Judge's gavel. Symbol for jurisdiction. Law concept a wooden judges gavel on table in a courtroom

Breach of an international jurisdiction agreement can result in liability for damages! – On the ruling of the BGH from 17.10.2019 (Ref. III ZR 42/19)

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Guide to International Civil Procedure: Breach of an international jurisdiction agreement can result in liability for damages! - On the ruling of the BGH from 17.10.2019 (Ref. III ZR 42/19)

Problem description

International agreements on jurisdiction, especially if they are to have exclusive validity, generally have the purpose of protecting the party benefiting from the agreement from the often very considerable costs of a legal dispute in a foreign country.

Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

The BGH has “jumped to the side” of German victims in a very significant judgment, still unknown to many, and has ruled in their favor that the breach of an exclusive jurisdiction agreement generally obliges them to pay damages. The judgment concerns a German-American case, but in the author’s opinion appears to be transferable to other third country constellations.

BGH ruling from 17.10.2019; Ref. III ZR 42/19; BGHZ 223, 269

In its judgment of October 17, 2019, the BGH ruled that a US plaintiff who brings an action in the USA in breach of a jurisdiction agreement is obliged to pay damages to the other party with regard to the costs incurred by this action (see BGH judgment of October 17, 2019; case no. III ZR 42/19; BGHZ 223, 269). The memorable guiding principles of the judgment are as follows:

The agreement of a domestic place of jurisdiction may establish an obligation to bring actions only at this place of jurisdiction.
If a contracting party culpably breaches this obligation by bringing an action before a US court, which dismisses the action due to lack of jurisdiction and does not order reimbursement of costs in accordance with US procedural law (“American rule of costs”), it is obliged to reimburse the other party for the costs of the appropriate legal defense in accordance with Section 280 (1) BGB.

A reading of the reasons for the decision suggests that, according to the BGH, almost every international jurisdiction agreement – over and above the purely procedural agreement of a place of jurisdiction – must also include the substantive obligation to comply with this agreement:

Initial situation

Until now, jurisdiction agreements have only been ascribed a procedural effect by lawyers. Accordingly, their significance was limited to the establishment and/or exclusion of a specific court’s jurisdiction.

However, a further binding effect was rejected, so that actions that violated such an agreement could not trigger a claim for damages in accordance with Section 280 BGB. This was particularly problematic in cases in which actions were brought in countries without a procedural claim for reimbursement of costs in breach of the jurisdiction agreement. For example, according to the “American Rule of Costs” in the USA, the reimbursement of legal fees of the winning party is excluded. In view of the notoriously horrendous legal fees in the USA, this is particularly bitter for the party concerned.

The BGH has now – very welcome – moved away from this view.

No fundamental objections to material legal component

According to the earlier case law of the Federal Court of Justice, a jurisdiction agreement is a substantive contract on procedural relationships.

As the BGH rightly states, the parties are free to agree material obligations in a contract in addition to purely procedural obligations.

In this regard, the BGH first states that such an assumption would not raise any concerns with regard to national and European civil procedural law, as the substantive part of the agreement lies outside the scope of application of the Code of Civil Procedure and the Brussels I Regulation.

In third-country cases, this also applies without further ado with regard to the case law of the European Court of Justice on so-called “anti-suit injunctions”, as the principle of mutual trust applicable within the EU is not affected. In addition, no contradictions in value are discernible either way if the derogated court, i.e. the court seized in breach of the jurisdiction agreement, has denied its jurisdiction in full knowledge of all relevant circumstances.

Agreements on the place of jurisdiction can be interpreted as binding under the law of obligations

According to the very convincing explanations of the BGH, a content under the law of obligations can be read into a jurisdiction agreement by way of interpretation.

In this regard, the BGH first states that a jurisdiction agreement “according to its objective content and typical meaning, taking into account the interests of the parties involved, must be understood by an honest and reasonable contractual partner” to mean that the obligation under the law of obligations sanctioned in accordance with Section 280 (1) BGB has been entered into not to sue at a place of jurisdiction other than that agreed.

The following passage of the judgment is worth quoting, in which the BGH deals with the typical interests of the parties (para. 37 of the judgment):

“The agreement of the law applicable to the contract and a place of jurisdiction expresses the interest of both parties in making legal disputes predictable in terms of both substantive and procedural law. The contracting parties involved in international legal transactions in particular want to create legal certainty and make – also economic – litigation risks predictable (Eichel loc. cit. p. 224). By stipulating a specific place of jurisdiction, they aim to select a specific place of jurisdiction and, in particular, to prevent subsequent forum shopping by a contracting party.”

Vulnerability of the party concerned

This typical interest, which is worthy of protection, also includes avoiding unnecessary costs for appealing to a court without jurisdiction. The protective purpose of such an agreement can only be achieved if it is thwarted by recourse to a court in breach of the agreement by granting the party thereby burdened a claim for reimbursement of costs.

According to the purposes of the above-mentioned principles, there is no reason to protect a party who brings an action before a foreign court in breach of the agreement on domestic jurisdiction from the substantive legal cost consequences that it would have to bear under procedural law in the event of a purely domestic case – irrespective of the illegality of its action.

The described need for protection of exclusive jurisdiction agreements is also confirmed by Art. 31 (2) and (3) of the Brussels I Regulation, whereby the scope of application of this provision is only limited and its protection is also insufficient with regard to the cost consequences of invoking a court without jurisdiction.

Conclusion of the BGH

After all, the BGH considers an action that deviates from the agreed international place of jurisdiction to be a breach of duty obliging the claimant to pay damages, at least if it is a third country case (non-EU) and the third country does not provide for a sufficient claim for reimbursement.

Rating

The BGH ruling is not only important for lawsuits in US cases.

At least in the case of contracts with partners from non-EU countries, in the event of a breach of the exclusive jurisdiction agreement, it is advisable to examine the claim for damages affirmed by the BGH with regard to the costs that a legal defense in the third country has triggered and the reimbursement of which is not covered by local procedural law.

However, in the author’s opinion, a claim for damages under substantive law also appears possible in purely EU-related cases on the basis of the BGH ruling discussed above.

An action brought in breach of an exclusive jurisdiction agreement forces the party benefiting from the jurisdiction agreement, in breach of contract, to deal with the contractual partner in a foreign jurisdiction at – at least from a German perspective – often significantly higher costs. In such cases, the claim for reimbursement of costs awarded by the court seized in breach of contract will often not be sufficient to cover the costs incurred for the legal defense “in a foreign jurisdiction”. As the BGH itself rightly noted, the EU legislator also sees a special need for protection of the party benefiting from an exclusive jurisdiction agreement. However, the provision of Art. 31 (2) of the EU Regulation based on this is not sufficient on its own, as it helps to “stop” an inadmissible action, but does not guarantee that the party concerned will actually be reimbursed for all costs.

You can read more about the options for defending yourself against actions brought in breach of an exclusive jurisdiction agreement here!

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Breach of an international jurisdiction agreement can result in liability for damages! – On the ruling of the BGH from 17.10.2019 (Ref. III ZR 42/19)

International agreements on jurisdiction, especially if they are to have exclusive validity, generally have the purpose of protecting the party benefiting from the agreement from the often very considerable costs of a legal dispute in a foreign country.

Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

Read more "

September 4, 2024

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+49 (170) 1203 74 0

Neuer Wall 61 D-20354 Hamburg

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Estimation of fictitious defect rectification costs

November 8, 2022/in Commercial law, Nicht kategorisiert

LEGAL+ NEWS

BGH ruling of March 11, 2022 - V ZR 35/21: Criteria for the judicial estimation of fictitious defect rectification costs

Problem definition

It has been clarified for some time by a landmark decision of the BGH that the contractual claim for damages instead of performance in accordance with Sections 437 No. 3, 280, 281 BGB can be assessed on the basis of the “fictitious” costs of remedying defects that are likely to be necessary but have not yet been incurred, see BGH ruling of 12.03.2021, Ref. V ZR 33/19.

In practice, it is of particular relevance how the court called upon to decide in an individual case is to determine the amount of such fictitious damage costs. The starting point for this is Section 287 (1) ZPO, which reads as follows:

“If there is a dispute between the parties as to whether damage has occurred and how much the damage or an interest to be compensated amounts to, the court shall decide on this in its own discretion, taking into account all the circumstances. Whether and to what extent a requested taking of evidence or ex officio expert appraisal is to be ordered is left to the discretion of the court. (…)”

It has not yet been clarified according to which principles the court must apply the aforementioned Section 287 (1) ZPO in the specific case.

In a more recent decision from March 11, 2022 (case no. V ZR 35/21), the BGH provided the courts of lower instances with valuable criteria.

The judgment

Its decision of March 11, 2022 (case no. V ZR 35/2) was based on the following abridged facts:

The subject of the dispute was the purchase contract for a property. The sellers had concealed from the buyers that the external waterproofing of the cellar was incomplete and accordingly demanded compensation in the form of fictitious defect rectification costs.

The court of first instance had sentenced the defendants in the amount of fictitious defect rectification costs of EUR 144,800. The Court of Appeal reduced this amount to EUR 97,556 and allowed the appeal with regard to the amount of the claim.

The estimate made by the court of first instance and the court of appeal was based on an expert opinion, according to which two options for remedying the defects could be considered. According to the less expensive option A, the incompleteness of the waterproofing could not be completely eliminated, according to the more expensive option B with costs of EUR 138,920, waterproofing would be completely possible. The Court of Appeal assumed that the plaintiffs did not have to be satisfied with variant A, however, the estimation inaccuracy of +/- 30% mentioned by the expert was to be taken into account to their detriment, as the plaintiffs could only be awarded whatwould“certainly be incurred” in terms of defect rectification costs. Uncertainties in determining the costs of remedying defects should not be borne by the tortfeasor.

