Every company claiming credit should check claims for repayment! – On the inadmissibility of so-called processing fees in loan agreements with companies.

November 7, 2018/in Commercial law, Liability law, Nicht kategorisiert

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Every company claiming credit should check claims for repayment in good time before the end of the year due to the impending statute of limitations! - On the inadmissibility of so-called processing fees in loan agreements with companies.

According to recent rulings by the Federal Court of Justice (judgments of 4 July 2017, case no. XI ZR 562/15 and case no. XI ZR 233/16), processing fees that have been customary for a long time are also inadmissible for loans to companies and thus corresponding agreements in loan agreements – even in the case of overdraft facilities – are invalid. Consequence:

The companies concerned may therefore be able to reclaim the fees paid from their banks within the applicable limitation periods. With the end of the year approaching and the impending statute of limitations for claims arising from 2015, the key findings of the BGH are recalled as follows:

The guiding principles

The guiding principles of the BGH are as follows:

1. the formal clause contained in loan documents of a credit institution for the conclusion of loan agreements with entrepreneurs
“Processing fee for conclusion of contract €10,000”
is subject to judicial review of content pursuant to Section 307 (3) sentence 1 BGB and is invalid pursuant to Section 307 (1) sentence 1, (2) no. 1 BGB.
2 The knowledge-dependent limitation period of Section 199 (1) BGB for claims for repayment due to ineffective formally agreed processing fees also began to run at the end of 2011 for loan agreements with entrepreneurs in accordance with Section 488 BGB (continuation of Sen.Urt. v. 28.10.2014 – XI ZR 348/13, BGHZ 203, 115 RdNr. 44 ff.).

Processing fee = ancillary price agreement

In the proceedings decided by the BGH, the borrowers were each entrepreneurs within the meaning of Section 14 BGB. The loan agreements concluded with the respective banks contained standard form clauses according to which the borrower had to pay a “processing fee” or a“handling fee” irrespective of the term of the loan. The subject of the lawsuits is the repayment of this fee because, in the opinion of the plaintiffs, the clauses in question are invalid.

In its reasoning, the BGH clarified that the challenged clauses are so-called ancillary price agreements, which are subject to content control in accordance with Section 307 BGB.

Unreasonable disadvantage

The BGH considered these ancillary agreements to be an unreasonable disadvantage to the contractual partner.

Such term-independent processing fees are not compatible with the essential basic ideas of the statutory provision, which is why, in accordance with Section 307 (2) No. 1 BGB, an unreasonable disadvantage to the contractual partner can be assumed in case of doubt.

Tax advantages no justification

In the cases to be decided, the BGH was unable to identify any reasons for a deviation from this legal presumption. In particular, the reasonableness could not be justified by any resulting tax advantages for the company concerned. Only those advantages that were originally granted by the user of the clause (in this case the bank) could be taken into account, as was not the case in the decided cases. The Federal Court of Justice (BGH) stated in this regard – summarized by me:

“(…) It is recognized that a deviation from the dispositive statutory law which is disadvantageous to the contractual partner can be compensated for by granting other legal advantages (Sen.Urt. v. 23.4.1991 – XI ZR 128/90, BGHZ 114, 238, 242 f. and 246). However, the imbalance in the content of a clause that unilaterally favors the user can only be compensated for by advantages for its contractual partner that are granted to it by the user of the clause (see also Sen.Urt. v. 21.4.2015 – XI ZR 200/14, WM 2015, 1232 RdNr. 18). It is therefore irrelevant whether individual traders can succeed in passing on the financial disadvantages they suffer as a result of the challenged clause to their customers through over-obligatory efforts. (…)
For the same reason, the appropriateness of a term-independent processing fee cannot be justified by any resulting tax advantages on the part of the entrepreneurial borrower – combined with a lower contractual interest rate….
(2) Irrespective of this, an inappropriate disadvantage to customers due to fees agreed in general terms and conditions is not offset by a lower interest rate within the scope of the content review pursuant to Section 307 BGB simply because individual customers are able to immediately deduct a larger part of the processing fee incurred for tax purposes (…).

No justifiable commercial practice

Furthermore, it is also not apparent that such fees appear to be justified if reasonable consideration is given to the customs and practices applicable in commercial transactions (Section 310 (1) sentence 2 half-sentence 2 BGB). In any case, in the cases to be decided, the banks were unable to prove a corresponding commercial practice.

Finally: Entrepreneurs are also worthy of protection

According to the BGH, the protective purpose of Section 307 BGB, which is to limit the use of unilateral drafting power, also applies in favor of an informed and experienced entrepreneur. The fact that an entrepreneur can better estimate an overall burden resulting from various fee components is not suitable to prove the appropriateness of such clauses when used against entrepreneurs. The review of the content of general terms and conditions is generally intended to protect against clauses in which the dispositive statutory law aimed at a mutual balance of interests is overridden by the unilateral power of the user of the clause. The BGH was – in my opinion rightly – not able to recognize any indications that credit institutions could not claim such unilateral creative power vis-à-vis entrepreneurs. In my opinion, the BGH correctly stated:

“(…) There is also no indication that credit institutions could not claim such unilateral power to shape the contract in relation to entrepreneurs – unlike in relation to consumers – as the situational inferiority of entrepreneurs is generally lower than that of consumers. On the contrary, the economic situation of entrepreneurs, whose business success depends on the granting of a loan, may well show a higher degree of dependence on the credit institution than is the case with consumers who apply for a real estate loan for the purpose of building their own home or even just for a consumer loan (…).”

Conclusion:

Every entrepreneur who claims loans should check their loan agreements against the above case law and, if necessary, assert claims for repayment. In view of the impending statute of limitations for claims from 2015, haste is required.

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Enforcement order legally binding – What else can help?

November 6, 2018/in Commercial law, Liability law, Nicht kategorisiert

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Enforcement order legally binding - What else can help?

Enforcement orders are enforceable titles just like a regular court judgment. The special feature compared to a judgment is that both the first order for payment (Section 692 (1) no. 2) and the enforcement order issued without a timely objection are issued on a unilateral application without any substantive examination. The claimant does not have to substantiate his (alleged) claim. Even a conclusiveness test by the court is not required.

There are many conceivable reasons why you may find yourself in the extreme situation of having missed the deadlines for taking action against the default summons and subsequent enforcement order:

Extended vacation absence,
Office oversight
Last but not least: simply not accepting the notices

Now the question arises: Is there anything that can be done about a legally binding enforcement order? The short answer is: Very rarely, especially not in the aforementioned cases (such as vacation absence, for example). The situation may be different in the case of fraudulent actions that led to the enforcement order in the first place.

Starting point: 2-week objection period

An objection must be lodged against an enforcement order within two weeks of service in order to avoid its legal force (Section 700 ZPO in conjunction with Section 339 ZPO). Legal remedies against this are then generally no longer available.

If this deadline is missed, there are only a few options left:

Very rarely: Reopening of the proceedings

A so-called reopening of the proceedings pursuant to Sections 578 ff ZPO would be conceivable.

The few reasons for a resumption are e.g:

Incorrect composition of the court
a forged document as the basis for the enforcement order.

Counterclaim for enforcement – substantive legal force of the enforcement order?

In any case, according to the Higher Regional Court of Cologne, an enforcement order has no substantive legal force. Objections can therefore be asserted in special cases by means of a counterclaim for enforcement.

The prominent background to this case law were numerous lawsuits in which private borrowers had defended themselves against legally binding enforcement orders (Section 700) issued by lending banks. They claimed that they had suffered immoral damage as a result of the enforcement, because the banks had obtained the enforcement orders in the knowledge that the underlying installment loan agreements were immoral and void.

