Liability Exclusions under German Law

Frequently asked question

How to limit contractual liability?

Under German law limitation/exclusion of liability clauses respectively indemnity clauses require an individual agreement (no general terms and conditions or standard agreements with contract terms pre-formulated for more than two contracts). There is more freedom of contract in Common law or Swiss law or Austrian law. Therefore, for cross-border businesses respectively international agreements it might be considered to choose another law than German law. But even in national agreements it might be worth considering an escape from German law in standard agreements.

See Martin Rothermel’s very helpful publication on International Purchases, Deliveries and Distribution: It contains compact information and considerations on international purchase, supply and distribution contracts (choice of law and jurisdiction, German law - UN CISG - Swiss law - common law in comparison, internationally mandatory provisions in distribution in 50 regions and countries, retention of title provisions in more than 50 countries, basics of antitrust law for vertical agreements in the EU and 13 other countries, as well as some comments on Incoterms).

For German law liability clauses please also see the following considerations:

Strict German Law

As frequently discussed, German law and German jurisdiction is very strict with respect to general terms and conditions and standard agreements with contract terms pre-formulated for more than two contracts (since these are understood to be general terms and conditions under German law, Sec. 305 para 1 German Civil Code [BGB]). It is almost impossible to deviate from statutory German law to the benefit of the party using such general terms and conditions. This explicitly applies to the limitation/exclusion of liability clauses respectively indemnity clauses.

Since German courts do not really differentiate between B2B and B2C agreements respectively terms and conditions. This means that the catalogues in German law (§§ 308 and 309 German Civil Code) of invalid clauses in B2C terms and conditions are applied to B2B agreements via the general reasonableness test (§ 307 German Civil Code). This – in terms of liability limitations or exclusions – does especially have the following impacts:

• No limitation/exclusion for intent (Kein Ausschluss der Vorsatzhaftung) - § 276 para. 3 German Civil Code, § 202 German Civil Code (This is clear under the law and needs no citation of textbooks or jurisdiction.).
• No limitation/exclusion for gross negligence (Keine Ausschlüsse für grobe Fahrlässigkeit); gross negligence is understood as the infringement to an unusually high degree of the required due diligence and the non-observance of what should have been evident to anyone in the present case (Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2016, § 309 No. 7 nos. 20). Although § 309 No. 7 lit. b German Civil Code in general only applies to B2C agreements, it is recognized by German Courts that the provision itself is an indicator for an unreasonable disadvantage in the sense of § 307 German Civil Code, meaning that such clauses are mostly invalid in B2B terms and conditions as well (BGH, Judgement of 19-06-2013, VIII ZR 183/12 = NJW 2014, 211; BGH, Judgement of 19-09-2007, VIII ZR 141/06 = NJW 2007, 3774; Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th edition 2016, § 309 No. 7 nos. 33; Grüneberg, Palandt, 76^th Edition 2016, § 309 nos. 55).
• No limitation/exclusion for gross negligent behaviour of auxiliary persons (Keine Ausschlüsse für Hilfspersonen); in terms of gross negligent behaviour of auxiliary persons, German Courts formerly used to differentiate between the type of auxiliary persons and the degree of fault. Due to the stated indication of an unreasonable disadvantage, German Courts now consider any type of exclusion for gross negligence of the user itself, his legal representatives, his executives and any auxiliary persons as invalid (BGH, Judgement of 19-09-2007, VIII ZR 141/06 = NJW 2007, 3774; BGH, Judgement of 13-01-2000, III ZR 62/99 = NJW-RR 2000, 998; Grüneberg, Palandt, 76^th Edition 2016, § 309 nos. 48, 50, 55; Christensen, Ulmer/Brandner/Hensen AGB-Recht, 12^th Edition, 2016, § 309 No. 7 nos. 33, 43, 45).
• No limitation/exclusion for negligent violation of material duties (Keine Ausschlüsse für fahrlässige Verletzung von „Kardinalpflichten“); any exclusion or limitation for violation of material duties, the fulfillment of which enables the proper implementation of the contract and upon the fulfillment of which the other party regularly may rely (“Kardinalpflichten“) constitute an unreasonable disadvantage to the contractual partner (BGH, Judgement of 15-09-2005, I ZR 58/03 = NJW-RR 2006, 267; Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2016, § 309 No. 7 nos. 20; Grüneberg, Palandt, 76^th Edition 2016, § 309 nos. 55).
• No limitation/exclusions for foreseeable damages in case of negligent violations of obligations that are not material (Keine Beschränkung der vorhersehbaren Schäden bei leicht fahrlässiger Verletzung von Pflichten, die keine Kardinalpflichten sind); courts frequently had to examine, clauses in which the liability was limited to a certain sum and decided that the effectiveness of a cumulative liability limitation depends on whether the maximum sum is sufficient to cover the type of foreseeable damages; however, this is often not possible and the limitation of liability may therefore in principle also be made in such a way that the liability is limited to the damage expected to be typical for the type of contract (BGH, Judgement 08-07-2012, VIII ZR 337/11-= NJW 2013, 291; BGH, Judgement of 14-11-2000, X ZR 211/98 = NJW-RR 2001, 342; Grüneberg, Palandt, 76^th edition 2016, § 309 nos. 48, 51, 53).
• No limitation of statute limitation for liability that may not be limited otherwise (Keine Verkürzung der Verjährung für Pflichtverletzungen, bei denen auch die Haftung in der Höhe nicht begrenzt werden kann); where limitation can not be limited, statute limitation can not be shortened (Grüneberg, Palandt, 76^th Edition 2016, § 309 nos. 45; BGH, Judgement of 22-09-2015, II ZR 340/14 and 341/15 = DB 2015, 3000).
• No limitation/exclusion for personal damages (Keine Haftungsbeschränkung für Verletzung von Körper, Leib, Leben und Gesundheit); § 309 No. 7 lit. a German Civil Code applies without doubt to B2B business (Ulmer/Brandner/Hensen AGB-Recht, 12^th Edition 2016, § 309 No. 7 nos. 23; BGH, Judgement of 19-09-2007, VIII ZR 141/06 = NJW 2007, 3774).
• No limitation/exclusion for certain kinds of damages like loss of profit (Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2016, § 309 No. 7 nos. 29), indirect (BGH, Judgement of 21-03-2002, VIII ZR 493/00 = NJW 2002, 2470; Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2016, § 309 No. 7 nos. 23), subsequent (BGH, Judgement of 22-04-1988, 2 U 219/87 = NJW-RR 1988, 1082; Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2016, § 309 No. 7 nos. 23) or other damages (Keine Haftungsbeschränkung für bestimmte Schadensarten); although this is can be read frequently in T&C, such single damages can not be excluded.
• No limitation/exclusion with respect to insurers‘ coverage (BGH, Judgement of 06-12-1990, I ZR 138/89 = NJW-RR 1991, 570; Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2016, § 309 No. 7 nos. 34) (Keine Deckelung in Höhe der Haftpflichtversicherung bzw. Verweis auf Haftpflichtversicherung); although this is can be read frequently in T&C, such connection can not be made (unless such sum is sufficient to cover the type of foreseeable damages in the concrete case) (BGH, Judgement 08-07-2012, VIII ZR 337/11-= NJW 2013, 291).
• No limitation to a certain amount in every case (Wurmnest, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2016, § 309 No. 7 nos. 38; Grüneberg, Palandt, 76^th Edition 2016, § 309 nos. 51) (Keine Haftungsbeschränkung auf einen bestimmten Betrag oder einen bestimmten Prozentsatz); although this is can be read frequently in T&C, such limitation by sum can not be made (unless such sum is sufficient to cover the type of foreseeable damages in the concrete case) (BGH, Judgement 08-07-2012, VIII ZR 337/11 = NJW 2013, 291).
• No limitation/exclusion if clause is unclear or suprising (Keine Beschränkung wenn die Bestimmung unklar oder überraschend ist); - § 305c German Civil Code (This is clear under the law and needs no citation of textbooks or jurisdiction.).
• No limitation/exclusion with admissibility reservation (Keine salvatorische Klausel zum Erhalt der Haftungsbeschränkung); although this is can be read frequently in T&C, the general admissibility reservation („soweit gesetzlich zulässig“) is not curing inadmissible exclusions/limitations (BGH, Judgement of 22-09-2015, II ZR 340/14 and 341/15 = DB 2015, 3000).

