Bundesgerichtshof 2 March 2005 [ VIII ZR 67/04], Juristen-Zeitung 2005, 844

Translation by Birgit Kurtz, Alston & Bird LLP

[…]

Upon the hearing of 2 March 2005, by Presiding Justice Dr. Deppert and Justices Dr. Beyer, Wiechers, Dr. Wolst, as well as Justice Hermanns, the 8th Civil Panel of the German Supreme Court for Civil and Criminal Matters has adjudged that:

Upon appeal by [Seller’s assignee], the judgment of the 3rd Civil Panel of the Court of Appeals of Frankfurt am Main, dated 29 January 2004, is herewith reversed, and the judgment of the Local Court of Gießen – 2nd Chamber for Commercial Matters – dated 18 March 2003, is amended and now reads as follows:

• [Buyer] is ordered to pay to [Seller’s assignee] Euro 7,233.12, plus 5% interest as of 26 June 1999. As for the rest, the complaint is dismissed.
• Further appeals by [Seller’s assignee] are rejected.
• The costs of the legal proceedings are to be borne 85% by [Seller’s assignee] and 15% by [Buyer].

The judgment is preliminarily enforceable.

Ex Officio

Facts

[Seller’s assignee] seeks payment of the purchase price for various meat deliveries based on the assigned rights of the Belgian wholesale meat distributor [Seller].

In April 1999, [Buyer] ordered a larger amount of pork from [Seller]. The goods were to be delivered directly from the [Buyer] to the [Buyer]’s customer, H. in K…, and from there, further distributed to a trading company in Bosnia-Herzegovina/Republic of Srpska. The delivery was made in partial amounts on 15 April, 27 April and 7 May 1999. [Seller] issued invoices to [Buyer] for the above deliveries for Deutsche Mark [DM] 49,106.20, DM 29,959.80 and DM 49,146.75 respectively, referencing the delivery dates, and the invoices were payable at the latest on 25 June 1999, and were accompanied by so-called certificates of fitness for consumption. The goods arrived in Bosnia-Herzegovina at the latest on 4 June 1999. [Buyer] paid DM 35,000 towards the total amount due of DM 128,212.75. [Seller] assigned its claim to the remaining amount of DM 93,212.75 (Euro 47,658.92) to [Seller’s assignee].

Starting in June 1999, the suspicion arose in Belgium and Germany that the meat produced in Belgium was contaminated with dioxin. As a result, in Germany, an ordinance for the protection of consumers from Belgian pork was issued (effective 11 June 1999) in which the meat was declared to be unmarketable, insofar as no certificate was presented declaring the meat to be free of contaminants. In this regard, the European Union issued an ordinance about the necessity of certificates of fitness for consumption, confirming dioxin-free goods. Finally, on 28 July 1999, identical ministry ordinances were issued in Belgium about the confiscation of fresh meat and meat products from beef and pork that, among other things, also contained provisions regarding meat that had already been exported abroad at that point in time.

[Seller’s assignee] demands payment of the remaining amount. [Buyer] claims that the purchased pork was placed in a customs storage facility, and a confirmation that the meat was free of dioxin was demanded for customs clearance in Bosnia-Herzegovina at the end of June 1999. On 1 July 1999, a notification was received from Bosnia-Herzegovina that prohibited the sale of the delivered goods. After receipt of the notification of the prohibition of sale, [Buyer] requested numerous times that [Seller] produce a health clearance certificate. Since [Seller] did not provide such a certificate, the goods were finally destroyed.

The Court of First Instance gathered evidence by questioning a number of witnesses and obtaining an official notification from the German Federal Ministry of Health and then dismissed the complaint. The appeal by [Seller’s assignee] against this decision was rejected by the Court of Appeals. [Seller’s assignee] is now prosecuting its application for relief to the full extent after the Panel found the appeal to be procedurally permissible.

Grounds for the decision

I. The Court of Appeals had essentially decided that the complaint is without merit because the goods delivered did not conform with the contract within the meaning of the applicable provisions of the CISG (Arts. 36, 67(1) CISG). According to jurisprudence of the German Supreme Court for Civil and Criminal Matters, the suspicion of dioxin contamination alone is a defect which the Plaintiff [Seller’s assignee] did not disprove.

