15 questionable contractual clauses (often taken from English)

Today I would like to take a look at fifteen formulations that are often found in contracts or agreements, especially if they have been translated from English. Although they sound logical to the layman, they are often incorrect or even invalid from the perspective of German law. Such clauses create considerable legal uncertainty in the event of a dispute.

• “Your data remains your property.” This statement sounds understandable, but is legally incorrect. According to Section 90 of the German Civil Code (BGB), only physical objects can be owned, but not data. Instead, data is subject to data protection law (e.g. GDPR) and personal rights. The term “ownership” in connection with data is therefore misleading. The Federal Constitutional Court considers data to be part of the general right of personality. In legal terms, it would be more precise to speak of rights of use or data sovereignty. Even if the term ownership is used in practice as a symbol for control, this is legally imprecise. This illustrates why precise wording is crucial in order to avoid legal ambiguities. In addition, companies should define what rights and obligations exist with regard to the data. A clear contractual regulation prevents legal disputes later on.
• “All rights worldwide, unlimited in time and in any medium.” Such clauses are generally too vague under German copyright law (Section 31 UrhG). The Federal Court of Justice (BGH, judgment of 11.07.2002, ref.: I ZR 285/99) has ruled that blanket and indefinite transfers of rights are invalid. Rather, rights should be specified in concrete terms in order to create legal clarity. Too broad a formulation could infringe the author’s property rights. In addition, the effectiveness of such clauses is regularly questioned in international situations. Clear and precise limitations are essential for legally effective agreements. An exact designation of rights, media and periods of use prevents subsequent ambiguities. Companies should check whether special regulations are required for digital media or future technologies. The definition of the territorial scope should also be clear in order to minimize room for interpretation.
• “Agreement to Agree” – “The parties agree to come to an agreement later.” According to Section 154 BGB, an agreement must be clear and specific. Vague future agreements have no legal effect. The BGH regularly confirms that such agreements are not enforceable. This clause would therefore be useless in the event of a dispute. Only a concrete, current agreement with clear content is legally binding. Parties should therefore either reach a binding agreement or delete the clause completely. Alternatives should also be defined in the event that negotiations fail. A contractual agreement on an arbitration procedure can also be useful. This can facilitate a constructive solution in the event of a dispute.
• “Each party shall bear its own legal costs.” According to §§ 91 ff. ZPO, the unsuccessful party generally bears the costs. A deviating provision is possible, but is often ineffective in general terms and conditions in accordance with Sections 305c, 309 No. 7 BGB. The conditions under which deviating cost allocations are agreed should therefore be clearly regulated. In the absence of a specific provision, the statutory cost allocation rule always applies. Especially in an international context, cost regulations should be explicitly stipulated. Without clear rules, misunderstandings and disadvantages can arise in the course of the proceedings. A differentiated presentation protects both parties from unexpected costs. It should also be stipulated whether and to what extent pre-litigation costs are recoverable. Such provisions can avoid future disputes.
• “This contract ends automatically without notice.” German law (§§ 620 ff. BGB) requires clear regulations on contract termination. Automatic endings are only valid if the time and conditions are clearly defined. Unclear formulations, such as “the contract ends automatically at some point”, regularly lead to disputes and legal uncertainty. The Federal Court of Justice has consistently ruled that the end of the contract must be clearly definable. Such formulations often result from incorrect translations of English “self-terminating clauses”. Contracting parties should therefore specify exact dates or conditions for termination. Precise clauses prevent legal uncertainties later on. It should also be stipulated whether and how the contract can be extended. The consequences of termination, such as reversals or transition periods, should also be defined.
• “Force majeure includes delays caused by suppliers.” According to Section 275 BGB, supplier problems are generally not a case of force majeure, but an operational risk. The term “force majeure” refers to unforeseeable and unavoidable events such as natural disasters. Delays at suppliers do not automatically fall under this definition. Such clauses should clearly define which circumstances are specifically recognized as force majeure. Missing definitions often lead to disputes and legal uncertainties. Companies should define precisely which risks are excluded. This is the only way to ensure that contracts are legally compliant. In addition, an obligation to notify the occurrence of such events should be agreed. Provisions for adjusting the terms of the contract can also be useful.
• “The contract is governed exclusively by foreign law.” In German legal transactions, especially in consumer contracts, mandatory German provisions may not be excluded (Rome I Regulation). Such clauses are often ineffective or only partially effective. Consumer protection regulations in particular cannot be waived in Germany. Companies should clearly define which legal system should apply to which area of the contract. Unclear or blanket clauses often lead to legal uncertainty. A detailed regulation protects against misunderstandings in an international context. International arbitration clauses should also be formulated precisely. The question of the applicable place of jurisdiction should also be clearly regulated. A clarification on the validity of mandatory law creates additional certainty.
