Contract law in relation to German business culture
Germans are typically well known for their excellence in planning. They strive for perfection and value details. People like following the rules and procedures laid out, as it helps them identify their roles and execute them. This practice is followed in all aspects of life, whether be it business, politics or their personal life.
Also if you want to negotiate a contract, your German counterparts always come to the meeting with substantial research and preparation. This helps them to put across their views convincingly. The culture of objective debate is encouraged in order to get to the ‘right’ solution to the problem. It is not unusual to see quite heated scenes in business meetings!
It is highly unusual in Germany that they may get into an oral contract. German business people prefer all the terms & agreements written and signed into a legal format.
Price negotiations in a German contract
Global competition makes charging the right price absolutely critical. To understand the pricing issues, it is important to know that companies from outside the EU may face import duties, however, it is subject to specific trade agreements between concerned countries. It is interesting to note that Germans generally would not negotiate just for the sake of getting a discount or lower price. However, they need to know the pricing rationale – be it higher or lower.
When it comes to a business conflict in Germany
It is not the German approach to threaten with a law suit directly. Nor striving to get judgement from a higher level of management, when it comes to more internal conflicts. An open hearing with debate may only force both parties to take stronger stands, which may hinder any further collaboration.
The best way would be to involve a mediator, whether in a formal role or not. It should be a person who is trusted by both parties. The best way is to have this mediator hear the views from both sides in separate meetings, so that he can come up with a solution, or guide the both parties in a meeting that is strictly used to discuss certain aspects of the problem.
Germans can very well be convinced with arguments, but on the other hand you should also justify why you don’t agree with them. An explanation ‘this is not in our interest’ only leads to frustration.
German law in English and German business law
There are two institutions that offer translations of German laws: the Center for German Legal Information and the German Law Archive of the university of Oxford. If you look specifically at business law then you can at the website of the Hauser Global Law School.
Structure of Germany’s Legal System
Germany follows a civil law system. it is is based on codified law which means that Germans follow statutes and other written sources of law. Some examples could be the German Civil Code and the German Civil Procedure Code. German courts are need not restricted by their own earlier decisions or those by higher courts. However, generally the lower courts respect decisions of higher courts.
German proceedings – civil, criminal, administrative- are conducted without juries. Professional judges try the cases, sometimes, with lay judges. The judge and the prosecution both have the same goal – to get to the bottom of the case to the best extent.
Arbitration in Germany
Arbitration is common in Germany. However, long and complex proceedings could be a slight disadvantage as compared to German court litigation which is comparatively time- and cost-efficient.
Legislation for German arbitration
With only a few minor differences, the German arbitration law follows the UNCITRAL Model Law. Most claims pertaining to financial transactions are arbitrable. Other claims are arbitrable so long as parties are entitled to arrive at a settlement of the dispute (section 1030, ZPO). Non-arbitrable matters include those involving criminal law and family law matters. Intra-company disputes are arbitrable when the parties fulfill the minimum requirements for a valid arbitration clause.
Is German arbitration confidential?
There is no such provision for confidentiality in German arbitration law. Though arbitrations are not public, they are not protected for confidentiality unless there is a specific party agreement on confidentiality. A very general confidentiality provision under section 43 of the DIS Rules covers the parties – the arbitrators and the persons at the DIS secretariat – and requires them to uphold confidentiality as to the arbitration proceedings.
Litigation in Germany
- A limitation period of three years
- The proceedings can be funded by a third party
- It is regulated under civil law in Germany as opposed to common law in other nations
Litigation and enforcement in Germany
Owing to its civil law tradition, conflicts in Germany are settled with an inquisitorial approach. This is opposite of the adversarial common law tradition.
The judge is the only adjudicator of the facts and the law; there is no place for the jury. Parties are required to provide a full statement of the supporting facts. The court decides on matters using its own discretion and conviction.
Costs of litigation in Germany
The German system of civil litigation costs is based on the principle that the loser of the litigation must compensate all costs and fees incurred by the winner. There are fixed fees for most of the costs that your counter party may incur in the trial. This limits the risks of having to pay extensive bills of lawyers and makes litigation more accessible. The costs are limited by the Attorney’s Renumeration Act.
In case both parties settle, or in case both of them get their claims partially awarded, the costs of the proceedings will be split.
You can only represent yourself in local courts, this will be a way to reduce your costs. In all higher courts, presence of an lawyer is needed. The local courts can handle claims up to 5,000 euro. In many cases mediation or arbitration may be safer options.
Expanding to the Germany can be challenging. It is advisable to do research thoroughly, to understand the culture, legal system, and necessary procedures to optimise the outcomes of your strategy.
Where it comes to doing market research and approaching potential distributors or agents, you will get the best result if this is being done by a German, not by somebody from abroad. Our colleagues in Germany would be happy to help you.
Suggestions for further reading
- International business in Germany: how to sell to the Germans?
- Best tips on export to Germany (and what does Germany import?)
- Contract law and negotiation tactics in Russia
- Difference between an agent, distributor and a franchise
- Your international sales agent: what margin or percentage to pay as fee?
- International distribution strategy: managing your foreign distribution channels
- Typical costs for international transport and global distribution