Update Commercial 2026: General contract drafting, including international contracts

Contract law in focus: a review of current rulings and legislative reforms

This year’s overview addresses key developments in contract law. We focus on current decisions on standard terms of business, the application of jurisdiction and arbitration clauses, and the structuring of extended payment terms in the B2B sector. In addition, we report on the current status of legislative proposals concerning supply chains, product liability and B2B standard terms of business and examine the initial acceptance by legal practitioners of the new English-speaking commercial courts.

Shortening limitation periods in the law on standard terms of business: claims involving intentional wrongdoing must be excluded

Munich Higher Regional Court (Oberlandesgericht München) (judgment of 20 March 2024, 7 U 5781/22) (in German) clarified in its ruling on the validity of limitation periods in the law on standard terms of business in the B2B sector that claims arising from intentional breaches of contract must be expressly excluded from the shortening of the limitation period.

The standard terms of business relevant to the legal dispute contained a clause stating that “claims” under the contract would become time-barred within 13 months of becoming known and at the latest within four years. They further provided that this provision did not apply to claims for which the law mandatorily prescribes a longer limitation period.

The panel declared the limitation clause to be invalid in its entirety because it also covered claims for intentional breach of duty. In the panel’s view a clause that shortens the limitation period must expressly exclude such claims. A blanket reference to longer limitation periods resulting from mandatory statutory provisions is insufficient. On the one hand, the content of the clause is not sufficiently transparent for the contracting partner, and on the other hand, such drafting circumvents the prohibition on blue-pencilling (i.e., on reducing an invalid clause to a still-valid core). According to this principle, a clause that is substantively too broad cannot be “saved” by a general reference to mandatory law.

The decision shows that the shortening of limitation periods in standard terms of business must be carefully worded. If an express exception for claims involving intentional wrong doing is missing, there is a risk that the entire clause will fail the judicial review of content, resulting in the application of the (usually longer) statutory limitation periods instead.

Arbitration clause remains valid despite exclusion of the law on standard terms of business

The Federal Court of Justice (Bundesgerichtshof) (order of 9 January 2025, ref. I ZB 48/24) (in German) has clarified that an arbitration agreement must be assessed independently of other contractual procedural arrangements, such as the exclusion of German standard terms of business. Even if such a procedural arrangement were to be invalid, the arbitration clause would remain valid.

The decision was based on a construction contract containing an arbitration clause and a choice of law clause in favour of German law but excluding German law on standard terms of business. One party sought to prevent the arbitration proceedings on the grounds that the arbitration clause was invalid due to this exclusion. The Federal Court of Justice rejected this argument, clarifying that the arbitration agreement and other procedural agreements must be assessed separately from one another.

In the court’s opinion, the validity of an arbitration agreement is generally not affected if a procedural agreement is later found to be invalid. The arbitration tribunal itself initially reviews the procedural arrangements. However, if the application of the procedural arrangements leads to results that contradict fundamental principles of the German legal system, a state court may refuse to recognise or enforce the arbitral award on the grounds of a violation of public policy (ordre public).

In practice, arbitration clauses therefore offer a high degree of legal certainty. Ideally, the parties should clearly separate the arbitration clause, the choice of law and the procedural agreements, while keeping in mind the judicial review against the standard of public policy. In this context, it should be emphasised that the Federal Court of Justice did not issue a clear rejection of the exclusion of German terms and conditions law within arbitration proceedings.

The decision and its implications for contract drafting will be discussed in detail in a more detailed article.

Effectiveness of asymmetric agreements on jurisdiction

The Court of Justice of the European Union (ECJ, judgment of 27 February 2025, C-537/23) has clarified the requirements for the substantive validity of unilateral (asymmetrical) agreements conferring jurisdiction in crossborder cases. In the specific case, the clause provided that one party could bring proceedings only before a particular court, whereas the other party was additionally entitled to choose any court having jurisdiction under the general rules of jurisdiction.

The court made it clear that objections based on a lack of clarity or imbalance of an agreement conferring jurisdiction are not to be assessed by reference to national grounds of nullity, but solely by reference to the EU-law criteria of the jurisdictional regime.

At the same time, the court regarded asymmetrical agreements conferring jurisdiction in principle as valid. A clause that binds one party exclusively to a designated court, while allowing the other party to bring proceedings before other courts under the general rules of jurisdiction in the EU or in Lugano Convention countries is permissible, provided that the jurisdictional criteria are sufficiently clear and objective and that no protective provisions for consumers, employees or policyholders, or rules on exclusive jurisdiction, are circumvented.