In its decision, the BGH initially confirmed the Court of Appeal’s assumption that the claimants did not have to settle for the cheapest option. The same applies to the rejected “new for old” deduction.

Otherwise, however, it rejected the Court of Appeal’s assumptions for determining the specific amount of damages as legally untenable. The BGH stated:

“As a starting point, the Court of Appeal correctly assumes that the contractual claim for damages instead of performance (minor damages) pursuant to Sections 437 No. 3, 280, 281 BGB can be assessed on the basis of the “fictitious” costs of remedying defects that are likely to be necessary but have not yet been incurred.

However, according to the reasoning of the Court of Appeal, the costs for the necessary renovation work determined by the expert cannot be reduced by 30% when assessing the amount of the claim for damages.

The court must determine the amount required to rectify the defect in accordance with Section 287 (1) ZPO, taking into account all the circumstances in its own discretion.

(…)

The Court of Appeal overstretches the measure of necessary conviction within the framework of Section 287 (1) ZPO and thus disregards legal principles of damage assessment.

If the asserted claim for damages is established on the merits and only the amount needs to be filled in, the injured party benefits from the facilitation of evidence under Section 287 ZPO. In contrast to the strict requirements of Section 286 (1) ZPO, when deciding on the amount of damages, a considerable probability based on a sound foundation is sufficient for the court to form its opinion; the estimate should be as close as possible to reality.

The court of appeal misjudged this. It believes that only the amount that is certain to be incurred within the scope of the estimate to be made for the rectification of defects may be awarded, so that in the case of a range of estimates, only the lower amount can regularly be awarded as damages. It thus wrongly demands absolute certainty for the assessment of damages to be carried out by it, which is not even required within the framework of § 286 ZPO. It is true that even in the case of an estimate pursuant to Section 287 ZPO, doubts about the amount of the costs required to remedy the defect may not, in principle, be borne by the tortfeasor (see BGH, Urt. v. 10.04.2003 – VII ZR 251/02 – NJW-RR 2003, 878, 879; OLG Celle, Urt. v. 17.01.2013 – 16 U 94/11 – BauR 2014, 134, 139). However, it is in the nature of things that when calculating the fictitious restoration costs required to remedy the damage, a (certain) uncertainty remains as to whether the amount objectively required for the repair (to be assessed ex ante) corresponds to the amount that would have been or would be incurred if the repair had actually been carried out. If the contractual claim for damages in lieu of performance (small damages) pursuant to Sections 437 No. 3, 280, 281 BGB is assessed on the basis of the presumably necessary but not (yet) incurred (“fictitious”) costs of remedying the defect, the court must therefore determine the damage in accordance with the principles of Section 287 (1) ZPO and in this respect to examine the extent to which damage is predominantly probable. This also and especially applies if a range of estimates is stated in an expert report. (…)”

As a consequence of the aforementioned deficiencies, the BGH referred the case back to the Court of Appeal for reconsideration and decision

Conclusion

With this decision, the BGH first confirmed that Section 287 ZPO is decisive for determining the fictitious amount of damages. For the formation of a judicial conviction, a

“considerable probability based on a sound foundation.”

Any remaining uncertainty lies in the nature of the simplified assessment of damages pursuant to Section 287 ZPO. It follows for the courts of lower instances that it is not permissible to assume the minimum amount specified by the expert as the damage. The court must correctly approach the most probable amount required to remedy the defect. For claimants, this means that it may be advisable to consult their own expert to help determine the “probable costs”.

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Breach of an international jurisdiction agreement can result in liability for damages! – On the ruling of the BGH from 17.10.2019 (Ref. III ZR 42/19)

International agreements on jurisdiction, especially if they are to have exclusive validity, generally have the purpose of protecting the party benefiting from the agreement from the often very considerable costs of a legal dispute in a foreign country.

Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

Read more "

September 4, 2024

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+49 (170) 1203 74 0

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EUGH ruling “LKW Walter”

October 18, 2022/in Commercial law, International procedural law, Nicht kategorisiert

LEGAL+ NEWS

ECJ judgment "LKW Walter" on Article 8 EUTMR 2007: Time limit for refusing to accept service from another European country and national time limits

Problem definition

The possibility of being able to enforce one’s own rights as easily and quickly as possible in cross-border EU business transactions, which is very welcome in principle, has some pitfalls. The author’s experience shows that traders are often overwhelmed when they receive legally relevant mail from abroad. This is not least due to the fact that court documents received from abroad often do not meet the requirements of European law. Art. 8 of the European Service Regulation 2007 (Regulation No. 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters; in short: EUZVO 2007) stipulates that every document that courts within the EU wish to serve must be accompanied by a form set out in the annex to the regulation, which sets out the important rights of the recipient. Without this form, service is ineffective and time limits do not begin to run. Furthermore, Art. 8 of the EUTMR stipulates that the addressee has the right to refuse acceptance or to return the document within one week if they are unable to understand it. This case is very relevant in practice because it is more the rule than the exception that documents are sent without being translated into the recipient’s language.

In its judgment of 7 July 2022 (C-7/21; “LKW Walter”), the CJEU recently dealt with the latter protective right of the recipient – the one-week reflection period – with regard to the important question of how national appeal periods and the period for refusing acceptance (reflection period) interact.

This ruling of the European Court of Justice is of great importance, as it once again makes it clear that the European regulations for the protection of the recipient in cross-border deliveries must be interpreted strictly and that national regulations that reduce this protection are unlawful and therefore irrelevant.

The “LKW-Walter” ruling by the ECJ

In brief, the judgment of the CJEU of 7 July 2022 (C-7/21) was based on the fact that, in an Austrian-Slovenian constellation, the Slovenian courts had deemed an objection lodged from Austria against a Slovenian payment order to be untimely. In this case, the Slovenian courts had based the start of the objection period on the day of service in Austria and thus disregarded the one-week period under Art. 8 EUZVO 2007 when calculating the very short eight-day objection period. Calculated from the date of service, the objection lodged by Austrian lawyers was then also time-barred. The Slovenian courts adhered to their calculation method throughout all instances. The case was only referred to the European Court of Justice in the context of lawyers’ liability proceedings.

With regard to the ultimately only relevant question referred for a preliminary ruling, namely whether the one-week time limit under Art. 8 EUTMR 2007 suspends national time limits for appeals, the ECJ made the following findings in particular:

’35 That possibility of refusing to accept the document to be served constitutes a right of the addressee of that document (judgment of September 6, 2018, Catlin Europe, C 21/17, EU:C:2018:675, paragraph 32 and the case-law cited). The addressee may exercise that right when the document is served or within one week, provided that he returns the document within that period.”

“36 It is also apparent from the case-law of the Court that that right to refuse to accept a document to be served makes it possible to protect the rights of the defense of the addressee of that document, in compliance with the requirements of a fair trial laid down in Article 47(2) of the Charter. Even if Regulation No 1393/2007 is primarily intended to improve the effectiveness and speed of judicial proceedings and to ensure the proper administration of justice, those objectives cannot be achieved by compromising in any way the effective protection of the rights of the defense of the addressees of the documents concerned (see, to that effect, judgment of 6 September 2018, Catlin Europe, C 21/17, EU:C:2018:675, paragraph 33 and the case-law cited).”

“41 The practical effectiveness of the right to refuse to accept a document to be served presupposes, first, that the addressee has been informed of the existence of that right and, second, that he has the full period of one week to assess whether he should accept or refuse to accept the document and, in the event of refusal, to return it.”

’45 However, the objective pursued by Article 8(1) of Regulation No 1393/2007, which is to avoid any discrimination between those two categories of addressees, requires that addressees who receive the document in a language other than that referred to in that provision be able to exercise their right to refuse to accept that document without suffering any procedural disadvantage in view of their cross-border situation.

“46 Consequently, if the document to be served is not drawn up in or translated into one of the languages referred to in this provisionthe period of one week provided for in Article 8(1) of Regulation No 1393/2007 shall not begin to run at the same time as the period prescribed for lodging an appeal under the legislation of the Member State to which the authority which issued the document belongs belongs as otherwise the practical effectiveness of this provision in conjunction with Article 47 of the Charter would be impaired. On the contrary, the period for lodging an appeal must, in principle, begin to run after the expiry of the period of one week provided for in Article 8(1) of Regulation No 1393/2007.”

Conclusion

Recipients of court documents from other EU countries should ensure that the foreign court strictly observes the rights of the recipient in accordance with the EU Regulation. In case of doubt, violations will result in the service being invalid. Time limits under the national law of the country of origin cannot begin to run until effective service has been effected on the addressee. This includes the recipient having the full one-week period for consideration under Art. 8 EUTMR 2007 [Note: The new EUTMR 2020 now provides for a two-week period in Art. 12].

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International agreements on jurisdiction, especially if they are to have exclusive validity, generally have the purpose of protecting the party benefiting from the agreement from the often very considerable costs of a legal dispute in a foreign country.

Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

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CONTACT

+49 (40) 57199 74 80

+49 (170) 1203 74 0

Neuer Wall 61 D-20354 Hamburg

kontakt@legal-plus.eu

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Bid low and look high – How to deal with unfair offers in construction law

August 23, 2022/in Commercial law

LEGAL+ NEWS

Building law guide: Bid low and look up high - How to deal with unfair offers in building law

Problem description

Many fellow sufferers will be familiar with the following constellation: As the client or building owner, you have opted for the most favorable of the offers obtained, which are comparable in quality. It is not uncommon for the rude awakening to come with the final invoice at the latest. The final costs often exceed the offer many times over.

What went wrong? First of all, when it comes to the question of whether the “additional payment” can be demanded from the contractor commissioned, it is of course of central importance what was agreed in the contract ultimately concluded on the basis of the offer (see the following article).

