Ruling of the German Federal Court on the Impact of Arbitration Clauses on General Terms and Conditions in Business Transactions

Client Alert  |  July 1, 2025


This decision is likely to promote the continued – and possibly expanded – use of arbitration clauses in commercial contracts.

1. Introduction

In its landmark decision of January 9, 2025, the Federal Court of Justice (BGH) provides clarity regarding the applicable regime governing the interaction of arbitration clauses and statutory provisions on general terms and conditions (GTC)s[1].

With its long-awaited ruling, the court confirms that arbitration clauses in commercial contracts are valid even if the choice-of-law provision governing the arbitration proceedings excludes the statutory law controlling GTC. The decision significantly strengthens contractual practice, although uncertainties remain with respect to the public policy proviso (ordre public).

a) Outline of Legal Issue

German statutory laws controlling GTC have long been subject to controversial debate in the context of commercial transactions.

Originally introduced to address the use of pre-formulated contractual clauses in mass transactions and their interference with the principle of private autonomy – a purpose later extended by the European regulator to include consumer protection – these laws are often perceived as too strict, formalistic, and inflexible, particularly in the B2B sector.

The crux of the matter lies in the catch-all provision of Section 307 BGB, which applies even to commercial transactions. This provision mandates a substantive court review of pre-formulated contractual terms, particularly guided by the principles laid out in Sections 308 and 309 BGB. Such review may, inter alios, affect – and potentially render invalid – clauses on liability limitations, price adjustments in long-term supply or construction contracts, standard M&A provisions, and fee arrangements in financing agreements.

In cross-border transactions, these uncertainties are increasingly perceived as a significant drawback of German law.

b) Practical Response

Practitioners have long sought to provide businesses with greater flexibility in structuring their contracts, while preserving legal certainty.

One increasingly common solution is to move disputes from state courts to arbitration proceedings. In such cases, parties typically agree to apply German substantive law, while expressly excluding Sections 305–310 BGB. This practice is grounded in Section 1051 para. 1 of the German Code of Civil Procedure (ZPO), which allows parties broad discretion in selecting the legal framework for arbitration proceedings.

Despite strong arguments in favor of this approach,[2] courts had previously not taken a clear position on its permissibility. In particular, it was unclear whether such exclusion might constitute an unlawful circumvention of statutory GTC provisions. As a result, parties faced the risk that the arbitration clause or the related choice-of-law clause could be invalidated in court.

2. Key Holdings of the BGH ruling of January 9, 2025 (I ZB 48/24)

Against this backdrop, the BGH’s recent decision is especially important, as it provides fundamental guidance for the validity of arbitration clauses that exclude statutory GTC provisions in commercial contracts. This significantly enhances legal certainty for such arrangements.

a) Separability of Arbitration Clause and Choice-of-Law

The court held that the validity of an arbitration clause must be assessed independently of other contractual terms. Even if the choice-of-law clause or the exclusion of GTC provisions is ineffective, the arbitration clause remains valid –provided there is no substantive dependency between the arbitration clause and the contested provision.

Such dependency is generally precluded by the inclusion of severability clauses in commercial contracts, as the BGH correctly observed.

b) Exclusion of statutory GTC provisions in Arbitration Proceedings

Regarding the choice-of-law clause, the BGH refrained from making a substantive ruling and instead deferred to the jurisdiction of the arbitral tribunal. In doing so, the BGH relied on Section 1051(1) ZPO, according to which it is for the tribunal to decide on the applicable legal regime, including the permissibility of excluding German GTC provisions.

As a result, the role of state courts is limited to examining whether recognition or enforcement of an arbitral award must be denied under the public policy proviso (Section 1059(2) No. 2(b) ZPO). This standard sets a high bar and applies only where essential principles of German law or justice are violated[3] – for example, where a clause can no longer be seen as a valid expression of contractual autonomy or would lead to intolerable outcomes.[4]

Lastly, the BGH clarified that a violation of the public policy proviso depends exclusively on the outcome of arbitration, rather than on the procedural or substantive law applied. Accordingly, the mere exclusion of statutory GTC rules does not, in itself, qualify as a breach of public policy.

3. Assessment of Court Ruling

The BGH’s decision is a welcome clarification that reinforces legal certainty and the principle of party autonomy.

Crucially, the Court confirmed that the exclusion of statutory GTC provisions in a choice-of-law clause does not invalidate an arbitration agreement. This ensures that an arbitration clause remains enforceable regardless of the choice-of-law provision. As a result, if a claimant nevertheless initiates proceedings before a state court, the court must uphold the arbitration defense and refer the matter to arbitration—without needing to assess the validity of the choice-of-law clause.

Furthermore, the ruling rightly confirms that the arbitral tribunal – not the state court – as the appropriate body to evaluate the permissibility of excluding Sections 305–310 BGB.

From a practical perspective, this deference aligns with the broad latitude granted by Section 1051 (1) ZPO, which permits parties to choose even non-state legal systems, such as the lex mercatoria, to govern their arbitral proceedings. The decision thus reinforces the viability of excluding statutory GTC provisions in arbitration settings.

Nonetheless, a residual risk remains: In the context of recognizing or enforcing an arbitral award, state courts may still review compliance with the public policy proviso. While this ruling clarifies that exclusion of statutory GTC provisions does not automatically trigger such a violation, absolute legal certainty cannot be guaranteed in all scenarios.

Ultimately, the ruling marks a turning point for drafters of cross-border contracts by significantly reducing legal ambiguity around the exclusion of GTC law in arbitration contexts.

4. Outlook

This decision will likely promote the continued – and possibly expanded – use of arbitration clauses in commercial contracts.

More broadly, the ruling underscores the urgency for legislative reform: German GTC law, particularly in the B2B context, remains overdue for modernization. The long-promised liberalization, most recently referenced in the new coalition agreement, should be advanced to give businesses the flexibility they require.

Such reform is not only in the interest of private actors, but also in the interest of the state itself. As arbitration increasingly becomes the preferred forum for resolving commercial disputes, state courts risk being progressively sidelined from shaping the development of key areas of commercial law.

[1] BGH, decision of 09.01.2025 – I ZB 48/24, IWRZ 2025, 151; detailed review in Pfeiffer NJW 2025, 866, 869 et seq.

[2] Cf. Pfeiffer NJW 2012, 1169.

[3] BGH, decision of 11.10.2018 – I ZB 9/18, SchiedsVZ 2019, 150 para. 5.

[4] BGH, decision of 09.01.2025 – I ZB 48/24, IWRZ 2025, 151 para. 42.


The following Gibson Dunn lawyers prepared this update: Dirk Oberbracht, Finn Zeidler, Annekathrin Schmoll, Fabiana Obermeier, and Simon Stöhlker.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s International Arbitration or Judgment and Arbitral Award Enforcement practice groups, or the authors in Frankfurt:

Dirk Oberbracht (+49 69 247 411 510, doberbracht@gibsondunn.com)

Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com)

Annekathrin Schmoll (+49 69 247 411 533, aschmoll@gibsondunn.com)

Fabiana Obermeier (+49 69 247 411 518, fobermeier@gibsondunn.com)

Simon Stöhlker (+49 69 247 411 517, sstoehlker@gibsondunn.com)

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