The Higher Regional Court of Cologne denied the enforcement order any substantive legal effect due to the lack of judicial review (NJW 1986, 1350):

Despite the reference in Section 700 I ZPO, an enforcement order does not become legally binding.

If the requirements of an immoral installment loan are met, the enforcement orders can be challenged with an enforcement counterclaim under Section 767 ZPO, or alternatively under Section 826 BGB, and enforcement can be declared inadmissible. (unofficial guidelines)

The Cologne Higher Regional Court explained its reasoning:

The occurrence of formal (external) res judicata (§ 705 ZPO) of the enforcement order due to the fruitless expiry of the objection period (§§ 339, 700 I ZPO) does not necessarily mean that the enforcement order also becomes substantive res judicata. Formal res judicata is a prerequisite for substantive res judicata, but not vice versa (see Rosenberg-Schwab, § 150, 2, p. 919). Rather, substantive legal force is to be assessed according to independent criteria. According to § 322 I ZPO, not only judgments are capable of res judicata, but also, according to the prevailing opinion in the literature (Rosenberg-Schwab, § 153 I; Stein-Jonas-Schumann-Leipold, ZPO, 19th ed., § 322 note V 1; Thomas-Putzo, § 322 note 2a), court orders, provided that they are capable of formal res judicata and decide on a legal consequence whose effect extends beyond the proceedings. These requirements no longer apply in full to the enforcement order.”

Action for immoral fraudulent evasion of the enforcement order pursuant to Section 826 BGB

The prominent case of enforcement notices from lending banks described above is also the basis for further higher court rulings, according to which an action based on Section 826 BGB is possible in special circumstances. In this case, it would have to be argued and proven that the claim on which the enforcement order is based is unjustified and that the creditor has obtained the order unjustifiably or by deception or unlawful threat.

Similar to the Higher Regional Court of Cologne, the Higher Regional Court of Stuttgart considers a softening of the res judicata effect in special cases. The debtor should not be definitively cut off from his objections by merely “remaining silent”. At the very least, he should be granted an application to make up for the conclusiveness test in accordance with Section 826 BGB. The Higher Regional Court of Stuttgart stated(NJW 1985, 2272):

“It is doubtful whether the rule of law is sufficiently taken into account by the fact that the debtor could have defended himself in the order for payment proceedings and that an official review would then “automatically” have taken place. Whether the debtor’s objections and defenses (of which the court cannot know anything without a factual submission) are definitively cut off if he does not defend himself in good time is of a different quality than if the debtor is to be definitively denied the right to assert that the plaintiff’s own factual submission already shows that no title should have been issued at all if the court had only carried out this examination. Nowhere else – other than in the new order for payment proceedings – does the debtor’s concealment lead to the court making an incorrect decision “with its eyes open”.”

The BGH also considers an action under Section 826 BGB against legally binding enforcement orders to be possible:

The starting point of the BGH is that the enforcement order is issued without judicial review. The first prerequisite for a successful claim under Section 826 BGB is that the enforcement order in question is, in the opinion of the deciding court, legally incorrect and therefore materially incorrect.

Furthermore, the defendant must have been aware of the incorrectness of the title. When this can be assumed is a question of the individual case. Finally, the enforcement of the enforcement order in question would have to be immoral. This may result, for example, from such a “serious inaccuracy” that any enforcement from it appears to be “intolerable”.

Conclusion:

In the case of a supposedly legally binding enforcement order, it is worth examining its contestability if and to the extent that special circumstances justify the (provable) assumption that “something has not been done properly”.

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BGH eliminates widespread misunderstanding of its case law on the application of warranty law for material defects when purchasing shares (judgment of 26.09.2018, case no. VIII ZR 187/17)

October 23, 2018/in Commercial law, Liability law, Nicht kategorisiert

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Landmark BGH ruling from September 26, 2018 (case no. VIII ZR 187/17) on the liability rules for company acquisitions: BGH eliminates widespread misunderstanding of its case law on the application of the law on warranties for material defects when purchasing shares.

In my article from October 9, 2018, I already reported on the ruling of the VIII. Civil Senate of the Federal Court of Justice, which sets the course for liability in so-called share deals. The reasons for the judgment have now arrived, which is the reason for continuing my article.

In the share purchase case in question, I have been fighting since the first instance for the seller to be liable for the company’s over-indebtedness, which was not recognized by either party, not according to the rules of warranty for material defects, but under the aspect of frustration of contract. The reason why the case went all the way to the BGH is a fundamental misunderstanding in case law and literature regarding the case that in a so-called share deal the buyer holds all shares in the target company at the end of the transaction.

The ruling of the BGH now clarifies when, in the sense of its case law and solely in accordance with applicable law, an acquisition of the “whole” company exists, with the consequence that application of the law on warranties for material defects is justified.

The case: Shareholder A acquires the shares of shareholder B and holds 100% of the target company as a result of the transaction

The case that led to the elimination of the misunderstanding is summarized again as follows:

A and B were equal shareholders in a GmbH as part of a joint venture. Following the decision to terminate the joint venture, A acquired all shares in the GmbH from B, with the result that A has held all shares alone since the transaction. The parties agreed a comprehensive exclusion of warranty in the purchase agreement. After the transaction was completed, it turned out that the GmbH was already insolvent at the time the contract was concluded and was therefore no longer able to operate in the market. A then demanded a refund of the purchase price paid from B on the grounds of frustration of contract because – in principle undisputed – both parties assumed that the GmbH was solvent and that the purchase price had been determined on the basis of a jointly agreed valuation. B objects that, due to the priority of liability for material defects, application of the rules on frustration of contract is excluded. Liability for a material defect was in turn excluded because a comprehensive exclusion of warranty had been agreed. A quality agreement had not been made.

The guiding principles of the BGH

The main principles of the BGH are as follows:

In the case of a purchase of membership rights in a GmbH, which as such is a legal purchase pursuant to Section 453 (1) Alt. 1 BGB, in the event of defects in the company operated by the GmbH, the warranty rights of Sections 434 et seq. BGB apply if the object of the purchase agreement is the acquisition of all or almost all of the shares in the company and the purchase of the shares therefore constitutes a purchase of the company itself and therefore a purchase in kind, both in the minds of the contracting parties and objectively from an economic perspective (continuation of BGH, judgments of February 27, 1970 – 1 ZR 103/68, WM 1970, 819 under II; of November 12, 1975 – VIII ZR 142/74, BGHZ 65, 246, 248 et seq, 251; of November 24, 1982 – VIII ZR 263/81, BGHZ 85, 367, 370; of March 25, 1998 – VIil ZR 185/96, BGHZ 138, 195, 204; of April 4, 2001 – VIII ZR 32/00, NJW 2001, 2163 under 111; in each case on §§ 459 et seq. BGB aF).
Such an acquisition of all or almost all shares in the company does not exist if a buyer who already holds 50% of the membership rights in a GmbH acquires a further 50% of the shares in this company.

The legal assessment of the BGH

The BGH gave the following reasons:

Priority of the warranty right when purchasing shares

In order for warranty law to take precedence over the rules on frustration of contract, the relevant circumstance – in this case, over-indebtedness – must be capable of triggering claims for defects: over-indebtedness – is at all suitable for triggering claims for defects.

According to the BGH’s analysis, this is not the case here. The “hook” of the BGH’s reasoning is the correct indication that in the case of the acquisition of – as here – 50 % of the shares in a GmbH, the object of purchase is not a company, but no more and no less a 50 % shareholding. In detail:

The Higher Regional Court was still correct in assuming that, until the reform of the law of obligations came into force, case law in the case of the purchase of GmbH shares, which is basically a purchase of rights, applied the rules on the purchase of goods in the event of defects in the company operated by the GmbH if

“the acquisition of this right was both according to the conception of the parties and objectively as a purchase of the company itself and thus, from an economic point of view, as a purchase in kind (…)”

Such a case was assumed in particular if the object of purchase was all or almost all shares (see BGH ruling of June 2, 1980, VIII ZR 64/79).

