Applicability of the general terms and conditions law to M&A contracts

published on 22 November 2023 | reading time approx. 3 minutes

The question of the applicability of the law regulating general terms and conditions to contracts on the acquisition or sale of company shares or on conversions (M&A contracts) is being intensively debated and, thus, still not clear. And yet, it is of enormous practical significance as it has a huge impact on the assessment of the validity of individual arrangements made in such contracts and the legal protection of the parties.

This legal uncertainty may cause contract drafters to draft agreements very cautiously, if in doubt, in order to appropriately address the risk of invalidity of individual clauses. It is not uncommon that due to this, a clause that the parties intend to have in the contract is ultimately not implemented. Obviously, this implies a loss of private autonomy. M&A contracts would be subject to the general terms and conditions law if the following requirements were met: The arrangements are modelled based on a template used for many agreements and are imposed by one party onto the other party. In the end, their individual clauses may not be negotiated.

1. Templates

Usually, M&A contracts are largely based on contract templates. Therefore, as a rule, it should be assumed that the arrangements are modelled based on templates used for many contracts.

2. Imposing of terms of contract

It is common perception that no great requirements need to be fulfilled for the criterion of "imposing" to be met. This criterion should already be met if one party introduces a template clause into the negotiation process and requires it to be included in the contract. When examining the clause, attention should be paid to whether the party sending the draft contract wants to unilaterally enforce it, as would be the case with general terms and conditions. This is not the case for M&A transactions because, as a rule, it can be assumed that the receiving party – which, in most cases, is also represented by experienced law firms – will appropriately safeguard its interests. M&A transactions mean negotiating and finding compromises and due to this, none of the parties expects to unilaterally enforce the draft contract it presented to the other party. But something else could apply, especially if the draft contract is submitted shortly before conclusion which puts one of the parties in a disadvantaged position.

In such situations, the sense and purpose dictates the application of the general terms and conditions law.

3. No negotiations

If the contractual terms have been subject to negotiations, and, therefore, an individual contract has been concluded, the general terms and conditions law does not apply. It can be assumed that an individual contract was concluded if the user is willing to negotiate its content and negotiations actually take place. However, negotiations mean more than mere negotiating. According to the Federal Court of Justice, a clause is not deemed to have been negotiated if the talks were held to only mitigate its unfavourable effects for the party but did not seriously address the unlawful core of the clause. The other party must have the possibility to influence the content. Changes made to the draft contract make it clear that negotiations did take place. The use of a clause that was not changed may indicate that there were no negotiations. However, a contractual condition that was adopted without any changes may still have been negotiated after extensive talks and arrangements. It should be noted that the negotiation of individual contractual terms generally has no effect on the fact that the remaining contractual terms are still treated as GTC. In particular in M&A transactions, many clauses from the first draft contract are initially rejected and amendments are proposed which are only partially accepted in the final version. However, the negotiating partner makes concessions on other points in order to achieve a "package solution". The correct approach is that not only the clauses that have been changed are not GTC, but also the clauses that have remained unchanged, as they are also part of the negotiated package. This approach arises from the fact that in commercial transactions the applicable customs and practice must be taken into account.

4. Conclusion

To sum up, the question whether M&A contracts are subject to control by the courts under the law applicable to general terms and conditions cannot be answered unequivocally. Decisive are always the facts and circumstances of the individual case. This uncertainty could be avoided if the legislator liberalised the law on general terms and conditions in the commercial sector. However, legal intervention would not be necessary if courts took greater account of the customs and practices applicable in commercial transactions enshrined in the law. The customs and practices applicable in commercial transactions should be taken into account when checking the content of the contract, even where the application of the general terms and conditions law is preferred. Therefore, an arbitration clause can also be concluded, as arbitration tribunals have to abide by the law, but not by the case law of the Federal Court of Justice.