Vertragsrecht Stuttgart 21 – Sprechklausel Urteil

Contract law: Stuttgart 21 and the speech clause – a lesson in clear contract drafting

August 8, 2025/in Contract Law, Nicht kategorisiert

LEGAL+ NEWS

Contract law: Stuttgart 21 and the speech clause - a lesson in clear contract drafting

In contract law, sometimes a single sentence can decide billions. This is exactly what happened with the Stuttgart 21 project. At the center of the legal dispute was a short contractual provision – the so-called “speech clause”. It was intended to ensure a willingness to talk in the event of additional costs, but was understood by Deutsche Bahn as a basis for additional payments. This argument did not stand up in court. The decisions of the Administrative Court of Stuttgart and the Administrative Court of Baden-Württemberg are a prime example of how contracts should be interpreted – and what happens if they remain too vague.

Part 1: The judgment on Stuttgart 21 as a textbook case in contract law

In a ruling dated May 7, 2024 (case no. 13 K 9542/16), the Stuttgart Administrative Court dismissed Deutsche Bahn’s claim for cost sharing by the project partners in the Stuttgart 21 project. The Administrative Court of Baden-Württemberg rejected the application for leave to appeal in its ruling dated August 1, 2025 (case no. 14 S 1737/24). The ruling is therefore legally binding. The dispute concerns a public law financing agreement with a volume in the double-digit billion range. At the center of the legal dispute is a single clause: the so-called “speech clause”.

This reads:

“In the event of further cost increases, the EIU and the state will enter into talks.”

Deutsche Bahn had argued that an obligation to subsequently increase the financing contributions could be derived from this regulation. The courts have clearly denied this.

The decision of the VG Stuttgart and its explicit confirmation by the VGH Baden-Württemberg can be considered an exemplary case for the systematic interpretation of contracts. They show how wording, systematics, drafting history and purpose interact – and what consequences unclear or strategically open regulations can have.

1. wording of the speech clause

In the event of further cost overruns, the clause merely regulates the obligation to enter into discussions. No material claim to cost sharing can be derived from the mere requirement to hold discussions. The term “discussions” is too unspecific in legal terms to justify legal obligations in the form of additional payments.

2. systematics of the contract

The speech clause follows a graduated and quantified financing regulation. This structure suggests that a substantive obligation ends with the last quantified contribution and is replaced by a procedural clause that has no legal consequences beyond the communication obligation. The lack of a distribution key shows that no further obligation to pay was deliberately intended.

3. historical interpretation

The clause was created after several draft versions in which – partly on the initiative of the railroads – an explicit rejection of automatic additional payments was envisaged. The development shows: The parties did not want a binding regulation of further contributions.

4. teleological interpretation

The purpose of the speech clause was not to establish an obligation to continue the project or to co-finance it, but at most to create a basis for discussion for amicable solutions. An obligation to reach an agreement or to pay cannot be derived from this.

5. no supplementary interpretation of the contract

There is no gap in the contract that could be closed by an amendment. The clearly staggered financing up to a maximum amount and the waiver of automatic updating were an expression of deliberate risk limitation.

6. no interference with the basis of the transaction

The principle of frustration of contract did not help Deutsche Bahn either. The parties had expressly agreed that in the event of additional costs, payment would only be made in writing, not automatically.

Part 2: What a good clause in contract law must achieve - lessons from the language clause

For me, the ruling is a lesson in contract law: contracts do not live from euphonious formulations, but from clear, robust provisions.

I see this as a prime example of a central problem in many contract negotiations: When economic compromises are translated into non-binding language. The result is seemingly elegant formulations that have no substance in the event of a dispute – just like here.

Anyone who uses regulations only as a diplomatic formula, but does not back them up with legal obligation, is building on sand. This can be fatal for large projects. Contracts need to be thought of like processes: resistant to dispute, resistant to interpretation, strategically sound. And vice versa: a judgment is always the result of the contract on which the process is based.