It is true that a seller is generally not liable for the goods meeting the public law regulations valid in the country of consumption. In this case, however, the product itself caused the issuance of protective regulations under public law, and not only in the ultimate buyer’s country (Bosnia-Herzegovina), but also throughout the entire European Union, including the country of origin, Belgium. The fact that the ordinance at issue was enacted in Belgium only very late – at the end of July 1999 – is irrelevant; in any case, the prescribed comprehensive confiscation is a strong indication that dioxin contamination already existed when the disputed deliveries were made. Through the evidence gathered in the lower court proceeding, it was finally proven that [Buyer] attempted unsuccessfully to obtain from [Seller] a certificate guaranteeing the absence of dioxin in the goods.

II. Because Defendant [Buyer] was not represented in the appeal proceeding despite timely notification, at the plaintiff’s request, the appeal is to be decided by default judgment, insofar as the appeal was successful. To that extent, however, the judgment is based not on the default, but rather on an analysis of the substance (compare BGHZ [*] 37, 79, 81). Insofar as the appeal proves to be unfounded, this is a contradictory judgment, a false default judgment (BGH [*], Judgment of 1 June 1967 – II ZR 130/65, NJW [*] 1967, 2162).

The considerations of the Court of Appeals do not entirely withstand legal scrutiny. [Seller’s assignee] is entitled to payment for the meat delivery based on the assigned rights of [Seller] in the amount of Euro 7,233.12, plus interest.

1. The Court of Appeals’ legal starting point was correct, namely that the merits of the purchase price demand at issue in the proceeding are governed by provisions of the CISG because both contract parties are domiciled in different contract states (Art. 1(1)(a) CISG). However, insofar as the Court of Appeals refers to the Panel judgments of April 16, 1969 (BGHZ 52, 51), 14 June 1972 (VIII ZR 75/71, NJW 1972, 1462 = WM [*] 1972, 1314), and 23 November 1988 (VIII ZR 247/87, NJW 1989, 218), in analyzing the question whether, at the time the risk passed, the delivered meat conformed with the contract within the meaning of Arts. 35, 36 CISG, it ignored the fact that these decisions were issued before the CISG went into effect in Germany and refer to § 459 BGB [*](old version). The principles developed there cannot simply be applied to the case at hand, although the factual position – suspicion of foodstuffs in transborder trade being hazardous to health – is similar; that is so because, in interpreting the provisions of CISG, we must consider its international character and the necessity to promote its uniform application and the protection of goodwill in international trade (Art. 7(1) CISG). The provisions of the CISG are, therefore, generally autonomous, i.e., by themselves and within the overall context of the Convention, without recourse to the rules developed regarding the standards of the non-uniform national laws. Only insofar as can be assumed that national rules are also recognized internationally – where, however, caution is advised – can they be considered within the framework of the CISG.

2. As to the substance, the Court of Appeals, without expressly clarifying this, but obviously in agreement with the Court of First Instance, assumed that [Buyer] was justified in reducing the purchase price because the delivered goods did not conform with the contract (Arts. 35, 36, 50 CISG). The other possible appeals and objections on the Buyer’s and the Seller’s side were not addressed; this is, however, not harmful because a belated performance (Art. 46 et seq. CISG) under the special circumstances of this case was obviously excluded and the avoidance of the contract (Art. 49 CISG) was not declared by [Buyer].

3. Only a price reduction in the amount of DM 79,066.00 (=  Euro 40,425.80) is justified so that a purchase price claim in the amount of Euro 7,233.12 is still outstanding.

a) According to Art. 50, first sentence CISG, the Buyer can reduce the price in the proportion that corresponds to the lower value of the goods if the goods did not conform with the contract during the relevant point in time when the risk passed, regardless of whether the purchase price has already been paid or not; this was – contrary to the opinion of the Court of Appeals, however, only partially – the case (see below b) through d)). [Buyer] was, therefore, allowed to reduce the purchase price to zero for the non-conforming partial shipments because there was also no other possibility for utilizing the meat – e.g., for processing into feeding stuffs. The fact that [Buyer], obviously still unaware of the suspicion of dioxin contamination of beef and pork produced in Belgium, made partial payments in the amount of DM 35,000 on [Seller’s] invoices before refusing to make further payments, does not conflict with the reduction of the purchase price.

b) In its conclusion, the Court of Appeals correctly assumed that the pork delivered by [Seller] did not conform with the contract; this applies, however, only to the deliveries made on 15 and 27 April 1999. This does not apply to the last delivery made on 7 May 1999, according to the submission by [Seller’s assignee], which, in this respect, has not been controverted (compare below at 4).

