Germany is a country of innovation and high technology. "German quality" – what could sound more pleasant in a clothing store, an electronics shop, or a car dealership? Germany is associated with stability and comfort, and not without reason – its high level of economic development makes it possible to produce inexpensive, high-quality goods not only for the domestic market but also in volumes sufficient for full-scale export abroad. Products from Germany cannot be called the cheapest, but they can certainly be given top marks for quality and range. Besides electronics and clothing, Germany exports industrial raw materials, foodstuffs, industrial and medical equipment, and medicines to Russia.
There are several reasons why medicines are supplied from Germany to Russia. The most significant is this: there are medications needed for certain illnesses that simply cannot be bought in Russia — they are neither manufactured nor sold there. This applies, for example, to some drugs used to treat oncological diseases. In addition, many people do not trust Russian-made medications, believing that they do not undergo proper clinical trials.
Important to know
General terms and conditions (German: AGB) drawn up unilaterally and substantially disadvantaging a partner's interests can be declared void by a court under §§ 307–309 BGB.
When structuring the legal relationship for the supply of goods, a German company (the supplier) and a Russian company (the buyer) conclude a supply agreement. Under a supply agreement, the supplier — a seller carrying on a business activity — undertakes to deliver, within an agreed period or periods, goods it manufactures or procures to the buyer for use in business activity or for other purposes not connected with personal, family, household or similar use. When entering into any transaction, the parties formalize their relationship through a contract, in which all possible situations that might arise between them during performance of the contract must be addressed. Contracts must be drawn up in accordance with the law in force in the country whose jurisdiction the parties are subject to. If the parties' activities fall within the legal sphere of different countries, the contract must specify which country's law governs it and which law will apply if disagreements arise.
It often happens that the "stronger party" to a contract — for example, a German supplier, a manufacturer of an effective, expensive drug for treating oncological diseases — insists on including terms in the supply agreement that are knowingly unfavourable to the other party, the buyer. These include, for instance: the right to unilaterally withdraw from the contract, the possibility of unilaterally changing the terms of the contract, limitation of the supplier's liability, and so on. The buyer, who in such a case is the more interested party, agrees to sign the contract on such "draconian" terms, sometimes without even considering the consequences of such deals. It is also entirely possible for such arrangements to function successfully for many years, until the supplier begins quite lawfully to exercise the preferential rights set out in the contract. This article discusses one such case from our practice.
Representatives of a large Russian company registered in Saint Petersburg — let us call it Alfa-Med LLC — approached our law firm for legal assistance. Alfa-Med LLC had been working with a German company that supplied medicines for treating oncological diseases under a long-term supply agreement, on terms giving it the exclusive right to distribute the goods on the Russian market. Under the terms of this agreement, two types of delivery were envisaged — deliveries made on a pre-order basis three months before the expected delivery date, and deliveries made following tender procedures won by Alfa-Med LLC. The agreement concluded between the partners gave the Supplier the right to deliver medicines in a smaller volume than the Buyer required, and also excluded any liability on the Supplier's part for short delivery of goods. Nor did the Buyer have any possibility of recovering damages in the form of lost profit. Despite the Supplier's tendency to "pull the blanket to its own side," the partners cooperated successfully for several years, until a point came when our client's interests were significantly harmed.
Alfa-Med LLC, which had established itself on the market as a reliable and responsible partner, won the right, following another tender procedure, to supply 700 vials of a cancer-treatment drug to hospitals in Saint Petersburg. Following the procedure it had used for years, Alfa-Med LLC immediately placed an order for 700 vials with the German supplier. The German company, however, confirmed that it could supply only 400 vials. Alfa-Med LLC's sales representatives, counting on delivery of 400 vials of the medicine, entered into corresponding agreements with local hospitals. Imagine everyone's surprise when the Buyer received not even the promised 400 vials, but only 200... In addition, the German company decided to terminate its long-term supply agreement with Alfa-Med LLC and transfer the exclusive distribution rights to another Russian company. The situation looked threatening: this smelled of major losses, which our future client stood to bear in full. The general director of Alfa-Med LLC, after several consultations with local attorneys, therefore made the right decision to seek professional help from our law firm.