In contract law, good clauses are not created through harmony, but through the struggle for clear solutions. Those who evade in negotiations will lose in a dispute. The speech clause shows what happens when, instead of clarity, only a willingness to talk is agreed – and thus the actual conflict is postponed.

About RA Daniel Meier-Greve

Daniel Meier-Greve is a lawyer based in Hamburg. He advises and represents clients in complex commercial law disputes – out of court and in court. His work focuses on contract drafting and litigation.

He does not view the two separately: anyone who drafts contracts must also think about the dispute – and anyone who conducts litigation should understand how contracts are created. This change of perspective characterizes his legal work – and is the basis of his advice.

About Legal+

Legal+ stands for legal advice with a strategic view: Drafting and disputes belong together. A contract is not an end, but a means – to manage risk, to balance interests, to prepare for a dispute. Legal+ thinks contracts in terms of conflict – and conducts proceedings with the knowledge of how they came about.

Unclear clauses cost time and money - I draft contracts that HOLD.

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August 8, 2025

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

Commercial law

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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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)

September 4, 2024/in Commercial law, Contract Law, International procedural law, Nicht kategorisiert

LEGAL+ NEWS

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!

Do you have any questions?

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Contract law: Stuttgart 21 and the speech clause – a lesson in clear contract drafting

Sometimes a single sentence decides billions. This is exactly what happened with the Stuttgart 21 project. At the center of the legal dispute was a short contractual provision – the so-called “speech clause”.

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August 8, 2025

Commercial law

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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Vertragsgestaltung im Vertragsrecht – klare Regelungen

Possibilities of contesting a settlement concluded in court

August 15, 2023/in Contract Law, Nicht kategorisiert

LEGAL+ NEWS

Guide to procedural law: Options for contesting a court settlement

Civil proceedings are often concluded by way of a settlement between the parties during the course of the proceedings. This is often done with the help of the court. Practice shows that such a settlement, despite the involvement of the court, is not without its pitfalls. I would like to provide an overview below:

Overview of the types of court settlements

The Code of Civil Procedure provides for two ways of reaching a settlement with the help of the court:

On the one hand, a court settlement can be reached during the oral hearing. In this case, the settlement negotiated during the hearing is recorded by the court in the minutes of the hearing and must then be approved by the parties or their representatives. The approval must also be recorded in the minutes.

On the other hand, a court settlement can also be concluded by the parties submitting a written settlement proposal to the court or accepting a written settlement proposal from the court in writing to the court. The court then determines the conclusion and content of the settlement by means of an order.

Effect of the settlement agreement

The settlement effectively concluded in one of the aforementioned ways generally leads to the termination of the legal dispute.

In its ruling of 14.7.2015 (case no. VI ZR 326/14; NJW 2015, 2965), the BGH summarized the legal nature and effect of a court settlement:

“(…)
A court settlement has a dual legal nature. On the one hand, it is a procedural act that ends the legal dispute and whose effectiveness is determined according to procedural law principles. On the other hand, it is a private legal transaction to which the provisions of substantive law apply and with which the parties settle claims and liabilities (BGHZ 164, 190 [193 f.] = NJW 2005, 3576 mwN; cf. also BGHZ 142, 84 [88] = NJW 1999, 2806; BGHZ 79, 71 [74] = NJW 1981, 823; BGHZ 41, 310 [311] = NJW 1964, 1524; BGHZ 28, 171 [172] = NJW 1958, 1970; BGHZ 16, 388 [390] = NJW 1955, 705; OLG Hamm, NJW-RR 2012, 882). Procedural acts and private legal transactions are not separate. Rather, the procedural effects and the substantive legal agreements are interdependent (BGHZ 164, 190 [194] = NJW 2005, 3576; BGHZ 79, 71 = NJW 1981, 823). The court settlement is only effective if both the substantive legal requirements for a settlement and the procedural requirements for an effective court action are met. If one of these requirements is not met, there is no effective court settlement; the effect of ending the proceedings does not occur (BGHZ 164, 190 = NJW 2005, 3576; see also BGHZ 16, 388 = NJW 1955, 705). This also applies to the court settlement within the meaning of Section 278 VI ZPO (see BT-Drs. 14/4722, 82; BAGE 120, 251 = NJW 2007, 1831 para. 15; OLG Hamm, NJW-RR 2012, 882; Assmann in Wieczorek/Schütze, ZPO, 4th ed., Section 278 para. 79; Thomas/Putzo/Seiler, ZPO, 36th ed., Section 794 para. 2 f.).
(…)”