According to Art. 35(1) CISG, goods (only) conform with a contract if they are of the quantity, quality and description required by the contract. If the parties have not agreed otherwise, the goods only conform with the contract if they are fit for the purposes for which goods of the same description would ordinarily be used (Art. 35(2)(a) CISG). In international wholesale and intermediate trade, an important part of being fit for the purposes of ordinary use is resaleability (tradeability) (Panel Judgment BGHZ [*] 129, 75, 81; Achilles, CISG, Art. 35 ¶ 4; Schlechtriem/Schwenzer, CISG, 4th ed., Art. 35, ¶ 14 with further references; Witz/Salger/Lorenz, Uniform Law on International Sale of Goods, Art. 35 ¶ 9). In the case of foodstuffs intended for human consumption, resaleability includes that the goods are unobjectionable as to health, i.e., at least not hazardous to health. Insofar as the compliance with public regulations is relevant here, the circumstances in the Seller’s country are generally controlling because the Seller cannot be generally expected to know the relevant provisions in the Buyer’s country or – in a case where the wholesaler sells directly to the client/consumer at the retailer’s request – in the country of the ultimate consumer (BGHZ id., p. 81 with further references; also decisions by the Austrian Supreme Court of 13 April 2000 – 2 Ob 100/00w, ZfRVgl 2000, 231, and of 27 February 2003, 2 Ob 48/02a, CISG-online No. 794). The situation is only different, however, if the provisions in the Seller’s and the Buyer’s country are essentially the same, or if the Seller is familiar with the regulations in the Buyer’s country based on certain circumstances (BGHZ, id., p. 84). The provisions of the country Bosnia-Herzegovina, which were, according to the [Buyer]’s disputed allegation, the reason behind the confiscation and destruction of the entire goods, are therefore not applicable.

c) At the decisive point in time of the passing of the risk – here: at the time of the delivery of the goods at the Seller’s Belgian domicile to the first forwarding agent (Art. 67, first sentence CISG) in April 1999 – there was neither the suspicion of a harmful dioxin contamination of the pork, nor – more importantly – had the relevant ordinances yet been enacted in Belgium, Germany and the EU. This circumstance, however, does not contradict the goods’ lack of conformity with the contract as assumed by the lower courts; that is so because the non-conformity is already given, as expressly clarified in Art. 36(1), last clause CISG, at the point in time the risk passes if it already exists at this point in time but only later becomes apparent, i.e., if it is a hidden defect.

Exactly this was the case here, insofar as it relates to the deliveries made on 15 and 27 April 1999; according to the invoices, the meat in question was processed and frozen on 3 March 1999. The suspicion of dioxin contamination harmful to health existed for all pigs slaughtered between 15 January and 23 July 1999 (Art. 3 of the Belgian Ministerial Ordinance of 28 July 1999). The meat was, to the extent it was still in Belgium, confiscated for precautionary reasons (Art. 1 id.); it was only to be sold if, by 31 August 1999, at the latest, by tracing the origin of the goods or through lab analysis, the suspicion of dioxin contamination was dispelled (Art. 2, 3 id.) vis-à-vis the responsible control authorities. To the extent the suspicion proved to be true, meat already exported was supposed to either be destroyed abroad or shipped back to Belgium, where it would also be confiscated and destroyed (Art. 11, id.). It is undisputed that the Seller failed to produce proof of the absence of dioxin as required by it.

d) Accordingly, it was also clear for the Belgian territory, at the latest by the end of July 1999, that the meat delivered to [Buyer] by [Seller] in April 1999 was not resaleable and thus did not conform with the contract within the meaning of Art. 35(1) and 35(2)(a) CISG. The characteristics that led to the confiscation and the loss of tradeability were already attached to the meat at the time the risk passed because, objectively, already at this point in time, it was clear that it originated from the dioxin contaminated inventory. The fact that the suspicion became known only weeks later and led to far-reaching official precautionary measures in Germany, the European Union and finally also in Belgium, does not change the existence of the character of the goods as potentially harmful to health at the time the risk passed. Whether and to what extent the meat delivered to [Buyer] was actually contaminated with dioxin is irrelevant because the suspicion alone, which excluded the marketability, which became apparent later and which was not invalidated by the Seller, has a bearing on the resaleability and tradeability.

