Law on the limitation of contract terms – Good night, freedom of contract ?

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Law on the limitation of contract terms - Good night, freedom of contract ?

The Federal Ministry of Justice is getting serious with its plan to limit contract terms. In mid-August 2019, the press reported that the legislative project to “protect against cost traps” was well advanced. In terms of content, this involves, among other things, the welcome elimination of various abuses (e.g. in the area of telephone advertising). Another, less welcome subject of the project is the limitation of contract terms in certain sectors, e.g. in the areas of mobile telephony and energy supply. The corresponding draft bill is on the home straight.

A closer look at the proposed legislation raises considerable concerns from a legal perspective with regard to the planned limitation of terms. The planned law fundamentally restricts contractual freedom as an elementary component of constitutionally protected private autonomy. The necessary justification for this restriction of contractual freedom is not apparent.

The Federal Ministry of Justice’s plan to limit contract terms

According to its key issues paper “Protection against cost traps”, the Federal Ministry of Justice is planning the following changes:

“The prohibition of clauses relating to contract terms and extensions in Section 309 no. 9 of the German Civil Code (BGB) is to be amended to the effect that in future no longer than one year can be agreed by means of general terms and conditions. An automatic extension of the contract should only be possible by three months in each case if the contract is not terminated at least one month before the end of the agreed contract term.”

Justification of the project in accordance with the key issues paper “Protection against cost traps”

The Federal Ministry of Justice justifies the planned project in its key issues paper “Protection against cost traps” as follows:

  • “The structural imbalance between business and consumers often means that (…) consumers have to agree to contractual provisions that are not in line with their interests or are no longer up to date. The annoyance is often great.”

  • “In contracts for the supply of goods, services or work, consumers generally have little interest in long contractual commitments.”

  • “The The two-year contract terms currently possible and the automatic renewal of the contract for a further year are no longer in the interests of consumers. Renewal clauses in general terms and conditions are a particular annoyance in terms of consumer policy. They are simply overlooked by many consumers or are forgotten, so that contracts that are no longer wanted are often extended for further years against the consumer’s will because they failed to terminate them in good time.”

Legal assessment of the project

In my opinion, the planned limitation of contract terms is not compatible with the principle of freedom of contract. The arguments used by the Federal Ministry of Justice cannot justify the planned restriction:

The principle of freedom of contract

Freedom of contract is understood to mean the right of every individual to decide freely about

  • to conclude a contract (so-called freedom to conclude a contract), and
  • The parties are free to decide on the content of a contract (so-called freedom of design).

Freedom of contract is not expressly regulated by law; it is part of the constitutionally protected principle of private autonomy, according to which every individual is granted the right to freely organize their private living conditions.

Part of this is the freedom to conclude contracts and to determine their content. The latter is what is at issue here.

Permissible restrictions on freedom of contract

Both forms of freedom of contract – i.e. freedom to conclude contracts and freedom to form contracts – are subject to recognized restrictions.

In certain situations, there is an obligation to contract. One example is motor vehicle liability insurance. Here, insurance companies are obliged to contract in accordance with Section 5 of the German Compulsory Insurance Act (with the restrictions set out therein). The necessity here is obvious.

Freedom of design is also subject to certain restrictions in order to protect higher interests. For example, there are legal regulations in various areas of law that are of a mandatory nature and cannot be waived by contract; such regulations can be found, for example, in the law on general terms and conditions, which declares certain provisions in general terms and conditions null and void primarily for the protection of consumers. Further restrictions result from statutory formal requirements (written form, notarial form, etc.) as well as the statutory nullity order with regard to provisions that violate common decency(Section 138 BGB) or statutory prohibitions (Section 134 BGB).

No apparent justification for the planned restriction of design freedom

As stated at the beginning, I do not believe that the planned limitation of contract terms can be justified to any extent:

Act affects all future contracts in the sectors concerned

First of all, it should be noted that the law on general terms and conditions does not only apply to the proverbial “small print”. In practice – especially in the sectors affected here – every contract is subject to GTC law, as it would simply not be feasible to agree individual contract terms with every consumer. In short, the proposed legislation effectively covers every future contract in the affected sectors.

Complete elimination of the option of 2-year contracts

As a result, the option to conclude a two-year contract, which is extended by one year in the absence of termination, will no longer be available in future.

How can we justify taking this option away from the parties? In my opinion, nothing:

Freedom of contract means that the parties themselves can (and must) determine what is subjectively right for them within the limits of good morals and the recognized general laws limiting freedom of contract. No one can or may take this decision away from them.

The legislator, insofar as it wishes to uphold private autonomy, must respect this self-determination of the legal subjects and must not allow itself to be tempted – e.g. driven by political sentiment – to determine what is right through laws that (impermissibly) restrict contractual freedom.

“Consumer protection” as a mere pretext for limiting contract terms

In principle, consumer protection is an unquestionable motive for restricting freedom of contract. However, consumer protection must not be abused – as in my opinion in this case – to justify politically driven projects.

According to its own statements, the Federal Ministry of Justice is of the opinion that terms of two years are “unfair” and a “nuisance” for consumers. It overlooks the fact that consumers in all the sectors targeted (mobile telephony, energy supply, etc.) have a wide variety of contract models from a large number of providers to choose from. In particular, consumers always have the option of entering into contracts without any commitment. Conversely, they can – at least so far – choose to enter into commitments and often receive considerable benefits in return (e.g. significantly more favorable conditions, discounted hardware, etc.). In other words, consumers today can choose between a variety of contract models and decide for themselves what is “right” for them. This also includes the assessment of the disadvantages associated with a contract commitment, which is the sole responsibility of the consumer. It can therefore be of no relevance from a legislative perspective that consumers may be “annoyed” after some time by an existing contract commitment that they consciously entered into some time ago.

Competition law already offers sufficient protection

After all, the consumer only needs protection to the extent that he is not misled by a contract offer, e.g. in that essential contractual conditions are not sufficiently recognizable for him. However, this is the responsibility of competition law, which has always fulfilled this task adequately.

Conclusion

With regard to the limitation of contract terms, the planned “cost trap law” represents an unjustifiable (further) curtailment of contractual freedom and a further step in the direction of a politically desired or at least condoned departure from the principle of private autonomy.

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The limitation period under transport law according to § 439 HGB

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The limitation period under transport law according to § 439 HGB

The limitation period under transport law pursuant to § 439 HGB is one year from delivery of the transported goods and is therefore significantly shorter than the 3-year standard limitation period pursuant to § 195 BGB.

Due to this significant shortening of the limitation period, the question of the scope of application of the transport law limitation period is of great importance. I can report from experience that the question of whether a claim is subject to the statute of limitations under transport law or the standard statute of limitations often raises difficulties. In this respect, there are two “camps”, one of which takes a narrow interpretation and one – rightly – a broad interpretation.

The following article summarizes the legal situation.

Wording of the law: Claims “arising from transportation”

Pursuant to § 439 para. 1 sentence 1 HGB, claims “arising from transportation” in accordance with the provisions of §§ 407-450 HGB expire within one year of delivery of the goods.

The limitation period under transport law in accordance with 439 HGB covers all claims in connection with transportation

Even though the wording of § 439 HGB regulates the limitation period for claims “arising from transportation”, the preferred view is that it covers all claims that are intrinsically linked to the transportation.

The purpose of the uniform limitation provision is to simplify the limitation provisions and make them clearer. Possible legal uncertainties due to different statutes of limitation for claims arising from a uniform factual situation are to be counteracted (see BT-Drucksache 13/8445 on Section 439 HGB).

This also includes, for example, claims arising from consulting services in connection with the organization of the transport, claims arising from customs clearance and claims for information (see OLG Nuremberg of 26.11.1974, NJW 1974, 501).

In particular, the statute of limitations also applies irrespective of the party asserting the claim and the legal grounds on which it is based. It is therefore irrelevant whether the carrier takes action against the principal or vice versa. (see BT-Drucksache 13/8445 on § 439 HGB).