• “Waiver of all statutory claims.” A general waiver of statutory claims is invalid under Section 134 BGB and Section 276 BGB. Instead of blanket formulations, specific claims should be explicitly listed and regulated. The waiver of claims should also be clearly limited in order to exclude undue disadvantages. A transparently formulated waiver minimizes the risk of subsequent legal disputes. Case law takes a critical view of such clauses and demands clear, comprehensible provisions. Unclear clauses often lead to invalidity. A precise regulation creates legal certainty here. Companies should also check whether mandatory statutory protective provisions are affected. Clear documentation of the waiver protects both parties.
• “Force majeure includes strikes within one’s own company.” Strikes within the company’s own operations do not count as force majeure, but as a business risk. German case law requires external causes for the assumption of force majeure. However, internal strikes can be minimized through preventive measures. Companies should therefore reconsider their own risk management. An incorrect classification of risks can lead to legal disputes. Such clauses should be carefully examined in order to avoid subsequent conflicts. A clear demarcation is necessary here. It should also be regulated how affected services are to be handled. An obligation to mitigate losses can also be agreed.
• “The contractual penalty is ten times the order amount.” Excessive contractual penalties are invalid under Section 307 BGB if they unreasonably disadvantage the contractual partner. Contractual penalties should be proportionate to the content of the contract. Case law takes a critical view of high contractual penalties and tends to reduce excessive amounts. The amount of the contractual penalty should be justified and comprehensible. An excessive contractual penalty can not only be ineffective, but can also jeopardize the entire contractual relationship. Clear and fair regulations create legal certainty here. Alternatives such as graduated penalty amounts could also be examined. In addition, it should be specified how and under what conditions the contractual penalty is to be claimed. This promotes transparency and reduces the potential for disputes.
• “Amendments to contracts must always be made in writing.” This clause is often used in contracts to allow changes only if confirmed in writing. Under German law (Section 125 BGB), this is generally permissible. However, a verbal amendment can be effective despite the written form clause if both parties consciously accept it. Courts often recognize informal amendments, especially if they are lived in practice. The parties should therefore specify very precisely how amendments are to be made. A digital form should be explicitly included in order to avoid misunderstandings later on. A precise and comprehensive definition of the written form contributes to legal certainty. It may also be useful to list specific examples of accepted forms of amendment in the contract.
• “The contract is irrevocable.” A complete exclusion of revocation is not permitted under German law, especially for consumer contracts (Sections 355 et seq. BGB). In principle, a consumer has the right to revoke contracts concluded outside of business premises within 14 days. These rights cannot be excluded by contractual clauses. An irrevocable contract would therefore be ineffective, at least in consumer contracts. Companies should therefore provide correct withdrawal instructions and avoid clauses that inadmissibly restrict the right of withdrawal. Transparent and clear regulations help to avoid subsequent legal disputes. Legally sound formulations offer protection to both contracting parties. In addition, a clear presentation of the consequences of withdrawal can make it easier to understand.
• “Compensation for damages is excluded in any case.” A complete exclusion of claims for damages is inadmissible according to § 309 No. 7 BGB. In particular, liability cannot be excluded in cases of intent and gross negligence. Such clauses are therefore often ineffective and can lead to the ineffectiveness of the entire contract. Limitations of liability must be differentiated and designed in accordance with the law. A careful differentiation between simple and gross negligence is required. Possible amounts of damage should also be clearly defined in order to create legal certainty. Transparent liability regulations prevent later conflicts. In addition, an individual agreement on the liability limit can be useful to clearly define the risk.
• “All disputes shall be settled exclusively by arbitration.” Although arbitration clauses are permissible, they must not lead to legally guaranteed rights being undermined (Section 1031 ZPO). In consumer contracts in particular, such clauses could be classified as surprising and therefore invalid. Such a clause must be formulated clearly and comprehensibly. Furthermore, access to a state court should not be completely excluded. A combination of arbitration and ordinary jurisdiction can be useful in order to guarantee both parties a fair procedure. A clear formulation of jurisdiction protects against subsequent interpretation problems. In addition, time limits for appealing to the arbitration tribunal should be precisely defined.
• “Signatures can be made digitally at any time.” Digital signatures are permitted under Section 126a BGB if a qualified electronic signature is used. However, simple digital signatures are not always sufficient, especially for contracts requiring notarization. Companies should therefore clearly define which form of digital signature is accepted. An incorrectly executed digital signature can lead to the invalidity of the contract. It is advisable to use recognized and certified signature services. Careful regulation of digital signature processes creates security and trust. Clear agreements prevent legal conflicts at a later date. Security precautions and control mechanisms for validating signatures should also be included in the contract.