But what happens if the contractor has submitted a so-called bait offer? This refers to an offer that the contractor has deliberately, i.e. intentionally, submitted at a particularly low price in order to “land” the contract.

It is surprising that this practice receives little attention in case law, although this approach is by no means rare.

Solution approaches

The starting point is the question of whether a bidding contractor is permitted to underestimate the quantities and expenses required to perform the work for which it is bidding in order to then take into account the additional quantities and expenses that will almost certainly be required later in the form of supplements. Such unfairly acting contractors regularly rely on gaps in the specifications to justify their subsequent additional charges.

In principle, this procedure is not permitted!

The strategy of“bid low and add high” is unlawful. The bidding company may not simply retreat to a particularly favorable calculation approach in order to improve its prospects of being awarded the contract with the disadvantageous consequence for the client that the risk of a subsequent supplement increases accordingly.”

This can be clearly inferred from the case law of the BGH.

By way of example, the notable judgment of the BGH of February 25, 1988 (case no. VII ZR 310/869), which has become known under the keyword “frivolity”, should be mentioned. In this judgment, the BGH stated (note: “plaintiff” refers to the “frivolous” bidder):

“The clients must have been aware that the soil and water conditions were only incompletely specified in the tender documents. Since the soil report did not contain any water permeability values and pumping tests had obviously not been carried out, only rough estimates could be considered from the outset. If the plaintiffs did not want to accept this in their calculation, they should have asked the defendant to supplement the tender documents accordingly. Therefore, there is much to suggest that the principles which the Senate has long developed for the case that a specification is recognizably incomplete for the contractor should be applied here (e.g. MDR 1966, 317 = NJW 1966, 498; most recently Senate judgment, MDR 1988, 43 = BauR 1987, 683).

Ultimately, however, this can be left to one side because a claim for damages is already ruled out here for another reason. The basis for a claim for damages based on culpa in contrahendo is always “disappointed trust” (Senate judgment, MDR 1966, 317 = NJW 1966, 498; cf. also Ingenstau/Korbion, VOB 10th ed. A § 9, para. 5). This cannot be said to be the case here because, according to the findings of the Higher Regional Court, the plaintiffs calculated “frivolously” in their offer and accepted the present dispute about the additional costs incurred. How correct this statement is is shown above all by the fact that the plaintiffs in their offer for the water maintenance costs for lot 2 only estimated DM 2.00 per running meter, while the plaintiff to 1 had shortly before demanded DM 75.00 per running meter for lot 1. The fact that in the case of the lot in question here it was not plaintiff 1 alone, but rather together with plaintiff 2, who submitted the offer, is irrelevant, since both bidders clearly had the calculation documents from the earlier offer for lot 1 at their disposal. The reason given for the difference in approach, firstly that the costs for the dewatering work for lot 2 had been partially allocated to the construction site equipment, and secondly that it had been possible to calculate “lower” because a lot of groundwater had already been extracted from the construction area by the dewatering for lot 1, does not explain such a wide divergence in the cost estimates for the two lots.

Rather, this disproportionately large, objectively unjustifiable difference shows that the plaintiffs ultimately calculated more or less “in the blue” – if not even “speculatively” – without any reasonable reference to the invitation to tender (cf. Senate judgment, MDR 1988, 43 = BauR 1987, 683, 685 = ZfBR 1987, 237, 238). In doing so, they not only significantly increased the risk that unforeseeable “additional claims” would later be made (in this case around one hundred times the bid price stated for the dewatering) (cf. Senate loc. cit.), but virtually conjured up the risk in order to be able to take advantage of it without jeopardizing their prospects of being awarded the contract. Anyone who acts in this way cannot invoke “disappointed trust”.

The following principles can be inferred from the above extract, which stand in the way of any subsequent proposals:

Gaps in supply must not be accepted in silence.
Calculating “frivolously” is prohibited.
Supplements cannot be based on tenders submitted “in the blue”.

Conclusion:

Anyone who finds themselves in the situation described above should, in addition to general contractual agreements, also carefully examine the original offer to determine whether it was a “frivolous” offer.

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Breach of an international jurisdiction agreement can result in liability for damages! – On the ruling of the BGH from 17.10.2019 (Ref. III ZR 42/19)

International agreements on jurisdiction, especially if they are to have exclusive validity, generally have the purpose of protecting the party benefiting from the agreement from the often very considerable costs of a legal dispute in a foreign country.

Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

Read more "

September 4, 2024

CONTACT

+49 (40) 57199 74 80

+49 (170) 1203 74 0

Neuer Wall 61 D-20354 Hamburg

kontakt@legal-plus.eu

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I look forward to our networking.

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Businessmen Deal Handshake Agreement Concept

Corona as a disturbance of the business basis?

June 22, 2022/in Commercial law, Contract Law, Nicht kategorisiert

LEGAL+ NEWS

Corona as a disruption to the basis of business? Pacta sunt servanda - even in Corona times!

In two recent landmark rulings, the Federal Court of Justice clarified that the principle of “pacta sunt servanda” (“contracts must be honored”) must be observed even in unusual circumstances that no one had anticipated, such as the coronavirus crisis. That’s right!

Problem description: Corona as interference with the basis of the transaction?

Countless contractual relationships have not been implemented as planned since the start of the coronavirus crisis (see also this article). The government corona measures, for which none of the contracting parties are naturally responsible, were mostly to blame. This has raised the exciting question of how to deal with cases in which the main contractual service – e.g. the provision of the premises in tenancy law constellations – could still be provided despite the corona measures, but the use of the premises was not possible for the tenant in whole or in part as a result of the corona measures.

In the past two years or so, the courts of lower instances have all too easily awarded the burdened party – in the aforementioned example, the tenant – the right to reduce or even cancel their own obligation to perform (e.g. rent payment) with reference to Corona as a disturbance of the basis of the transaction. Often a blanket approach was taken and, for example, a division was ruled.

This approach is not legally tenable according to recent BGH rulings. This case law must be endorsed!

The BGH’s clarifications on corona as a disruption of the basis of the transaction in detail

Starting point: pacta sunt servanda

As already mentioned at the beginning, the Federal Court of Justice has clarified in two recent decisions, which point the way for the right to contract adjustment in accordance with Section 313 BGB (disturbance of the basis of the contract), in a welcome and clear manner that contracts must also be adhered to in the event of a subsequent serious change to the contractual basis.

Assessment of the agreed and/or contractual risk distribution – who bears the risk of use?

This applies in particular and of course if the risk realized as a result of the changed circumstances is legally and/or contractually assigned to a contracting party.

Using the example of commercial tenancy law, the BGH in its Judgment of January 12, 2022, Ref. XII ZR 8/21 , explains how strictly the obligation to comply with a concluded commercial lease agreement is to be understood.

The following applies:

The subject of this new ruling by the BGH on January 12, 2022 was the complete closure of a store that had become necessary due to official measures imposed by the coronavirus authorities.

For the tenant, this meant a complete loss of use of the commercial space he had rented for the period of closure.

On this issue, the BGH found that

the complete loss of the possibility of use does not constitute a defect in the leased property or a case of impossibility of surrendering the leased property, and
In the case of contractual relationships under tenancy law, the so-called usage risk lies with the tenant by law.

According to the BGH, the object of the usage risk is in particular the tenant’s expectation of being able to generate profits.

Even more significant is the further finding of the BGH that the assumption of the prescribed risk of use also includes circumstances occurring subsequently, e.g. in the form of official measures. The BGH stated:

“In the case of commercial leases, however, the risk of use of the leased property is generally borne by the tenant. This includes, above all, the risk of being able to make a profit from the rented property. If the tenant’s expectation of profit is not fulfilled due to a circumstance that subsequently arises, a typical risk of the commercial tenant is realized. This also applies in cases in which subsequent legislative or official measures result in an impairment of the tenant’s business operations (Senate ruling of July 13, 2011 – XII ZR 189/09 – NJW 2011, 3151 para. 8 f. mwN).”

Right to contract adjustment as a major exception

As a consequence of the fact that the risk of use also includes circumstances that occur subsequently and may have a serious impact, the BGH further clarified that a claim by the affected party for an adjustment of the contract cannot be considered under the aspect of interference with the basis of the transaction pursuant to Section 313 BGB if and to the extent that the circumstances in question, on which such a right of adjustment is based, are covered by the contractual risk assumed by this party.

The BGH has once again explained this with welcome clarity:

“In principle, however, there is no scope for taking into account the provisions on the frustration of contract (Section 313 BGB) insofar as it concerns expectations and circumstances which , according to the contractual agreements, should fall within the scope of risk of one of the parties. Such a contractual distribution of risk or assumption of risk regularly excludes the possibility for the contracting party to invoke a disturbance of the basis of the transaction if the risk materializes (Senate ruling BGHZ 223, 290 = NJW 2020, 331 marginal no. 37 with further references).”

Interim conclusion on the significance of corona as a disruption of the basis of the transaction

“Pacta sunt servanda” means that assumed contractual obligations generally continue to apply unchanged even in the event of a subsequent serious change in the circumstances underlying the contract.

In particular, if a certain contractual risk, e.g. the risk of use, has been assumed by one party in accordance with the agreements made, circumstances relating to this assumed risk cannot form the basis of a claim for contract adjustment.

NOTE:

Even if an interpretation of the circumstances of the individual case shows that the circumstances that occurred in the case in question “exceed” the risk assumed, this does not mean that the agreed distribution of risk becomes irrelevant.

Rather, in such cases, as the BGH has also made clear, the party bearing the risk according to the agreements made does not bear the realized risk alone. Based on the circumstances of the individual case, it must be determined how the parties are to participate in the consequences of the realized risk. The BGH stated:

“Contrary to the plaintiff’s view, the defendant in the present case did not contractually have the sole risk of use in the event of a pandemic-related closure of its retail store.”