Furthermore, the OLG correctly assumed that even after the reform of the law of obligations came into force, the aforementioned principles for transferring the rules on the purchase of goods to the purchase of shares had not lost their justification. The BGH explained:

“However, liability for defects in the company itself is still appropriate and in the interests of the company if the “entire” company is basically sold, i.e. the share purchase in question is in fact a purchase of the “entire” company assets and thus, from an economic point of view, a purchase in kind (see Grunewald, loc. cit. p. 372 f.; BeckOK-BGB/ Faust, loc. cit.). Therefore, it remains – in continuation of the previous case law of the Federal Court of Justice described above – even after the entry into force of the Modernization of the Law of Obligations Act that in the case of a share purchase, which as such is a legal purchase pursuant to Section 453 (1) Alt. 1 BGB, in the event of defects in the company, the warranty rights of Sections 434 et seq. BGB (only) apply if the buyer acquires all or almost all of the shares in a company and the purchase of shares therefore constitutes a purchase of the company itself and therefore a purchase in kind, both in the minds of the contracting parties and objectively from an economic point of view (see Senate judgment of November 12, 1975 – VIII ZR 142/74, loc. cit. p. 248 f., 251 mwN [on §§ 459 ff. BGB aF] (…).”

However, it is not a “whole” company – according to the error in the considerations of the OLG – if 50% of the shares in a company are transferred. The only correct thing about the OLG’s view was that it was not important whether 100% of the shares really formed the object of the purchase. It is also sufficient for the application of the rules on the purchase of goods if

“the purchaser does not acquire all the shares in the company, but the shares remaining with the seller or a third party are so insignificant that they do not significantly impair the purchaser’s power of disposal over the company, provided that only the intention of the contracting parties is to purchase the company as a whole (…).”

However, such a case does not exist – as here – if

“the purchaser – such as the plaintiff in this case – only has a claim to the transfer of half of the shares. Under such circumstances, according to the conception of the parties and the public opinion, there is no objective of the contract – which is decisive for the corresponding application of liability for material defects in accordance with the principles described above – aimed at the acquisition of the company as a whole (…).”

According to the BGH, the Court of Appeal had “lost sight of the fact that the only relevant connecting factor for the warranty for defects under Sections 434 et seq. BGB (…) is the respective object of purchase .”

The view held – in various forms – in the literature since the Modernization of the Law of Obligations Act came into force that Sections 434 et seq. BGB would also apply to items and other objects to which a right relates was rejected by the BGH:

“However, these views, which are primarily based on considerations of economic fairness, ignore the fact that the object of purchase determined by the parties in agreement and within the scope of their contractual freedom is not a thing, but a right (see also Huber, AcP 202 [2002], 179, 213 f.). However, even after the entry into force of the Law of Obligations Modernization Act (and the abolition of the provision of § 437 para. 1 BGB aF), the seller of a right is, according to general opinion (see Staudinger/Beckmann, loc. cit. para. 7 f.; BeckOK-BGB/Faust, loc. cit. para. 16 ff.; in each case with further references), still only liable for the existence of the right (verity), but not for the collectability of the claim (creditworthiness) and accordingly also not for the quality of the object to which the right relates. Rather, such a liability for creditworthiness only exists if it is specifically assumed by contract (Huber, loc. cit. p. 214, 229 et seq.; BeckOK BGB/Faust, loc. cit. para. 20 et seq.; MünchKommBGB/Westermann, loc. cit. para. 11; in each case with further references).”

With regard to the provision of Section 453 (1) Alt. 1 BGB, which was erroneously interpreted in the literature as meaning that the rules on the purchase of goods would now also apply in the case of the purchase of rights, the BGH has also clearly rejected this view. A legal purchase is still different from a purchase in kind. The BGH stated:

“However, neither the wording of the law nor the legislative materials of the Modernization of the Law of Obligations Act even hint that the legislator intended the provision of § 453 BGB to abolish the difference between the purchase of a right and the purchase of an object to which this right relates. of an object to which this right relates.”

In this context, the BGH pointed out a circumstance that is often overlooked, which results from § Section 453 (3) BGB follows. This provision reads:

§ Section 453 (3) BGB:
If a right has been sold that entitles the buyer to possession of an item, the seller is obliged to hand over the item to the buyer free of material defects and defects of title.

The BGH rightly concludes from this legal provision that the resulting liability for material defects and defects of title should only apply to a right that entitles the holder to “possession of a thing”. The provision would be superfluous if this liability applied generally to the purchase of rights.

After all, there was no case in the present case that could be resolved according to the rules of the law on warranties for material defects.

No practical need for an extension of the warranty when purchasing shares

The BGH also correctly pointed out that there was no compelling need for an extension of the (material defect) warranty right to the purchase of shares.

In addition to the possibility of entering into corresponding contractual agreements (e.g. guarantees), the rules of culpa in contrahendo and frustration of contract would be available to resolve share purchase cases.

Finally, the exclusion of statutory warranty claims does not fundamentally preclude the application of Section 313 BGB (frustration of contract)!

With regard to the claims I am pursuing in the present proceedings from the point of view of interference with the basis of the transaction, the BGH ultimately correctly and very welcome pointed out that the mere fact that the parties have agreed a (comprehensive) exclusion of warranty does not preclude the application of Section 313 BGB. This applies – as in this case – in any case if the share purchase agreement in question does not contain any statements on the economic situation of the company and thus on the question of who should bear the risks in this regard.

My rating

In its ruling, the BGH convincingly rejected a purely pragmatic approach according to which it should be sufficient for the buyer to hold (almost) all of the shares as a result of a transaction in order for the law on material defects to apply to the purchase of shares, pointing out not least that such an approach is incompatible with applicable law. In my view, however, one aspect in particular should be emphasized, which the Chairwoman of the Senate pointed out at the oral hearing:

As a rule, the law on warranties for material defects simply does not apply in cases in which the object of purchase is merely company shares. This is exemplified by the present case: What should “subsequent performance”, which is primarily provided for under the law on material defects, look like in cases such as this? Furthermore:

Cases such as this one show that legal institutions such as the frustration of contract have by no means become obsolete. It is undisputed and also bindingly established by the Higher Regional Court that the basis of the transaction in the share purchase in question was that the company whose shares were acquired was solvent. In my opinion, it is not possible to allocate the risk with regard to this basis of the transaction in a way that is appropriate and in the interests of the parties by means of a standard simple exclusion of warranty. This is a matter for Section 313 BGB.

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What do so-called media agencies do? – An analysis of the usual contractual relationships in the media business.

October 21, 2018/in Commercial law, Liability law

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What do so-called media agencies do? - An analysis of the usual contractual relationships in the media business.

The contractual relationship between media agencies and advertising clients has long been the subject of controversial debate. The main issue is whether media agencies are on a separate economic level or whether they should be classified as business agents of advertising clients. The most prominent case that led to this is Alexander Ruzicka, who was sentenced to a long prison term for allegedly pocketing discounts and other benefits received from the media at the expense of the media agency (and thus ultimately also at the expense of the advertising clients) whose management he was managing at the time. This high-profile lawsuit has made the practice of media agencies as a whole, in particular the scope and treatment of benefits (“kickbacks”, freespots etc.) granted by the media, a major topic of discussion. Against the backdrop of the conspicuous lack of transparency of the “system”, the type and scope of the discounts granted and, not least, the question of who is entitled to these discounts is being discussed.

