Must-know Information for Arab-German Contractual Relations

Choice of Law Clause: Clear, Robust, and in Line with Mandatory Standards

The choice of applicable law should be clear and robust. Under the Rome I Regulation, freedom of contract is generally guaranteed, but mandatory rules of the court seised (Art. 9) and public policy reservations may still apply. A viable choice of law clause uses clear language, precisely defines the scope of the contract, and takes into account the mandatory provisions that continue to apply. Additional restrictions exist in consumer and employment contracts. Transparency is also crucial in B2B transactions in order to avoid the impression that the contracting party loses the protection of mandatory provisions of its home law.

Place of Jurisdiction or Arbitration Tribunal? Focus on Enforceability

Agreements on the place of jurisdiction pursuant to Art. 25 Brussels-Ia require a clear agreement between the parties and must be made in the prescribed form, whether in writing, in a permanent electronic record or in accordance with recognised industry practice. The European Court of Justice requires that the clause be sufficiently precise so that the competent court can be clearly determined based on objective criteria. Asymmetric clauses are not fundamentally invalid, provided they do not circumvent the provisions of the Regulation.

 

Substantive grounds for the invalidity of a jurisdiction clause are governed by the law of the agreed court, while the existence of an agreement is assessed autonomously under EU law. Alternatively, an arbitration clause may be chosen: it must be in writing and specify the arbitration rules, the seat and a determinable tribunal. In case of doubt, unclear clauses are interpreted in favour of validity if the parties’ intention to submit to arbitration is clear. The enforcement of foreign arbitral awards depends on the validity of the arbitration agreement, the proper conduct of the proceedings and compliance with public policy.

 

Arbitration and the New York Convention: Form, Certainty, Enforcement

Arbitration agreements must be in writing within the meaning of Art. II of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, either by means of a signed clause or corresponding correspondence. If this form is not complied with, the most-favoured-nation principle under Article VII of the UNCITRAL may apply, allowing for the application of more arbitration-friendly national provisions, such as Section 1031 of the German Code of Civil Procedure (ZPO), including the commercial letter of confirmation. A precise designation of the applicable arbitration rules, the seat of arbitration and the determinable arbitral tribunal prevents the agreement from being invalid. In case of doubt, unclear clauses are interpreted in favour of validity, provided that the parties’ intention to submit to arbitration is clearly recognisable.

 

The recognition and enforcement of foreign arbitral awards is governed by Art. V UNÜ, whereby enforcement may be refused, inter alia, in the event of invalidity of the arbitration agreement, procedural violations or violations of public policy. Practical experience shows that reliable formal evidence, compatible arbitration rules and, where applicable, early reviews or applications, such as OFAC-related approvals in the case of sanctions, significantly increase enforceability.

 

UN Convention on Contracts for the International Sale of Goods (CISG): Consciously Include or Exclude and Clearly Incorporate General Terms and Conditions

The CISG regularly applies to purchases of goods between parties with branches in contracting states; a German choice of law does not automatically exclude the CISG. Anyone who does not wish to apply the CISG must expressly stipulate this.

 

The inclusion of general terms and conditions under the CISG requires that the contractual partner has access to the full text of the general terms and conditions or is at least given another reasonable opportunity to take note of them; a mere reference to the validity of the general terms and conditions is insufficient. In Arab-European B2B constellations, this means that the general terms and conditions must be attached to the contract, the relevant contract language must be observed, and the inclusion of the terms and conditions must be carefully documented.

 

Language and Translation Clauses: Defining the Authoritative Version

Parallel language versions are often found in international contracts. To avoid disputes over interpretation, an authoritative contract language (“contract language”) should be specified and the order of precedence of the versions in the event of discrepancies should be clearly documented. This is particularly important regarding jurisdiction and general terms and conditions clauses, the validity of which regularly depends on compliance with formal requirements and clear inclusion.

 

Inclusion of General Terms and Conditions in International Trade: Transparency, Timing, Industry Practice

In international B2B transactions, the effective inclusion of general terms and conditions requires that the user sends the text of the general terms and conditions to the contractual partner or at least makes it available to them in some other way; mere industry practice is insufficient. A first-time reference to the GTC in a subsequent order confirmation or invoice is associated with considerable risks. Conversely, repeated transmission of the GTC may lead to their inclusion in subsequent contracts, provided the contractual partner’s knowledge of them and a corresponding contractual practice can be demonstrated.

 

Agreements on the place of jurisdiction included in general terms and conditions are also subject to the strict formal requirements of the Brussels Ia Regulation. A mere reference to the general terms and conditions without actual access to the text is not sufficient for this purpose. Against this background, the inclusion of general terms and conditions and jurisdiction clauses should be consistently structured and in the correct form.

 

Force Majeure/Hardship, Sanctions, and Export Control: Risk Allocation with a Sense of Reality

Force majeure and hardship clauses should explicitly cover political risks, embargoes, sanctions, blocking regulations, and export control restrictions, while providing for clear mechanisms for the suspension, adjustment or termination of the contract. Court practice applies strict standards to the acceptance of force majeure or unforeseeable events; mere factual difficulties in the performance of services generally do not suffice.

