Bundesgerichtshof (Full Senate for Civil Matters) 9 July 1986, BGHZ 98, 212, with case note.
This case is first published in the German Law Archive courtesy of:
Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz
Translated by Mr. Tony Weir, Trinity College, Cambridge
I. In the autumn of 1981, when the well-appointed dwelling of which the plaintiff is owner-occupier was undermined and rendered unstable by the incompetence of the defendant in constructing a row of houses lower down the steep slope on which it was built, the city authorities prohibited its occupation for a period of five weeks. The cost of reconstruction is no longer in issue between the parties, but the plaintiff also claimed DM 3,000 plus interest as compensation for the loss of use of her house, alleging that during this period she and her husband had to stay in a camper on neighbouring land, an allegation which the defendant counters by stating that they used the house every day.
The Landgericht and Oberlandesgericht rejected this part of the plaintiff’s claim, and the plaintiff appeals again.
In agreement with the courts below that even if the plaintiff had entirely lost the use of the house for the period of the prohibition this was not an economic loss but an uncompensable immaterial loss, the Fifth Civil Senate would have dismissed the appeal, but in the interests of uniformity of case law it submitted the following question to the Full Senate for Civil Matters pursuant to 137 of the Law on the Court System (GVG):
1. Does temporary inability to continue using a piece of property, such as a dwelling, as a result of a tortious invasion of one’s ownership constitute a compensable economic loss, even if no extra costs or loss of income are involved?
2. If the harm consisting of loss of use is compensable, how is the measure of compensation to be computed?
II. The request for a decision (published in VersR 1986, 189 = WM 1986, 266 = JZ 1986, 387) explains in detail that the decisions of the Bundesgerichtshof on the compensability of loss of use of property are hard to reconcile.
The Third, Sixth, Seventh and Eighth Civil Senates are in principle favourable to compensation if public opinion would regard the personal use of a thing as having an independent economic value and the loss is “felt by”, “perceptible to”, the owner who could and would have used the thing had it not been damaged. Since the decisions of the Third Civil Senate of 30 September 1963 (BGHZ 40, 345, 349f. and NJW 1964, 717 = VersR 1964, 380) this has been the basis on which the individual owner of a motor car has been granted compensation for temporary loss of its use even if he did not hire any substitute. The principal reason for such decisions in tort and cognate areas is that things such as motor cars are commonly bought precisely in order that they be permanently available, so that to impair their use is to impair the economic counterpart of the price paid (BGHZ 40, 345, 348, 350; 63, 393, 397; 74, 231, 234; 76, 179, 185; 86, 128, 131, 133). They emphasise that the price which property will fetch depends on its current availability and that the market itself puts a value on the usability of a thing, as is indicated by the costs of hire (references); it would not be right for the tortfeasor to benefit from the fact that the victim has put up with the drawbacks of not being able to use his property [references].
Opposed to these decisions are cases involving property which public opinion regards as an amusement (swimming pool – BGHZ 76, 179, 187), a luxury (fur coat – BGHZ 63, 393, 398; caravan – BGHZ 86, 128, 133), or a pastime (speedboat – BGHZ 89, 60, 64), property whose use is life-enhancing but without any independent economic value.
In 1967, in the wake of these decisions, the Eighth Civil Senate, in a holding limited to cases of breach of contract, awarded damages to the owner of a house rendered temporarily uninhabitable by the post-contractual fault of a tenant (WM 1967, 749 = (in part) NJW 1967, 1803). Likewise, the Seventh Civil Senate in 1985 has awarded the owner of a parking garage damages against a contractor because some parking spaces were unusable owing to the failure of the contractor to make good defects in his work, the finding that their use had an independent economic value being admittedly reinforced by reference to the purpose of the rule that the contractor guarantees the quality of his work (BGHZ 96, 124).
By contrast the Fifth Civil Senate in its decisions of 14 May 1976 (BGHZ 66, 277) and of 21 April 1978 (BGHZ 71, 234) expressed reservations, repeated in its present request for a decision, about allowing damages for loss of use outside the “restricted area of typical mass risks”, and in its decision of 30 November 1979 (BGHZ 75, 366) it adopted the position, so far as tort law is concerned, that no compensable economic loss is involved in infringements of the right to use land where the loss of use is less than total.
Writers are on the whole against treating the loss of the personal use of property as an economic loss, regarding it rather as a possible source of loss, giving rise where the planned use would be purely personal to immaterial losses not capable of compensation. [References to eight writers]. A few writers approve of the result reached by the courts in cases of damage to motor cars, while entertaining serious doctrinal objections [citing six writers]. A minority accepts that damages may be awarded for loss of use of property: [citing 11 authors]. A few writers would give damages for wasted expenditure due to a loss of use [citing five authors], or for the resulting need [one author].