What is important about the above statement is that the BGH only assumes that in this case the risk of use does not lie solely with the tenant, even in the case of complete closure.

Content and loss of the right to amend the contract

In the event that the affected party is exceptionally granted a right to adjust the contract in accordance with the prescribed criteria, the BGH has again attached great importance to the principle of pacta sunt servanda on the legal consequences side, i.e. with regard to the content of any contract adjustment.

In a further ruling dated March 2, 2022, ref. no. XII. ZR 36/21, the BGH initially pointed out that it is not sufficient for a right to adjust the contract that the changed circumstances in question exceed the contractually assumed risk. In its ruling of January 12, 2022 (case no. XII ZR 8/21), the BGH stated that

“Even if the business closure associated with the pandemic

If the impairment of use of the rented property cannot be attributed solely to the tenant’s risk of use, this does not mean, however, that the tenant can always demand an adjustment of the rent for the period of closure.”

Rather, it must be added that, again taking into account all the circumstances of the individual case, adhering to the contract unchanged appears to be completely unreasonable.

The agreed distribution of risk is particularly important for the question of reasonableness. The BGH explicitly highlighted this in this further coronavirus rulingfrom March 2, 2022 (case no. XII ZR 36/21):

“Whether it is unreasonable for the tenant to adhere to the unchanged contract also requires comprehensive consideration in this case, in which all circumstances of the individual case must be taken into account (Section 313 (1) BGB). An adjustment can only be demanded to the extent that one party cannot reasonably be expected to adhere to the unchanged contract, taking into account all circumstances of the individual case, in particular the contractual or statutory distribution of risk. According to Section 313 (1) BGB, the court must therefore choose those legal consequences that are reasonable for the parties , taking into account the distribution of risk (MünchKommBGB/Finkenauer 8th ed. § 313 para. 89) and by which a distribution of the realized risk in line with the interests of the parties is achieved with the least possible interference with the original provision. the least possible interference with the original regulation is established (BGH judgment of September 21, 1995 – VII ZR 80/94 – ZIP 1995, 1935, 1939 mwN).”

The aforementioned statements of the BGH contain another important and very welcome finding. This is that, in the event that a claim for contractual adjustment is upheld, an adjustment must be chosen that represents the least possible interference with what was originally agreed. The BGH has thus once again emphasized the great importance of the pacta-sunt-servanda principle.

According to the BGH, contract adjustments are “millimeters of work”.

Any adjustment to the content of what has been agreed requires special justification, which must be justified taking into account the criteria described above and weighing up all the circumstances of the individual case.

NOTE:

It follows logically from the above that the party entitled to claim under certain circumstances can also lose its right to adjust the contract again – and for good!

This applies if the party definitively rejects the right of adjustment offered to it. The latter was the case in the ruling by the BGH on March 2, 2022 .

In this case, the wedding celebration in dispute had to be canceled for the planned date due to coronavirus. The landlord of the wedding venue had offered alternative dates, but the bride and groom were no longer interested in these and only wanted a refund of the rent already paid.

The BGH has ruled that the claim for repayment of the rent does not exist. The couple should at least have agreed to postpone the party. As they had refused to do so, the obligation to pay the rent remained.

The BGH stated (from para. 41 of the judgment):

(…) However, it is an error of law that the Court of Appeal did not sufficiently consider whether the plaintiffs’ claim under Section 313 (1) BGB for an adjustment of the contract is limited to the postponement of the wedding celebration offered by the defendant, because this alone can establish a distribution of the pandemic risk in line with the interests of the parties with the least possible interference with the original arrangement. (…) However, it did not adequately take into account the fact that the defendant had already offered the plaintiffs a large number of alternative dates on March 26, 2020, including for 2021, which would have enabled the plaintiffs to make long-term plans, also taking into account the further development of the pandemic. The defendant repeated this offer to rebook the date free of charge on April 25, 2020. However, the plaintiffs were not prepared to enter into further negotiations with the defendant regarding an appropriate contract adjustment and rejected the offer to reschedule the date across the board. This shows that the plaintiffs were not interested in a solution that was in line with their interests, but only wanted to achieve a termination of the rental agreement and thus unilaterally shift the risk of canceling the celebration to the defendant.

(…)

The adjustment of the contract sought by the plaintiffs to the effect that they are released from their obligation to pay rent in whole or in part is therefore out of the question because they can reasonably be expected to accept the defendant’s offer to postpone the date of the planned wedding celebration, taking into account all the circumstances, including the contractual distribution of risk (Section 313 (1) BGB). (…)”

NOTE:

The aforementioned ruling from March 2, 2022 is also significant from another perspective. In this ruling, which was issued following the first Corona ruling of January 12, 2022 (BGH ruling of February 12, 2022, file no. XII ZR 8/21), which, as is well known, concerned commercial tenancy law, the BGH has now also ruled for the consumer sector that the principle of “pacta sunt servanda” must be applied very strictly and that an adjustment to the contract can therefore only be justified in absolutely exceptional cases.

Corona as a disturbance of the business basis? – Overall conclusion

Pacta sunt servanda! Even in Corona times.

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Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

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Evidential value of private expert opinions

July 16, 2021/in Commercial law, Nicht kategorisiert

LEGAL+ NEWS

The probative value of private expert opinions

The evidential value of private expert opinions is very close to that of court expert opinions. In practice, this is often not the case:

Many courts tend to regard private expert opinions, i.e. expert opinions commissioned outside the proceedings, as a nuisance. These expert opinions, which are usually “labeled” as biased, are therefore in most cases considered to be of lesser value than court-commissioned expert opinions and are downgraded in the judgment with clichéd justifications. However, this approach, which is widespread in practice, is not covered by supreme court case law! In fact, expert opinions provided by the parties are important for the constitutionally guaranteed legal protection of the parties. This is the only way to fully uncover – not infrequent – errors in court reports.

The following article deals with the legal treatment of expert opinions not commissioned by a court in the context of or in preparation for civil proceedings.

Principle of the free evaluation of evidence

In order to be able to correctly classify the evidentiary value of private expert opinions, it is first important to understand how the court forms its conviction with regard to the legal case before it in accordance with the Code of Civil Procedure.

Pursuant to Section 286 (1) ZPO, the principle of free evaluation of evidence applies:

“The court must decide whether a factual allegation is to be regarded as true or not true, taking into account the entire content of the hearings and the result of any evidence taken. The judgment shall state the grounds on which the court’s conviction was based.”

Accordingly, the court forms its opinion “freely” on the basis of the collected content of the proceedings. “In particular, “freely” means that the court is free to assess the individual results of the evidence and, not least, all other perceptions gathered during the proceedings. This means, for example, that the court is not bound by any weighting of the individual pieces of evidence and other findings. For example, the court may attach more importance to a private expert opinion submitted to it than to the court expert opinion obtained on the same subject of evidence. It therefore follows from the principle of the free evaluation of evidence that the evidential value of private expert opinions can be higher in individual cases than that of a court-commissioned expert opinion.

However, “freedom” in the assessment does not mean that the court may disregard evidence. If this were the case, there would be a significant violation of the constitutionally guaranteed right to be heard. Further restrictions on the principle of the free assessment of evidence apply if this is expressly provided for by law, e.g. in Section 286 (2) ZPO:

“The court shall only be bound by statutory rules of evidence in the cases specified by this Act.”

One example of this is the legally standardized probative value of certain documents.

Overview: Types of evidence

The private expert opinion must be placed in context with the forms of evidence standardized in the Code of Civil Procedure. The Code of Civil Procedure recognizes the following forms of evidence: Inspection

- Visual inspection
- Proof by documents
- Witness evidence
- Expert evidence
- Party hearing

Visual inspection

“Visual inspection” means that the court forms an impression with its own eyes. The classic example is the so-called on-site visit. However, visual evidence can also be provided by taking photographs.

Proof by documents

Documents are the most reliable form of evidence. A statement of fact supported by documents means that the fact evidenced by the document is not in dispute in the first place, so that there is no need to take evidence in the true sense of the word. A distinction is made between private and public deeds. Private deeds “only” provide evidence of the declaration documented in the deed. Public deeds prove the entire documented process. The pitfall of this form of evidence lies in the fact that “full proof” presupposes that an indisputably or demonstrably genuine document exists, although in practice it is rare for the authenticity of a document to be called into question.

Witness evidence

Evidence through the testimony of witnesses is aimed at testifying to facts. The subject matter is concrete, direct perceptions of the witness.

Expert evidence

Evidence by experts means that knowledge that the court lacks is compensated for by the specialist knowledge of others. The expert is therefore an assistant to the court, which is why the classification as evidence in civil proceedings is misleading. Theoretically, the expert’s technical support can be obtained purely verbally, but in practice a written expert opinion is usually commissioned, which is then discussed verbally if necessary or at the request of a party.

The judge, not the expert, decides whether the disputed assertion is to be regarded as proven. The expert only has to provide the technical basis for the court’s assessment of the evidence.

Party hearing

Hearing the parties themselves is the weakest form of evidence. Although it is the most direct, it is also the least objective means of clarifying a disputed issue. Accordingly, this means of evidence is only admissible in rare cases (e.g. lack of evidence).

The legal situation regarding private expert opinions

Private expert opinions cannot be satisfactorily subsumed under the evidence listed above. The evidentiary value of private expert opinions is therefore not easy to determine.

There is no doubt that a written private expert opinion is a document, which can therefore be introduced as documentary evidence in a legal dispute. However, nothing is gained from this, as the evidentiary value as a document is limited to the fact that the expert has provided the expert opinion. It cannot be “formal” expert evidence because the evidence is not taken by the court within the framework of the relevant procedural regulations(Sections 402 ZPO ff.). What remains is the questioning of the private expert by way of formal witness evidence. But even this does not lead any further, because the expert as a witness can only “offer evidence” of his own perceptions (see Section 396 ZPO), e.g. of his impressions gained during a site inspection.