Dispute over the effectiveness of the settlement

In practice, it happens time and again that one party attempts to challenge the validity of the settlement reached.

The starting point here (see the BGH ruling cited above) is that the court settlement is of a dual nature, with the result that grounds for invalidity can arise on two levels. A distinction must therefore be made between two types of conceivable defects:

Level 1: Process-related defects

On the one hand, the court settlement is a litigation contract and could suffer from procedural defects.

The most frequent deficiency at this level is the incorrect logging of the contents of the comparison.

Level 2: Material defects

The court settlement is also a “normal” substantive legal contract between the parties with which they wish to end or settle their dispute.

This contract may also suffer from defects, e.g. in such a way that one of the parties was in error when making the declarations enabling the settlement. Under certain circumstances, this would enable it to contest the settlement on the grounds of error in accordance with Section 119 BGB. The case of Section 779 BGB (error regarding the basis of the settlement), which is expressly regulated by law, also comes into consideration. A right of adjustment may also arise from the point of view of interference with the basis of the transaction (Section 313 BGB)

Procedural consequences of a settlement challenge

If a party asserts defects in the settlement to the court, this leads to the continuation of the proceedings and the examination of the asserted defects by the court.

A distinction must then be made:

If the court finds procedural defects, this means that the court settlement is invalid. The legal dispute is still pending. A special situation arises in cases in which the parties had initially reached a substantively effective agreement and this agreement was subsequently incorrectly recorded in the minutes. This is because the merely erroneous recording does not eliminate the previously valid agreement.
And even in other cases of a court settlement that is ineffective for procedural reasons, it may be contrary to good faith (Section 242 BGB) if a party invokes the procedural defect due to contradictory behavior. The BGH assumed this as follows in the judgment cited above:
(…)
However, in accordance with the principle of good faith (§ 242 BGB), the plaintiff cannot invoke the fact that the settlement determined by the appellate court pursuant to § 278 VI 2 ZPO was not valid in procedural terms.
The principle of good faith also applies in procedural law (…).
Contradictory behavior of a party (venire contra factum proprium) in the process can be an abuse of rights and therefore inadmissible (…).
Contradictory conduct is an abuse of rights if a situation of trust has arisen for the other party or if special circumstances make the exercise of rights appear to be contrary to good faith (…). According to the established case law of the BGH, the exercise of rights may be inadmissible if, for example, the overall picture of contradictory conduct arises objectively because the earlier conduct is objectively incompatible with the later conduct and the interests of the other party appear to be primarily worthy of protection in view of this (…).

If the court finds material defects that result in the settlement being null and void (i.e. initially ineffective), the situation is as if the settlement had never existed.
The proceedings continue as normal because the legal dispute was never actually concluded.

In cases in which the settlement was initially effective and is only called into question or has become ineffective ex nunc due to circumstances occurring later, e.g. due to a disruption of the basis of the transaction, the situation is more complex because the settlement initially had the effect of terminating the settlement.
It is then correct to conduct a new trial, as there is no legal basis for reviving the old trial, which has been effectively terminated in the meantime. If the court comes to the conclusion that there are no defects, it will determine the effect of the settlement in terminating the proceedings by means of an appealable judgment.

CONCLUSION

Anyone who believes that the involvement of the court ensures a “clean” settlement is mistaken!

Do you have any questions?

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Contract law: Stuttgart 21 and the speech clause – a lesson in clear contract drafting

Sometimes a single sentence decides billions. This is exactly what happened with the Stuttgart 21 project. At the center of the legal dispute was a short contractual provision – the so-called “speech clause”.