For international practice, this decision confirms that asymmetrical agreements conferring jurisdiction in the B2B context are in principle permissible, provided they are drafted in clear and transparent terms and on the basis of ob­jective criteria. In purely domestic situations, one-sidedly advantageous agreements conferring jurisdiction between merchants are in any event permissible, provided that the clause is sufficiently precise.

Agreement on extended payment terms in commercial transactions

The Court of Justice of the European Union (ECJ, judgment of 6 February 2025, C-677/22) has specified that contractually agreed payment periods of more than 60 days are only permissible if they have been expressly agreed and are not grossly unfair to the creditor.

“Expressly” means more than mere inclusion in standard clauses: It must be clear that both parties accept this time limit. This may arise through individual negotiation or through clear emphasis in the contract documents, which makes clear its nature as a deviation, so that the creditor agrees to it in full knowledge of this special feature. In addition, the clause must not be grossly unfair to the creditor in the individual case, for example by deviating significantly from normal commercial practice.

In practice, payment terms exceeding 60 days should therefore be clearly highlighted and expressly agreed upon; “hidden” longer payment terms are likely to be generally contestable.

Outlook for legislative reforms

There are developments at both European and national level that are particularly relevant for large undertakings, supply chain compliance and the choice of law in the B2B sector.

The European Parliament and the Council of the European Union have reached a provisional agreement to streamline and simplify the sustainability and due diligence obligations in the EU Supply Chain Directive (Directive (EU)  2024/1760 – “CS3D”). In future, only companies employing more than 5,000 employees and with a net annual turnover of over EUR 1.5 billion will be subject to comprehensive due diligence obligations. Liability issues will remain within the remit of national law. The implementation deadline for the directive has been postponed to 26 July 2028, and the new obligations are to apply from July 2029. The package has yet to be adopted by the Council of the European Union, but this is considered a formality.

At the national level, there are plans for further developing supply chain law. The coalition agreement (in German) provides for the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG) to be replaced by the German International Corporate Responsibility Act (Gesetz über die internationale Unternehmensverantwotung) that will implement the CS3D in a manner that is both low in bureaucracy and easy to enforce. Until this new act enters into force, the Supply Chain Due Diligence Act will continue to apply in an adapted form. The amending act (in German) to the Supply Chain Due Diligence Act, which is currently going through the legislative process, is intended to ease the burden on undertakings until the CS3D has been implemented by removing the reporting obligation and limiting penalties to serious breaches of the due diligence obligations that remain in force.

In December, the federal government presented a draft bill (in German) to modernise product liability law, which is intended to implement the new EU Product Liability Directive (Directive (EU) 2024/2853). It aims to adapt liability to digitalisation and global value chains. In particular, the proposal provides for the inclusion of software, including AI and cloud solutions, manufacturer liability for significant changes made after placing a product on the market, an extended chain of liability for manufacturers outside the EU, the abolition of liability caps and the easing of the burden of proof in favour of injured parties.

The coalition agreement (in German) also announces a reform of the law on standard terms of business in the B2B sector. Large companies limited by shares will be able to rely to a greater extent in contracts between themselves on the enforceability of clauses agreed in the exercise of private autonomy when these are scrutinised under the strict German judicial control of standard terms of business.

This is intended to make the choice of German law more attractive for undertakings. No specific legislative proposals have been put forward as yet. As indicated in last year’s Commercial Update, the Act to Promote Germany (in German) as a Forum for Legal Proceedings by introducing Commercial Courts and the Use of the English Language in Civil Proceedings (Justizstandort-Stärkungsgesetz; the “Commercial Courts Act”) came into force in April 2025. The act permits recourse to commercial courts at the higher regional court level for commercial disputes from an amount in dispute of EUR 500,000. The Commercial Courts offer in particular the possibility of conducting proceedings in English and of lodging an appeal on points of law without the need for leave to appeal. In Hamburg, the new panels have already become part of day-to-day practice: The First Panel of Hamburg Commercial Court became, in its judgment of 27 November 2025 (in German), (Ref. I CC 1/25), the first Commercial Court in Germany to hand down a decision within four months of an action being filed.

This article is part of the "Update Commercial 2026". All insights and the entire report as a PDF can be found here.