Case law “solves” the dilemma as follows:

According to the view that has always prevailed in case law, expert opinions submitted by a party are “only” substantiated (qualified) party submissions supported by documentary evidence.

As part of the free assessment of evidence under 286 ZPO described above, the court must include the private expert opinion in its assessment. The Federal Court of Justice made a revealing statement in its judgment of May 11, 1993(VI ZR 243/92):

“(…) The trial judge may certainly utilize a private expert opinion, but may not disregard the fact that it is generally not evidence within the meaning of §§ 355 et seq. ZPO, but rather (qualified) substantiated party submissions (…) the court’s own taking of evidence, in particular the obtaining of a court expert opinion, is only rendered unnecessary by a private expert opinion if the trial judge can arrive at a reliable answer to the question of evidence without legal error on the basis of this substantiated party submission alone (…). A private expert opinion can only be used as an expert opinion in the sense of evidence with the consent of both parties (see BGH, judgment of May 5, 1986 – III ZR 233/84 – NJW 1986, 3077, 3079) [BGH 05.05.1986 – III ZR 233/84]. (…)”

At first glance, the case law cited above may appear to cast doubt on the evidential value of private expert opinions. On closer inspection, however, the private expert opinion is (almost) equivalent to a court expert opinion. The private expert opinion can even make it unnecessary to obtain a court expert opinion if the court is able to arrive at a reliable answer to the question of evidence on the basis of its own expertise using the private expert opinion.

A ruling by the Higher Regional Court of Frankfurt am Main from April 3, 2017 (case no. 29 U 169/16) is also worth noting here. According to this ruling, a private expert opinion can be used as formal expert evidence under certain circumstances, e.g. if the court expressly summons the private expert as an expert witness and the opposing party fails to object to its use as expert evidence. The OLG stated:

“(…) Insofar as the defendant complains that the Regional Court assessed the statements of expert witness Z1 as expert evidence, this is not objectionable in the present case. During the hearing of expert witness Z1, the Regional Court stated that it was not only hearing expert witness Z1 as a witness in accordance with the summons of 7 July 2015, but also as an expert witness. The fact that the expert Z1 had previously acted as the plaintiff’s private expert did indeed constitute a reason for refusal within the meaning of 406 ZPO (…) however, the defendant did not assert a refusal despite being aware of the relevant circumstances. However, if a party fails to assert a reason for refusal, this can in principle no longer be asserted later as a procedural error within the meaning of § 404 ZPO, but merely represents a circumstance to be taken into account in the assessment of evidence (…).”

But the same applies elsewhere:

If the court lacks its own expertise and is confronted with specialist knowledge by means of a private expert opinion as a qualified party submission, it may not disregard this under any circumstances, but must review the results of the private expert opinion by means of formal expert evidence.

Private expert opinion versus court expert opinion

The above means the following for the evidentiary value of private expert opinions that are set against a formal court opinion:

Objections by the parties to the findings of a court expert must be taken into account by the court. Such objections can regularly arise from deviating private expert opinions, which are to be assessed by the court as so-called qualified party submissions as described above.

The court expert and the court must then deal with the content of the private expert opinion.

The court may not simply – as is often the case – accept the findings of the court expert with clichéd reference to, for example, “greater persuasiveness”. If the divergences between the private expert opinion and the court expert opinion cannot be resolved in a comprehensible manner, further clarification of the facts is required.

The above-mentioned obligation to deal with private expert opinions that deviate from the court opinion is based on the case law of the Federal Constitutional Court as the highest German court. In a ruling dated May 15, 2012(1 BvR 1999/09), the Federal Constitutional Court stated – not for the first time

“(…)Art. 103 para. 1 GG obliges the courts to take note of the submissions of the parties to the proceedings and take them into consideration when making their decision. It does not follow from this that they are obliged to expressly assess every submission of the parties in the grounds for the decision (see BVerfGE 88, 366 <375 f.> with further references). However, the essential factual assertions that serve the prosecution or defense must be dealt with in the reasons (see BVerfGE 47, 182 <189>). If a court does not address the essential core of a party’s factual submission on an issue that is of central importance to the proceedings in the reasons for the decision, this indicates that the submission has not been taken into account, unless it was irrelevant or obviously unsubstantiated according to the court’s legal position (see BVerfGE 86, 133 <146>).”
“(…) In view of the complainant’s objections based on several private expert opinions, the Court of Appeal should at least have given a logically comprehensible reason for its adherence to the court expert opinion (see BGH, decision of May 18, 2009 – IV ZR 57/08 -, juris, para. 7). There is no such justification. The Regional Court merely refers to the expert opinion and adopts its conclusions without investigating the objections arising from the private expert opinions. The uncritical adoption of the expert opinion of the court-appointed expert and the lack of mention of the private expert opinions in the challenged decision suggest that the Regional Court did not take note of the opposing viewpoint of the complainant, or at least did not consider it (see BVerfG, decision of the First Chamber of the First Senate of October 7, 1996 – 1 BvR 520/95 -, juris, para. 19). The violation continues in the order rejecting the objection to the hearing (…)”

In its ruling of January 21, 1997 (case no. VI ZR 86/96), the Federal Court of Justice described the court’s obligation to evaluate the statements deviating from the expert opinion in its ruling as follows:

“(…) Expert opinions are subject to the free evaluation of evidence(Sections 287 I, 286 I ZPO). Accordingly, the court may in principle deviate from an expert’s opinion if it is not convinced by the expert’s statements. However, if a court does not wish to follow the expert findings or conclusions of an expert, it must demonstrate the relevant expertise (see Senate, NJW 1988, 3016 = VersR 1988, 837 (under II 2a)).
A permissible deviation of the court from an expert’s report always requires the presentation of the relevant considerations in the sense of a plausible and comprehensible justification in the judgment (cf. for the case of contradictory expert opinions Senate, NJW-RR 1987, 1311 = BGHR-ZPO § 412 Obergutachten 1 (under II 2b)), which may not be based on the fact that the court makes use of its own expertise which it is not entitled to. (…)”

It follows from this:

The court is not obliged to deal with the opinion of the private expert on every single point. However, in addition to the court expert opinion, it must also take into account the corresponding (contradictory) statements in the private expert opinion on all key points and explain this in a comprehensible, i.e. verifiable, manner in its reasons for judgment.

Conclusion on the probative value of private expert opinions

The admittedly somewhat confusing legal situation with regard to the evidentiary value of private expert opinions is that private expert opinions are – almost – equivalent to court expert opinions.

As described above, experts serve to provide the court with missing expertise. In the absence of its own expertise, the court may not simply give preference to the expertise of a court expert over the differing expertise of a private expert.

The party adversely affected by the content of a court expert opinion therefore has the option of at least “neutralizing” the court expert opinion by means of private expert objections. It is necessary and sufficient for the private expert to justify his or her findings that deviate from the court expert opinion in a comprehensible and professional manner with reference to the court expert opinion. The aim must be to cast doubt on the court expert’s findings. If this is successful, the court must investigate these doubts.

Incidentally, it also follows from the above legal situation that the costs of private expert opinions may be reimbursable. It is true that case law still regards this as an exception. However, if it is easy to justify that it was necessary to obtain a private expert opinion in order to provide your own expert opinion with the necessary quality, there is a good chance that you will be able to claim these costs later as necessary legal costs.

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Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

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CONTACT

+49 (40) 57199 74 80

+49 (170) 1203 74 0

Neuer Wall 61 D-20354 Hamburg

kontakt@legal-plus.eu

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I look forward to our networking.

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Skyline of Frankfurt / Main in Germany with the European Central Bank on the Right side.

EURO clauses – prevention of euro crisis scenarios

June 18, 2021/in Commercial law, Contract Law

LEGAL+ NEWS

EURO clauses: Preventing euro crisis scenarios

EURO clauses are still predominantly associated with the introduction of the euro. The following article deals with the unpleasant eventuality of the euro entering a crisis, e.g. associated with the exit of individual states from the eurozone. To prevent this eventuality, it is worth thinking about “post-EURO” clauses.

Problem description

Equivalence of performance and consideration is the cornerstone of every “good” contract. Now imagine the following: Supplier A undertakes to supply customer B with a complex industrial plant at a price of EUR 20 million. The final payment installment of 2 million euros is only due after completion and acceptance. At the time the contract is concluded, acceptance is not expected for another 2 years. Without much imagination, this leads to the question of how or whether it is actually ensured that EUR 2 million at the time the contract is concluded and EUR 2 million at the time of acceptance 2 years later are still (roughly) equivalent. The answer is: this is simply not guaranteed! The economic consequences of the corona crisis, which are currently not yet so much in focus due to the priority of health protection and which will probably also have a considerable impact on the euro for various reasons, make the question of how the supplier can contractually protect itself against currency risks and thus an imminent decline in the value of the consideration to which it is contractually entitled appear highly topical. The following article first classifies the problem from a legal perspective and provides an overview of some possible solutions under contract law.

Necessity of contractual provisions

The economic consequences mentioned above, which the coronavirus crisis is yet to reveal, threaten the stability of the euro in many respects. If it were only a case of above-average inflation, which is probably to be expected, this would be a best-case scenario. A politically motivated painful devaluation, the exit of individual countries from the eurozone or even a break-up of the monetary union cannot be ruled out. If a contract is affected by this scenario, the question arises for the supplier as to whether it is legally protected against the resulting devaluation of its consideration, which is based on a specific euro amount.

One could think of a disturbance of the basis of the contract according to § 313 BGB. According to this, an adjustment of a contract can be demanded if

“(…) circumstances that have become the basis of the contract have changed seriously after the conclusion of the contract and the parties would not have concluded the contract or would have concluded it with different content if they had foreseen this change, (…)”

In the case of the currency risks discussed here, a claim for adjustment is likely to fail in most cases due to a lack of predictability. The risks surrounding the eurozone have been a topic of fluctuating intensity for a long time.