Read more "

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Commercial law

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

Benefit from my active network!

I look forward to our networking.

Imprint

Data protection

Person filling the car with diesel at the gas station, close-up.

Guide to procedural law: Easier way to claim damages for exhaust gas manipulation – On the BGH ruling of June 26, 2023 (Ref. Via ZR 335/21)

July 25, 2023/in Contract Law, Nicht kategorisiert

LEGAL+ NEWS

Guide to procedural law: Easier way to claim damages for exhaust gas manipulation - On the BGH ruling of June 26, 2023 (Ref. Via ZR 335/21)

This article attempts to classify and evaluate the current ruling of the Federal Court of Justice (BGH) of June 26, 2023 (Ref. Via ZR 335/21) on the subject of compensation for damages due to emissions manipulation by car manufacturers.

The article first briefly examines the background of the diesel scandal dating back to 2015 as well as the first landmark ruling of the BGH from 2020 in order to then deal with the effects of the current ECJ ruling of March 21, 2023 (Ref. C-100/21), which laid the foundations for the amended BGH case law analyzed below.

A look back at 2015

The scandal surrounding emissions manipulation by car manufacturers dates back to 2015.

At the time, it turned out that VW had installed special software in the engine control unit to generate lower nitrogen oxide values on the test bench during emissions tests. In normal driving, however, the exhaust gas purification systems were deactivated in order to improve engine performance and fuel consumption. As a result, the vehicles did not comply with the statutory emission limits in real road traffic.

It later emerged that VW was not the only manufacturer to have “cheated” its way into supposed compliance with the statutory emission limits in the manner described above (or similar).

This resulted in waves of lawsuits from affected car buyers. The lawsuits were aimed at compensation for damages, reduction of the purchase price and rescission of contracts.

On the first landmark ruling of the BGH from 2020

In its first diesel ruling of 25.5.2020 (case no. VI ZR 252/19), the BGH ruled and confirmed the lower court in this respect that the fraudulent procurement of type approvals through emissions manipulation may also constitute a direct deception of the car buyer and, if necessary, a right of the buyer to compensation, and possibly also rescission, may be considered.

The guiding principles of the judgment were as follows:

a) It is equivalent to a direct fraudulent misrepresentation of vehicle purchasers if a vehicle manufacturer, in the context of a strategic decision taken by it during engine development, deliberately exploits the guilelessness and trust of vehicle purchasers by fraudulently deceiving the Federal Motor Transport Authority and then placing the vehicles thus falsified on the market.
b) If there are sufficient indications that at least one former member of the Management Board was aware of the strategic decision taken, the defendant manufacturer bears the secondary burden of proof for the assertion that such knowledge did not exist. It is irrelevant whether the former members of the Executive Board could be named as witnesses by the plaintiff.
c) If someone is induced by conduct giving rise to liability to conclude a contract that he would not otherwise have concluded, he may suffer pecuniary loss even if the performance and consideration are objectively valuable, because the performance is not fully usable for his purposes. However, the affirmation of financial loss under this aspect presupposes that the performance obtained through the unwanted contract is not only regarded as damage from a purely subjectively arbitrary point of view, but that the public opinion, taking into account the prevailing circumstances, also regards the conclusion of the contract as unreasonable, not appropriate to the specific financial interests and thus as disadvantageous.
d) The principles of equalization of benefits also apply to a claim for intentional immoral damage pursuant to Section 826 BGB.

This initially positive-sounding ruling meant that affected car buyers faced significant hurdles on the way to possible compensation, in particular:

According to the ruling at the time, a claim should require intent. Even though the BGH made it easier to provide evidence, the affected parties had to prove that the company managers had knowledge – possibly also “mediated” by employees.
Last but not least, the buyers concerned had difficulties with the necessary proof of loss. Thus, the BGH (see guiding principle 3 above) required that “the performance obtained through the unwanted contract is not only regarded as damage from a purely subjective arbitrary point of view, but that the public opinion (…) also regards the conclusion of the contract as (…) disadvantageous”.

