Jurisdiction and choice of law in international contracts: German court, arbitration or abroad?

State court or arbitration?

State courts provide a statutory appeal structure, prescribed court fees and public enforcement powers. In Germany, oral hearings are generally public under section 169 GVG, although written submissions and the court file do not thereby become publicly accessible. A German jurisdiction clause also places interim relief and enforcement within the ordinary state system. Proceedings may, however, continue through appeal and the court applies its official language and procedural evidence rules.

Arbitration allows the parties to tailor the seat, language, rules and the decision-makers' expertise more closely to the transaction. Awards are generally final and there is no ordinary merits appeal comparable to a court hierarchy. In Germany, an award can be set aside only on the limited grounds in section 1059 ZPO. Finality may save time but makes careful procedure more important. The parties also pay the tribunal and, where applicable, an institution, which can make arbitration uneconomic for lower-value disputes.

Confidentiality is a common advantage of arbitration. How far it actually extends depends on the selected rules, the seat, additional party agreements and any necessary court proceedings. A clause using DIS or ICC rules should therefore identify the institution and seat as well as the language, number of arbitrators and any specific confidentiality obligations. It should also address whether urgent measures may be sought from state courts, an emergency arbitrator or both.

Enforcement determines the practical value of the title

Within the EU, civil and commercial judgments are generally recognised and enforced under the Brussels Ia Regulation without a separate declaration of enforceability. Exceptions and refusal grounds remain, and the required certificate and any translations must be produced. The Lugano Convention is particularly relevant to Switzerland, Norway and Iceland. Since 1 July 2025, the 2019 Hague Judgments Convention has also applied between the EU and the United Kingdom where its substantive and temporal scope is met. Exclusive jurisdiction agreements may additionally fall under the 2005 Hague Choice of Court Convention.

Outside those frameworks, the law of the enforcement state will often decide. Recognition conditions, reciprocity, service and public policy may then be significant. A familiar court is of limited benefit if the debtor has no assets there and its judgment is difficult to recognise where the assets are actually held.

Arbitral awards benefit from the 1958 New York Convention, which has more than 170 contracting states. It establishes a general obligation to recognise and enforce foreign awards subject to limited refusal grounds. In Germany, foreign awards are declared enforceable under section 1061 ZPO. This broad framework is a powerful reason to choose arbitration where material assets are located outside Europe. It does not guarantee automatic enforcement: the arbitration agreement, notice, due process and tribunal composition must withstand scrutiny.

Common errors in governing-law and dispute clauses

Inconsistency across documents causes more disputes than a missing clause. A framework agreement, purchase order, order confirmation and standard terms may select different courts, laws or arbitration rules. The first dispute then concerns incorporation and priority. A robust contract architecture therefore uses one consistent provision or states clearly which document prevails.

Governing law and forum may legally differ, but should make commercial sense together. Under the Rome I Regulation, parties have broad freedom to select the governing law. A German court may therefore apply foreign law and a foreign court German law. That can increase translation, expert and time costs. Mandatory rules, overriding provisions and special protections for consumer and employment contracts may also restrict the choice.

International sales contracts require a further check. Choosing “German law” may include the CISG where its conditions are met. If the parties intend only domestic German sales law, the CISG should be excluded expressly. Conversely, it should not be excluded by reflex without assessing whether its uniform international rules suit the transaction.

An arbitration clause becomes vulnerable where the institution is misnamed, non-existent rules are cited or the seat is confused with the hearing venue. Optional clauses allowing only one party to choose between litigation and arbitration may also face difficulties in some enforcement states. A clear clause identifies the institution or ad hoc rules, seat, language, number of arbitrators, governing substantive law and access to interim relief. Final review should always include the countries in which the counterparty has valuable assets.