In the event of the withdrawal of individual euro states or the termination of the monetary union, Section 313 of the German Civil Code is also likely to prevent the legislator from stipulating the principle of contractual continuity, as it did when the euro was introduced. For example, when the euro was introduced, Article 3 of Council Regulation (EC) No. 1103/97 of June 17, 1997 stipulated the following:

“The introduction of the euro shall not have the effect of modifying any provision of any legal instrument or of discharging any debt, nor shall it justify the non-performance of any legal obligation, nor shall it give any party the right to modify or terminate any legal instrument unilaterally. This provision is subject to any agreement between the parties.”

Interim result on EURO clauses

As already mentioned at the beginning, the supplier as a creditor is not protected against the risk of a devaluation of money and the associated disruption of the equivalence relationship
between performance (= delivery) and consideration (= monetary payment). He should therefore look for ways to protect himself contractually against this.

Forms of permissible contractual clauses

Now that it has been worked out that the supplier, as a creditor, is not easily protected against the risks associated with a “real” euro crisis, the question arises as to how it can contractually prevent this with its business partner.

Price adjustment clauses

At first glance, automatic price adjustment clauses appear to be the method of choice. With such clauses, the price is automatically adjusted based on a referenced index (e.g. consumer price index).

It is true that such value protection clauses are recognized in principle by the highest courts. Unfortunately, however, the legislator has placed very strict limits on this solution. In particular, automatic price adjustment is prohibited. These include the Price Clause Act and the law on general terms and conditions. According to the Price Clause Act, there is a so-called ban on indexation, which generally prohibits the agreement of an automatic price adjustment, see Section 1 (1) of the Price Clause Act:

“The amount of monetary debts may not be determined directly and automatically by the price or value of other goods or services that are not comparable with the agreed goods or services.”

The background to this is that otherwise there would be fears that automatic price adjustment clauses could drive unwanted inflation in an uncontrolled manner.

However, the law provides for exceptions that allow a (non-automatic) price adjustment, cf. section 1 (2) of the Price Clause Act:

(2) The prohibition under paragraph 1 shall not apply to clauses,
1. which leave a margin of discretion with regard to the extent of the change in the amount owed, which makes it possible to determine the new amount of the monetary debt in accordance with principles of equity (performance reservation clauses),
2. in which the goods or services placed in relation to each other are essentially similar or at least comparable (tension clauses),
3. according to which the amount owed is made dependent on the development of the prices or values of goods or services to the extent that these directly influence the creditor’s cost price for the provision of the consideration (cost element clauses),
4. which can only lead to a reduction of the monetary debt

Of these exceptions, the performance reservation clauses and the tension clauses are of particular interest.

Instead of a – prohibited – automatic price adjustment, permissible performance reservation clauses provide that the entitled party may redetermine the price at its discretion if the agreed conditions are met (in particular a change in the reference value, occurrence of a certain event). It should be obvious to everyone that such a unilateral right of determination (Section 315 BGB) quickly raises legal concerns. This is where the law on general terms and conditions may quickly come into play. In its ruling of May 9, 2012 (case no. XII ZR 79/10), the Federal Court of Justice (BGH) stated the fundamental permissibility and justification of performance reservation clauses:

“According to the case law of the BGH, price change clauses are a suitable and recognized instrument for maintaining the balance between price and performance in long-term contractual relationships, especially those that are based on the exchange of services. This is because they serve, on the one hand, to relieve the user of the risk of long-term calculation and to secure his profit margin despite subsequent cost increases that burden him, and, on the other hand, to protect the contractual partner from the user attempting to absorb possible future cost increases by risk surcharges as a precautionary measure at the time the contract is concluded (…).
The interest of the contractual partner of the user of a price change clause in being protected against price adjustments that go beyond the maintenance of the originally agreed equivalence ratio must be taken into account (see BGHZ 94, BGHZ Vol. 94 Page 355 = NJW 1985, NJW Year 1985 Page 2270; BGHZ 158, BGHZ Vol. 158 Page 149 = NJW 2004, NJW Year 2004 Page 1588 [NJW Year 2004 1590]; in each case with further references). Nachw.).”

According to the case law of the Federal Court of Justice, a legitimate interest of the beneficiary of the clause and sufficient specification of the conditions for the right of adjustment are required and indispensable in order to adequately protect the interests of the contractual partner and thus to ensure that they are protected by the GTC. It must be sufficiently clear to the contractual partner what is in store for them. The BGH stated this in its ruling of November 25, 2015 (case no. VIII ZR 360/14):

“(…) However, according to Section 307 I 2 BGB, an unreasonable disadvantage to the contractual partner within the meaning of Section 307 I 1 BGB can also result from the fact that a provision in the General Terms and Conditions is not clear and comprehensible. In accordance with the principles of good faith, the user of general terms and conditions is therefore obliged to present the rights and obligations of his contractual partners as clearly and transparently as possible and to allow economic disadvantages and burdens to be recognized to the extent that this can be demanded under the circumstances (…)”

Price adjustment clauses refer to a specific index that relates to goods comparable to the contractual product. In order to ensure the effectiveness of the clause, the provision must be sufficiently specific and satisfy the criterion of comparability. “Comparability” requires that the reference goods are similar or at least comparable in nature. The relationship between the monetary debt and the reference value must be similar “according to common perception”. The reference value must be peculiar to the debt to be secured and must be of the same nature. After all, it is a question of evaluation, so that particular caution is required when drafting a corresponding clause in order to minimize the risk of invalidity.

Renegotiation clauses

The uncertainties described above in the contractual formulation of a price adjustment clause can be avoided by a pure renegotiation clause.

A renegotiation clause can be used to agree that the parties are obliged to renegotiate in the event of a significant change in circumstances – in this case, the monetary value. There is therefore no unilateral right to determine performance, but “only” the obligation of both parties to renegotiate the original price. The great advantage of such a provision is that its effectiveness can hardly be called into question. Appropriate wording of the clause can largely ensure that the contractual partner cannot completely block a price adjustment.

Conclusion on (post) EURO clauses

The level of the euro risk described above is difficult to estimate. A “post-EURO” clause for value protection can eliminate this risk within the framework described. As an entrepreneur, you have one less thing to worry about.

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Breach of an international jurisdiction agreement can result in liability for damages! – On the ruling of the BGH from 17.10.2019 (Ref. III ZR 42/19)

International agreements on jurisdiction, especially if they are to have exclusive validity, generally have the purpose of protecting the party benefiting from the agreement from the often very considerable costs of a legal dispute in a foreign country.

Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

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Agreement of obligations to keep free

June 1, 2021/in Commercial law, Contract Law

LEGAL+ NEWS

The agreement of indemnification obligations - an underestimated instrument of contract law

The contractual agreement of hold harmless obligations is still a rarely used contractual instrument. However, such indemnity agreements can be very helpful, especially in multi-party constellations. One particularly relevant example is in the area of very complex and therefore contentious plant construction. Here, indemnity agreements can significantly improve the typically unpleasant position of the general contractor vis-à-vis the client and subcontractor when it comes to the trades of its subcontractors.

The author would like to inform the interested public about this in the following article.

The problem: The “sandwich position” of the general contractor

When it comes to the trades of its subcontractors, the general contractor is to a certain extent “caught between two stools”.

If there is a problem that can be traced back to a subcontractor’s trade, the problem becomes easily visible:

The general contractor has two contractual partners, the client and the subcontractor. Now imagine the following, not uncommon constellation:

The client confronts the general contractor with a notice of defects relating to a subcontractor’s work. From the client’s point of view, the general contractor, as its sole contractual partner, is responsible for the defect. From the general contractor’s point of view, the situation is different, as the subcontractor owes it a defect-free delivery. Consequently, the general contractor will pass this notice of defects on to the subcontractor concerned. In the (rare) ideal case, there is agreement on the defect and the subcontractor will rectify the defect to everyone’s satisfaction. But what happens if the subcontractor goes on strike and rejects the existence of a defect? In these cases, the agreement on hold harmless obligations between the general contractor and subcontractor can help.

What does keeping free mean?

One of the reasons for the (supposed) vagueness of the term “freehold” is probably that, as mentioned at the beginning, freehold agreements are still rather rare today.

In fact, the Federal Court of Justice (BGH) has already dealt extensively and meaningfully with the high practical significance of the assumption of duties to hold harmless

According to this case law of the BGH, which can be described as established, the duty to maintain availability is very far-reaching (see only BGH, judgment of 15.12.2010, ref. VIII ZR 86/09, para. 12). Thus, according to the aforementioned ruling of the BGH, every duty to keep property free includes

“(…) in principle also the duty to defend against unfounded claims of third parties (Senate judgment of June 24, 1970 – VIII ZR 268/67, NJW 1970, 1594 under II 1 b; BGH, judgments of January 19, 1983 – IVa ZR 116/81, WM 1983, 387 under 2 a; of April 19, 2002 – V ZR 3/01, WM 2002, 1358 under II 3; of October 24, 2002 – IX ZR 355/00, BGHZ 152, 246, 255).

The BGH explained its reasoning:

“(….) This is because the assumption of an indemnification obligation is typically intended to relieve the indemnified party of any risk of a claim by third parties and, in particular, not to be exposed to the risk of being sued for a justified third-party claim or to fulfill an unfounded claim in a misjudgment of the factual and legal situation and to have this held against them as their own misconduct (Senate judgment of June 24, 1970 – VIII ZR 268/67, loc. cit. under II 1 b, 2; BGH, judgment of April 19, 2002 – V ZR 3/01, loc. cit.).”

This means:

The party obligated to indemnify must generally relieve the indemnified party of any risk of a claim by a third party and, if necessary, also assume the defense against such a claim.