More flexible International Alternatives

Other national legal systems do provide more freedom of contracts even in standard agreements respectively general terms and conditions.

Common law, for example, is not similarly strict as German law with respect to terms and conditions deviating from the liability regime under the law of England and Wales – especially where for international businesses the Unfair Contract Terms Act is not applicable (assuming that we are not dealing with consumer law here).

Another – frequently recommended – alternative could be Swiss law since Swiss law does not provide for any control of standard terms or general terms and conditions by law or jurisdiction (provided that it does not deal with consumer products). Swiss law might have the disadvantage that it is not possible in agreements (no matter if individual agreements or standard terms) to exclude or reduce liability for intent and gross negligence (whereas in Germany the threshold is for intent only). But in all other cases, even in standard clauses and general terms and conditions, more modifications would be possible than under German law.

Another alternative, frequently cited, is the use of Austrian law since Austrian jurisdiction is not as strict as German law with respect to control of standard clauses and general terms and conditions; nevertheless, Austrian law does provide for such control, but the jurisdiction is not as detailed as in Germany.

When to apply International Alternatives

In Agreements in cross-border transactions the choice of another than German law for businesses is possible (according to the Rome I Regulation, 593/2008 of 17 June 2008, applicable for all European Member States except of Denmark).

In the case of so-called national domestic affairs, when all elements relevant to the situation at the time are located in one country, the choice of law of another country is only valid as a substantive law referral contract, because of Article 3 (3) and (4) of the Rome I-Regulation. There are also EU-wide-domestic affairs, where compulsory EU law applies (Article 3 (4) Rome I Regulation). It basically says that in such cases you can not deviate from national mandatory law. „Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.”

So, the question is, what are the “provisions of the law of that other country which cannot be derogated from by agreement”. In other word what is ius cogens here? This is difficult to determine as there is no catalogue in statutory law and/or no clear jurisdiction. With respect to terms and conditions, it is frequently assumed without further considerations that strict German law in §§ 305 et al German Civil Code must be understood as ius cogens (Magnus, Staudinger, International Contract Law Vol. 1, 2016, Art. 3 Rom I-VO, nos 146; OLG Frankfurt a. M., Judgment 1 January 1989, NJW-RR 1989, 1018; Martiny, Münchner Kommentar zum BGB, Vol. 2, 7^th Edition 2018, Rom I-VO Art. 3 nos. 86-88); other provisions which can be derogated from shall be found in §§ 225, 276 para 3., 312 et al, 444, 491 et al, 540, 611a, 651l German Civil Code (as before).

Nevertheless, it might be worth to consider an alternative law even for domestic affairs, since the vast majority of strict clauses preventing liability exclusions are applicable for B2C and not for B2B, says the law itself. It is German jurisdiction that applies these provisions to B2B agreements and it is not clear that this decisions must be understood as ius cogens. So, it might be worth a try!?