The limitation period under transport law pursuant to 439 HGB is not merely a limitation or exemption from liability within the meaning of §§ 434, 436 HGB

The opposing view, according to which § 439 HGB should be a limitation or exemption from liability within the meaning of §§ 434, 436 HGB, is incorrect. In particular, this would mean that Section 439 HGB would only apply to claims of the parties to the transportation contract in question. This view cannot be substantiated. The application of § 439 HGB is not only possible via § 434 para. 1 HGB or § 436 HGB:

Justification of the law

As explained above, the purpose of the uniform limitation provision of Section 439 HGB is to simplify the limitation provisions and make them clearer (explanatory memorandum to the government draft of the Transport Law Reform Act, BT-Drs. 13/8445, p. 77). The limitation rule of § 439 HGB is based solely on whether the transportation as such is subject to the provisions of §§ 407 et seq. HGB. This is the only way to ensure that all claims directly related to the transportation run concurrently (see BT-Drs. 13/8445, p. 77).

The reference to § 439 HGB in the explanatory memorandum to § 434 HGB and thus the clarification of the systematic relationships in the transport law regulations of the HGB is unambiguous, so that no serious doubt can arise as to the scope of § 439 HGB. The decisive sentence is quoted as follows:

No separate reference is made to the scope of the limitation provision, since the limitation provision itself (Section 439 HGB-E), in accordance with the parallel provision of Article 32 CMR, already covers all claims arising from carriage, including non-contractual claims.”.

BGH case law

Nothing to the contrary is stated in the absolutely clear case law of the BGH, which stated (judgment of January 10, 2008, ref. I ZR 13/05, para. 13):

“The provision of Section 439 (I) HGB links the application of the independent limitation period under freight law solely to the fact that the asserted claim arises from transportation subject to the provisions of this subsection. If such transportation is to be assumed because an effective contract of carriage within the meaning of § 407 HGB, all claims that are directly related to this transportation are subject to the statute of limitations of § 439 HGB, irrespective of the party asserting them and the legal grounds on which they are based (cf. (cf. explanatory memorandum to the draft bill of the Transport Law Reform Act, BT-Dr 13/8445, p. 77; BGH, NJOZ 2006, 1068).”.

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Conclusion: Section 439 HGB covers the entire “facts” in connection with transportation

The limitation period under transport law is not (solely) linked to a transport contract and the claims resulting from it.

Rather, the short limitation period of Section 439 HGB covers any claim in connection with transportation. In particular, the short limitation period therefore also applies outside the contract of carriage concerned, insofar as the claim in question has an “internal”, e.g. economic, connection with the carriage.

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Construction contract law: Remuneration for “additional services” in lump-sum price contracts

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Remuneration for "additional" services in flat-rate contracts

The remuneration for “additional services” in lump-sum price contracts in the event of supplementary offers from the contractor is complex. In principle, the additional remuneration demanded as a result of the supplement must be derived from the (plant) construction contract concluded between the parties. If this is a lump-sum price contract, it often depends on the details of the agreed scope of services that are to be owed at the agreed lump-sum price.

The following article is intended to help those affected who have concluded a VOB/B lump-sum price contract to determine whether or not they are entitled to (additional) remuneration in a specific case.

construction area

VOB/B principle: No entitlement to remuneration other than the lump sum price

According to § Section 2 (7) sentence 1 VOB/B changes to the contractually agreed price are generally excluded. This means that the client can generally rely on not having to pay more than the agreed total fixed price for the contracted service.

VOB/B exceptions

According to VOB/B, there are the following exceptions to the principle that the lump sum price cannot be changed:

  • Unreasonableness of adhering to the lump sum price pursuant to Section 2 (7) No. 1 Sentence 2 VOB/B in conjunction with Section 313 BGB
  • Remuneration for additional or modified services in accordance with § 5 in conjunction with § 2 Para. 7 No. 2, § 2 Para. 5, 6 VOB/B
  • Subsequent recognition of a service not commissioned by the client pursuant to Section 2 (8) no. 2 sentence 1 VOB/B
  • Management without a contract pursuant to Section 2 (8) no. 2 sentence 2, no. 3 VOB/B in conjunction with Sections 677 et seq. BGB

The first two cases deserve special attention:

Unreasonableness of adhering to the flat-rate price

Even in the case of lump-sum prices, the originally agreed price can be changed in accordance with Section 2 (7) No. 1 Sentence 2 VOB/B if the work performed deviates so significantly from the planned work that it is no longer reasonable for one of the parties to adhere to the lump sum. In this case, the unreasonable burden is compensated by granting the additional or reduced costs.

The standard for unreasonableness is derived from Section 313 BGB, the disturbance of the basis of the transaction. This requires a blatant disproportion between the service and the lump sum. Extremely strict requirements are set and an assessment is made depending on the individual case.

The contractor bears the risk for the correct calculation when agreeing a lump sum price; if he could have recognized that his service description was incorrect or incomplete, he cannot subsequently invoke an unreasonable lump sum price. If a “fixed price” has been agreed, there are particularly high hurdles for the contractor to prove an unreasonable burden.

Remuneration for “additional” or “modified” services

A claim to remuneration that can be demanded in addition to the agreed lump sum price is granted by § 2 Para. 7 No. 2 VOB/B, according to which the provisions of § 2 Para. 5, 6 VOB/B (remuneration for additional or changed services) also apply if a lump sum has been agreed.

The decisive factor here is whether the service is actually an “additional” or “modified” service.

This is only the case if the service is not already included in the originally agreed service target. It is disputed who bears the burden of proof that the service is not part of the original performance target.

This question is always determined by what the parties have specifically agreed:

Systematically, a distinction is made between a global flat-rate contract and a detailed flat-rate contract. In practice, there are a large number of mixed forms, so that classification into a pure contract type appears to be rather unusual. However, the classification can provide arguments as to whether a certain service is already contractually owed or not. For the distinction between global flat-rate contracts and detailed flat-rate contracts, please read my separate CONTRIBUTION. The following are therefore only the key points:

Global flat-rate contract

In a global lump sum contract, the service is described functionally and the contractor bears the particular risk of having to supplement the original rough service description in any case.

Detailed flat-rate contract

In a detailed flat-rate contract, on the other hand, it is not the service that is flat-rate but the price. This contract is usually based on a detailed specification of services. The flat-rate price then only includes the services described in the specifications.

Contracts with a so-called completeness clause

In the case of so-called all-inclusive clauses, according to which the contractor is obliged to provide all necessary services without separate remuneration, it depends, according to case law, on who is to bear the risk of unforeseeable services. In the case of detailed flat-rate contracts, the risk should be limited to increased quantities; completely new services should not be borne by the contractor.

Summary

Whether remuneration for “additional services” is justified in the case of lump-sum price contracts is primarily determined by whether the service in question, for which additional remuneration is demanded, exceeds the originally agreed service target. If this is not the case, additional remuneration may only be justified in rare exceptional cases.

After all, the agreement of the scope of services owed in (plant) construction contracts is of paramount importance. Experience has shown that it is advisable to determine the scope of performance with the utmost care and in as much detail as possible. In the event of a dispute, it can be of decisive importance to have avoided scope for interpretation wherever possible.

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The action for a negative declaratory judgment to prevent a foreign action

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The action for a negative declaratory judgment to prevent a foreign action

The action for a negative declaratory judgment to prevent a foreign action is relevant in the following case constellation, which in the author’s experience is not uncommon:

If a dispute arises with a foreign business partner, e.g. regarding alleged claims arising from a contract, it is advisable from the perspective of the German contractual partner to think about possible procedural scenarios at an early stage in the event that an agreement fails. If, contrary to the agreements made, it is to be expected that the foreign partner intends to file a lawsuit in the home country, you should immediately consider filing a preventive so-called negative declaratory action at the agreed German place of jurisdiction. This is suggested by the fact that the legal costs abroad are usually considerably higher than in Germany. In addition, the German partner will usually lack a suitable legal contact in the country concerned.

Such an action, which is intended to prevent foreign proceedings, would be aimed at establishing that the claims asserted by the foreign partner do not exist.

The following article provides an overview of what needs to be taken into account in an action for a negative declaratory judgment to prevent a foreign action.

Starting point: Be faster!

