Source: https://globalarbitrationreview.com/chapter/1211785/germany
Timestamp: 2020-03-30 06:57:01
Document Index: 526024974

Matched Legal Cases: ['§ 1025', '§ 453', '§ 1042', '§ 1042', '§ 287', '§ 305', '§ 1033', '§ 1033', '§ 1032', '§ 1050', '§ 317']

Of all M&A transactions in Germany, 3 per cent or less result in arbitration[2] (or more rarely litigation).
This experience is backed up by the fact that German courts have rendered very few decisions on M&A disputes and most of them concern relatively small businesses and transactions, such as a beverage wholesaler,[3] a fitness studio,[4] a jewellery store,[5] an advertising agency,[6] and so on. Accordingly, concerns are regularly voiced that the number of court decisions in this area of law is too low to allow for the continuous development of case law specific to M&A disputes governed by German law.
Generally, M&A transactions under German law are subject to the German provisions on the sale of goods, applied by (statutory) analogy to M&A transactions.[7] In practice, the parties exclude the application of said rules and replace it with contractual provisions. However, the parties might not effectively exclude, or validly change, direct[8] liability for intentional misinformation.[9] Such liability is commonly referred to as culpa in contrahendo.
A common phrase that is used in court decisions, is that the threshold might be already met if a statement was a shot in the dark.[10] It might be sufficient that the party deems it possible that a statement is not correct and the party makes the statement anyway.
Under German law, a party to an M&A transaction has a general obligation to disclose information relevant to the other party. A party must disclose information about the target to the other party that might defeat the other party’s intended purpose of the transaction and of which the other party might reasonably expect disclosure.[11]
The duty to state correct information is broader than the duty to disclose relevant information. Any information provided must be correct. Any information specifically requested must be accurate, or the request must be denied.[12]
German law has a number of substantive law rules governing the burden of proof. While one might question the reasonableness of these rules in arbitration where a tribunal has more discretion to come to a decision than a (German) state court has,[13] some significant rules as regards M&A claims are the following.
However, this rule does not apply if the level of attribution is intention.[14] Thus, a buyer making a claim for culpa in contrahendo needs to prove that the seller committed the breach intentionally.
However, German case law provides for an assumption that, if a buyer had been informed correctly, then the buyer would have been successful in concluding the transaction at a lower purchase price reflecting the influence of the misinformation on the overall purchase price. These reliance damages are calculated as the difference between the agreed and the lower purchase price. The buyer does not need to demonstrate that the seller would have agreed to the lower price.[15]
A tribunal with its seat of arbitration in Germany generally has discretion to determine the rules of procedure for its arbitration unless mandatory provisions, or provisions agreed between the parties, apply.[16] Obviously, the parties have to be treated equally, and the parties’ right to be heard must be upheld. Other than for such fundamental principles, it is commonly accepted that a tribunals’ discretion is rather wide. German case law suggests that said discretion is, in any case, exercised properly if a tribunal, at the least, follows the rules laid down in the Code of Civil Procedure (ZPO) for state court proceedings.[17] As a result, tribunals might take guidance from the German procedural rules for state courts even though they are not, at least not fully, compatible with arbitration proceedings, and those rules, unsurprisingly, are different from what is, or is evolving into, the international standard for conducting commercial (and M&A) arbitrations.
As expressly stipulated in the same ZPO provision, a tribunal may – again at its discretion – determine if evidence is admissible, if it will be taken, and what the result of the taking of evidence is.[18] This provision makes it clear that it is not the parties who decide what evidence is presented and taken, as in state court proceedings under common law, but the tribunal decides. The rule does, however, not per se exclude the taking of evidence by way of, for example, pretrial discovery or extensive disclosure.
German procedural law has a provision that, once a breach of duty is established, a court might estimate the causation of damage, and quantum, resulting from the breach if the court is provided with sufficient facts to make causation and quantum probable.[19] The question whether this provision is procedural or substantive law is rather academic. As explained above, applying this provision is considered to be at the tribunal’s discretion, as confirmed by German case law.[20]
Any and all attribution of actions (of performance agents) can be contractually limited or excluded. Also, the seller (or the individual) may make it clear to the buyer that actions of the individual shall not be relied on and, thus, prevent the attribution of actions of that individual to the company.[21] A unilateral statement of the seller would be sufficient to exclude reliance; the buyer does not need to accept, or agree to, it.
Similarly, the knowledge of an individual may be attributed to the seller if the individual can be deemed to be a representative of the seller in connection with the transaction.[22] Whether an individual qualifies a ‘knowledge representative’ of the seller might, again, depend on the individual’s involvement in the overall transaction. Likewise, the attribution of knowledge can be contractually limited or excluded.