III. The Full Senate is of the view that the rule as to motor cars in private use can be extended at any rate to things which the owner needs to have constantly available for use in his domestic arrangements, such as the house he lives in; the temporary loss of the chance of using it as a result of a tortious invasion of his property rights constitutes a compensable economic harm to the extent that the owner would have used the thing during the period in question. Given this limitation, neither the law itself nor the need for legal certainty offer a conclusive objection; indeed, to leave such losses without compensation would be to fall short of just and full compensation for economic losses.
1. The BGB does not define the concepts of wealth or economic harm in the law of damages but leaves it to writers and the courts to develop them. Like the Reichsgericht before it, the Bundesgerichtshof generally employs the “difference method” to ascertain whether the estate of the claimant has suffered an economic loss: rather in the manner of an accountant it compares the situation after the occurrence of the harmful event with the situation which would have existed without it (BGHZ 27, 181, 183f.; 40, 345, 347; 75, 366, 371; 86, 128, 130).
In its request for a decision the Fifth Civil Senate is right to point out that the temporary loss of personal use of a thing does not show up in the “difference method”, in which loss of use figures only if there is a cost in procuring a substitute involved or some loss of income from its use in acquisitive economic activity or onerous obligations are incurred which would have been avoided had the thing still been available.
a) Meanwhile the Bundesgerichtshof has recognised that the difference method is value-neutral and that one must still, in the light of the purpose of liability law and the compensatory function of damages, determine what factors should be included in the difference procedure. In this sense there is a normative input into the difference method, which is not actually laid down by law [reference]. Certainly when one is making the comparison an economic harm will always take the form of a diminution of the positive or an increase in the negative aspects of the claimant’s estate, but it is for the judge to decide what factors are to be taken into account for the purposes of compensation.
b) In doing this the court must remember that it is not only the “having” of wealth that makes it important but also the “using” of it, the option it affords the owner of advancing his goals in life by actualising its potential (references to von Savigny, von Tuhr and Kohler). This functional aspect of wealth is protected by law. The fact that wealth is used in other contexts than business would be being ignored if only the monetary aspects of the loss of use of property resulting from a tort were taken into account: its use in the domestic sphere can also be “rewarding” and economically activating and its impairment can likewise affect the economics of the person affected, even if no actual loss of income results.
Thus over and above the fact that a motor-car is often the most valuable item in a private person’s wealth, its usability is commonly the centre of his personal economy — he builds his life round it, especially if he is professionally dependent on it. It is even more obvious that the decision to have a home of one’s own to live in is first and foremost an economic one.
In market terms an element for the usability of such property is factored into its price, and its temporary loss is treated as a short-term depreciation, so if such loss involves a perceptible constraint on the owner’s management of his personal affairs for that period, this too is economically relevant. It would only be otherwise if one’s calculation were based exclusively on monetary gain or loss. Such calculation not mandated by the nature or quality of wealth.
2. Nor is it mandated by § 252 BGB. Its express coverage of loss of income when the use-value of property is diminished certainly reflects the legislator’s sense of the importance of using property for acquisitive purposes, since there is no corresponding provision for property used domestically, but we do not agree with the Fifth Senate that it represents a decision against granting monetary compensation for the loss of use of items of wealth when no loss of income occurs. The main aim of § 252 BGB was to make it clear, in contrast to earlier codes, that the entirety of the harm is to be made good, not just a proportion depending on the degree of fault (Mot. II 17f. = Mugdan, Materialien zum BGB vol. II 10); it implements the principle of full compensation which emerges from § 249 BGB. Consistent with this is § 252 sent. 2 BGB which the courts have hitherto taken to involve only a relaxation of the burden of proof designed, like § 287 Code of Civil Procedure, to avoid the claimant’s having to put up with inadequate compensation in cases where the harm is difficult to establish exactly (BGHZ 29, 393, 398; 74, 221, 224 with references). Given that the law aims to promote the positive use of property and provided always that damages are not allowed for loss of use in abstracto, which the BGB allows only exceptionally (§§ 288, 290, 849 BGB), to develop the law so as to include in the compensation of economic harms the use of property for private purposes analogous to profitable uses need not, as the Fifth Senate fears, lead to the claimant’s being unfairly advantaged in establishing his claim. In the case loss of use of a motor car the courts have insisted that the loss be “felt” by the victim, that he could and really would have used the car had it not been damaged, that is, that he was able and willing to make use of it. This restrictive rule can be applied to other kinds of property also, and puts the tortfeasor in the same evidentiary position as in claims for loss of profitable use; it also ensures that compensation for the loss of privately used property is geared to the individual case and involves no typification of the different kinds of property or tarification of the award.