In order not to fundamentally jeopardize the chances of success of the intended action for a negative declaratory judgment, you should definitely be quicker than the foreign partner in order to avoid the objection of another international lis pendens that would oppose the action for a negative declaratory judgment.

The consideration of a conflicting international lis pendens requires that the parties in both proceedings are identical, that the subject matter of the dispute is identical and that the foreign lis pendens occurred prior to the lis pendens before a German court (priority principle).

Lis pendens arises upon effective service of the respective action. It is therefore not sufficient to file the action for a negative declaratory judgment with the court as quickly as possible. It is also necessary for the action to reach the other party in a legally effective manner. It is therefore advisable not to simply leave the service of the action for a negative declaratory judgment to the German court seized and wait. It has proven to be a good idea to contact the competent judge directly and coordinate the fastest possible service with him.

Jurisdiction of the German court

The defense against an action for performance abroad by means of a negative declaratory action only has a chance of success if the German court would actually have jurisdiction for the action for performance from a legal perspective.

The jurisdiction of the German court generally follows from the prevailing principle that the plaintiff in an action for a negative declaratory judgment can bring an action at his place of residence or business, i.e. where, conversely, the action for performance would have to be brought against him (Volkommer in: Zöller, ZPO, 29th edition 2012, Section 12 marginal no. 3).

A jurisdiction agreement according to which the parties have agreed on a place of jurisdiction at the registered office of the German business partner would additionally or alternatively establish the jurisdiction of the German court:

Agreements on the place of jurisdiction generally stand up to a review of the content of general terms and conditions in accordance with Section 307 BGB: It is already recognized in national legal transactions that the jurisdiction clauses expressly provided for in Section 38 ZPO between entrepreneurs are in principle not objectionable (see for example OLG Schleswig, decision of 21. 6. 2006, Ref.: 2 W 88/06; OLG Karlsruhe NJW 1996, 2041). In international legal transactions, the need for jurisdiction agreements is even greater. This is because only through them can the parties determine in advance the procedural law and thus indirectly also the relevant substantive law according to which the effectiveness of the contractual provisions is determined. Jurisdiction agreements are at the heart of every transnational contract. In principle, jurisdiction clauses in general terms and conditions are therefore neither surprising nor inappropriate in terms of their content, even more so in international legal relations (see Wurmnest in: Münchener Kommentar zum BGB, 6th edition 2012, Section 307 para. 249).

Special case: Several German plaintiffs

In the event that there are several parties on the German side, only one of which can invoke a jurisdiction agreement, the Munich Higher Regional Court has made a welcome decision. The Munich Higher Regional Court correctly stated (decision of 18.08.2009, ref.: 31 AR 355/09):

“If, exceptionally, the plaintiff is permitted to bring an action at his place of residence, several plaintiffs may, as active parties to the dispute, choose from among the various courts of the plaintiffs’ place of residence even if the plaintiff’s place of jurisdiction is not exclusive (here: plaintiff’s place of jurisdiction for an action for a negative declaratory judgment).”

It can be deduced from this that other plaintiffs can join a negative declaratory action permissibly brought in Germany, provided that the subject matter of the dispute is the same.

Existence of an interest in a declaratory judgment for a negative declaratory action to prevent a foreign action

In addition to the jurisdiction of the German court, a negative declaratory action to prevent a foreign action requires the plaintiff to have an interest in a declaratory judgment.

The interest in a declaratory judgment required for a negative declaratory action regularly arises if the defendant is aware of a claim (see e.g. BGH NJW 2008, 2842).

In the present constellation, the plaintiff’s aim is to prevent an action for performance abroad. At the same time, he would like to create legal certainty with regard to the claims asserted by the foreign partner.

This sufficiently justifies an interest in a declaratory judgment to file a negative declaratory action.

No loss of interest in declaratory judgment – exceptionally no subsidiarity of the negative declaratory action if the action for performance is inadmissible

According to the correct view, the initially justified interest in a declaratory judgment does not cease to exist if the foreign defendant brings an action for performance before his home court.

In the present constellation, such an action for performance would not be suitable to supersede the action for a negative declaratory judgment. It does not take precedence, as no decision on the merits can be made on the action for performance, as the action for performance is inadmissible due to the lack of jurisdiction of the foreign court.

Principle: Priority of the action for performance

The subsidiarity of the action for a negative declaratory judgment vis-à-vis an action for performance on the same subject matter is a fundamental principle of procedural law and is justified by considerations of procedural economy and legal protection(Foerste in: Musielak, Kommentar zur ZPO, 10th edition 2013, Section 256, para. 16).

The requirements for this principle were already formulated by the Reichsgericht and have been carried forward by the highest courts and literature (instead of all: judgment of the BGH of December 21, 2012, X ZR 17/03).

Accordingly, the interest in a declaratory judgment does not automatically cease to exist due to the filing of an action for performance. Rather, it must be examined in each individual case whether the action for performance is suitable for displacing the already ongoing proceedings for a declaratory action or whether there are recognized exceptions to the principle of subsidiarity that require the continuation of the proceedings (judgment of the Reichsgericht of 25 March 1936, page 69 at the top).

Exception: No judgment on the merits could be issued on an action for performance

The essential prerequisite for displacing the negative declaratory action that was first pending is that the action for performance can produce a judgment on the merits.

The Reichsgerichtshof has made a fundamental statement in this regard (judgment of the Reichsgericht of March 25, 1936, page 69 at the bottom):

“(… It depends) solely on the fact that at the time of the final hearing in the present legal dispute it could be assumed that the Berlin legal dispute [note: action for performance] would lead to a substantive decision.”

The reason for ousting the action for a negative declaratory judgment is therefore that the decision on the action for performance renders the action for a declaratory judgment superfluous and the proceedings therefore no longer need to be continued. However, this circumstance must also be compelling in order to justify the termination of the ongoing proceedings.

The Federal Court of Justice stated (BGH ruling of October 18, 1967, para. 63):

“It is conceivable that the interest in a declaratory judgment is eliminated in an action for a declaratory judgment denying performance if the opponent brings an action for performance of the claim whose non-existence is to be determined and can no longer unilaterally withdraw this action (RGZ 151, 65 f). However, this can only apply if the action for performance clarifies the legal relationship in dispute in a way that is just as suitable from a procedural point of view as the action for a declaratory judgment denying the claim, i.e. if a declaratory judgment is no longer required to eliminate the uncertainty.”

Only if the dispute can be decided on the merits as part of the action for performance does the interest in a declaratory judgment no longer apply and the action for performance takes precedence(Becker-Eberhard in: Münchener Kommentar zur ZPO, 4th edition 2013, Section 256, para. 61). The priority effect of the action for performance therefore requires a judgment on the merits. A judgment on the merits can only be issued if the action for performance is admissible. An inadmissible action does not result in a judgment on the merits. For this reason, the inadmissible action for performance has no effect.

This was expressly stated by the Federal Court of Justice (BGH, judgment of December 11, 1996 – VIII ZR 154/95):

“By way of exception, the interest in a declaratory judgment does not cease to apply if […] the counterclaim for performance […] filed in the appellate instance is inadmissible.”

It follows that an inadmissible action for performance has no priority effect.

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Conclusion

The action for a negative declaratory judgment to prevent a foreign lawsuit has already proven itself several times in the author’s legal practice. If, in the event of a conflict with a foreign partner, there is a threat of court proceedings in the partner’s home country, this can often be prevented by means of a negative declaratory action and saves you a lot of trouble and, above all, costs. What is required is that:

  • the German courts are responsible for the conflict,
  • you are ahead of the foreign partner in terms of time, and
  • the foreign partner had already indicated in some way that he or she wanted to file a claim against you.

If, on the other hand, you have already received a claim from abroad, please read my articleto find out what reaction options are available to you.

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Construction contract law: Global lump sum contract or detailed lump sum contract?

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Global flat-rate contract or detailed flat-rate contract - When is there a claim to remuneration for services not expressly agreed?

In (plant) construction projects, disputes under construction contract law about the remuneration ultimately owed to the contractor carrying out the work are not uncommon. Is there a lump sum contract or not? The distinction between a global lump-sum contract and a detailed lump-sum contract can regularly cause major difficulties.