Avoidance of M&A transactions is rare in practice,[23] even while claims for culpa in contrahendo are quite common in arbitration and both legal concepts have many of the same legal prerequisites. Culpa in contrahendo might generally be more attractive because of the longer time limits (a time-bar of three years at year end, or contractual time-bar provisions) and because its legal effect of award of damages is often more desirable (and easier to achieve) than a re-transfer of anything exchanged under the rules of unjust enrichment.
German law has a peculiar, and often criticised, feature: it applies the limits, and the review of, general terms and conditions, as enshrined in EU consumer directives, not only to contracts with consumers but also to contracts between businesses.[24]
An arbitration clause per se does not limit the possibility to request interim relief from German state courts, for arbitration whether its seat is in or outside Germany.[25] However, German courts need to have international jurisdiction for interim relief, and such international jurisdiction can be contractually derogated.
It is widely assumed, but not uncontested, that the parties may not – not even by way of an express agreement that goes beyond a standard arbitration clause – exclude the right of the parties to request interim relief from German courts that have international jurisdiction.[26]
Even when the seat of arbitration is outside Germany or when another domestic law might exclude the arbitrability of certain claims, a party to an arbitration agreement may request that a German court (specifically the court of appeal that has international jurisdiction in Germany) examines and determines the validity of an arbitration agreement.[27]
Again for an arbitration with its seat in or outside Germany, German courts may provide assistance to arbitral tribunals.[28] For example, the competent district court may be requested to have a witness confirm under oath statements made in an arbitral hearing when the tribunal has doubts about their correctness.
M&A transactions often make reference to the findings of an expert.[29] German law provides that the findings of an expert (in that sense) might be binding on a tribunal in a later arbitration and may only be overruled by the tribunal if the assessment is significantly incorrect.
[1] Michael Rohls is a partner at Freshfields Bruckhaus Deringer LLP. The input of the author’s fellow partners Rolf Trittmann, Boris Kasolowsky, Roman Mallmann and Patrick Schroeder is much appreciated.
[2] The general rules for arbitration in Germany are stipulated in Book 10 (§ 1025 et seq.) of the Code of Civil Procedure (ZPO). The German Federal Ministry of Justice and Consumer Protection has published an English convenience translation of the ZPO: https://www.gesetze-im-internet.de/englisch_zpo/.
[3] See BGH, 28 November 2001, VIII ZR 37/01, NJW 2002, 1042.
[4] See BGH, 6 February 2002, VIII ZR 185/00, BeckRS 2002, 03131.
[5] See BGH, 12 November 1969, I ZR 93/67, NJW 1970, 653.
[6] See BGH, 15 June 2005, VIII ZR 118/03, BeckRS 2005, 30358080.
[7] See § 453.1 BGB.
[8] But the parties might validly exclude liability for intentional misinformation by third parties, see ‘Knowledge sharing’ below.
[9] Regarding claims for intentional culpa in contrahendo, see BGH, 27 March 2009, V ZR 30/08, NJW 2009, 2120, 2122.
[10] Literally ‘into the blue’ (ins Blaue hinein).
[11] See BGH, 1 February 2013, V ZR 72/11, NJW 2013, 1807.
[12] See BGH, 20 March 1967, VIII ZR 288/64, NJW, 1967, 1222.
[13] Rolf Trittmann, The interplay between procedural and substantive law in international arbitration, SchiedsVZ 2016, 7.
[14] BGH, 1 December 2008, XI ZR 411/06, NJW 2008, 2912, 2914.
[15] See BGH, 19 May 2006, V ZR 264/05, NJW 2006, 3139, 3141.
[16] See § 1042.4.1 ZPO.
[17] See BGH, 17 January 2008, III ZB 11/07, SchiedsVZ 2008, 148 (with an English summary).
[18] See § 1042.4.2 ZPO.
[19] § 287 ZPO.
[20] See BGH, 16 December 2015, I ZB 109/14, BeckRS 2016, 02020.
[21] See BGH, 2 June 1995, V ZR 52/94, NJW 1995, 2550.
[22] See BGH, 2 February 1996, V ZR 239/94, BeckRS 1996, 02110.
[23] See for an example BGH, 15 June 2005, VIII ZR 118/03, BeckRS 2005, 12786.
[24] See § 305 BGB et seq.
[25] See §§ 1033, 1025.2 ZPO.
[26] See Geimer in Zöller, Zivilprozessordnung: Kommentar, (32nd edn., Köln 2018) § 1033 ZPO note 12 for the proposition that it is possible to opt out of interim relief from German state courts, also with references for the contrary proposition.
[27] See § 1032.2 ZPO and the decision of OLG München dated 7 July 2014 in a matter where the author of this Article represented the applicant for a decision on the validity of an arbitration clause, SchiedsVZ 2014, 262 (with English summary).
[28] See § 1050 ZPO.
[29] See § 317 BGB.