The “prehistory” of the new BGH case law: The ECJ ruling of 21.3.2023 (Ref. C-100/21)

The overriding European law and thus the case law of the European Court of Justice (ECJ) is of essential importance for understanding the BGH’s changed case law in favor of consumers.

In an equally recent ruling of 21 March 2023 (case C-100/21), the ECJ laid the foundations for the current BGH case law by – contrary to previous BGH case law – granting individual protection to consumers under European type approval law. Paragraph 85 of the ECJ ruling states accordingly,

“(…) that Article 18 I, Article 26 I and Article 46 of the Framework Directive in conjunction with Article 5 II of Regulation (EC) No 715/2007 must be interpreted as meaning that, in addition to general legal interests, they protect the individual interests of the individual purchaser of a motor vehicle against its manufacturer if this vehicle is equipped with an unlawful defeat device within the meaning of Article 5 II of this Regulation.”

As if that were not enough, the ECJ even derives a claim for damages in favor of the car buyer from European law if the buyer has suffered damage as a result of the defeat device. Paragraph 91 of the ECJ ruling states,

“(…) that it follows from Article 18 I, Article 26 I and Article 46 of the Framework Directive in conjunction with Article 5 II of Regulation No 715/2007 that the Member States must provide that the purchaser of a vehicle equipped with an unlawful defeat device within the meaning of Article 5 II of that regulation has a right to compensation from the manufacturer of that vehicle if the purchaser has suffered damage as a result of that defeat device (…)”

The ECJ goes even further and admonishes the Member States to ensure that consumers actually benefit from this “European right to compensation”. According to the ECJ, this includes ensuring that the hurdles for consumers to obtain such compensation are not set too high. The ECJ ruling states this in paragraphs 92 and 93:

“92In the absence of provisions of Union law on the arrangements for obtaining such compensation by the purchasers concerned on account of the acquisition of such a vehicle, it is for each Member State to determine those arrangements.
93 However, national legislation which makes it practically impossible or excessively difficult for the purchaser of a motor vehicle to obtain adequate compensation for the damage caused to him by the manufacturer of that vehicle’s infringement of the prohibition laid down in Article 5(II) of Regulation No 715/2007 is not consistent with the principle of effectiveness.”

In short, the above-mentioned ECJ ruling is an obligatory instruction to the Member States that they must ensure that claims for damages by consumers due to exhaust gas manipulations that violate European type approval law do not remain mere theory.

On the new diesel ruling of the BGH of June 26, 2023 (Ref. Via ZR 335/21)

The ruling now issued by the BGH on June 26, 2023 (Ref. Via ZR 335/21) aims to implement the aforementioned requirements of the ECJ.

As a result, the BGH has significantly lowered the hurdles for claims for damages by diesel buyers in Germany, although (see my outlook at the end of this article) it seems questionable whether the BGH has gone far enough in accommodating consumers.

According to the amended BGH case law, vehicle manufacturers may in future be liable to pay compensation even if they have “only” acted negligently.

In addition, the BGH has implemented the further requirement of the ECJ, according to which car buyers must also have an effective way of obtaining compensation, by awarding affected consumers compensation in a range of 5 to 15 % of the purchase price without the need for an expert opinion.

In detail:

EC type approval cannot exclude claims for damages

In its ruling, the BGH first of all clarifies once again that neither an EC type approval granted nor an additional certificate of conformity can be suitable to exclude a tortious claim by the car buyer from the outset.

The decisive factor is that EC type approvals and any additional certificates of conformity only have effect with regard to a specific vehicle type, but the decisive factor for a claim under tort law is whether the specific vehicle purchased is affected.

Reversal (“major” compensation) still only in the case of intentional, immoral damage

The BGH continues to hold that “major” damages can only be claimed in the event of intentional immoral damage. In the event that a buyer’s trust in the correctness of the certificate of conformity is disappointed, he cannot demand that the vehicle manufacturer takes back the vehicle and refunds the purchase price less any benefits obtained.