The background to this is the fact that in many cases it is almost impossible to determine down to the last detail which services the (plant) construction project in question requires. Against this background, the question arises in almost every (plant) construction contract as to which party should bear the risk of unforeseen services that turn out to be necessary for the success of the project and to what extent.

The following article attempts to provide an overview of the common contract types, their significance for the calculation risk and typical demarcation problems:

Construction

Unit price contract

The contractor will always want a so-called unit price contract. In such contracts, the services and quantities owed are listed by item and priced per unit. After completion of the entire service, the final invoice is issued on this basis. The risk described above therefore lies entirely with the client in the case of a unit price contract.

The risks are more evenly distributed in the case of flat-rate contracts. Here, a distinction is usually made between the so-called global lump-sum contract and the so-called detailed lump-sum contract:

Global flat-rate contract

A distinction is made between the extended global lump-sum contract and the complex global lump-sum contract. In both cases, in addition to the price, the service is also included in the lump sum, albeit to a different extent.

Extended global flat-rate contract

In the case of the extended global lump-sum contract, the client provides the design or approval planning for the construction project, on the basis of which the contractor must then independently determine the type and scope of the services required.

Calculation risk for the contractor

The legal consequence is that the calculation risk lies with the contractor, so that services that are not included in the specifications but are necessary for implementation are included in the lump sum price (Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. Section 2 (7) para. 20). As a result, additional service changes subject to remuneration can only arise if the client subsequently changes its planning and issues instructions within the meaning of Section 2 (5) VOB/B.

Such a change may also exist if the contractor has to perform a technical service “as required” and the construction planning on which the contractual relationship is based has changed (see Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 para. 20).

The client is liable for own planning errors

The client is generally liable for its own planning errors. He cannot transfer this risk to the contractor by means of general terms and conditions (Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 para. 21). Necessary services are to be taken into account by the contractor as part of his performance determination and are therefore already part of the contract anyway (Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 para. 22).

Complex global flat-rate contract

In the case of a complex global lump-sum contract, the client provides a purely functional description of services, in which the planning must also be provided in full by the contractor, with the legal consequence that the entire planning and calculation risk lies with the contractor, who must therefore also be liable for errors in the planning. He bears the full risk of completeness in qualitative and quantitative terms (Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 margin no. 23, 25)

Detailed flat-rate contract

In a so-called detailed lump-sum contract, the price is fixed in terms of amount, which is decoupled from the quantities and masses actually required for the construction work, whereby the lump-sum price for the overall service is based on a detailed bill of quantities (Leupertz, in Messerschmidt/Voit, Privates Baurecht 2nd ed. 2012, Chapter K, para. 19). This means that only the remuneration is lump-sum, but not the construction work owed for it (Kimmich/Bach, VOB für Bauleiter 6th ed. 2014, Chapter D, para. 526).

Performance owed follows the detailed service description

The priced scope of services results from the detailed service description. If only the underlying quantity assumptions prove to be incorrect, the lump sum price remains (cf. Section 2 (7) No. 1 VOB/B), so that the contractor only bears the quantitative quantity risk by setting a lump sum price (Kandel, BeckOK VOB/B, 20th Ed. 1.7.2015. Section 2 (7) para. 10).

Additional remuneration for services outside the service description

For services that are provided in order to achieve the construction success owed or as a result of changes to the construction plan or other instructions from the client over and above the work included in the service description, the contractor can – in the case of the VOB/B contract pursuant to Section 2 (5), (6) in conjunction with Section 2 (7) no. 2 VOB/B – demand additional remuneration (Leupertz, in Messmidt/Voit, Private Baurecht 2. § Section 2 (7) No. 2 VOB/B – demand additional remuneration (Leupertz, in Messerschmidt/Voit, Privates Baurecht 2nd ed. 2012, Chapter K, para. 20; Kimmich/Bach, VOB für Bauleiter 6th ed. 2014, Chapter D, para. 529 with further references from case law).

Risk of completeness lies with the client

The contractor is not obliged to complete forgotten services for the lump sum simply because they are necessary for construction purposes in order to produce a functional construction service (see Kimmich/Bach, VOB für Bauleiter 6th ed. 2014, Chapter D, para. 527 with further references from case law); the risk of completeness in terms of quality is therefore generally borne by the client (Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 para. 11). However, this is controversial in the case of obvious incompleteness of a service description (Kapellmann, in Kapellmann/ Messerschmidt, VOB-Kommentar, Teil A/B, 5th ed. 2015, § 2 para. 28: risk contractor; in addition, Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 para. 169).

Importance of a detailed service description for risk allocation

It follows from the above that the existence of a detailed bill of quantities does not automatically indicate the type of lump-sum contract. Although this is considered to be characteristic of a detailed lump-sum contract, it is also the basis of a global lump-sum contract if the contractor has to independently determine the type and scope of the required services based on the design or approval planning of the construction project provided by the client, see BGH, Urt. v. 30. 6. 2011, Ref. VII ZR 13/10. In the aforementioned judgment, the BGH stated, among other things:

“The conclusion of a contract for a completely functionally described construction service at a lump sum price does not preclude the parties from making special agreements on individual services (so-called detailing). For example, they can agree that individual services are not provided by the contractor at all (BGHZ 90, 344 [346] = NJW 1984, 1676), or they can make a service description the subject of their agreement, from which it follows that the lump sum price agreement does not or does not fully cover certain services required for functionality (see BGHZ 176, 23 [29 ff.] = NJW 2008, 2106 = NZBau 2008, 437). “

Completeness clauses in detailed flat-rate contracts

In the case of a detailed lump sum contract, the client attempts to extend the scope of services covered by the lump sum price beyond the content of the service description by means of a so-called completeness or completeness clause.

Invalid if service description originates from the client

In fact, this no longer implies the construction target, but a performance target. This could then no longer be reconciled with the basic structure of the detailed lump-sum contract if the detailed service description on which the price agreements are based originates from the client (Leupertz, in Messerschmidt/Voit, Privates Baurecht 2nd ed. 2012, Chapter K, para. 21). Something else may apply if the risk of completeness is transferred by individual contract (according to Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 para. 13, ).

Effective by way of exception if contractor has drawn up the bill of quantities

On the other hand, according to the unanimous opinion, such a clause is not invalid if, exceptionally, the contractor has prepared the execution planning and the bill of quantities (incompletely), which is regularly the case with complex global lump sum contracts (Leupertz, in Messerschmidt/Voit, Privates Baurecht 2nd ed. 2012, Chapter K, para. 21; Kimmich/Bach, VOB für Bauleiter 6th ed. 2014, Chapter D, para. 546). However, this should not apply insofar as an increased remuneration would also have been paid in the event of proper planning and the contractor can invoke the objection of lawful alternative behavior and, in any case, in principle claim the corresponding additional remuneration (according to Kandel, BeckOK VOB/B, 20th ed. 1.7.2015. § 2 para. 7 para. 14).

Unreasonableness of adhering to the flat-rate price

Even in the case of lump-sum prices, the originally agreed price can be changed in accordance with Section 2 (7) No. 1 Sentence 2 VOB/B if the work performed deviates so significantly from the planned work that it is no longer reasonable for one of the parties to adhere to the lump sum. In this case, the unreasonable burden is compensated by granting the additional or reduced costs.

The standard for unreasonableness is derived from Section 313 BGB, the disturbance of the basis of the transaction. This requires a blatant disproportion between the service and the lump sum. Extremely strict requirements are set and an assessment is made depending on the individual case.

The contractor bears the risk for the correct calculation when agreeing a lump sum price; if he could have recognized that his service description is incorrect or incomplete, he cannot subsequently invoke an unreasonable lump sum price (Vygen/Kratzenberg, VOB/B, 17th edition 2010, Section 2 (7), para. 15). If a “fixed price” has been agreed, there are particularly high hurdles for the contractor to prove an unreasonable burden (Vygen/Kratzenberg, VOB/B, 17th edition 2010, Section 2 (7), para. 15).

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Conclusion

The above should have shown that, in my experience, the negotiation and subsequent drafting of construction contracts, particularly in the area of plant construction, requires particular care in order to avoid a rude awakening later on with regard to the economic calculation.