In the case of an unrestricted duty to indemnify, the indemnified party can therefore expect that the party obliged to indemnify will, so to speak, relieve it of all worries relating to the claims of the third parties concerned.

Consequences of violating the duty to maintain freedom

If the party obligated to indemnify violates the indemnification obligation it has assumed, the important question arises as to what reaction options arise for the beneficiary.

Indemnification claims are not primarily aimed at payment. The indemnified party can therefore not initially demand payment to itself. Conversely, the party obliged to indemnify cannot fulfill its obligation by paying the indemnified party.

However, the indemnification claim can be converted into a payment claim. This requires an unsuccessful deadline to be set for the fulfillment of the primary indemnification obligation. If the party obliged to indemnify seriously and definitively refuses the required indemnification, the claim for indemnification is converted into a claim for payment in accordance with the established case law of the BGH.

If the party obliged to indemnify has breached its obligation to indemnify, e.g. by failing to fulfill its obligation on time, the indemnified party is entitled to claim damages in accordance with Sections 280 (1) and 286 BGB. This claim will at least be for compensation for what the indemnified party had to pay to the third party as a result of the breach of duty by the indemnified party.

It is important that the party to be indemnified has given the party obliged to indemnify sufficient opportunity to examine and, if necessary, defend against the claim before making a payment to the third party. If he has done this, the party obliged to indemnify is no longer entitled to object that the party obliged to indemnify has wrongly paid the third party. This is because, due to the breach of his indemnification obligations, he himself is responsible for the fact that the party to be indemnified had to pay the third party.

Particularly relevant: Effects of the indemnification claim on the indemnifying party’s own payment obligations towards the indemnified party

If the party obliged to indemnify breaches its indemnification obligation and thereby exposes the indemnified party to the risks against which it is supposed to protect,

the question arises, which is particularly relevant in general contractor cases, as to what effect this breach of the indemnification obligation has on any outstanding remuneration of the indemnified party (= general contractor) vis-à-vis the party obliged to indemnify (= subcontractor). In these cases, it will usually be the case that the client (= the third party) in turn withholds remuneration from the general contractor.

A contractual obligation to remain free in general contractor constellations under construction law

must, in implementation of the BGH case law cited above, also include the retention of the third party. This is because, according to established BGH case law, retention means keeping free,

- to relieve the indemnified party of any risk of claims by third parties, and

- Accordingly, if necessary, to assume the defense against such a claim,

then, of course, the person obliged to grant the exemption must also submit a corresponding

prevent or suitably defend against the retention of this third party.

As a result, the party to be indemnified can therefore pass on the third party’s retentions, which are at least also based on the breach of the indemnification obligations, to the party obliged to indemnify.

Conclusion on the meaning and purpose of retention obligations

Indemnification claims are a far-reaching and flexible instrument, especially for general contractors, in order to shift a significant part of the risk they typically assume to the subcontractors involved.
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+49 (170) 1203 74 0

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Recognition and enforceability of foreign judgments

August 22, 2020/in Commercial law, International procedural law, Nicht kategorisiert

LEGAL+ NEWS

Recognition and enforceability of foreign judgments

The question of the recognition and enforceability of foreign judgments in Germany is of great practical relevance: If a foreign (non-European) business partner threatens to file a lawsuit in his home country in the event of a conflict, a decision must be made as to whether or not a defense against a possible lawsuit abroad makes sense. On the question of how to deal with a foreign lawsuit, please also read my Guide “Action from abroad – What to do?”!

In the following, we will examine what a foreign judgment that has already been issued means for the German defendant. If such a judgment is imminent or has already been issued, the main question for the German defendant is whether and under what conditions he is threatened with enforcement of this judgment. This is the subject of the following article. Due to the very advanced Europeanization of the law and the resulting peculiarities in the EU area, the article deals exclusively with judgments from non-EU countries.

Starting point: Necessity of a recognition procedure

Unless otherwise regulated by special international agreements, a foreign judgment is initially worth nothing in Germany.

A foreign creditor who wishes to take enforcement measures in Germany against his German debtor on the basis of a judgment obtained in his home country must first apply to the competent German court in order to have the foreign judgment declared enforceable in a separate procedure. This is standardized in Section 722 (1) ZPO:

“Enforcement from the judgment of a foreign court shall only take place if its admissibility has been declared by an enforcement judgment.”

Only a successfully obtained enforcement judgment (cf. Section 723 ZPO) leads to the enforceability of the foreign judgment in Germany.

The above means:

From a German perspective, a reaction to an action brought abroad only appears appropriate if any judgment could also be enforced in Germany. Otherwise, the judgment would ultimately be worthless, at least if the German defendant has no assets in the plaintiff’s country that could be accessed.

Grounds for non-recognition to be examined by the German court

As explained above, the enforceability of a foreign judgment in Germany presupposes that it can be recognized in Germany. Recognizability is reviewed ex officio by the German court in the above-mentioned enforceability proceedings pursuant to Sections 722 and 723 ZPO.

In the absence of relevant bilateral agreements between Germany and the respective claimant state, the general rules of international law apply to the eligibility for recognition.

In particular, the eligibility for recognition must be measured against Section 328 (1) ZPO:

“(1) The recognition of the judgment of a foreign court is excluded:

if the courts of the state to which the foreign court belongs do not have jurisdiction under German law;
if the defendant, who did not enter an appearance and invokes this, was not duly served with the document instituting the proceedings or was not served in sufficient time to enable him to defend himself;
if the judgment is irreconcilable with an earlier foreign judgment issued here or to be recognized, or if the proceedings on which it is based are irreconcilable with proceedings that were previously pending here;
if the recognition of the judgment leads to a result that is manifestly incompatible with fundamental principles of German law, in particular if the recognition is incompatible with fundamental rights;
if reciprocity is not guaranteed”

Accordingly, a foreign judgment must be refused recognition in the following cases:

Lack of jurisdiction of the foreign court

The objection to jurisdiction is always the closest aspect that could argue against recognizability. This is because, internationally, the principle that an action must be brought at the defendant’s place of residence or business applies in cases of doubt. Consequently, the jurisdiction of the foreign court for an action against a German defendant would have to result from a special place of jurisdiction or an effective jurisdiction agreement.

No proper service (violation of the so-called right to be heard)

The objection that the foreign action has not been duly served is also worth examining. This requires, for example, that the German defendant must have had sufficient opportunity to defend himself properly against the action. As case law interprets this requirement very narrowly, this objection usually only helps in extreme cases, e.g. if there are only a few days between service on the German defendant and the decision date abroad, which should be rare.

In addition, a translation of the action into German is generally required. In most cases, this follows from the Hague Service Convention of November 15, 1965, to which a large majority of countries in addition to Germany have signed up.

On the subject of the effectiveness of service, please also read my article “Action from abroad – service effective?”.

Incompatibility with another court decision

The objection that a domestic court decision is incompatible with the recognition of the foreign decision is also very relevant in practice and therefore significant.

This applies in particular in the event of the earlier lis pendens of domestic proceedings with the identical subject matter of the dispute. “Lis pendens” means the time at which a validly filed action is received by the defendant with legal effect. The time of lis pendens abroad is determined by foreign law. Whether the foreign court was aware of the domestic proceedings is irrelevant.

Please also read my separate article on this constellation “The negative declaratory action to prevent a foreign action“.

By the way:

The priority of the domestic judgment applies even if the domestic judgment was issued despite the foreign proceedings having been pending earlier. Domestic judgments are therefore always barred, even if they should not have been issued at all.

Incompatibility with the so-called ordre-public

Finally, the so-called ordre public must be observed. This concerns the compatibility of the foreign judgment in question with the fundamental principles of German law. If a foreign judgment is so contrary to fundamental German principles that it would seem almost intolerable to declare such a judgment enforceable in Germany, then it must be refused recognition.

The above applies in particular to violations of fundamental rights. Other examples of judgments that violate German public policy are those based on procedural fraud or judgments based on gambling or betting debts.

Lack of guarantee of so-called reciprocity

Another mandatory requirement for recognition is the so-called “guarantee of reciprocity” in relation to the state of judgment in question.

“Reciprocity” means that the recognition and enforcement of a German judgment in the foreign state in question should not encounter significantly greater difficulties than, conversely, the recognition and enforcement of a comparable foreign judgment in Germany. In short, the point is that the “rules of the game” must be more or less the same. After all, it is not acceptable for Germany to recognize a judgment from a country that, conversely, refuses to recognize German judgments or only grants recognition under considerably more difficult conditions.

The above definition leads to the following problem: The question of so-called reciprocity can only be answered by looking at the actual judicial practice of both countries. This practice is constantly in flux, so that this question must be examined separately in each specific case.

Consequences of not defending against the foreign action: Limitation of defense options in the enforceability declaration procedure

As already explained in the introduction, the aforementioned requirements for the recognition of foreign judgments are already of significance when the German defendant decides whether he should defend himself against the action at all.

In principle, the German defendant is free to decide whether to take up the “defense at a distance” – accepting (perhaps) unnecessary and high costs.

It should be noted that substantive objections to the claim must generally be raised in the substantive action proceedings. However, according to the case law of the BGH, this does not generally apply; in particular, it is still possible to raise the objection of procedural fraud in recognition proceedings. The BGH stated this in its ruling of 29.04.1999 (case no. X ZR 263/97):

“In proceedings for a declaration of enforceability, supplementary factual submissions by the parties are admissible in any case insofar as a violation of Section 328 (1) no. 4 of the German Code of Civil Procedure (ZPO) is to be inferred from the manner in which the judgment to be recognized was obtained. This is not precluded by the principle that fraudulent procurement of a foreign judgment cannot be established with the same evidence that a defendant has already used or could have used in the original proceedings (BGH, decision of September 19, 1977 – BGH file number VIIIZR12075 VIII ZR 120/75, NJW 1978, NJW year 1978 page 1114, NJW year 1978 page 1115). This principle applies if a defendant actually defends himself before the court of the first state. In contrast, both Section 328 (1) No. 2 and No. 4 ZPO leave the defendant domiciled in Germany free to enter an appearance abroad at all. If he takes the risk of being convicted abroad, he accepts the aggravation of only being able to assert narrowly limited means of defense in the recognition proceedings. In any case, however, the fraud defense is not cut off.”