The first thing our firm's attorney did was study the terms of the supply agreement Alfa-Med LLC had concluded. Unfortunately, in practice the terms of the contract turned out to be even worse than we had imagined. Under the terms of the contract, the German supplier company could indeed unilaterally change the delivery terms without bearing any liability whatsoever. Nevertheless, without letting the client panic prematurely, we decided to act actively within the available legal tools. German law recognizes the principle of freedom of contract, that is, the free determination of a contract's content at the discretion of its parties. At the same time, the law lays down certain rules that a contract's content must comply with. The provisions of the German Civil Code (Bürgerliches Gesetzbuch — BGB) on general terms and conditions of business (Allgemeine Geschäftsbedingungen, AGB) establish a number of provisions that restrict the inclusion of certain terms in a contract. By operation of law, such terms are void and have no legal effect. Accordingly, relying on the invalidity of the contractual provision that substantially disadvantaged our client's rights by excluding any claim for damages, we prepared and filed a claim with the court for recovery of lost profit in the amount of 200,000 euros. At the same time, recognizing that our chances of winning the case were not high, and that there were no other legal grounds on which to recover funds from the supplier company, we filed a supplement to the claim. In this supplement, we asked the court to order the defendant to deliver the promised 200 vials of the necessary medicine, in the event our main claim was dismissed.
"The Lord's ways are inscrutable..." Even before the court hearing, our firm's attorney had a conversation over coffee with the defendant's attorney. After a brief, pleasant conversation between two professionals, both attorneys realized that, in this case, both sides were interested in reaching a compromise. After all, at that point, what mattered most to our client was not to punish the German partner, but to obtain the necessary medicines. At the same time, it was important for the German company to preserve its business reputation and positive image on the fairly lucrative Russian market. "No sooner said than done" — during the court hearing, the parties agreed to enter into a settlement, under the terms of which the Supplier undertook to deliver the missing 200 vials of the medicine. Having signed this agreement, everyone was absolutely delighted that the litigation saga was over and that they could now sleep soundly. The case, however, took another unexpected turn. One day before the deadline by which the settlement could still be withdrawn, we received a detailed fax from the defendant's attorney. He wrote that the company could not fulfil the terms of the settlement it had concluded, for the following reasons:
· it was no longer possible to move the goods across the customs border with Russia (the supply agreement between the parties had already been terminated);
· if the medicines were delivered to our client, the German company would breach the delivery terms of its new agreement with the other Russian distributor.
As we all know very well, a truly good attorney is not only a skilled lawyer who navigates the waves of legislation like a shark, but also a good, flexible psychologist who knows how to "push through" as well as negotiate. This is where our attorney had to put his talent as a successful negotiator to full use. He immediately contacted representatives of the German company and, after several rounds of constructive negotiations, achieved a mutually beneficial solution. In the end, he arranged for the missing 200 vials to nonetheless be delivered to our client through the new exclusive distributor of this oncology drug. In doing so, neither of the agreeing parties would suffer or incur any losses. Thus, to everyone's relief, the settlement concluded by the parties remained in force.
Having analysed the twists and turns of this complicated case, we were once again convinced that a way out can always be found, even from the most hopeless of situations. Our firm's attorney made the right decision to seek a compromise and negotiate — all the more so since the other side, too, was interested in a peaceful resolution of the conflict. This tactic allowed our client not only to avoid significant losses, but also to profit from the sale of the expensive medicines. This shows that, when it comes to working with people, there is practically no such thing as a universal solution. The professionalism of our firm's attorneys, their experience, and their ability to negotiate help us choose the right defence tactics and achieve a positive outcome.
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THE LAW FIRM REPRESENTS CLIENTS' INTERESTS THROUGHOUT GERMANY
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