With regard to construction contract law, please also read my practical article on the question of the degree of completion of the work as a prerequisite for acceptance. This is another area in which disputes often arise, as acceptance is regularly an essential prerequisite for payment becoming due.

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Enforcement of international jurisdiction agreements: What to do in the event of an action from abroad despite an exclusive jurisdiction agreement to the contrary?

In order to avoid costly and unpleasant legal disputes abroad, it is advisable to conclude exclusive jurisdiction agreements with foreign business partners which stipulate that only German courts have jurisdiction. However, it is not uncommon for the business partner to file a lawsuit in their own country in the event of a dispute, contrary to the jurisdiction agreement. In such cases, the question arises: What can be done to enforce international choice of court agreements?

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Procedural law: Action from abroad

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Guide: Legal action from abroad - What to do?

A situation that nobody wants to find themselves in: There is a letter in the mail from the local district court transmitting a lawsuit from abroad. The accompanying letter from the local district court usually states:

“Ladies and Gentlemen,

An important document from a foreign court is waiting to be served on you.

You are kindly requested to collect this document within a period of one week. to collect it.

You are already advised that you may suffer disadvantages in the foreign proceedings if you do not collect your documents.”

Such an inbox is likely to leave even experienced entrepreneurs perplexed at first.

Problem description

The accompanying letter quoted above suggests that a suitable response to the complaint should be made in any case.

If it is apparent that a foreign court has jurisdiction, the case is clear insofar as a reaction (active defense abroad) is indeed appropriate.

However, especially if you as the defendant are of the opinion that the foreign court does not have jurisdiction (e.g. due to a jurisdiction agreement concluded with the plaintiff), the question arises as to whether it is necessary to respond to the claim at all. The often very considerable costs associated with a legal defense abroad play a role here. Another aspect that makes it difficult to react is usually the lack of a lawyer’s contact in the country concerned.

Lawsuit from abroad – My “guide”

The following article, which is based on the author’s experience from his practice as a lawyer, is intended to serve as an initial guide. However, the complexity of the matter in question means that advice in individual cases appears irreplaceable. This is particularly true in view of the fact that there are considerable differences between claims from other EU countries and those from outside the EU.

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Key points to consider when filing a lawsuit from abroad

If you receive a complaint from abroad, you should first check the following points:

Basic question: Action effectively served from abroad?

The first question you should ask is whether the claim has been effectively sent to you at all. It is not uncommon for formal requirements to be lacking, which may mean that the action has not reached you at all from a legal point of view. The requirements that must be met for service are set out in the applicable international conventions in individual cases.

In the EU area, for example, the EU Service of Documents Regulation (Regulation (EC) No. 1393/2007 of the European Parliament and of the Council of November 13, 2007 on the service of judicial and extrajudicial documents in civil or commercial matters) applies, according to which the action must generally be transmitted in German translation and accompanied by a form and instructions on the right to refuse acceptance. Please read my separate article on this in detail.

In the case of claims from outside the EU, I am happy to help you identify the regulations to be observed.

Foreign court responsible?

The advisable course of action is determined by the question of the legal situation regarding the jurisdiction of the courts. In this respect, a uniform assessment is not possible because legal “specialties” must be observed in many countries. Nevertheless, the following statements should apply in general:

Absence of any agreement on jurisdiction

If there is no agreement on jurisdiction with the foreign plaintiff, the question of jurisdiction can usually be clarified easily.

This can then usually be determined via relevant international agreements.

Jurisdiction agreement in favor of the German defendant

If there is a jurisdiction agreement between the foreign plaintiff and you, and there are no concerns about its validity, the situation seems clear:

In accordance with the agreement, the agreed German court should have jurisdiction. The foreign action would then have to be dismissed as inadmissible.

“Specialties” of some jurisdictions

However, caution is advised in some jurisdictions:

In principle, the parties have the option to contractually stipulate which court at which location has jurisdiction for their disputes. Under German law, these courts then also have exclusive jurisdiction.

Example: Australia

However, this is different in Australian law, for example.

There, too, it is generally possible to agree a place of jurisdiction by contract.

Mostly only “additional place of jurisdiction”

However, a jurisdiction agreement generally only establishes an additional and not an exclusive place of jurisdiction there, as a legal principle applicable in Australia prevents the parties from depriving a court of jurisdiction by means of a contractual agreement. This is intended to prevent agreements that can deprive Australian courts of jurisdiction.

Review by Australian court

In this respect, a jurisdiction agreement must withstand review by Australian courts. If the review by an Australian court is not upheld, a business partner domiciled in Australia can also sue in Australia, e.g. if the place of performance for contractual services is in Australia.

Special jurisdictions

In addition, Australian competition law makes it easy to establish the jurisdiction of Australian courts. For this purpose, it is generally sufficient for the Australian plaintiff to assert in its action that the defendant has committed anti-competitive acts to its detriment on Australian soil.

Interim conclusion regarding jurisdiction agreements:

In the case of jurisdiction agreements, you must ensure that the law in the country of the foreign partner accepts jurisdiction agreements as exclusive. Otherwise, you run the risk of the agreement coming to nothing in an emergency.

Arbitration agreement

If you have concluded an arbitration agreement with the foreign claimant that meets international requirements, you should have the most secure basis for defending the foreign claim as inadmissible.

An effective arbitration agreement regularly removes the dispute from the jurisdiction of the state courts – e.g. also in Australia – as the party invoking the arbitration agreement has a statutory right to an order to stay the proceedings.

Is the claim justified on the merits?

Finally, in addition to the question of court jurisdiction, you should also examine the merits of the claim. After all, the choice of the appropriate response also depends on this.

Response options to lawsuits from abroad

Once you have completed the above checks, you will be able to determine the appropriate response option for your case:

Case 1: Lack of effective service, foreign court has jurisdiction in principle

If there is already a lack of effective service, the action is not yet “in the world” from your point of view, so to speak.

In this case, I would recommend ignoring the claim, provided that the foreign court has jurisdiction in principle. However, the prerequisite would be that there is no doubt as to the invalidity of the service.

It should be noted that the EU member states are cooperating ever more closely with regard to legal actions from within the EU. The declared aim is to facilitate cross-border court proceedings as far as possible. This also results in a certain obligation to cooperate on the part of economic operators, with the consequence that you may be expected to not simply ignore a complaint that suffers from formal deficiencies. It is therefore advisable to inform the court of the deficiency in service, whether by e-mail or otherwise. In this way, you will have something in your hand to prove your cooperation in the case.

Case 2: Lack of effective service, foreign court also lacks jurisdiction

In the event that there is no effective service of process and the foreign court is deemed to lack jurisdiction, the following procedure is required:

Assuming that the action has not (yet) been served, i.e. that it is not yet “in the world” from a legal point of view, you should now immediately contact the competent German court and file a so-called negative declaratory action with the application that the claim in question does not exist – regardless of whether you consider the claim to be well-founded or not. In doing so, you should ensure that you not only file the action with the German court as quickly as possible, meticulously observing all formalities, but also effect service on the foreign opponent. The aim is to anticipate the effective service of the foreign action on you. If you succeed in doing this, the problem of foreign proceedings is as good as “off the table”.

Case 3: Foreign court has jurisdiction for validly served claim and claim is justified

If the examination has shown that the foreign court has jurisdiction for the action from abroad and that the claim asserted is also justified, the priority is to keep the costs to a minimum.

Depending on the circumstances of the individual case and the jurisdiction concerned, the following options for action may be considered:

Option 1: Do not react

You do not react and let things take their course. This course of action saves you the often considerable legal costs abroad. You also have the option of relying on an obstacle to enforcement:

It should be borne in mind that judgments from non-European countries in particular must first be declared enforceable in Germany in a rather complex procedure. This can sometimes result in insurmountable obstacles for the foreign plaintiff, which in the end permanently block the enforcement of the judgment in Germany.

It is true that the enforcement proceedings themselves represent a cost item. However, this is offset by the saved foreign lawyer’s fees.

Option 2: Recognition

If you are of the opinion that this is a surprising claim that you did not have to expect, a so-called immediate acknowledgement could possibly be considered, whereby the costs incurred could possibly be charged to the claimant. You should check whether there is a so-called acknowledgement or a comparable legal institution in the jurisdiction concerned.