Foreign judgments – conclusion and recommendation

The above summary shows that there are various obstacles to the recognition and thus enforceability of foreign judgments in Germany. As a result, German economic operators who find themselves threatened with a legal dispute abroad will find that the appropriate decision on how to deal with the respective conflict depends not only on the purely substantive legal situation, but also on procedural issues.

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International agreements on jurisdiction, especially if they are to have exclusive validity, generally have the purpose of protecting the party benefiting from the agreement from the often very considerable costs of a legal dispute in a foreign country.

Unfortunately, however, it is not uncommon for the other contracting party to suddenly no longer want to know about the jurisdiction agreement in the event of a dispute. The background to such a dishonest approach is – obviously – not least the potential for blackmail associated with such an approach. This is because the party that finds itself – in breach of the jurisdiction agreement – exposed to a foreign lawsuit is regularly forced to take action abroad through lawyers in order to avoid legal disadvantages. This in turn is often very expensive, with the USA being the most prominent example.

Read more "

September 4, 2024

CONTACT

+49 (40) 57199 74 80

+49 (170) 1203 74 0

Neuer Wall 61 D-20354 Hamburg

kontakt@legal-plus.eu

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Corona and contract law: Disruption of contracts

April 5, 2020/in Commercial law, Contract Law, Liability law

LEGAL+ NEWS

Corona and contract law: Disruption of contracts due to the coronavirus

The coronavirus is forcing countries around the world to take drastic measures to counter the spread of the virus. This is having a serious impact on contract law. Many of these measures mean that contracts can no longer be fulfilled by at least one party. The cases affected are countless. Some examples are

the supply contract that cannot be serviced,
the commercial tenancy agreement, which can no longer be fulfilled by the tenant due to a lack of turnover,
the vacation trip that has to be canceled by the organizer or service provider,
the court settlement, which has lost its basis due to the economic consequences of the coronavirus crisis and can no longer be (reasonably) fulfilled,
etc.

The list of examples could be continued almost endlessly. In each case, the question arises as to how the respective situation can be resolved under contract law. The buzzword on everyone’s lips these days is “force majeure”, although this in itself is of little help. For example, it seems questionable whether the emergence of the coronavirus can even be classified as a force majeure event.

The following article is not intended to and cannot offer a solution for individual cases. Rather, it presents legal approaches that can provide a solution in individual cases. The discussion is limited to cases where the respective contract contains no or only inadequate provisions.

Consequences of the coronavirus for current contracts – case groups

Various scenarios can be considered as a result of the coronavirus. The three main cases are as follows:

The contract cannot be definitively fulfilled by one of the parties (examples: flight cancellation, concert cancellation, cancellation of trade fairs, etc.).
The fulfillment of the contract is temporarily impeded (prominent example: Tenant can temporarily no longer pay commercial rent due to lack of turnover).
A contract can still be fulfilled, but its execution no longer appears reasonable for at least one party due to the effects of the coronavirus.

Corona and contract law: Relevant basic legal principles

When evaluating each individual case, it is helpful to first consider the following basic legal principles.

“pacta sunt servanda” – principle of contractual fidelity

The highest and most general basic principle is contractual compliance. Contracts must always be complied with (“pacta sunt servanda”).

Difficulties in the provision of services that arise after the conclusion of the contract and have not been considered or taken into account do not change the obligation to perform. Exceptions to this therefore require special justification.

“do ut des” principle for mutual contracts – Section 326 BGB

In the case of reciprocal contracts, the impossibility of performance by one party generally results in that party being released from its obligation to perform. At the same time, however, it also loses its claim to consideration. This occurs in § Section 326 (1) sentence 1 BGB expressed:

“If the debtor is not required to perform pursuant to section 275 (1) to (3), the claim to consideration shall lapse (…)”

Supplementary interpretation of the contract and disruption of the basis of the transaction

If the contract in question contains a loophole regarding the circumstance in question, which can be closed by (supplementary) interpretation of the contract in accordance with the principles of determining the hypothetical will of the parties (Sections 133, 157, 242 BGB), this solution approach always takes precedence over any “emergency instruments” such as, in particular, interference with the basis of the contract in accordance with Section 313 BGB.

In case law, it is rightly emphasized time and again that a clear distinction between supplementary contract interpretation and the institute of interference with the basis of the contract is hardly possible.

In any case, the legal provision made must always be given priority. In the legal literature (see Flume, BGB AT II, Das Rechtsgeschäft, 4th edition, 1992, page 326 f.), it is correctly pointed out that the interpretation of a contract cannot have the purpose of deriving a legal effect from a legal transaction.

“unfair” contract into a “fair” one,
or
“… to correct the forgetfulness or carelessness of a contracting party in the formulation of a legal transaction by subsequently introducing into the contract, for the benefit of that contracting party, provisions which, if he had been well advised, he would have made the subject of the contract, but which he did not make the subject of the contract.”

It follows from this correct insight alone that a hypothetical will of the parties to be determined must take precedence over a “general weighing of interests” on the basis of a preliminary understanding of the judge, which determines an adjustment of the contract according to the principles of the basis of the transaction.

Corona and contract law – Possible solutions for the above-mentioned case groups

Taking into account the principles and legal instruments summarized above, the following solutions are possible.

Corona and contract law – Case 1: A contract cannot be definitively fulfilled by one party

In the absence of a contractual provision to the contrary, the solution in case constellation 1 should usually be clear:

The contractual partner who is ultimately unable to perform due to force majeure is released from its obligation to perform, Section 275 (1) BGB. As a result, he loses the right to the agreed consideration (= as a rule: remuneration), Section 326 (1) sentence 1 BGB. In the absence of fault, claims for damages on the part of the creditor are generally out of the question.

Corona and contract law – Case 2: A contract cannot be fulfilled temporarily

The situation is more complex if there is no so-called firm deal and the service affected by the force majeure can probably be made up for later:

The advantage of agreeing force majeure clauses, in which it is regularly agreed how situations are to be dealt with, is particularly evident in this frequently encountered constellation.

Primary solution approach: Supplementary contract interpretation

If this is not the case, the supplementary interpretation of the contract comes into play as described above. Contracts often contain general agreements from which special duties of loyalty and/or cooperation can be derived. This detour often leads to results that are expressly provided for in force majeure clauses.

The obligation to make joint efforts to limit damage on both sides should be mentioned in particular. Mutual claims for damages are likely to be regularly excluded in the absence of fault, even without a corresponding contractual provision.

If necessary: recourse to the principles of frustration of contract

It is more difficult to assess the question of when the debtor’s obligation to perform finally ceases, with the result that the other party is also finally not required to perform. In § Section 313 (1) BGB it says:

“If circumstances that have become the basis of the contract have changed significantly after the contract was concluded and
the parties would not have concluded the contract or would have concluded it with different content if they had foreseen this change,
an adjustment to the contract may be demanded if one party cannot reasonably be expected to adhere to the unchanged contract, taking into account all circumstances of the individual case, in particular the contractual or statutory distribution of risk.”

In addition, the right to refuse performance under Section 275 (2) BGB also offers help in finding a solution:

“The debtor may refuse performance if this requires an effort that is grossly disproportionate to the creditor’s interest in performance, taking into account the content of the obligation and the requirements of good faith. When determining the efforts to be expected of the debtor, it must also be taken into account whether the debtor is responsible for the impediment to performance.”

In the interplay of the above statutory provisions, the debtor concerned is likely to have a claim to amicable termination of the contract if it is not foreseeable that the impediment to performance will cease to exist. this is based on the fact that the debtor cannot reasonably be expected to adhere to the originally agreed performance obligations.

Liability for damages in the event of non-performance?

However, this does not answer the question of whether the creditor is entitled to compensation for the “release” of the debtor from his obligation to perform. The fact that the debtor is not at fault speaks against this. The fact that the service can still be provided in principle and the lack of a contractual provision tends to indicate that the debtor bears the risk in question (pandemic) speaks in favor of this. It should not be forgotten that the risk in question is not beyond all probability. It is not without reason that force majeure clauses are the rule rather than the exception in contract law.

After all, the respective circumstances of the individual case are likely to be decisive.

Corona and contract law – Case 3: A contract can still be fulfilled, but its execution no longer seems reasonable for one party.

The case constellation according to which

a contract can still be fulfilled at a later date despite coronavirus restrictions,
its (later) implementation no longer appears reasonable for at least one party,

shows in particular how important contractual clauses that take contingencies such as “Corona” into account can be. If this is lacking, Section 275 (2) BGB, which is based on the principle of good faith and also on whether there would be a “gross disproportion to the creditor’s interest in performance” in the event of performance, helps again.

In the specific case, it would therefore have to be examined whether the debtor concerned, for whom the provision of services would be possible but significantly more difficult as a result of the corona effects, can successfully invoke the aforementioned right to refuse performance under Section 275 (2) BGB.

Conclusion on coronavirus in contract law: Disruptions to contracts as a result of the coronavirus usually require a case-by-case assessment

The possible factual constellations are almost endless. The law does not provide any model solutions, and even in the case of force majeure clauses, a specific solution is unlikely to be “obvious”. In most cases, a solution can only be found by carefully examining all the circumstances of the individual case. This has now also been confirmed by the Federal Court of Justice in the first Corona rulings, see this article.

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