The following section provides an overview of how the existing contractual relationships in the media business are to be assessed under civil law.

Preliminary consideration of the activities of media agencies

The main object of the media agency/media contractual relationship is the placement of advertising by advertising customers. Consequently, the media agencies “broker” advertising between the advertising client and the media – at least in purely factual terms. In view of the above, it seems conceivable that the contractual relationship between advertising client/media agency has an influence on the contractual relationship between media agency/media. It therefore seems reasonable in the present case to first consider the contractual relationship between the media agencies and the advertising clients:

Contractual relationship advertising client/media agency

State of opinion: agency agreement within the meaning of Section 675 BGB versus “own economic level” (proprietary trader)

Agency agreement within the meaning of § 675 BGB

With regard to the content of the contractual relationship, namely media buying and media processing, media planning, media consulting and media analysis, it is conventionally assigned to the law of agency (Section 675 BGB): The advertising client does not advertise itself, but has advertising done for it. This activity corresponds to the (still) prevailing opinion on the concept of “agency” within the meaning of Section 675 BGB, according to which the agent is obliged vis-à-vis the principal to carry out an independent activity of an economic nature to safeguard the financial interests of third parties (see BGH judgment of June 16, 2016, case no. III ZR 282/14, NJW-RR 2016, 1391; Münchener Kommentar zum BGB, 5th edition, Section 675, para. 3 et seq. with further references).

The above definition still corresponds to the activities of media agencies today, which are carried out independently by media agencies in the sense of the above definition of the prevailing opinion – namely in the absence of a deviating agreement in their own name and for their own account – in any case also in the perception of the financial interests of the advertising clients (see Martinek, Mediaagenturen und Mediarabatte, 2008, p. 27; jM 2015, 6, 9 f., 13f.). This classification is also confirmed in the opinion of former BGH judge Dr. Gerhard Schäfer of 31.1.2009.

Depending on their content, these agency agreements are classified as service contracts (Section 611 BGB) or contracts for work and services (Section 631 BGB). A contract for work and services is likely to exist if an individual measure is the subject of the contract – in terms of success – and a contract for services is likely to be involved if it is a purely temporally and/or objectively defined contract.

“Own economic level”

The prevailing opinion described above contrasts with the view held by the media agencies themselves and supported by not unimportant voices in the literature (in particular Prof. Michael Martinek, loc. cit.), according to which the provisions of contract law, and thus also the law on the provision of agency services, have led to an “alienation” from the model of the agent with a view to the practice of the media agency business that has developed over decades, with the consequence that the law on the provision of agency services should remain inapplicable. This view is primarily based on the fact that media agencies now represent a “separate economic level”, meaning that the classification of media agencies as “intermediaries” is no longer appropriate.

This view is essentially based on the following circumstances of media business practice:

Acting in their own name and for their own account: entrepreneurial riskUnless otherwise agreed in individual contracts, media agencies act in their own name and for their own account. This means that they also bear the entrepreneurial risk arising from the placement of advertising measures in the media, such as payment of placement costs even in the event of insolvency or refusal to pay on the part of the customer. They are liable to their client for errors made by the medium, for example if the advertisement is not printed on time or is printed incorrectly.
Remuneration system: relying on non-tariff discountsIn practice, advertising clients require media agencies to hand over or pass on the media commission received from the media (agency commission). In practice, this is usually done by means of an offsetting process: the advertising client agrees a remuneration with the media agency amounting to a certain percentage of the media placement volume; in reality, the percentage is between 0.8% and 2.0%. The advertising client uses the remainder of the 15% agency commission to pay the creative agency (around 7%) and keeps the rest for itself, leaving the media agencies with only a small fraction of the agency remuneration granted to them by the media. In order to achieve their commercial goals for their company, they therefore see themselves obliged to generate additional income from the media in the form of non-tariff discounts, bonuses or remuneration for additional services or for bundling the budgets of several clients. Thus, the agency’s own brokerage activities in the business of media agencies tend to take a back seat today.

Appreciation

If the subject matter of a service contract or a contract for work is an “agency”, the agent is obliged to return to the client everything that he obtains from the agency (Section 675 (1) in conjunction with Section 667 BGB). This is the relevance of the dispute:

The view that media agencies, as a separate economic level, no longer act as an agency in accordance with the model of the German Civil Code deserves consideration. For the most part, media agencies operate their own business at their own economic level. The operation of this own business can in fact be described as a necessity resulting from the fact that advertising customers regularly successfully enforce the passing on of the tariff discounts. Against this background, the media agencies can only generate their own income in other ways, e.g. by negotiating customer-independent discounts that only they are entitled to.

Nevertheless, according to the current ruling of the Federal Court of Justice from 16.6.2016 cited above (case no. III ZR 282/14, NJW-RR 2016, 1391), in case of doubt a duty to forward is to be assumed because, in its opinion, the media agency is a “typical business agent”. The guiding principles of the BGH are as follows (NJW-RR 2016, 1391, beck-online):

1. media agency contracts are, by their legal nature, generally to be qualified as agency contracts in which one party (media agency) undertakes to carry out an independent economic activity to safeguard the financial interests of third parties (in particular media planning and buying) and the other party (advertising client) undertakes to pay a fee.
2. if the media agency makes media bookings in its own name but for the account of the client, it shall initially also receive all discounts and other benefits as the media’s contractual partner; however, due to its status as a media agency, it shall not be entitled to any discounts or other benefits. However, as a typical managing agent, it is subject to the duties of disclosure and surrender pursuant to Sections 666, 667 Alt. 2 BGB.
3 The fact that a special benefit is not paid directly to the contractor but to a third party does not preclude the contractor from being liable for restitution. The decisive factor is whether an overall assessment of the circumstances of the individual case shows that the contractor is to be regarded as the beneficial owner of the asset (following BGH, NJW 1987, 1380).

It follows from guiding principle 3 that the obligation to disclose must be assessed on the basis of the circumstances of the individual case. In line with this, the Higher Regional Court of Munich expressly stated in its ruling of December 23, 2009 (case no. 7 U 3044/09) that the obligation to pass on (obligation to surrender) discounts and benefits can be regulated in individual contracts. The parties should do this in order to avoid the dispute described above.

Contractual relationship media agency/media (publisher)

Starting point: Independence of contractual relationships/freedom of organization

It follows from the above that the contract between the media agency and the media (publishers, TV stations, etc.) is independent of the contract between the media agency and the advertising client. Apart from so-called direct business, there is no contractual connection.

Consequently, the so-called “advertising implementation contract” or “media purchasing contract” is generally subject to the unlimited contractual freedom of the parties.

“Advertising implementation contract”/”Media purchasing contract”: Contract for work or service

Unless otherwise stated in the individual contract, the following shall apply:

In the past as well as today, “advertising implementation contracts” or “media purchasing contracts” are to be classified as service contracts or – probably more frequently – contracts for work within the meaning of Sections 611, 631 of the German Civil Code (BGB) without the character of an agency agreement:

The medium is obliged to place the advertisement (= success), the agency is obliged to pay the agency net of the list prices.

The fact that the agencies take on various other tasks vis-à-vis the media (in particular: consulting tasks) does not give the advertising implementation contracts or media purchasing contracts the character of an agency, as the media agencies, which always engage various media, keep the option of becoming active. Consequently, there is basically no obligation to act.

These contracts are also not contracts in favor of a third party within the meaning of Section 328 of the German Civil Code (BGB), as claims of the advertising customers are not established.