We also do not need to decide whether the suspicion that certain goods may be harmful to health always represents a breach of contract with regard to foodstuffs. At least if the suspicion – as in this case – has led to public measures that preclude the goods’ tradeability, the goods must be viewed as not conforming with the contract for the area of wholesale and intermediate trade.

4. The situation is different with respect to the 7 May 1999 delivery. To that extent, [Seller’s assignee] had already submitted in the court of first instance, without objection, that the meat had already been processed on 12 January 1998, to which the appeal correctly points, with reference to the corresponding note in the invoice of 7 May 1999. Because the delivery included a certificate, customary at the time and deemed sufficient, stating the goods were fit for human consumption, the goods were resaleable and unaffected by the precautionary measures ordered in Germany and Belgium in June and July 1999 for meat originating from animals slaughtered after 15 January 1999. If, however, as [Buyer] claims, this delivery was also confiscated and destroyed in Bosnia-Herzegovina, this was certainly not the result of a breach of contract on the side of the Seller.

5. Based on the above, [Buyer] correctly reduced the purchase price to zero for the deliveries made on 15 and 27 April 1999. On the other hand, it owes – as the Panel itself can decide because further determinations are not expected – to [Seller’s assignee] the full purchase price for the delivery made on 7 May 1999 in the amount of DM 49,146.75. After deducting the partial payments adding up to DM 35,000, there is a balance due of DM 14,146.75 = Euro 7,233.12. Accordingly, the Court of Appeals’ judgment on the appeal by [Seller’s assignee] – otherwise rejected – is to be repealed and the judgment of the court of first instance is to be amended because no additional findings are required; the complaint for further relief is denied.

Dr. Deppert     Dr. Beyer     Wiechers      Dr. Wolst     Hermanns

Footnotes

* For purposes of this translation, the Plaintiff is referred to as [Seller’s assignee]; the Defendant is referred to as [Buyer]. Amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM]; amounts in European currency are indicated as [Euro].

Translator’s note on other abbreviations: BGB = Bürgerliches Gesetzbuch[German Civil Code]; BGH = Bundesgerichtshof [Federal Supreme Court of Germany]; BGHZ = Entscheidungen des Bundesgerichtshofes in Zivilsachen[Official Reporter of Decisions of the German Federal Supreme Court on Civil Matters]; NJW = Neue Juristische Wochenschrift [German law journal]; WM = Zeitschrift für Wirtschafts- und Bankrecht [Legal journal on commerce and banking].

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichshof 30 June 2004 [VIII ZR 321/03], Neue Juristische Wochenschrift 2004, 788

Translation [*] by Alston & Bird LLP
Editor: Birgit Kurtz, Esq. [**]

[…]

Ruling

Upon the hearing of 30 June 2004, by the Presiding Justice Dr. Deppert and Justices Dr. Beyer, Wiechers, Dr. Wolst, as well as Justice Hermanns, the Eighth Civil Panel of the Federal Supreme Court of Germany for Civil and Criminal Matters has adjudged that:

• Upon the Defendant [Buyer]’s appeal, the judgment of the 3d Civil Panel of the Court of Appeals of Celle, dated 24 September 2003, is herewith reversed;
• The matter is remanded to the Court of Appeals for a new hearing and judgment, also with regard to the costs of the appeal to the Supreme Court.

Facts of the case

The parties are in dispute over a claim for damages with which Defendant [Buyer] has set off the Plaintiff [Seller]’s purchase price demand, which is uncontested as to basis and amount.

[Seller], a company located in Spain, and [Buyer], which is located in L. and produces and distributes spices, have had a long-standing business relationship. On 28 February 2001, [Seller] supplied [Buyer] with paprika powder and oil for a total amount of Euro 30,816. [Buyer] has acknowledged the basis and amount of the demand, but has set off the amount of the claim against a claim for damages based on the alleged contractual non-conformity of the goods delivered earlier. The set-off claim is based on the following facts:

In September 2000, a delivery of 5,000 kilograms of “sweet paprika” was made, which was not to have been irradiated according to the terms of the agreements between the parties. Upon delivery, [Buyer] examined the goods merely with respect to the degree of purity; [Buyer] did not examine the goods for radiation exposure because this procedure is very time-consuming and costly and, therefore, is not part of the regularly performed lab tests. Thereafter, [Buyer] processed the paprika powder by mixing it with “chili” to produce the product “paprika, hot, ground”, and sold it to one of its customers in December 2000. By registered letter dated 26 March 2001, [Buyer] complained to [Seller] that the paprika powder delivered in September 2000 had been irradiated. In a letter dated 20 April 2001, [Buyer] listed the damages it incurred – replacement to its customer, cost of an expert’s report and miscellaneous costs – at a total of Deutsche Mark [DM] 65,309.48; [Buyer] later lowered its claim for damages to DM 41,613.48.