Although European emissions law also protects the individual car buyer against the manufacturer if the vehicle purchased is equipped with an unlawful defeat device, the BGH stated verbatim (see para. 22 of the judgment):

“Union law, as clarified by the judgment of the Court of Justice of March 21, 2023, nevertheless does not require the purchaser of a motor vehicle equipped with an unlawful defeat device to be placed in the same position as if he had not concluded the purchase contract, i.e. to include the interest in rescinding the purchase contract in the material scope of protection of Section 6 (1), Section 27 (1) EG-FGV.”

The BGH further justifies this with, among other things, the limited wrongfulness of a “merely” culpable violation of a protective law in relation to an immoral, intentional damage.

The BGH sees no requirement in EU law and the case law of the ECJ to the effect that national law must provide for a right to rescission. It refers to the fact that the ECJ only requires sanctions that must be effective, proportionate and dissuasive. It also refers to a ruling by the Supreme Court of the Republic of Austria on April 25, 2023, which – for Austria – had affirmed a claim for major damages. The BGH considers this case law to be based on modalities of national Austrian law. It then also takes from the judgment of the Supreme Court that the Supreme Court itself assumes that EU law does not require the award of large damages.

Claim for compensation for so-called differential damages due to negligent violation of EU emissions legislation

The BGH then concedes that a negligent violation of EU emissions legislation – in the form of an impermissible defeat device – can justify a claim by the car buyer for compensation for the so-called differential damage.

In this respect, the ECJ stated that the so-called declaration of conformity pursuant to Article 26(1) of Directive 2007/46/EC provides individual protection for the vehicle purchaser, which is also aimed at ensuring that the purchased vehicle complies with all relevant legal acts. According to the ECJ, the right to register the vehicle in any Member State without further technical documentation is derived in particular from the declaration of conformity.

According to the case law of the ECJ, this reasoning in turn leads to a link between the declaration of conformity and the consumer’s individual purchase decision. This in turn corresponds to the principle established by the BGH that

“a buyer purchasing a vehicle for his own use would have refrained from purchasing the vehicle if he had been aware of the risk of an operating restriction or prohibition“

(see para. 30 of the judgment).

As a result, the BGH stated (see para. 32 of the judgment):

“The interest, which is therefore protected under EU law, not to suffer a loss of assets in the sense of the difference hypothesis by concluding a purchase contract for a motor vehicle due to a violation of European emissions law by the vehicle manufacturer, is protected by Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV according to the required interpretation of EU law. (…)”

Necessity of fault on the part of the car manufacturer

The BGH continues to demand fault on the part of the car manufacturer.

The BGH concedes that the ECJ did not deal with a fault requirement. However, the ECJ – which seems questionable to me (!) – did not directly derive a claim for damages due to an unlawful defeat device from Union law, but merely demanded such a claim to be defined in more detail by the Member States. With reference to the national law of the Federal Republic of Germany, the BGH upholds the culpability requirement and has explained this (see para. 37 of the judgment):

“According to its wording, § 823 para. 2 sentence 2 BGB does not permit an obligation to pay compensation independent of fault on the part of the injuring party. Rather, according to § 823 para. 2 sentence 2 BGB, if a violation of the protective law is also possible without fault according to the content of the protective law, the obligation to pay compensation only arises in the event of fault. Even if the limits of permissible interpretation of the law are exhausted, there is therefore no question of deriving strict liability from Section 823 (2) BGB. Nothing else applies with regard to the possibility of an interpretation in conformity with EU law. According to the case law of the Court of Justice, such an interpretation of national law finds its limit in the will of the national legislator expressed in the law (ECJ, judgment of January 22, 2019 – C-193/17, NZA 2019, 297 para. 74 mwN).”