However, it should be noted that these (mostly) contracts for work and services have the following special features:

(Traditional) obligation of agencies to adhere to the price list via Section 242 BGB
Obligation of agencies to respect the sales interests of the media via Section 242 BGB
Payment of the so-called AE commission to the agencies as remuneration for the agency services (increasingly rejected by publishers)

Overall assessment

Unless otherwise stipulated in the contract in individual cases – which is possible according to case law – media agencies are business agents of advertising clients, from whom they purchase advertising in their own name and for their own account and place it with the media in their own name and for their own account.

Both – independent – contractual relationships are to be qualified as contracts for work or service contracts (depending on their structure), whereby the media agency only acts as a business agent vis-à-vis the advertising customers.

Whether the agency is a “typical” agency within the meaning of Section 675 BGB is particularly relevant with regard to the typical agent’s obligation to surrender what has been obtained from the agency, see Section 667 BGB.

If the parties want something else to apply with regard to the obligation to surrender, this should and can be agreed in individual contracts, as explained above.

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The hurdles to an individual contract are high: when is a provision “negotiated” and therefore not subject to the restrictions of GTC law?

October 18, 2018/in Commercial law, Liability law, Nicht kategorisiert

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The hurdles to an individual contract are high: when is a provision "negotiated" and therefore not subject to the restrictions of GTC law?

GTC law, i.e. the law governing general terms and conditions, represents a restriction on contractual freedom because it limits the possibilities for freely and effectively structuring the content of contracts. If a provision is subject to GTC law, it must comply with the requirements of GTC law, otherwise it is invalid. In order to avoid the restrictions of GTC law, the contracting parties must have negotiated the provision in question.

The legal hurdles to such “negotiation” are very high:

Starting point: Section 305 (1) sentence 3 BGB

Section 305 (1) sentence 3 BGB expressly states that a negotiated contractual provision is not subject to the law on general terms and conditions:

“General terms and conditions do not exist if the terms of the contract have been negotiated in detail between the contracting parties.”

What is “negotiation”?

What “negotiation” means is not clear from the law. A now well-established case law of the Federal Court of Justice provides clarification. For example, a fairly recent ruling by the Federal Court of Justice from March 26, 2015 (AZ VI ZR 92/14) is quoted as follows:

[33] (1) According to the case law of the Federal Court of Justice , negotiation requires more than negotiation. Negotiation in this sense can only be said to have taken place if the user first negotiates the non-statutory core content contained in his general terms and conditions, i.e. the provisions that amend or supplement the essential content of the statutory provision, seriously puts the content of the contract up for negotiation and gives the negotiating partner freedom to protect its own interests with at least the real possibility of influencing the content of the contractual terms. He must therefore clearly and seriously declare his willingness to make the desired changes to individual clauses (BGH, judgments of March 20, 2014 – VII ZR 248/13, BGHZ 200, 326 para. 27; of November 22, 2012 – VII ZR 222/12, BauR 2013, 462 para. 10). The user must explain the relevant circumstances (BGH, judgment of April 3, 1998 – V ZR 6/97, NJW 1998, 2600, 2601). As a rule, such willingness is also reflected in recognizable changes to the pre-formulated text. At most, under special circumstances, a contract can also be considered the result of “negotiation” if, after thorough discussion, the draft remains in place (BGH, judgment of November 22, 2012 – VII ZR 222/12, loc. cit.; default judgment of January 23, 2003 – VII ZR 210/01, BGHZ 153, 311, 321 with further references). N.). Even if the text is amended, a clause only loses its character as a General Terms and Conditions if the subsequent amendment is made in such a way that it justifies treating it as an individual agreement made from the outset. This is not the case if the user has not granted the contractual partner any freedom of design even after conclusion of the contract and has not put the non-statutory core content of the clause at disposition and the parties reach an agreement on this basis with which the detrimental effect of the clause is merely mitigated (see BGH, judgment of March 7, 2013 – VII ZR 162/12, BauR 2013, 946 marginal no. 30 = NZBau 2013, 297).

The following key criteria can be inferred from the aforementioned statements of the BGH:

Negotiating is more than negotiating!
The person proposing a regulation must seriously question its content. This must include the non-statutory core content of the regulation. It is therefore not sufficient if there is a willingness to adapt something (insignificant) in the regulation.
The other contracting party must be granted recognizable – and demonstrable (!) – freedom of action to safeguard its interests.
If the original content remains in the end, “special circumstances” may justify the assumption that a negotiation nevertheless took place.

Conclusion

The requirements for the existence of a negotiation are significantly higher than is commonly assumed.

If possible, you should therefore avoid drawing up the first draft of a contract. Because then you are the “user” of the provisions contained therein, which means that the contractual partner benefits from the law on general terms and conditions. Conversely, it is better: because then you yourself are the protected party.

In any case, good negotiation documentation should be ensured so that the negotiation can be proven in the event of a dispute.

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Overview: Law on general terms and conditions (GTC)

October 13, 2018/in Commercial law, Liability law

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Overview: Law on general terms and conditions (GTC)

General terms and conditions (GTC) affect everyone: whether commercial enterprises, which try to make their respective GTC the basis of the business relationship in their business dealings with each other, or private individuals, who are confronted with GTC in every situation in life – for example when boarding public transport, shopping on eBay or amazon or even when entering a department store. The importance of general terms and conditions is therefore immense.

With this in mind, I would like to try to provide a brief overview of this extremely important topic in this article:

What are general terms and conditions?

Sections 305 et seq. of the German Civil Code (BGB) contain regulations on general terms and conditions:

In detail:

Why General Terms and Conditions?

AGB are mainly used for the following reasons:

Simplification of the business process (e.g. reduction of the time required to negotiate the contract)
GTC create uniform and detailed regulations for legal relationships in mass contracts (simplification of legal transactions)
make it possible to further develop inappropriate laws through new regulations or to concretize undefined legal terms (e.g. if the law states a “reasonable” period, this can be precisely defined in the GTC)
Often even indispensable if there are no statutory regulations for the type of contract
Strengthen your own legal position in relation to the respective contractual partner

Inclusion of general terms and conditions

In order to be effective at all, general terms and conditions must be effectively included in a contractual relationship:

Limits of admissibility (content control) of general terms and conditions

The user cannot make unlimited provisions (in his favor) in the GTC. The law provides for very specific prohibitions of regulation in this regard, particularly when used in relation to consumers. However, T&Cs between entrepreneurs are also subject to a so-called content review, in particular the prohibition of unreasonable disadvantage to the contractual partner also applies here. The following chart provides an overview:

Accordingly, the following principles in particular apply to the limits of the admissibility of GTC:

§ Section 307 I sentence 2 BGB Transparency requirement

= According to this, an unreasonable disadvantage to the customer can also result from the fact that a GTC clause is not clear and comprehensible

§ 305 c BGB surprising clauses

= GTC clauses are not part of the contract if they are “so unusual that the user’s contractual partner need not expect them”

§ 305 b BGB individual contractual agreements take precedence over the GTC

= Individual agreements between the parties shall always take precedence. GTCs that conflict with such individual agreements have no effect.

Conflict of general terms and conditions

In business transactions between entrepreneurs, it is more the rule than the exception that both parties attempt to make their respective GTCs an integral part of the contract. The question then arises, particularly in the event of conflicting provisions, as to what should then apply. The following diagram illustrates the case where neither party has considered the possibility of such a conflict in their respective GTCs:

The situation is different if so-called defense clauses are used:

Defense clause: “These General Terms and Conditions of Purchase (Terms and Conditions of Purchase) shall apply exclusively; deviating, conflicting or supplementary General Terms and Conditions of the Supplier shall only become part of the contract if and to the extent that the Purchaser has expressly agreed to their validity in writing. This requirement of consent shall also apply if the Purchaser accepts the Supplier’s services without reservation in the knowledge of the Supplier’s General Terms and Conditions of Business .”

