Impact of confidentiality clauses on litigation in the German courts
By Dr. Karl Friedrich Dumoulin, FPS Rechtsanwälte & Notare
Confidentiality clauses are widely used in M&A and IP transactions as well as in cooperation agreements between high-tech companies and also in arbitration and mediation agreements. Therein, the parties involved usually undertake not to disclose certain confidential information disclosed by the other party in the formation of the agreement. Moreover, it is often the case that the parties also undertake not to make use of certain evidence made known in the transaction. If, at a later date, certain elements of the transaction become contentious between the parties and the case goes to court, the question arises whether and to what extent the parties and the court are bound by the confidentiality agreement, i.e. whether a party is permitted to submit to the court certain information or evidence defined as confidential in the agreement.
Civil litigation in the German courts is governed by the rule of party disposition. In accordance with this rule, if a fact asserted by one party is not explicitly disputed by the other party the fact is then regarded as admitted (cf. Section 138 Subsection 3 German Civil Procedural Code). Additionally, if one party asserts a fact and the other party explicitly admits to such a fact, the admission automatically becomes a basis for the court's decision. The admission may only be revoked if the revoking party proves that the admission was not true and the result of an error; the admitted fact may not be revoked merely on the basis that it was not true (cf. Sect. 288 and 290 German Civil Procedural Code).
Moreover, according to Section 138 Subsection 1 of the German Civil Procedural Code, the parties have to make their declarations about factual circumstances in full and in accordance with the truth.
The prevailing opinion in Germany accepts that clauses in confidentiality agreements regarding the non-disclosure of certain facts in court as well as the non-usage of certain evidence in court are valid. The main argument is that Section 138 Subsection 3 and Sections 288 and 290 of the Civil Procedural Code show that the parties are given the powers to agree on the factual basis of a court decision1 .
However, the validity of these clauses is limited where the contrary is apparent or where the parties maliciously cooperate to the detriment of a third party2. Additionally, as confidentiality clauses and their effects on litigation are an expression of the doctrine of freedom of contract, they are subject to the general principles governing any other agreements. They can therefore be challenged for reasons of deficiency of intention (i.e. error, wilful deceit) or if they violate the laws regulating general terms and conditions.
Subject to the above restrictions, the parties may not only declare certain information confidential and therefore keep it out of the reach of the court, but also undertake mutually not to submit certain evidence, i.e. exclude an arbitrator or a mediator as witness or protocols from arbitration proceedings as documentary evidence. If a party submits information treated as confidential to the court or calls an arbitrator or a mediator as witness, the court will have to treat both the facts submitted as well as the evidence offered as inadmissible3.
In summary, the restriction of the use of confidential information and/or certain evidence in confidentiality clauses is, as a rule, valid under German law. However, as should have become apparent from the above, confidentiality clauses should be worded with care. Moreover, in arbitration and mediation proceedings, the prudence and experience of the arbitrators or mediators are crucial: they should endeavour to maintain a proper balance between the parties when it comes to disclosing sensitive information at any stage of the proceedings.
1 cf. Wagner, NJW 2001, 1398 and Wagner, Prozeßverträge, 609 et seq.; Official Collection of the Decisions of the Supreme Court of the German Reich 96, 57, 59; 160, 241, 243; Official Collection of the Decisions of the Federal Supreme Court 38, 254, 258; 109, 19, 28
2 cf. Official Collection of the Decisions of the Federal Supreme Court 37, 154, 156
3 cf. Wagner, ibd, 1398, 1400
Dr. Karl Friedrich Dumoulin, Patner
FPS Rechtsanwälte & Notare, Dusseldorf, Germany
T: +49 211 30 20 15 14
Dr. Karl Friedrich Dumoulin is Vice Global Chairperson of the GGI International Dispute Resolution Practice Group and partner at FPS in Dusseldorf. His areas of expertise cover the entire range of corporate and commercial law including litigation and dispute resolution, very frequently in an international context.
FPS Rechtsanwälte & Notare is one of the largest fully independent German law firms with offices in Berlin, Dusseldorf, Frankfurt/Main and Hamburg. FPS currently employs over 120 lawyers and notaries. One of the firm's core areas of expertise is national and international litigation as well as dispute resolution.
published: September 2013