 

US secondary sanctions, particularly those imposed by the Office of Foreign Assets Control (OFAC), do not constitute intervention rules applicable under EU law, whereas the European blocking mechanism requires active conflict management, including, where necessary, the submission of exemption requests. Contractual clauses should therefore clearly regulate the conditions under which legal impossibility is assumed, how refunds or reversals are made, and what evidence the parties must provide.

 

Terms of Payment, Currency, and Transfer Risks: Hedging Instruments and Place of Performance

To secure payment claims, documentary letters of credit under relevant regulations (UCP/ERA), bank guarantees and payment plans with clearly defined milestones and currency clauses are particularly suitable. Documentary letters of credit represent abstract promises of payment by the issuing bank; the decisive factor is strict compliance of the documents with the terms and conditions of the letter of credit. Failure to check documents or inadequate document checks can significantly jeopardise coverage and recourse.

 

Currency clauses should clearly regulate the relevant exchange rate, the value date, and any effective note. Statutory conversion rules, such as those under exchange law, may apply additionally, but are secondary to clear contractual agreements. Questions regarding the place of performance, especially the place of delivery and payment, are to be interpreted autonomously under the Brussels Ia Regulation and should be specified in the contract in order to make the place of jurisdiction and subsequent enforcement predictable and plannable.

 

Compliance: Anti-Corruption, Money Laundering, Sanctions Law

Contracting parties should clearly establish compliance obligations and define audit and termination rights in the event of violations. Sanctions, in particular, pose a risk of delivery and payment disruptions. Therefore, the contract should include verification mechanisms such as bank confirmations, clear application strategies within the framework of the Blocking Regulation or OFAC licences, and defined reversal procedures, for example through trust or escrow accounts.

 

Data Protection and Data Transfers to Third Countries

When processing personal data, the contract should clearly define the parties’ roles as controller and processor, the purpose limitation of data processing, appropriate technical and organisational measures (TOMs), and the mechanisms for data transfers to third countries (Art. 44 ff. GDPR, e.g., adequacy decision, standard contractual clauses, transfer impact assessment). This applies in particular to cloud- or payment-related processes involving a non-European connection, where both technical and legal safeguards are essential.

Practical Design Recommendations

Choice of law

The applicable law should be clearly agreed upon. At the same time, reference should be made to applicable intervention rules and public policy provisions, and there should be no misleading information about consumer protection or minimum protection standards.

Dispute resolution

To resolve disputes, either an Article 25-compliant jurisdiction agreement with precise determination criteria or a carefully drafted arbitration clause is recommended. The latter must be in writing, specify the rules and place of arbitration, and name a determinable arbitral tribunal.

CISG awareness

The UN Convention on Contracts for the International Sale of Goods should be consciously included or excluded. If included, it must be ensured that the terms and conditions are communicated to the contractual partner, that the contract language is observed and that the inclusion is documented.

Force majeure/hardship

Contract clauses should clearly define the relevant events and contain provisions on obligations to provide evidence, notifications and adjustment mechanisms. In the case of sanctions, export control and blocking obligations must also be taken into account.

Payment security

Payments should be secured via UCP/ERA-compliant letter of credit processes, bank guarantees or comparable security instruments. Currency clauses and the contractually agreed place of performance should be clearly regulated, whereby the “actual place of delivery” for the purposes of Art. 7(1)(b) Brussels Ia should be clarified in particular.

 

Pitfalls That Are Often Overlooked

Common pitfalls in cross-border contractual transactions often arise from unclear choice of law, imprecise dispute resolution clauses, and insufficient regulation of sanctions. For example, a blanket choice of “German law” without expressly excluding the CISG and without secure access to the general terms and conditions can lead to the UN Convention on Contracts for the International Sale of Goods (CISG) being applied, while simultaneously triggering strict requirements for the inclusion of general terms, potentially causing unexpected issues.

 

Imprecise jurisdiction or arbitration clauses, lack of written form or asymmetrical arrangements without clearly defined criteria may fail to meet the requirements of Article 25 Brussels-Ia making subsequent enforcement considerably more difficult.

 

In cases of sanctions and blocking scenarios, the contractual mechanism must clearly define when legal impossibility occurs, how reasonableness is assessed, and which reversal mechanisms, including the availability of banks, apply. A mere factual impediment to performance is insufficient.

 

Conclusion

Robust cross-border contracts require a clear choice of law in accordance with the Rome I Regulation, a jurisdiction clause that complies with Article 25, or a formally correct, clearly defined arbitration clause. They also require a conscious approach to the CISG and proper inclusion of general terms and conditions.

 

This should be complemented by practical force majeure and hardship provisions that take sanctions and export control obligations into account, robust payment security with clearly defined currency and place of performance, and a GDPR-compliant data architecture.

 

If these building blocks are carefully implemented at an early stage, litigation risks can be significantly reduced, and the enforceability of contractual agreements, including between Arab and European partners, can be sustainably increased.