In the event that one or both parties have included a so-called defense clause in their GTC, the following applies:

Variant 1 (one party has included a defense clause)

Variant 2 (both parties have included a defense clause)

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Landmark ruling by the BGH on the law of company acquisitions (judgment of September 26, 2018, case no. VIII ZR 187/17, reasons for judgment pending):

October 9, 2018/in Commercial law, Liability law, Nicht kategorisiert

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Landmark ruling by the BGH on the law of company acquisitions (judgment of September 26, 2018, case no. VIII ZR 187/17, reasons for judgment pending)

A landmark new ruling by the BGH (case no. VIII ZR 187/17) removes a fundamental misconception regarding liability in company acquisitions:

The ruling in brief (BGH ruling from September 26, 2018, case no. VIII ZR 187/17)

The purchase of shares is a legal purchase to which the rules on liability for material defects generally do not apply. An exception only applies if the object of purchase is the entire company or, in the case of the purchase of shares, (almost) all shares. Contrary to a long-standing misconception in legal literature and the courts of lower instances, it is not sufficient if the purchaser holds all or almost all of the shares in a company as a result of the transaction.

The case

In its ruling of September 26, 2018, the VIII. Civil Senate of the BGH buried a decades-old error in legal practice. The subject of the judgment is the following, very abbreviated case, which I have been personally involved in on the plaintiff’s side since the first instance:

A and B were equal shareholders in a GmbH as part of a joint venture. Following the decision to terminate the joint venture, A acquired all shares in the GmbH from B with the result that A has held all shares alone since the transaction. The parties agreed a comprehensive exclusion of warranty in the purchase agreement. After the transaction was completed, it turned out that the GmbH was already insolvent at the time the contract was concluded and was therefore no longer able to operate on the market. A then demanded a refund of the purchase price paid from B on the grounds of frustration of contract because – in principle undisputed – both parties assumed that the GmbH was solvent and that the purchase price had been determined on the basis of a jointly agreed valuation. B objects that, due to the priority of liability for material defects, application of the rules on frustration of contract is excluded. Liability for a material defect was in turn excluded because a comprehensive exclusion of warranty had been agreed. A quality agreement had not been made.

The error of the lower courts (OLG Karlsruhe, judgment of 02.08.2017, Ref. 13 U 44/15)

Both courts of first instance dismissed A’s corresponding claim on the grounds that the rules on the warranty for material defects would apply. As a result, there was no claim due to the agreed exclusion of warranty. The rules on the frustration of contract had no scope in addition to the warranty for material defects.

The Higher Regional Court of Karlsruhe (judgment of 02.08.2017, ref. 13 U 44/15) justified the applicability of the law on warranties for material defects in the belief that it was based on a clarified legal situation in this regard as follows:

According to general opinion (overview of the current state of opinion in Beisel/Klumpp, Der Unternehmenskauf, 7th edition 2016, Section 4 para. 10), the purchase of company shares (“share deal”) is also a legal purchase under the new law within the meaning of Section 453 Para. 1 Var. 1 BGB and, in particular with regard to the warranty, continues to be treated like a company purchase by way of an “asset deal” (sale of an embodiment of legal and material entities including intangible assets such as “good will”, see BGH, judgment of 02.03.1988 – VIII ZR 63/87, juris para. 16) if the purchase agreement extends to the acquisition of all shares in the company (Staudinger/Beckmann, BGB, Neubearbeitung 2013, § 453 para. 90) or the shares remaining with the seller or third party are so insignificant that they do not significantly impair the purchaser’s power of disposal over the company, provided that the parties’ intention is to purchase the company as a whole (BeckOK BGB/Faust BGB Section 453 para. 32 with further references to the current state of opinion).

(…)

The purchase of 50% of the shares in the target company as part of a so-called share deal is also undoubtedly to be classified as a purchase of the entire company, as the plaintiff, by virtue of the purchase, acquired all shares in the target company and, as the sole owner of the business, was now solely responsible for the fate of the target company. Therefore, even under the new law of obligations, the law on warranties for material defects applies to defects in the company.

The OLG’s major error lies in the following:

Contrary to the Higher Regional Court, it is not sufficient for the applicability of the rules on the warranty for material defects that the purchaser combines all shares in the target company with the purchase as intended.

The clarification of the BGH in the oral hearing on September 26, 2018

The Chairwoman of the XIII Civil Senate of the BGH explained in the oral hearing:

“The Federal Court of Justice has probably been misunderstood in the past.”

As the Senate then clarified in the further course of the oral hearing, the application of the law on warranties for material defects is only justified if the object of purchase itself represents the company as a whole – or at least almost as a whole. Accordingly, there can be no question of a purchase of goods subject to the law on material defects if the object of the purchase – as in the present case – is only 50% of the shares in a company. Contrary to a widespread misconception for decades, it is not sufficient if the buyer holds all shares in a company as a result of the transaction.

The consequence for the case in question was, in particular, that the rules on the discontinuation or disturbance of the basis of the transaction were not superseded. I fought for this from the first instance…

For the reasons stated, the BGH overturned the decision of the Higher Regional Court of Karlsruhe and referred the case back for further proceedings.

Reasons for judgment still outstanding

An update of this article will follow as soon as the reasons for the judgment of the BGH are available.

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The handling agent in the transport chain

September 24, 2018/in Commercial law, Liability law, Transportation law

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The handling agent in the transport chain

The legal position of so-called handling agents is always an extremely relevant question in transport law practice. As will be shown shortly, this is difficult to classify in the classic system of parties involved in a transport chain.

What do handling agents do?

In simple terms, handling agents are responsible for ensuring that freight is transported from carrier A to carrier B at freight transshipment points.

Their business is, for example, to receive, store and process air freight shipments arriving at or being sent from airports. The handling agent collects the goods directly from the arriving aircraft, takes them into its warehouse and finally hands them over to the respective recipient or freight forwarder. The individual services offered by the handling agent depend on the type of shipment.

Usually, a sender commissions an air freight carrier, usually an airline, to carry out an air transport. Frequently, freight forwarders who have taken over the overall execution of a transport also act as the sender in the sense of transport law. In order to actually carry out the air transport, the airline is dependent on the respective shipment being received at the departure airport, loaded onto the respective aircraft, unloaded at the destination airport and finally handed over to the respective recipient. The airlines do not perform these services themselves, but use the services of the plaintiff.

It is easy to understand why such handling agents are needed, especially with regard to the airport example. Airports in particular are subject to special control and security regulations. If a cargo plane lands, the onward carrier cannot simply drive up to the plane with its truck to pick up the goods. The same applies vice versa if a carrier delivers goods for onward transportation by air. This is where the handling agents come into play with their core activity, which typically consists of acting as an agent (vicarious agent) of the air freight companies to ensure that the freight is transported onwards in the respective direction as intended, which regularly also includes interim storage.

Classification of the handling agent in the transportation process

Looking at the activity described above, the question arises as to how the position of the handling agent is to be classified in the transport chain. The only thing that is clear is that he is regularly contractually linked to the cargo airlines and, in this respect, claims of various kinds between the handling agent and the airline naturally come into consideration.

But what about the legal relationship between the handling agent and the other participants in the transport chain, with whom there is usually no contractual relationship?

In the case of a contract of carriage within the meaning of Section 407 HGB, the sender of goods commissions a freight forwarder or a transport company as carrier to carry out transportation. The sender and the carrier are the parties to the contract of carriage. The aim of the freight contract is delivery to the recipient. The handling agent itself has no contract with the sender, recipient or carrier. Rather, the handling agent is paid by cargo airlines, which provide the air transportation of the goods for the sender and are dependent on the services of the handling agent.