If the affected car buyer has proven the existence of an unlawful defeat device, the vehicle manufacturer still has the option of demonstrating and proving that it neither acted intentionally nor negligently failed to recognize that the vehicle did not comply with EU regulations. If the vehicle manufacturer succeeds in doing so, it will not be liable in future either! This is because German tort law always presupposes fault on the part of the tortfeasor for tortious liability. According to the BGH, the German courts cannot impose tortious liability regardless of fault, which must also be decided in accordance with the requirements of the ECJ within the framework of the applicable national law.

Necessity of a reduction in assets – differential damages always to be assumed

For negligence cases, the BGH continues to adhere to the general principle that a claim for damages requires a reduction in assets due to the disappointed investment of trust when concluding the purchase contract for the motor vehicle.

Based on the ECJ’s requirement to grant consumers an “effective claim for damages”, the BGH links the required reduction in assets to the availability of a motor vehicle at all times, which in itself has a monetary value.

With “regard to the monetary advantage of the availability of a motor vehicle at any time”, “the legal possibility of a restriction of use, which is given with the use of an inadmissible defeat device” (see para. 42 of the judgment), is sufficient to assume damage to the detriment of the car buyer.

Accordingly, the buyer of a vehicle equipped with an impermissible defeat device within the meaning of Union law always suffers damage because the availability of the vehicle is in question due to the threat of an operating restriction or operating ban.

According to the BGH, the aforementioned principle of experience applies in favor of the buyer, namely that if the vehicle had been equipped with an unlawful defeat device, the buyer would not have purchased the vehicle at the agreed price. Accordingly, the necessary comparison of assets must be based on the time at which the contract was concluded.

Amount of damage in the range of 5% to 15% of the purchase price paid

Based on the requirements of the ECJ, according to which national law must provide an effective sanction for the violation of Union law, the BGH further ruled that the individual buyer must always be granted compensation in the amount of at least 5% and a maximum of 15% of the purchase price paid, without the need for a damage assessment.

The BGH justified the estimation of damages within this range by stating that, on the one hand, a minimum amount of damages is required to ensure sufficiently effective sanctions, but on the other hand, it must be taken into account that reasons of proportionality and the cumulative effect affecting the manufacturer as a result of multiple sales require an upper limit.

The BGH explained the reasons for the estimation range in detail (see para. 72 et seq. of the judgment):

“Pursuant to Section 287 (1) sentence 1 ZPO, the trial judge must estimate the amount of the damage in his free judgment, taking into account all the circumstances. By granting the power to estimate damages, the law accepts that the result of the estimate does not fully reflect reality as long as it comes as close as possible to it. (…)
In cases where a buyer relies on the accuracy of the certificate of conformity when purchasing a motor vehicle equipped with an unlawful defeat device, the estimation of the differential damage is subject to EU law requirements. (…)
For reasons of effectiveness under EU law, the estimated damage cannot be less than 5% of the purchase price paid. Otherwise, the sanctioning of an even merely negligent infringement of Art. 5 (2) sentence 1 of Regulation (EC) No. 715/2007 would not be sufficiently effective with regard to the promotion of the objectives of Union law due to its insignificance. (…)
Conversely, damages owed solely under Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV and not also under Sections 826, 31 BGB cannot be higher than 15% of the purchase price paid for reasons of proportionality. Liability pursuant to Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV covers cases of objectively comparatively minor infringements of the law, which the legislator has merely classified as an administrative offense. In addition, liability pursuant to Section 823 (2) BGB in conjunction with Section 6 (1), Section 27 (1) EG-FGV applies to the vehicle manufacturer several times in relation to a single motor vehicle in the event of multiple sales, so that a cumulative effect can occur. (…)

According to the BGH, the exact determination within this range is the responsibility of the trial judge, who can exercise his discretionary power of estimation without having to obtain expert advice beforehand.

Outlook

This BGH ruling will not be the last on the diesel scandal.

The judgment shows the comprehensible and welcome efforts of the BGH to limit the ECJ’s interference in the regulation of tort law claims, which is in principle the sole responsibility of the Member States, to a minimum. This is particularly evident in the culpability requirement, to which the BGH adheres with seemingly “spasmodic” reasoning, although the ECJ requires every Member State to provide a claim for damages based solely on an unlawful defeat device.