3. Unless it is developed in this way, the law will have unsatisfactory results, especially as regards the very items of wealth which are of central importance to the individual’s way of life.
a) The codal rule which provides for restitution in kind draws no distinction as regards the economic nature of the loss of use. In principle, therefore, the tortfeasor must bear the cost of providing his victim with a substitute for an item he would have used for private purposes. But suppose the victim refuses to accept the substitute, which does not always indicate that he was not dependent on the property: then unless the proposed development is accepted, the tortfeasor would be relieved of the obligation to pay for what are real constraints on the victim’s living arrangements.
Payment of the capital value of property does not adequately compensate for loss of use-value, for although it is true that the market value of a thing includes an element for its usability so that use-value cannot be wholly severed from the inherent value of the thing, nevertheless payment of the inherent value of a thing only gives full compensation for the loss of use-value when it is paid immediately, for it takes no account of the diminution in value in the interim. To this extent use-value and capital value rest on different considerations: capital value goes to the condition of the property, use-value to its availability for use. Temporary loss of the latter is not adequately made good either by replacement of the thing or by interest on the diminution of the capital value; nor can the “advantage” lost be recaptured. At the most there is a saving in wear and tear and in the costs entailed in use, but the loss of use, temporary though it is, is definitive. In order to cover it, the difference method of computation of economic loss calls for an extended notion of value.
b) If there is no such extension, compensation based on the pure difference principle will unfairly discriminate against the use of property in the private economic sphere as compared with its use for acquisitive purposes, for which the tortfeasor is bound to pay damages in the absence of restitution in kind. The jurisprudence of the courts as regards the loss of use of motor cars, designed to take better account of the use of property for private purposes in line with the principle of full compensation for economic losses, needs to be extended to other kinds of property. Once the Bundesgerichtshof has developed its case law on the damages payable as regards each kind of property and practitioners are confident that it is stable, it would be right, not least on grounds of legal certainty and faith in the interpretation of the law, to proceed in the direction indicated.
The Full Senate is quite aware of the advantages of the difference method for the calculation of economic loss and of the need to limit compensation to the harm actually suffered by the particular claimant, but to add a normative element to the difference method will not lead to unacceptable extension if it is realised that the aim is to produce just compensation by equating personal with profitable uses of property, when economically comparable.
Recent practice as regards loss of use of motor vehicles shows that this need not led to a huge increase in the damages payable, but in any case to deny damages in cases of loss of use of a thing privately used just because there are residual problems of evaluation is inconsistent with the principle of just and full compensation.
4. The extension of the law in this manner must naturally be limited to items of property which people typically need to have constantly available in their daily lives. This is as much as can be justified by the need to correlate the law of damages as to the use of property for private and for profitable purposes, and to go further would risk infringing § 253 BGB by awarding damages for non-economic loss in conflict with the need for legal certainty and calculability of damages.
a) The reason § 253 BGB restricts money damages to economic losses is so that only such damage is covered as can be measured by objective standards. The judge must determine the damages not on the basis of the victim’s subjective value-judgements, which cannot be checked, but on the basis of the value placed on it by the public generally, using the money measure of the market. The legislator was also concerned that “ideal” interests and values not be treated as commodities in the law of damages (Prot. I 622.623; Mugdan 517). There is always some disruption of life when a thing one is using stops functioning, but to award damages for such disruption runs the risk of compensating for harm which is indissolubly linked to the person of the claimant and must in principle remain uncompensated under § 253 BGB. This restriction is mandatory as to extracontractual, delictal liability, with which alone we are concerned. It may be different for liability in contract, for the parties can dispense with 253 BGB just as, to a large extent, they can further restrict their liability for economic harm.