After all, the fact is that the handling agent is not to be regarded as a carrier under transport law – not even as a sub-carrier or actual carrier – as there is no contractual relationship with the sender.

Claims against the handling agent?

Conceivable claims of a delivering carrier against the handling agent are explained using an example case:

An employee of the handling agent accepts freight from a delivering carrier for onward transportation by the handling agent’s client (= air freight carrier) and “kindly” takes over the labeling of the shipment for the carrier’s driver, during which he makes a mistake, which leads to the misrouting of the goods.

This raises the question of whether the handling agent is liable to the delivering carrier? The answer is no, because there is no basis for a claim:

For a possible claim for damages in accordance with Sections 311 1, II No. 3, 280 1, 241 II, 278 BGB, the criterion of a similar business contact is missing. This is because case law only covers special relationships that give rise to duties of protection and loyalty in accordance with Section 242 BGB. Very special cases such as the sale of a common object (BGH NJW 1980, 2464), void contracts (BGH NJW 2005, 3208, 3209), provision of services by a monopoly association (BGH NZG 2015, 1282) have been recognized. However, the mere transfer of goods to the next company in the transport chain does not constitute such a similar business contact, which the legislator had in mind when creating the standard. If this group of cases were to be included, the scope of application of the standard, which is only exceptional in nature and covers special constellations in which quasi-contractual liability for damages without a contract should apply, would be extended too far.

Conceivable claims under §§ 426 1, II BGB would presuppose that handling agent and the respective carrier involved are jointly held liable by a common principal.

There is also no claim under Sections 677, 670, 683 sentence 1 BGB. There is already no third-party or third-party business. In case of doubt, the handling agent acts solely in the interests of its client.

A claim under Section 831 of the German Civil Code (BGB) is also unlikely, as the objective facts of a tortious act are unlikely to be present.

Finally, a claim under Section 437 HGB is also ruled out. It is not apparent to what extent a handling agent could be the actual carrier within the meaning of this provision. Even if the handling agent performs the task of labeling for a participating carrier, this obligation has nothing to do with a change of location of the freight, but serves to mark or label the goods.

Claims of the handling agent?

Again, this will be explained using an example:

Handling agent notifies the carrier commissioned under the contract of carriage for onward transportation from the airport of the arrival of the goods. The carrier does not pick up the goods until two weeks later and has thus actually used the handling agent’s location services.

A contractual claim comes into consideration here first. Handling agents regularly have price lists of the services they offer, which they also make available to forwarders with whom they have regular contact.

If a contractual claim is ruled out in an individual case, a statutory claim to storage charges pursuant to Section 354 (1) HGB must be assumed: Both parties are merchants, whereby the handling agent acted for the carrier in the exercise of his trade, § 354 para. 1 HGB. Due to the carrier’s fundamental interest in having someone take care of its customer’s goods, the handling agent is probably also entitled to perform within the meaning of the provision by way of the principles of agency without authority.

Conclusion: Handling agent is exotic in the transport chain

The handling agent is exotic in the transport chain. As a rule, claims for/against handling agents cannot be resolved using the traditional legal bases for claims under transport law.

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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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Can so-called warning associations do anything? – On the liability for damages of warning associations such as the Association of Social Competition (VSW)

September 24, 2018/in Commercial law, Liability law, Nicht kategorisiert

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Can so-called warning associations do anything? - On the liability for damages of warning associations such as the Association of Social Competition (VSW)

For some time now, the competition association “Verband sozialer Wettbewerb” (VSW for short) has made a name for itself in particular – and it has to be said: once again. In 2017, it began to target the entire internet – especially influencers – with mass warning letters in order to – as one of its managing directors literally stated in the magazine Horizont (see article from July 22, 2018),

“to sound out what is allowed on the Internet”.

The above, as well as my own experience with the VSW in a specific case in which a young start-up company went under because the VSW had issued warnings to all of the start-up’s partners, raises the question of whether warning associations are allowed to do anything.

In the specific case I mentioned, among others, the court of first instance argued that warning letters associations are entitled to a so-called “warning letter privilege”. This would give cease-and-desist letter associations a wide scope within the scope of their cease-and-desist letter activities.

This must be clearly contradicted:

I. Warning association must respect tort law!

On the one hand, the assumption of a so-called warning privilege is already wrong in principle; on the other hand, it is unacceptable that warning associations are granted a legal vacuum.

In my opinion, a competition association must be measured against general tort law in its actions like everyone else and must be liable under the aspect of interference with the established and exercised commercial enterprise if it has caused damage to the person being warned or to an attributable third party at least negligently – and therefore culpably – in the context of a warning.

II Principles on the unauthorized use of property rights form the standard of liability for the actions of warning letters associations under competition law

The established case law of the Federal Court of Justice (BGH) on the so-called unjustified warning of property rights is a suitable starting point for justifying this liability.

These principles relate in particular to the case where, in the event of an alleged infringement of property rights, it is not the manufacturer as the alleged infringer but its customers who are warned.

This is rightly based on the idea that in such cases it is not the warned customer but the manufacturer supplying it that is hit hard. In individual cases, warnings to customers can jeopardize the manufacturer’s existence. Against this background, the BGH correctly assumed a liability for damages if the warning party takes unjustified action against customers and thereby damages the manufacturer affected by this.

This is the case when the owner of an alleged property right (e.g. patent right) demands that another company cease the manufacture or distribution of certain products on the grounds that the manufacture or distribution of these products interferes with its property rights.

In such cases, it has always been recognized by the highest courts that the person issuing the warning bears the risk that his actions were unjustified. In short: If his warning was unjustified and he can at least be accused of negligence, he is liable.

This affirmative liability is particularly justified in cases of so-called customer warnings (= the warning party does not warn the manufacturer, but its customers): This is because purchasers will generally not defend themselves, which could seriously damage the manufacturer in the event of an unjustified IP warning to its purchasers.

The considerations cited for the affirmation of liability in property right cases also apply to a large extent to warning letter cases in pure competition matters, including (in my opinion: especially) in cases of warning letter associations that purport to punish competition law infringements in the interests of competitors.

Only the Higher Regional Court of Stuttgart – according to my research – has so far made welcome findings in this regard. In its ruling of January 21, 2010 (case no. 2 U 8/09), the Higher Regional Court of Stuttgart first of all correctly determined whether a warning letter is to be assessed differently from a judicial procedural act:

“In light of the statements in BGHZ 164, 1 et seq., the party issuing the warning in competition matters is not protected by a “warning privilege” vis-à-vis a third party affected by the warning.” [Note: Emphasis by the author]

The Higher Regional Court of Stuttgart stated, among other things, the reasons for this:

“If the warning were privileged, there would be no effective means of countering a potentially existence-threatening interference in the manufacturer’s customer relationships through the unjustified warning to its customers.”

The Higher Regional Court of Stuttgart also correctly stated that the principles developed by the Federal Court of Justice (BGH) regarding unjustified warnings of property rights cannot be limited solely to warnings of property rights. The OLG Stuttgart stated:

“It is true that, unlike the person warning of an industrial property right, the person issuing the warning, like the appellant, is not entitled to an exclusive right from his own point of view, which would be suitable to exclude every competitor from using the protected object, which would reduce the force of his attack from the point of view of the person being warned. On the other hand, a warning based on unfairness would also be unbalanced if he were to draw the economic benefit from a culpable misjudgment of the scope of the right to which he is entitled without having to answer for any damage caused by this.” [Note: Emphasis added by the author]

The above considerations apply equally to the actions of competition associations. The Higher Regional Court of Stuttgart has stated this:

“Nothing else applies if it is not an individual competitor who issues a warning, but an association or club. This is because, on the one hand, such an association also represents the interests of competitors and, on the other hand, legal uncertainty would otherwise arise, as it would have to be checked in each case whether competing manufacturers also belong to the warning party or belonged to it at the time of the warning, which is in any case clear in the present case.”