If necessary, the legal situation should be checked by a lawyer working in the jurisdiction concerned and the necessary steps taken. I would be happy to use my extensive experience to assist you in selecting a suitable colleague and can also take care of all the correspondence for you if required.

Option 3: Contacting the opponent

It also seems advisable to contact the plaintiff out of court, taking into account the time limits applicable in the foreign proceedings, in order to bring about a quick and cost-saving amicable settlement. I will be happy to support you in this.

Case 4: Foreign court lacks jurisdiction for validly served claim, but claim is justified

If the court does not have jurisdiction, but the action is justified on the merits, the focus is again on keeping the costs low: In relation to case 3, there are even more arguments in favor of not reacting at all:

Option 1: Do not react

If you do not respond to the action brought before the court without jurisdiction, it seems reasonable and could be handled accordingly by a German court that a judgment issued by the foreign court without jurisdiction is an obstacle to enforcement. The judgment might be worthless for the plaintiff.

But:

Without an objection to jurisdiction raised in the context of the foreign proceedings, there is some evidence that the German court dealing with the declaration of enforceability would ignore the lack of jurisdiction. This constellation is controversial among lawyers

Option 2: Objection to jurisdiction

For the aforementioned reason, it therefore seems preferable to raise the objection of jurisdiction before the foreign court in any case. This could be combined with efforts to reach a settlement. The lack of jurisdiction of the court seized by the plaintiff would be a suitable ground for negotiation here.

Case 5: Foreign court lacks jurisdiction for validly served action, claim also unjustified

If your examination has shown that the foreign court does not have jurisdiction and that the asserted claim does not exist, your alternative courses of action are as follows:

Option 1: Objection to jurisdiction, alternatively assertion of unfoundedness

They object to the foreign court’s lack of jurisdiction and, in the alternative, plead that the action is unfounded.

This is the safest course of action, although it does involve accepting the often very considerable costs of the proceedings (= legal fees and court costs). It should be noted that – unlike in Germany – in many countries there is only a limited and difficult to calculate claim for reimbursement of costs. This means that even if you are completely successful before the foreign court, you could still be left with a considerable proportion of the costs.

Option 2: Do not react

For the somewhat more courageous defendant, the alternative from case 4 would again be available, which consists of not responding to the action and relying on the fact that the court responsible for enforcement, if applicable, assumes a (final) obstacle to enforcement.

This option is (unfortunately) not recommended. There is too great a risk that the foreign court will uphold the claim despite it being unfounded and you will end up having to “answer” for a claim that is in itself unfounded.

Option 3: Counter-attack through negative declaratory action in Germany

Finally, according to the motto “attack is the best defense”, it is possible to file a so-called negative declaratory action in Germany. This action would be aimed at the German court declaring that the claim asserted abroad does not exist.

In principle, the so-called priority principle and the principle of priority of the action for performance preclude such a procedure in the constellation discussed here. Accordingly, in the event of two actions concerning the same matter in dispute, the action brought first takes precedence (priority principle), and an action for performance concerning the same matter in dispute takes precedence over an action for declaratory judgment.

Nevertheless:

In principle, a foreign judgment can only be recognized in Germany if the foreign court that issued the judgment also had jurisdiction at the time it was issued. In principle, this argument can also be used to override the priority principle and the priority of the action for performance. It could be argued vis-à-vis the German court that the foreign court does not have jurisdiction and, as a result, the action for performance there is inadmissible and therefore does not have priority.

In addition, it would be advisable to at least raise the objection of jurisdiction before the foreign court. In view of the costs of the foreign proceedings, it would be conceivable to claim these as damages before the German court.

Option 4: Combination of action for performance and action for negative declaratory judgment

Last but not least, it is advisable to check whether your own claims against the foreign plaintiff are possible. These could then be asserted by you by way of an action for performance in Germany, in combination with an action for a negative declaratory judgment aimed at establishing that the claim asserted abroad does not exist. In contrast to the aforementioned combination, the problem of the priority of the action for performance could be circumvented by means of the argument of the factual connection.

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Conclusion on the lawsuit from abroad

The above overview should have shown that, in the event of a claim from abroad, there are numerous options for action that need to be weighed up carefully. I will be happy to support you in choosing and implementing the best solution for you in each individual case.

Do you have any questions?
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In order to avoid costly and unpleasant legal disputes abroad, it is advisable to conclude exclusive jurisdiction agreements with foreign business partners which stipulate that only German courts have jurisdiction. However, it is not uncommon for the business partner to file a lawsuit in their own country in the event of a dispute, contrary to the jurisdiction agreement. In such cases, the question arises: What can be done to enforce international choice of court agreements?

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January 10, 2024

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The delivery of contractual declarations by e-mail

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The delivery of contractual declarations by e-mail

Regardless of whether an ordinary letter, fax, e-mail etc. is used for the transmission of (contractual) declarations and/or documents, the respective receipt and/or content of the contractual declaration can always be disputed at the outset. Insofar as no special formal requirements – e-mail does not fulfill the written form! – the delivery of contractual declarations by e-mail is a practical means of transmission. The following should be noted:

Access by e-mail and proof thereof

A declaration by e-mail is deemed to have been received in business transactions if it reaches the recipient immediately after being sent.

The recipient must then take note of it during normal business hours, i.e. retrieve it from their mail server. If he does not do this, the mail is still deemed to have been received at the latest at the close of business. It is therefore sufficient for the recipient to retrieve it.

Briefly: When you send an e-mail, it is generally deemed to have been received on the same day, regardless of whether the recipient has read it.

However, the fact of receipt (retrievability) cannot be reliably proven solely by a “mere” receipt message of the mail protocol. The read confirmation function of the mail system, for example, can help here. If you have such a confirmation, it should be very difficult for your business partner to deny access. However:

What happens if the recipient answers NO to the mail system’s question: “Do you want to send a read confirmation”? This could lead to uncertainty. It is therefore better – if available in your mail program – to use the “Request delivery confirmation” function. In this case, the mail system will send you a confirmation itself. In my opinion, this “transmission confirmation” should generally provide successful proof in practice.

The delivery of contractual declarations by e-mail together with e-mail attachments

With regard to e-mail attachments, the above applies in principle. However, there tend to be a few uncertainties here, e.g. it could be claimed that the attachment was missing or could not be opened. It could also be claimed that the attachment was not opened “for security reasons” (risk of viruses etc.).

It is therefore advisable to include the main content of any attachments in the email itself. However, this is not absolutely necessary. In any case, you would expect the business partner to point this out if there are problems opening attachments.

E-Mail service

Conclusion

Email is a practical way of sending (contractual) declarations and/or documents to a business partner. In sensitive cases, where access is particularly important and time-critical, the following tried and tested method of transmission should be used:

The declaration to be transmitted should be sent by post using the additional postal service “registered mail”. The postal official is then a witness that the letter has arrived in the letterbox, which is sufficient for effective receipt. In addition, the exact time of receipt can also be proven. In addition, the letter should have been posted in the presence of a witness. This also makes it possible to prove the contents of the envelope.

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In order to avoid costly and unpleasant legal disputes abroad, it is advisable to conclude exclusive jurisdiction agreements with foreign business partners which stipulate that only German courts have jurisdiction. However, it is not uncommon for the business partner to file a lawsuit in their own country in the event of a dispute, contrary to the jurisdiction agreement. In such cases, the question arises: What can be done to enforce international choice of court agreements?

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Federal Court of Justice clarifies the legal term “use assumed under the contract”

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Contract law: Federal Court of Justice clarifies the legal term "use assumed under the contract"

In its ruling of March 20, 2019 (case no. VIII ZR 213/18), the Federal Court of Justice provided practical clarification on the understanding of “use assumed under the contract” in the area of warranty law for material defects.

This concerns the frequently encountered case that the contracting parties have not agreed on a certain property of the purchased item (or the work performance) via a quality agreement subject to strict requirements, but have nevertheless contractually assumed it according to the circumstances.

