Contracts under English law with German jurisdiction

MS Amlin has noted that in recent years it had seen a steady increase in offshore contracts from its assureds in which the applicable law was different from the place of jurisdiction.

It also noted a potential change in process should the UK leave the EU without a withdrawal agreement.

In the maritime and offshore industry parties often agree on the applicability of English law, even if both parties do not have their business seat in the UK or are of UK nationality.

MS Amlin said that there were several reasons for this choice being made. English law can be seen as a “neutral” third-party option, when neither of the two parties wants to accept the other party’s legal system – the law of the counterparty’s country being either unknown or less familiar to them than English law.

However, MS Amlin said that, with an increase of projects in the German offshore sector, parties quite often agree on the jurisdiction of German courts. Therefore, should a dispute arise under such a contract, German courts would have to decide such dispute, but would have to apply English law.

Dr Nicoletta Kroeger and Dr Jan Backhaus, partners of Corvel llp, Hamburg, Germany drafted a short advice on this topic.

1.       English Law before a German Court – does that work?

Even though contracts are often drafted in the English language, the language of the court is German according to the German Procedural Code. Consequently, usually all submissions have to be in the German language, as well as oral hearings and taking of evidence.

Many German judges feel at least sufficiently comfortable with the English language to accept exhibits to submissions in English without translation into German. However, that depends on the judge(s) hearing the respective case.

There are some exceptions from these principle rules: some court chambers, for example in Hamburg, take part in a pilot project, which aims to allow a court proceeding to be held completely in the English language.

Since (German) judges are not educated in English law, they instruct English legal experts to clarify the legal situation as far as a legal argument with regard to English law is disputed between the parties and could be decisive for the court’s decision.

To clarify such disputed arguments the court usually poses questions to a legal expert who answers these questions in a written legal opinion. If the court sees a respective need, it will further hear the expert in a hearing. This procedure is possible, but it results in extra costs and is more time-consuming than usual proceedings in the German language.

Furthermore, the writers said, the outcome was not always ideal, with phrases in the law sometimes interpreted differently in a German court from the way they have previously been interpreted in an English Court. “Whether this understanding of some of the courts is correct may be questioned. However, it is the reality, with which the parties have to cope”, the writers said.

2.       Can German court decisions be enforced outside of Germany?

Court decisions – of German or other state courts – might have the disadvantage of not being enforceable in other states. The background is that court decisions are part of the sovereignty. Sovereignty, however, is always limited to the territory of the respective state. To exercise jurisdiction abroad, the consent of the respective foreign state is required. Such consent is usually laid down in bilateral or multilateral treaties or in the national laws.

In the EU, court decisions from other member states are accepted as decisions of their own courts. An enforcement in an EU member state is therefore possible.

This is different for non-EU states and will also become different in the UK should the UK decide to leave the EU without a withdrawal agreement. Whether bilateral or multilateral agreements or the national law accept the enforcement of respective foreign court decisions depends on the particular state and case.

Should the UK leave the EU without an withdrawal agreement, some experts expect that English law will drift away from EU law as the English courts will no longer be bound by the case law of the European courts anymore, in particular  the European Court of Justice.

3.       Is there a better solution available?

The writers said that a better solution could be agreement on an arbitration clause in a respective contract, instead of agreeing on state court proceedings.

One of the advantages of arbitration was that the parties, under most arbitration rules, were free to choose their arbitrators. Therefore, the parties might choose arbitrators who are able to handle the whole arbitration in the English language and are also educated in English law.

The arbitration rules of the German Maritime Arbitration Association (GMAA) – as well as many others – allow the parties to choose an arbitrator who is trained in English law only. This would make it unnecessary for the parties to incur costs for translations and/or legal experts.

Arbitration awards are enforced on the basis of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a convention ratified by more than 150 states worldwide.

4.       Conclusion

The writers said that contracts might provide for the application of English law and jurisdiction of German courts. However, there were better alternatives, particularly arbitration.