III. Summary overview of the liability of warning associations

According to the above-mentioned correct statements of the Higher Regional Court of Stuttgart, it can be summarized:

Competition associations are not entitled to a warning privilege.
Unjustified warnings oblige the person issuing the warning to pay compensation if he can at least be accused of negligence.
No other standard of liability is justified for the actions of warning associations. They are also liable in the event of unlawful warnings if they are at fault.

It is to be hoped that in the near future other courts will follow the very welcome findings of the Higher Regional Court of Stuttgart. It is to be hoped that the wave of VSW warnings mentioned at the beginning, which has already destroyed livelihoods, will be taken as an opportunity to do so.

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Blog article: “GS mark” – What is the “TÜV” liable for?

August 23, 2018/in Commercial law, Liability law, Nicht kategorisiert

LEGAL+ NEWS

Blog article: "GS mark" - What is the "TÜV" liable for?

An exciting question that should be of particular interest to product manufacturers – but of course also to affected consumers – is whether and, if so, for what the “TÜV”, i.e. the various TÜV companies spread throughout Germany, is actually liable if a product turns out to be unsafe despite having been awarded the GS mark?

The problem

This question is particularly interesting and relevant with regard to the so-called “GS mark”, which the TÜV assigns to manufacturers for their products for a not inconsiderable fee. “GS” stands for “tested safety” and is intended to reassure prospective buyers that the product in question is “safe”.

But what happens if a product turns out to be unsafe? This question is of considerable importance because the product manufacturer is of course liable to its buyers for the safety of its products in accordance with applicable product liability and safety law. But then the question arises as to whether the TÜV, which has “confirmed” the safety of the product to the manufacturer – as already mentioned: for a not inconsiderable fee – is liable for its misjudgement?

The legal situation

First of all, who is TÜV and what does it actually do in the context of the so-called “GS mark”?

Technical Inspection Association (known by the abbreviation “TÜV”) refers to registered associations that carry out safety inspections as technical testing organizations. In most cases, these safety inspections – like the “GS mark” in focus here – are based on legal regulations that stipulate who is authorized to carry out these inspections in addition to the object of the inspection. The best-known organizations authorized to carry out these tests are the associations operating under the protected “TÜV” brand (e.g. TÜV Süd, TÜV Rheinland or TÜV Nord).

The legal basis for the “GS mark” in question here is §§ 20 ff. of the German Product Safety Act (ProdSG).

The TÜV “tests” and “inspects” products on behalf of product manufacturers and, if successful, then licenses corresponding certificates or seals (e.g. the “GS” mark) to the manufacturers. The manufacturers then launch their products on the market with the “blessing” of TÜV. The TÜV then earns a considerable amount of money through license fees.

Is the TÜV liable for (design) defects that occur later?

But what happens if it later transpires that the product “approved” by the TÜV has design defects that the TÜV could (or should?) have recognized during its inspection and damage occurs as a result?

It does not seem far-fetched to assume such liability, although interestingly there is little (if any) case law on this topic.

A closer look at this question reveals the following:

1.

The inspection of a product for compliance with the requirements of the German Product Safety Act (ProdSG) and the confirmation of the existence of these requirements by means of a certificate is an expert activity under private law to which the law on contracts for work and services applies (see judgment of the Munich Higher Regional Court of July 30, 2009, 23 U 2005/08).

In my opinion, the manufacturer should not be obliged to check the accuracy of the TÜV’s information itself. The manufacturer of the product may rely on the award of the seal (see judgment of the OLG Munich of 30.07.2009, 23 U 2005/08).

2.

Whether the TÜV has breached its obligations or is therefore potentially liable for damages is therefore fundamentally determined by the content of the GS mark contract.

However, the scope of duties must at least comply with the law. Section 21 (1) ProdSG states:

The GS body may only award the GS mark if

1.

the tested type meets the requirements according to § 3 and, if it is a consumer product, also complies with the requirements according to § 6,

2.

the tested type meets the requirements of other legal regulations with regard to ensuring the protection of the safety and health of persons,

3.

the specifications determined by the Product Safety Committee for the award of the GS mark have been applied when testing the type,

4.

precautions have been taken to ensure that the products ready for use comply with the tested type.

Section 21 (1) No. 1 ProdSG is of particular relevance, as it states that the GS mark may only be awarded if the requirements of Section 3 ProdSG are met. § Section 3 ProdSG, for its part, is the central standard of product safety law as it stipulates that only a safe product may be made available on the market.

One thing is certain:

Just like the manufacturer, the TÜV must all requirements that apply to making products available on the market if it wishes to license its contractual partner to use the legally standardized GS mark within the framework of a GS mark contract.

3.

If it is further assumed that TÜV has imputably and culpably breached its contractual obligations in the individual case, namely by

did not carry out the product testing properly,
overlooked or concealed recognizable defects, or
omitted an indication in this respect and
then wrongly – in violation of § 21 ProdSG – awarded a certificate of compliance with all regulations,

in my opinion, liability on the part of the TÜV (or other “GS bodies”) for any resulting damage (product liability cases) is anything but remote.

Because:

4.

If the “GS mark work contract” had been duly fulfilled, the TÜV should have refused to award the GS mark with reference to the safety deficiencies found.

But then – in my opinion, this can be assumed without further ado – the manufacturer would not have placed the product on the market.

Consequently, the damage in question would not have occurred.

5.

Further interim result:

A pure causality analysis (= causation analysis) suggests the assumption of liability.

6.

Ultimately, from a valuation and imputability point of view, the decisive factor is likely to be whether the TÜV actually assumes product responsibility in relation to the manufacturer that is relevant to liability .

In my opinion, there are important reasons why the TÜV should assume at least a share of responsibility towards the manufacturer for the safety of the product it tests:

It should be borne in mind that the “GS mark” test has two sides. The testing and possible awarding of the GS mark (§§ 20 ff. ProdSG) provided for by law is only “one side of the coin”.

In my experience, it is precisely this side of the coin that TÜV regularly uses to justify the fact that it is not responsible for the safety of the product it tests. Their argument is that they “only” carry out the legally required GS mark test on the basis of the relevant standards (DIN, EN etc.). If he carries out the test “in accordance with the standard” – which is probably the case most of the time – he cannot be accused of anything.

In my opinion, this view is simply too narrow. TÜV has undertaken to test the safety of the product in question on the basis of a contract for work and services. By law – and thus not contractually restrictable – the TÜV must carry out this test to the same extent – and thus, in my opinion, be responsible for it – as the manufacturer itself. Last but not least, it is important in this context that the TÜV pays dearly for the quality seal (“GS”). In my opinion, it follows from this that the TÜV also assumes responsibility towards the manufacturer, who pays it dearly, for ensuring that the product in question is actually safe. If it is not, the TÜV is liable in the event of damage. In my opinion, the latter also applies to injured consumers who had purchased the product in question not least because of the confidence in its safety conveyed by the GS mark. The contract for work and services between TÜV and the manufacturer should regularly have a protective effect in favor of the consumer.

Conclusion

If a product liability case arises with “GS” products, it may be worthwhile for the manufacturer and affected consumers to claim (joint) liability of the TÜV or other certification body.

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January 10, 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.