The BGH has clarified that merely “contractually presupposed” properties may not be confused with a “use presupposed under the contract” within the meaning of Section 434 (2) no. 1 BGB. “Use” refers solely to the intended purpose of an item, which is generally to be assessed independently of certain properties.

The core statements on “use assumed under the contract”

The main statements of the BGH can be summarized as follows:

  • The absence of certain properties almost exclusively constitutes a material defect if a quality agreement has been made with regard to the missing property in question, and very strict requirements must be applied to the assumption of such a quality agreement. On the basis of the new law of obligations, according to the Federal Court of Justice, a quality agreement can no longer be considered in cases of doubt, but only in clear cases (note: you can read more about the requirements for the assumption of a quality agreement here ).
  • In the absence of a quality agreement, the question of whether an item is free of defects depends on whether it is suitable for the contractually stipulated use and otherwise suitable for the usual use. With regard to the contractually stipulated use, the BGH has now clarified that this is determined solely by the intended use of the item. In contrast, when determining the contractually stipulated use, properties that may have been the basis of the transaction according to the parties’ ideas must be disregarded. Otherwise – according to the BGH – the requirements for a quality agreement would be circumvented via the detour of the “contractually assumed use” criterion.

The ruling of the Federal Court of Justice from March 20, 2019, case no. VIII ZR 213/18

The BGH ruling of March 20, 2019 (case no. VIII ZR 213/18) and the facts on which it is based are outlined below.

The facts: The purpose of a packaging machine is “packaging”, not a specific “packaging speed”

The ruling by the Federal Court of Justice on March 20, 2019 was based on the following facts:

The plaintiff, a producer and trader of bird food, acquired an additional packaging machine from the defendant in order to expand its production capacity, with which the bird food it produces is mechanically packed in plastic bags, sealed and then sold.

During the contract negotiations, the plaintiff’s desire for a certain production speed was expressed several times, although there was no specific agreement on a certain production speed in the purchase contract that was finally concluded. “Only the order confirmation contained the reference “up to 40 pcs/min”.

According to the findings of fact made by the court of first instance, the machine only achieved a processing speed of nine bags per minute in practice. The plaintiff sought to rescind the purchase contract on the basis of this defect, among other things.

Both the court of first instance and the court of appeal followed the plaintiff’s opinion and considered the reduced production speed to be a defect because a higher production speed was in line with the contractually stipulated intended use.

Reasons for judgment on the delimitation of “use assumed under the contract”

The Federal Court of Justice has clearly rejected this view and pointed out that the “use assumed under the contract” is determined solely by the intended use of the purchased item.

Contrary to the law (see in fact: BT-Drucksache 14/6040, p.213 ), the Court of Appeal defined the term “use presupposed under the contract” too broadly by referring to certain properties of the object of sale. The Court of Appeal thus defined the “use assumed under the contract” too broadly. The Federal Court of Justice has stated (BGH ruling of 20.03-2019, VIII ZR 213/18, para. 26/27/28):

Tz. 26:

“Section 434 para. 1 sentence 2 no. 1 of the German Civil Code (BGB) is not aimed at specific characteristics of the purchased item that the buyer imagines, but rather at whether the item is suitable for the use (type of use) by the buyer that is recognizable to the seller (see Palandt/Weidenkaff, BGB, 78th edition, Section 434 para. 21). The use assumed under the contract may differ from the usual use of the purchased item (see BGH, judgments of April 26, 2017 – VIII ZR 80/16, ibid. with further references; of March 16, 2012 – V ZR 18/11, NJW-RR 2012, 1078, para. 16). Ultimately, the lack of suitability for use pursuant to Section 434 (1) sentence 2 no. 1 BGB will generally only have an independent significance compared to that pursuant to Section 434 (1) sentence 2 no. 2 BGB if the parties have assumed a use other than normal use under the contract.

Tz. 27:

(1) Although the Court of Appeal initially assumed the factual criterion of “use assumed under the contract”, it did not adequately cover this legal concept and instead referred to certain properties of the packaging machine – in particular a specific production speed – which were desirable from the plaintiff’s point of view, but which, as stated above, it had not made the subject of a quality agreement. It thus defined the “use assumed under the contract” too broadly. This is because it did not take into account – as required in view of the distinction made in § 434 para. 1 sentence 1 and sentence 2 no. 1 BGB between the agreement on quality and suitability for the purpose assumed under the contract – that the “use assumed under the contract” is to be determined solely according to the intended use (here: packaging of bird food in plastic bags to be sealed) (cf. BT-Drucks. 14/6040 p. 213). Instead, the court also included an individual characteristic of the machine (achieving a certain production speed) in the use assumed under the contract.

Tz. 28:

(2) Whether the lack of a certain characteristic that is not the subject of a quality agreement constitutes a material defect pursuant to Section 434 (1) sentence 2 no. 1 BGB does not depend on whether this has become the “basis of the transaction” of the contract. If the Court of Appeal had meant by the term “basis of the contract” that the parties had jointly assumed a certain production speed or the number of units desired by the plaintiff as a specific use, this would have the practical result that the requirements for a quality agreement pursuant to Section 434 (1) sentence 1 BGB would have to be met. (strict) requirements contrary to the law.”

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Conclusion: Narrow field of application of “use assumed under the contract” underlines the great importance of quality agreements

At the latest since the clarifying decision of the Federal Court of Justice described above, the contracting parties to purchase and work contracts should bear the following two points in mind when negotiating their contracts:

Point 1: Expected properties must be agreed as characteristics

Certain properties or characteristics of the purchased item or work performance are only owed by the seller or contractor if this has been agreed in the form of a so-called quality agreement. The parties should be aware that, according to the increasingly clear case law of the Federal Court of Justice, such an agreement must be denied in cases of doubt. Against this background, it is strongly recommended that buyers or clients expressly agree expected properties with the contractual partner in the contract document as a quality.

Point 2: “Presumed use” is limited to the intended use, usually without the significance of specific properties

If the parties do not agree on the quality of certain properties, the buyer or client must be aware that their contractual partner “only” owes them the contractually stipulated or customary suitability for use. This means, as the BGH has clarified, only the respective intended use of the item or work. The Federal Court of Justice has clearly rejected any subsequent attempt by the buyer or contractor to use the argument of “contractually assumed use” to nevertheless achieve liability for certain properties. Furthermore:

Buyers or clients who request a suitability for use that deviates from the usual use should ensure that this is also sufficiently clearly expressed in the contractual agreements made.

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The preliminary contract

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The preliminary contract

In the business world, decisions have to be made all the time. Many such decisions consist of having decided on a specific partner for a project, with whom a corresponding contract must then be concluded. The frequent problem is that there is a lack of time or simply a lack of certain clarifications of a factual and/or legal nature to be able to conclude the contract “ad hoc”. In such situations, it is often not an option to simply wait (without obligation) until all outstanding points have been clarified. This is when the preliminary agreement comes into play, which allows the parties to enter into a binding agreement immediately, even though there are still outstanding points that need to be clarified.

The following article is intended to sensitize you to the problems associated with the preliminary contract.

Starting point: § 154 BGB

Basically, it is important to know that the law assumes that there is no contract, and therefore no commitment, until the parties have clarified all points. In § Section 154 (1) BGB it says:

“As long as the parties have not agreed on all points of a contract on which, according to the declaration of even one party, an agreement is to be made, the contract is not concluded in case of doubt. The agreement on individual points is not binding even if a recording has taken place. “

Basic definition of the preliminary contract

A preliminary contract is a contract that creates an obligation for both parties, or only for one of them, to conclude the actual contract under the law of obligations, the main contract.

Required for preliminary agreement: corresponding intention to be legally bound

The Federal Court of Justice (BGH) has worked out the framework criteria for the assumption of a preliminary agreement as follows (NJW 2006, 2843):

“According to the interpretation rule of Section 154 I 1 BGB, a binding contract only comes into existence when the parties have agreed on all points that they believe need to be regulated. However, the rule only applies in case of doubt and does not prevent the parties from initially only binding themselves with regard to individual points by concluding a preliminary agreement and reserving the settlement of the remaining points for a later agreement (…) With regard to Section 154 I 1 BGB, however, the assumption of a preliminary agreement is only justified if special circumstances indicate that the parties exceptionally wanted to bind themselves contractually before the final agreement on all points requiring regulation(…).”

