Is there still hope for the individually negotiated agreement?

Agreement perceived to be general terms and conditions despite confirmation of negotiation – is there still hope for the individually negotiated agreement? Comment in NJW 2014, 3488 on the “general contractor judgement” (“GU-Urteil”) by the Federal Court of Justice (BGH)

Are there any written agreements at all that are not required to undergo the review of general terms and conditions pursuant to Section 305 ff. of the German Civil Code (BGB)? One is tempted to answer this question in the negative now that it has become so difficult to distinguish individually negotiated agreements not requiring review from general terms and conditions and standard contracts. The basic model of the individually negotiated agreement is increasingly and often unpredictably being supplanted by – invalid – general terms and conditions. The loss of contractual freedom and legal certainty accompanying this phenomenon is significant, particularly in corporate business dealings, and is unique in an international comparison. One current highlight in this development is a decision by the German Federal Court of Justice (BGH) from March this year (BGH, judgement of 20 March 2014 – VII ZR 248/13, NJW 2014, 1725). In what is known as the “general contractor judgement” (“GU-Urteil”) on an agreement concluded by two entrepreneurs, the BGH affirmed that, on the basis of prima facie evidence derived solely from the structure of the agreement, it constituted general terms and conditions – regardless of the parties’ confirmation of the facts to the contrary.

Factual situation and BGH decision

The principal and the agent acting as general contractor concluded an agreement (general contractor agreement) on a major building venture. In the report on the negotiations of the agreement, the agent “expressly [confirmed] that at the recent negotiations on the general contractor agreement, every clause had been the subject of extensive and serious discussion and negotiation with the principal. The agent therefore agrees with the principal that the general contractor agreement concluded is an individually negotiated agreement.” The final version of the general contractor agreement clearly originated from the principal, or rather its legal counsel. It was unclear, however, which of the parties had originally brought the draft agreement to the negotiating table. A dispute then ensued over whether a collateral agreement contained in the general contractor agreement constituted general terms and conditions of the principal despite the agent’s confirmation of negotiation and whether Section 305 ff. BGB was therefore applicable.

The BGH ruled that a user of pre-formulated clauses cannot exclusively refer to an individually agreed contract of the type in question in order to demonstrate that negotiation has taken place in accordance with Section 305(1), sentence 3 BGB, since if the contractual parties are able to individually contract out the applicability of the law on general terms and conditions independently of the requirements of Section 305(1), sentence 3 BGB, this would not be reconcilable with the protective purpose of Section 305 ff. BGB.

Main point of criticism: definition of general terms and conditions and consideration of evidence

The core statements made by this judgement are, where limited to negotiation under Section 305 BGB, correct in themselves and in line with the BGH’s fundamental “broker judgement” (“Makler-Urteil”) from 1976 (BGH, judgement of 15 December 1976 – IV ZR 197/75, NJW 1976, 624). The BGH takes the right constructive approach in pursuing a clear distinction between the stipulation of pre-formulated contractual provisions as a significant definitional element of general terms and conditions pursuant to Section 305(1), sentence 1 BGB and (in exceptional cases) the circumvention of certain clauses by individual negotiation pursuant to Section 305(1), sentence 3 BGB. Here, the strict standards of negotiation are, in any event, only applicable to those (originally “stipulated” or “provided”) clauses which the party opposing the use of said clauses has expressed a specific desire to amend. A proper reading of Section 305(1), sentence 3 BGB, however, shows that it does not apply to clauses that have not been criticized by the use-opposing party, either because they were “stipulated” by the user as fundamentally non-negotiable (in which case they remain general terms and conditions) or although they were “provided” as fundamentally negotiable (in which case they remain individually negotiated agreements). This is also the explanation for the BGH’s well-known formulation with regard to negotiation whereby the user must “state its clear and serious desire to amend individual clauses”.

At this point, the decision becomes inconsistent, however. Although the BGH also cites the above formulation in the “GU-Urteil”, it does not pursue the question of whether on the basis of the overall pre-contractual circumstances, the agent actually requested amendments or felt bound to do so. Instead, solely on the basis of the agreement’s content, the BGH ultimately assumes that the agreement constitutes general terms and conditions and also takes absolutely no account of the parties’ failed negotiation arrangement when evaluating the evidence for “stipulation”. Here, the BGH allows prima facie evidence to prevail in favour of the party with the burden of proof and does not even once consider that the confirmation of negotiation might have cast doubt upon the initial perception of the agreement as general terms and conditions. In accordance with the BGH’s “used-car decision” (“Gebrauchtwagen-Entscheidung” – judgement dated 17 February 2010 – VIII ZR 67/09, NJW 2010, 1131) to which the BGH expressly refers several times in the present decision, it would even have stood to reason to regard the confirmation of negotiation as an agreement on the mutually consensual (and thus not unilateral) use of a particular pre-formulated text and thereby respond to the question of “stipulation” in the negative.

Approaches to solutions for contractual practice

Despite the confusing legal situation and the quite contradictory signals sent out by BGH case law, there is still hope for the individually negotiated agreement in business dealings – even on the basis of German law and before state courts. The following points form the basis for a solution that still promises success even many years after an agreement has been concluded:

• avoid even the mere semblance of the use of unilateral drafting power,
• have the actual desire to enter into serious negotiations and
• document everything well.

On this basis, companies should rethink their negotiation strategy and generally take more care with their pre-formulated contracts. Only giving the right signals at every stage of the contractual negotiations – from initiation to conclusion of the agreement – can reliably ensure the materialization of an individually negotiated agreement. Companies should develop such a strategy in detail as part of their structured contract management, taking into account their own needs and the special characteristics of the relevant sector.