so aber z.T. das Hans. OLG Hamburg HansGZ 1881, 121, 127; HansGZ 1881, 137, 143; ferner RGZ 11, 100, 104 f.). Die englischsprachigen Vertragsformulare, die nicht etwa Übersetzungen deutscher Texte sind, enthalten zahlreiche dem angelsächsischen Rechtsdenken angehörende Begriffe, die für jeden nach den jeweiligen Formularen geschlossenen Frachtvertrag gelten sollen, mag er im Einzelfall dem englischen oder einem anderen Recht unterstellt sein. Dies erfordert, daß derartige fremdsprachige Begriffe und Vertragsklauseln grundsätzlich nach dem Rechtsverständnis des Landes interpretiert werden, in dem sie entwickelt worden sind.
BGH, Urteil vom 02.12.1991 – II ZR 274/90, Rn. 23
Following this, external circumstances outside the contract document, as is customary in the U.S., could play a less significant role. In addition, German courts are likely not familiar with the typical meaning of legal terms from English-speaking jurisdictions. Consequently, they may not interpret them in the way that the contracting parties intended.
This demonstrates that additional legal uncertainties can arise even through the procedural enforcement of a contract.
Special Considerations for Terms and Conditions
When the contract under consideration is not an individually negotiated agreement, but rather a set of standard terms and conditions, additional challenges and questions arise.
Whether general terms and conditions can become part of a contract is determined by the conflict of laws rules of the states relevant to the contracting parties. For Germany, the Rome I Regulation applies. According to Article 10 of the Rome I Regulation, the inclusion of general terms and conditions and the validity of individual terms and conditions are governed by the law applicable to the envisaged contract.
Consent and material validity
1. The existence and validity of a contract, or of any term of a contract, shall be determined by the law which would govern it under this Regulation if the contract or term were valid.
2. Nevertheless, a party, in order to establish that he did not consent, may rely upon the law of the country in which he has his habitual residence if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in paragraph 1.
Article 10 Rome I Regulation
German law, for example, does not readily permit the inclusion of terms and conditions written in a language the contracting party does not speak, particularly in dealings with private individuals, and especially if the correspondence prior to the contract conclusion was not conducted in the language of those terms and conditions. Note that in German law, all pre-formulated contract terms that a party intends to use in multiple contracts are considered general terms and conditions, whether they are named as such or not. This can also apply to parts of the main contract.
The inclusion of general terms and conditions becomes even more complex within the scope of the United Nations Convention on Contracts for the International Sale of Goods (CISG). The German-speaking countries Germany, Austria, Switzerland, and Liechtenstein are members of the CISG. Some English-speaking countries, such as the U.S., are also members, but the UK and the Republic of Ireland are not. The CISG applies to certain cross-border sales contracts when the contracting parties have their places of business in different CISG member states, unless it is expressly excluded in the contract.
The peculiarity of the CISG is that Article 100(1) provides its own rules for contract formation, which take precedence over national law. In doing so, courts may have to consider evidence outside the four corners of the written contract contrary to national practice – a duty that the courts of some countries, like the U.S., do not fulfill.
This Convention applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1) (a) or the Contracting State referred to in subparagraph (1) (b) of article 1.
Article 100(1) CISG
In summary, it is necessary to consider that there is an even greater legal uncertainty with pre-formulated contract terms that are not concluded as individual agreements.
When should English be used in German law contracts?
In rare instances, it can be advantageous to use English-language contracts even when German law applies. This is particularly the case when a German software developer wants to distribute their software under an open-source license. For open-source licenses, any language other than English will hinder the desired wide dissemination of the software. In such a scenario, an English-language licensing agreement, or preferably, an existing English open-source license should be adopted.
Conclusion
Creating bilingual contract documents can seem costly, as it requires qualified lawyers to oversee both the drafting and translation processes. Non-legal translators and translation software aren’t sufficient, as they can distort the legal meaning of terms. Often, internal specialists want to influence contract formulations, especially when it comes to the technical description of services, which lawyers may not always understand due to its technical nature.
In Germany there is limited case law on the interpretation of English-language contracts, as the underlying cases are often complex and are frequently settled before reaching a court decision.
Contracting parties can only achieve legal certainty if there is a German language version that is given priority in interpretation. Even English-speaking contracting parties with considerable negotiation power should invest in having a German version of the contract prepared by German lawyers. German lawyers are pleasingly affordable compared to their counterparts in the UK or the U.S.