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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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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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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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LEGAL+ meets Legal Tech: LEGAL+ starts cooperation with BlockAxs

July 4, 2020/in Contract Law

LEGAL+ NEWS

LEGAL+ meets Legal Tech: LEGAL+ starts cooperation with BlockAxs

Legal+ is now relying on legal tech in contract law and the intelligent, artificial intelligence-based digital contract management solution ContrAxs:

ContrAxs maps the entire life cycle of legal documents. Documents can be innovatively created, quickly and innovatively negotiated, digitally signed, automatically analyzed and finally managed through smart visualization.

For Legal+’s clients, this means greater security and efficiency when drawing up, negotiating, signing and managing contracts. By using the software, Legal+ expects faster processes, more efficient workflows and simplified processing of contract documents with clients.

We are convinced that the use of software from the field of artificial intelligence will further improve our advisory services for our clients. We are convinced that our clients will be able to enjoy a completely new way of working together in contract management.

About BlockAxs GmbH:

BlockAxs GmbH(https://blockaxs.com), based in Berlin, is a German legal tech start-up.

The company focuses on the development of a contract management system for the creation, negotiation and effective digital signature of contracts. BlockAxs combines legal know-how with disruptive technology. The team behind BlockAxs consists mainly of lawyers and computer scientists. Working closely together, they create high-tech modules that speed up and, above all, improve the quality of the day-to-day work of lawyers.

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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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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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CONTACT

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+49 (170) 1203 74 0

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kontakt@legal-plus.eu

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Bundestag passes massive restrictions on freedom of contract

January 27, 2020/in Contract Law

LEGAL+ NEWS

Good night, freedom of contract - Bundestag passes massive restrictions on freedom of contract

The Bundestag passes a massive restriction on contractual freedom. The Federal Ministry of Justice has thus prevailed with its plan to limit the terms of consumer contracts to a maximum of one year.

Read my article from September 6, 2019 on this now serious legislative proposal, especially with regard to the resulting highly questionable restrictions on contractual freedom.

You can download the draft law passed by the Bundestag here.

The bill to restrict freedom of contract

As I commented in my article from September 6, 2019, the (further) restriction on the possibility of concluding contracts with a commitment period of at least two years that has now been adopted represents a massive curtailment of contractual freedom. There is also no justification for this in the draft bill now before us. On the contrary, it reveals a considerable misunderstanding of freedom of contract and its positive significance for consumers and the economy. It also continues the political line of denying consumers their maturity. Significantly, the draft bill states:

“(…) In many areas where open-ended contracts used to be common, consumers are now often only offered contracts with a two-year term on good terms, which are automatically renewed if the consumer does not terminate them in good time. The restrictions on contract terms that were previously in place are no longer appropriate. The long contract commitment inhibits consumers from switching to another provider and thus competition. The contract extension clauses are overlooked or forgotten by consumers. By limiting the term to one year, shortening the automatic renewal period and providing a shorter notice period of one month, the aim is to give consumers more freedom of choice with regard to their contract. The aim is to strengthen the position of the contractual partner and promote competition. (…)”

Rating

The Federal Ministry of Justice should consider whether the law that has now been passed will actually achieve the opposite of what is supposedly intended. This is because the ban on longer terms massively restricts the previous options for drafting contracts. Whereas the parties involved were previously still able to agree on contracts tailored to their respective needs, the planned restrictions will in fact significantly limit competition and freedom of choice. The losers of the proposed legislation are therefore almost everyone involved. The “winners” are at best those consumers who “forget” notice periods. The worthiness of protecting this group seems highly questionable when you consider that those affected who have “forgotten” to terminate their contract after a two-year contract period had previously benefited from very attractive contract conditions in most cases. In future, thanks to this group of “forgetters”, the aforementioned attractive contract conditions will no longer be available to anyone.

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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.

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

Benefit from my active network!

I look forward to our networking.