A federalist or a Little Englander? Whatever your attitude to Europe, it is likely that before long you will be contracting or subcontracting with a firm from the other side of the Channel. Large contractors are used to it, but smaller businesses may find it a novel experience. When it happens, you may find that a holiday phrase book is less than adequate for detailed commercial dealings.
This is the story of a thoroughly British subcontractor that became embroiled in matters European. The story is true, although a few details have been disguised in order to respect the confidentiality of arbitration, which is where the subcontract ended up.
The subcontractor hero of the tale comes from Walsall. It is a specialist manufacturer and installer of very complicated valves for a particular type of gismo needed in a huge industrial development in the UK. We’ll give it a British-sounding name to make the story simple to follow: Bulldog Valves. The gismos themselves were to be supplied and installed by a German company from Stuttgart, which we’ll call Deutsche Gismos.
Deutsche Gismos invited Bulldog Valves to tender for the supply and installation of the valves as its sub-subcontractor. Bulldog put together a competitive tender and then went to Stuttgart to negotiate. Price, design, performance, programme were all discussed long and hard, but Bulldog knew its business and matters of that sort were not a problem.
Then the Germans produced their contract documents. The purchase order was written entirely in German, but being good Europeans the firm had translated it into English. There were several other documents attached, some of which had been copied from the contract between Deutsche Gismos and the main contractor. Most of it seemed fairly innocuous, but Bulldog’s commercial director saw one term that worried him greatly: “The law of the Federal Republic of Germany alone shall apply to our order.”
“I don’t know anything about German law,” he said. “It’ll have to be English law.” ”We don’t know anything about English law,” Deutsche said. “It’ll have to be German law.”
This was set to go on for some time. The German negotiators thought they could solve the problem by using “the law of the United Nations”. Bulldog’s commercial director thought that sounded fair enough – although neither side knew what it meant.
The papers were duly signed and Bulldog started producing gismo valves and delivering them to the site. Unfortunately, things did not go quite according to plan. Deutsche had problems producing its gismos and when Bulldog came along to fix its valves, there was nothing to fix them on to. The programme went out of the window, and international co-operation went with it.
Businesses contracting or subcontracting with a firm from across the Channel may find a holiday phrase book is less than adequate for detailed commercial negotiations
Deutsche insisted it was all Bulldog’s fault and contra-charged an assortment of claims for delays and extra costs. Bulldog went to see its solicitor, who had a fascinating time piecing together all the documents and their translations to make some sense of them –without great success.
One of the documents that had been copied from the main contract included an arbitration clause, with provision for the appointment of an arbitrator by the president of the RICS in London. Another document stated that “the seat of the court shall be Stuttgart”. Then there was the interesting agreement to apply “the law of the United Nations”.
The RICS appointed an English arbitrator, who realised straight away that this was no ordinary arbitration. The first question to be decided was which law was going to be used. The UN does all sorts of things apart from peace-keeping in Kosovo, but making laws does not happen to be one of them.
Bulldog’s solicitor argued that because UN law does not exist, English law should apply – after all, Bulldog was going to do the work, and international law says that fact is significant. Deutsche, on the other hand, said that because the seat of the court was to be Stuttgart, German law should apply. The arbitrator decided there should be a hearing to sort it out. But where to hold it? Readers can probably guess what the parties said. “Let’s go to Brussels,” the arbitrator decided.
So everyone went for a day trip to Brussels to decide which law should be used. The outcome was that English law was to be treated as the law of the contract, which didn’t please Deutsche much, but that the procedural law of the arbitration would be German. Future hearings would be in Stuttgart. This didn’t please Bulldog much, particularly as Germany promptly decided to introduce a new arbitration law.
Fortunately, before the arbitration hearing, Deutsche was taken over by a French company, which did not relish a battle with the Brits in Stuttgart, and settlement was achieved in a marathon negotiation at Heathrow Airport.
So, everyone lived happily ever after. Bulldog learned that contracts with foreign contractors have potential problems the like of which it had never dreamed, even when the work was being done in England. No doubt Deutsche learned a few lessons as well.
John Redmond is a partner at solicitor Laytons