There is no danger of allowing damages to trespass into the area of immaterial interests if the property is such that its use is generally of major importance in daily life, for such use appertains to the material economic sphere (reference); furthermore, because the uses made of such property are relatively similar, there are now objective standards of valuation, at least of its core economic functions, so that there is no risk of being affected by subjective value-judgements arising from idiosyncratic uses not prized by the general public. The impairment of such uses should be fully compensated in damages notwithstanding the fact they do not figure in the difference method of accounting proper to the acquisitive economy.
b) On the other hand, the absence of a firm mechanism of control such as is contained in § 252 BGB means that there must be strict proof that the property was of economic importance for the claimant’s way of life, and that his estate has really been affected by the loss of an objectively valuable facility. This strict requirement is also necessary in order, so far as possible, to avoid extremes in budgeting so that the compensation in cases of a particular type remains calculable despite all the variables in the individual case. Hence damages for loss of private use must in principle be reserved for certain types or groups of case in which the functional impairment typically has a significant effect on the material conditions of the claimant’s living conditions. At this point public opinion may come in. One can agree with the Fifth Civil Senate that public opinion cannot decide when § 253 BGB applies and when it does not, but even so, just as the measurement of the loss must be geared to the standards of the market, so the test to be applied in law can properly relate to what people generally regard as economically important to acceptable life-styles.
c) The tests laid down in the caselaw of the Bundesgerichtshof for the compensation of loss of use of motor cars are quite restrictive; this is in part because when a kind of harm is suffered by the million, one needs a rule which ignores variations in the importance accorded to the use of the thing in question by individual claimants.
On the facts of the case giving rise to the question laid before us, we need not decide finally what kinds of property other than motor cars should give rise, in accordance with what has been said above, to a claim for damages for temporary loss of use, but where the use of an owner-occupied house is temporarily lost as a result of a tort, as in the case at hand, there can be no doubt that this constitutes a compensable economic harm. We need not dilate on the fact that an individual’s economic life centres on his residence and that the continuous availability of the home is a major feature of a person’s whole estate. This very point shows how disproportionately one would be privileging the acquisitive economy over the personal deployment of resources if one were to say that damages are available only for losses of profitable use and to treat impairment of personal use as a mere source of harm which must remain uncompensated unless a substitute is rented. It may be acceptable to deny damages for short-term deprivations of use which the victim could allay by making different arrangements which are economically reasonable, but it would be contrary to the principle of full compensation for economic harm to do so when a home is completely unusable, even for a short time, and the owner would have stayed in it but for the invasion.
It must really be left to the practice of the courts to determine which types of property should attract compensation for loss of use and what regulatory mechanisms are appropriate. The only legal constraints are that the measurement of loss must be in line with the purpose of damages law, especially the requirement of § 253 BGB that the criteria be objective and that the rules as to damages be regularly applied.
In principle it would be wrong to award as damages what it would have cost the owner to hire a substitute, for the aim is compensation not reparation. What is to be measured is not the cost which the owner has avoided by meeting his need otherwise but the value in money of the use of the thing for the owner’s own purposes. Nor can the owner claim damages on the basis of what he would have charged the tortfeasor for the use of the thing: such a method of calculating the loss may be justified in special circumstances where there is a specific conflict of interest, but it is not conformable to general principles of damages law, for what is to be met is the loss of use of the property for the purposes intended by the owner, not what he would have collected by letting it to a third party, which he never intended to do.
Nevertheless the normal cost of hire, once properly purged of the profit element, may serve as a basis for the measurement of the harm. Other relevant factors may be a proportion of the basic costs of the use prevented (appropriate interest on the capital invested, running costs for the availability of the property, depreciation in value over the time it was out of use). Nor, contrary to the view of the Fifth Civil Senate, does it seem wrong in this connection to apply a markup on what is generally considered as the minimum cost of use, for the loss of use of such economic goods may well have had the ulterior effects on the whole estate of the claimant which it is impossible to identify precisely.
Other methods of valuation in addition to these which we have indicated may also be appropriate.
NOTE to BGHZ 40, 345, BGHZ 89, 60 and BGHZ 98, 212
The problem in these cases is one which has been the subject of much dispute in Germany and it has exercised the Bundesgerichtshof in a whole series of decisions. The victim of property damage can of course claim, in addition to the cost of repair, the costs involved in the loss of its use such as, in the case of a motor car, the hire of a substitute or the cost of using other means of transport. In the case of a house, the claim would be for the cost of renting a substitute or the cost of staying in an hotel. But can the victim claim damages for loss of use when he has made the loss good costlessly, e.g. by using his bicycle while the car was being repaired or staying in a caravan in the garden when the house was uninhabitable and so on? That is the issue in dispute. The decisions given here form part of a long line of cases which have allowed the plaintiff to claim for loss of use in abstracto, despite the lack of any provable money loss. The question has occasionally divided the different Senates of the Bundesgerichtshof, but the decision of the Great Senate for Civil Matters in BGHZ 98, 212 has, for the time being at any rate, put an end to the discussion.