False friends: 'Garantie' and guarantee

False friends are words in two different languages that may look or sound similar to one another, but that have a different meaning. The consequences of their use can range from embarrassment to hilarity. For example, the word ‘chef’ in English is a man or woman whose job it is to prepare your delicious meal at a restaurant. In contrast, the German word Chef means ‘boss’. Interestingly, this is also the case in other languages, like the Portuguese chefe. So, you might hear a German or Portuguese employee saying that he will need to ask his chef for approval before starting a project and find yourself wondering why he still needs to work if he can afford a chef.

For lawyers, though, a false friend may be no laughing matter.

The subject of this blog post is the difficulty caused by a rather innocuous-looking little German word: Garantie.

Let’s imagine the following scenario: You are a German lawyer acting for the buyer in a share deal. You are drafting a clause in an English-language share purchase agreement governed by German law and you want to include a statement by the seller that it has unrestricted ownership of the shares. You go through the following reasoning process:

1. The first hurdle you face is categorising this statement for the purposes of German law. You know it is not a Gewährleistung because this term usually applies to a situation where a seller who delivers goods that are defective has an obligation to refund or repair the goods or to provide a replacement in accordance with §437 of the German Civil Code (BGB). It is, instead, a selbständiges Garantieversprechen pursuant to §311 BGB, the precise terms of which are set by agreement between the parties, as opposed to being strictly determined by statute (this is not be confused with a Haltbarkeits- und Beschaffenheitsgarantie under §443 BGB, the details of which I will not bore you with here).
2. You are looking to translate the word Garantie into English, so you reach for your German-English legal dictionary. Perhaps you have Langenscheidt’s Recht Englisch lying on your desk, which defines Garantie, among other things, as a “guarantee”, “surety”, or “warranty”.
3. You decide to use ‘guarantee’ for the purposes of your share purchase agreement because it looks quite similar to the German Garantie and your dictionary has just confirmed that these two words mean the same thing.

It is at point 2 above that alarm bells should start ringing. The concepts ‘guarantee’, ‘suretyship’ and ‘warranty’ have very different legal implications under common law and often, indeed, as between different common law jurisdictions (although your dictionary will not alert you to these differences).

Taking English law as a basis, a true ‘guarantee’ in consumer-rights parlance probably looks a bit more like a standard Gewährleistung under German law, although a ‘surety’ is also sometimes referred to as a ‘guarantor’ i.e. one who guarantees the performance of another under a contract, especially as regards liability for a debt. However, a ‘suretyship’ would more correctly be referred to in German law as a Bürgschaft, not a Garantie.

A ‘warranty’ is the term used to describe a promise by the seller of a product to cover it beyond the manufacturer’s standard guarantee. However, it is also applied with reference to statements in a contract made by one party to another concerning the truth or existence of a particular state of affairs. It is a ‘warranty’ in the latter sense, rather than a ‘guarantee’, that actually best encapsulates the consequences you are trying to achieve for your client by asking the seller to make a statement concerning its unrestricted ownership of the shares.

The matter is further complicated by the fact that English law makes its own distinctions between a ‘warranty’ and a ‘representation’. Most German lawyers who are faced with drafting (in English) the seller’s representations and warranties in a German-law-governed share purchase agreement tend to resolve the matter by referring to the whole clause as “The Seller’s Representations and Warranties” and describing the selbständiges Garantieversprechen as an “independent promise of guarantee pursuant to §311 of the German Civil Code”.

While this compromise does not seem to have caused too many problems to date, I would argue that it is incumbent upon lawyers advising clients in this area to at least be aware of the legal consequences attaching to similar-sounding legal concepts in jurisdictions other than their own and to be prepared to discuss the variations in meaning and effect with counsel who are operating within a different legal framework. This is a two-way process, of course. At the risk of being accused of a cliché, knowledge is most certainly power when it comes to dealing with false friends.

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