[Buyer] claims that the goods were irradiated; it received an indication of this only from an article in a consumer test magazine. [Buyer] had also agreed with its customer to deliver non-irradiated goods. Upon an inquiry, [Seller] stated on 8 January 2001, that the goods had not been irradiated. A laboratory test of four samples from the goods delivered by [Seller], however, proved radiation exposure, as shown in the test reports dated 22 January, 5 February and 20 February 2001.

The Landgericht [Court of First Instance] granted [Seller]’s claim for the full purchase price. [Buyer]’s appeal of this decision was rejected by the Oberlandesgericht [Court of Appeals]. Through its appeal to the Supreme Court, which was accepted by the Panel, [Buyer] continues to prosecute its motion to dismiss the complaint.

Grounds for the decision

I. The Court of Appeals did not decide whether the paprika powder delivered by [Seller] was actually irradiated and explained: The notice given by [Buyer] was untimely according to Art. 39(1) CISG, which applies here, so that [Buyer] lost the right to rely on a lack of conformity of the goods with the contract. The Court held that [Buyer] was already aware that the powder was irradiated since the test report was dated 22 January 2001; nonetheless, it waited until 26 March 2001, to complain. Since a reasonable time period to complain is usually two weeks, the notice was given too late. [Buyer] did not present any excuse within the meaning of Art. 44 CISG. The Court stated that, finally, [Buyer] could not invoke Art. 40 CISG because it did not proffer the necessary evidence that [Seller] knew or should have known of the irradiation of the paprika powder. [Seller] was not obligated to test the goods because that type of laboratory test would have been economically unreasonable according to [Buyer]’s submission.

II. These considerations do not entirely withstand legal scrutiny.

1. The Court of Appeals correctly assumed that any rights of [Buyer] based on the alleged lack of conformity of the goods with the contract are governed by the provisions of the UN Sales Convention (CISG) because the parties are each domiciled in a member state of the treaty (Art. 1(1)(a) CISG). It also correctly assumed that, according to Art. 39(1) CISG, the buyer loses the right to rely on the lack of conformity of the goods with the contract (Art. 36 CISG) if he does not give notice to the seller within a reasonable period of time after he discovered or should have discovered it, specifying the exact nature of the lack of conformity. Finally, the Court of Appeals was also correct in ruling that while, in this case, the notice period did not start before receipt of the test report dated 22 January 2001, because – as was the tacit assumption of the Court of Appeals – an earlier routine testing of the paprika powder was economically unreasonable for the [Buyer] due to the related expense, but the period of more than two months could no longer be deemed a reasonable period within the meaning of Art. 39(1) CISG.

2. We cannot, however, agree with the Court of Appeals to the extent it finds that the requirements of Art. 40 CISG are not met, based on the determinations reached thus far and [Buyer]’s submissions on appeal. According to this provision, the seller cannot rely on the untimeliness of a notice of non-conformity (Art. 39 CISG) if the contractual non-conformity of the goods is based on facts he knew or of which he could not have been unaware.

a) The Court of Appeals reasoned that [Seller] cannot be denied the right to rely on the untimeliness of the notice because [Buyer] had not proffered evidence showing that [Seller] knew or should have known of the (alleged) non-conformity of the goods with the contract. It is correct that, generally, the burden of proof lies with the buyer as to the seller’s bad faith; that is so because, as the Panel previously decided, the CISG, even to the extent it does not expressly determine the burden of proof, follows the principle of rule and exception (Panel decision of 9 January 2002 – VIII ZR 304/00, NJW 2002, 1651 = WM 2002, 1022 under II 2 b with further citations). Most lower courts have ruled that the burden of proof lies with the buyer (OLG Karlsruhe, BB 1998, 393, 395; OLG Munich, Transp.R-IHR 1999, 20, 22; OLG Koblenz, OLGR Koblenz 199, 49, 50). The question as to the burden of proof within the framework of Art. 40 CISG has also been the subject of a number of foreign rulings (Arbitral Panel of the Stockholm Chamber of Commerce, decision of 5 June 1998, www.cisg-online.ch 379; Arrondissementsrechtbank Roermond/Netherlands, decision of 19 December 1991, CISG-online 29, 900336; ICC International Court of Arbitration, CISG-online 705; Ontario Superior Court of Justice (Canada), IHR 2001, 46).