The core of the preliminary agreement is thus aptly summarized as follows:

The parties to a preliminary agreement want to be bound, although at this point there is still no final agreement on all points requiring regulation.

Minimum content of the preliminary contract

The preliminary agreement requires a minimum content to be effective. This applies irrespective of the expressed intention to be legally bound. The BGH has summarized this minimum content using the example of a purchase agreement as follows (NJW 1990, 1234):

“A preliminary agreement to a purchase agreement is generally sufficiently specific if the object of purchase and purchase price as well as the ancillary points considered essential by the contracting parties are regulated or can be determined.”

Rule of thumb for minimum content: There must already be agreement on all points essential to the contract in the preliminary contract.

If there is no provision on all points essential to the contract, it is not possible to close gaps at a later date. The BGH (NJW 2006, 2843):

“Insofar as the details of the provisions to be made are reserved for the contract to be concluded, the lack of agreement between the contracting parties only leads to the invalidity of the preliminary contract if the parties have considered the unregulated point to be essential (…). In such a case (…) it is not possible to determine what applies.“

Legal consequence of the preliminary contract: enforceable obligation to negotiate the main contract

Every preliminary agreement therefore also involves a risk for the parties who decide to enter into it, which must be weighed up. Because:

The parties are bound, although there is still a lack of agreement on outstanding points. Each party can demand the conclusion of the main contract from the other party after the conclusion of the preliminary contract. If necessary, a court will then “help” to close the existing gaps in accordance with the preliminary agreement. The Federal Court of Justice (BGH) in the judgment cited above:

“A preliminary agreement obliges both parties to participate in the negotiation of the terms of the contract to be concluded (…). By concluding the preliminary agreement, both parties have assumed the obligation to deal with the proposals of the other party regarding the content of the intended contract. If the content of the contract to be concluded is disputed in court proceedings, each party to the preliminary agreement is entitled to demand the fulfillment of the assumed obligation in the form of a contractual declaration formulated by it and to make it the subject of an action if the other party does not fulfill its obligation to seriously negotiate the content of the contract to be concluded or if an agreement cannot be reached. It is then the responsibility of the defendant party to assert a possible room for maneuver by means of concrete alternative proposals.”

Typical stumbling block in the preliminary agreement: disregarded formal requirements

If the parties to a preliminary agreement dispute the conclusion of the main agreement, it is not uncommon for an overlooked formal requirement to be used by the party unwilling to reach an agreement to “free” itself from the preliminary agreement.

If there are mandatory formal requirements for the main contract, these can also be a prerequisite for the validity of the preliminary contract. It then depends on the function of the formal requirement:

If a formal requirement is intended to protect the main contract against premature binding(warning function), this formal purpose already requires the preliminary contract to comply with the form of the main contract. Accordingly, the BGH considered, for example, a preliminary agreement aimed at the sale of a property to be in need of form.

If, on the other hand, the formal requirement for the main contract (only) serves the purpose of clarification and preservation of evidence, the preliminary contract is valid without form, as compliance with the form prescribed for the main contract satisfies these formal purposes.

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Conclusion on the preliminary contract

If the parties to the preliminary agreement are sufficiently aware of the commitments they are entering into and also know which requirements must be observed for an effective preliminary agreement, it is a practical tool in business life for quickly securing operational business processes. The often time-consuming negotiation of contract details can thus take place in peace, without the “whether” of the respective deal still being in question.

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Formal acceptance under building law

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Contractual agreement on the performance of a formal acceptance procedure

Particularly in the case of complex (plant) construction projects, the contracting parties often agree – usually on the basis of the VOB/B – to carry out a so-called formal acceptance. The acceptance of a work performance means the recognition of the work as being essentially in accordance with the contract. Acceptance is particularly important in construction law. It is associated with considerable legal consequences, such as

  • the transfer of risk,
  • a reversal of the burden of proof with regard to the existence of defects and
  • the end of the fulfillment stage.

In addition, a significant part of the remuneration claim regularly requires prior acceptance.

The following article deals with the question of what such a formal acceptance is actually all about.

The essence of formal acceptance

The central feature of formal acceptance is that the parties have expressly agreed on the receipt of a corresponding declaration of intent requiring receipt as a declaration of acceptance.

Statutory and/or contractual acceptance requirements irrelevant if formal acceptance is agreed

In the event of an agreement on express acceptance (formal acceptance is a special form of express acceptance), the statutory and/or contractual acceptance requirements are not a prerequisite for the effects of acceptance to occur.

The customer is therefore free to accept a work even if the conditions for acceptance, i.e. readiness for acceptance, are not met (examples: work still incomplete, significant defects, etc.).

Other forms of acceptance (initially) excluded

Acceptance is generally possible in various ways. For example, acceptance can also take place implicitly (through conclusive behavior) or by the contractor not accepting the work despite proper completion of the work and an unsuccessfully set deadline for acceptance (so-called fictitious acceptance).

The agreement to carry out a formal acceptance then (initially) means that other forms of acceptance are excluded.

Carrying out the formal acceptance

There are no mandatory (legal) requirements for formal acceptance. However, it follows from the fact that formal acceptance requires the receipt of a corresponding express declaration of acceptance that a – not mandatory – joint acceptance meeting regularly takes place for the purpose of formal acceptance, the results of which are recorded in a protocol.

Formal requirements – minutes are sufficient

The declaration of acceptance can be made by the customer to the contractor in writing or verbally (also) independently of the preparation of a written record.

The formal requirements of formal acceptance are therefore satisfied in any case with the preparation of a protocol. Signatures under the minutes are therefore not required for the effectiveness of the acceptance and the occurrence of the acceptance effects, but are recommended.

Important: Subsequent waiver of formal acceptance possible

As already mentioned, the agreement of a formal acceptance means that other forms of acceptance are generally excluded. However, this only applies “initially”, because even if formal acceptance is contractually agreed, formal acceptance may be subsequently waived, either expressly or impliedly.

This may be the case, for example, if the client accepts the work without comment for several months or if, after a corresponding period of use of the work, it can no longer be expected that the client will demand formal acceptance after all(Havers, loc. cit., cf. also Keine in: Bock/Zons, Rechtshandbuch Anlagenbau, Part B, VII Acceptance, para. 42; Hilger/Kaminsky, Anlagenbau im In- und Ausland, para. 434).

The OLG Bamberg states in this regard:

“According to the prevailing opinion in case law and literature, acceptance by conclusive action through putting into use by the client (sic!) in accordance with § 12 No. 5 VOB/B even in the case of a formal acceptance agreement in the contract, if it can be established that the parties have waived the agreed acceptance by conclusive conduct (BGH NJW 93, 1063) (…)”. (OLG Bamberg, judgment of May 5, 1997 – 4 U 188/96 -, para. 9, juris)

The problem here is that, in contrast to conceivable fictitious acceptance by commissioning, where acceptance is fictitious regardless of the will of the client, tacit acceptance as a declaration of intent by the client presupposes a corresponding will to accept.

The BGH explains:

“In order to assume a tacit acceptance of work, however, facts must be established from which it is unambiguous that the parties have waived the agreed formal acceptance of work by conclusive conduct.” (BGH, judgment of 03.11.1992, ref.: X ZR 83/90 – this also concerned plant construction, EDP system)

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Refusal of acceptance only permissible in the event of significant defects – Unjustified refusal of acceptance nevertheless results in acceptance effects

The client may only refuse acceptance if the work to be accepted has significant defects. The corresponding provisions in Section 640 BGB and Section 12 (3) VOB/B are identical in this respect. The decisive question is whether the effects of acceptance occur or not. This is the case if acceptance was wrongly refused due to the absence of significant defects. All consequences of acceptance then occur even without the will of the client – regardless of whether the refusal of acceptance is provisional, conditional or final (see Messerschmidt in Messerschmidt/Voit, Privates Baurecht, § 640 BGB, para. 237 f.; Bröker loc. cit., para. 25 ff. in each case with further references).

It therefore depends on whether there is a significant defect. Please read my separate article.

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