Also according to the majority of the commentators in legal literature, the burden of proof generally lies with the buyer with respect to the factual requirements because he wants to avoid the legal consequences of Art. 38 et seq. CISG (Bamberger/Roth/Saenger, BGB [*], Vol. 3, Art. 40 CISG, ¶ 6; Baumgärtel/Laumen/Hepting, Handbuch der Beweislast im Privatrecht [Manual of the Burden of Proof in Civil Law], 2d ed., Vol. 2, Art. 40 WKR ¶ 1; Schlechtriem/ Schwenzer, CISG, 3d ed., Art. 40 ¶ 12).

b) For cases like the present one, this means first that, in principle, the buyer must present, and possibly also prove, the factual requirements of Art. 40 CISG, since he relies on the exception to the (rule) provision of Art. 39 CISG regarding the loss of the right to give notice of a contractual non-conformity. The Court of Appeals, however, did not sufficiently consider that an exception in an individual case must be allowed under the aspect of “proof-proximity” [Beweisnähe] [**] or if an evidentiary showing results in unreasonable difficulties of proof for the buyer.

Within the scope of the CISG, it is recognized that a strict application of the exception-to-the-rule principle can lead to inequities and that, therefore, a correction is necessary according to the principles set forth herein (compare Baumgärtel/Laumen/Hepting, supra, ¶¶ 28 to 30 before Art. 1 WKR; Staudinger/Magnus (1999) Art. 4 CISG ¶ 69; Schlechtriem/Ferrari, supra, Art. 4 ¶ 51), but prudence is appropriate. The law allows for this aspect within the framework of Art. 40 CISG in that it does not always demand proof of the seller’s knowledge of the facts on which the contractual breach is based, but rather deems it sufficient that the seller “could not have been unaware of” those facts; thus, Art. 40 CISG also covers cases of negligent ignorance (Achilles, Kommentar zum UN-Kaufrechtsübereinkommen [Commentary on the UN Treaty on the Sale of Goods (CISG)], Art. 40 ¶ 1; Soergel/Lüderitz, 12th ed., EKG [*]Art. 40 ¶ 1; Soergel/Lüderitz/Schüßler-Langeheine, 13th ed., CISG Art. 40 ¶¶ 1, 2). Under certain circumstances, the required proof can already be deduced from the type of defect itself so that, in the case of extreme deviations from the contractually agreed upon condition, gross negligence is assumed if the breach of contract occurred in the seller’s domain (Achilles, supra, Art. 40 ¶ 4; Soergel/Lüderitz, supra, Art. 40 EKG [*] ¶ 1; see also Soergel/Lüderitz/Schüßler-Langeheine, supra, Art. 40 CISG ¶ 3; Staudinger/Magnus, supra, Art. 40 ¶ 13). According to the principles mentioned above, it may be necessary to limit the buyer’s burden of proof in the case of a gross breach of contract and in view of the aspect of “proof-proximity” in order to avoid unreasonable difficulties in providing proof.

c) In the instant case, the type of breach of contract assumed on appeal does not in itself allow conclusions to be drawn as to the knowledge or grossly negligent ignorance of [Seller] as to the breach; that is so because the irradiation of the paprika powder was not externally identifiable and could only be determined upon expensive laboratory testing. This works to [Seller]’s advantage with respect to the question whether gross misconduct on its part must be assumed. Based on conclusions reached thus far, and considering the facts submitted by [Buyer] on appeal, it appears possible, however, that, considering the aspect of [Seller]’s “proof-proximity” and the unreasonable expectation that [Buyer] make a full evidentiary showing that also addresses [Seller]’s needs, proof requirements must be eased.

It is true that [Buyer] must first provide full proof of the fact that the goods supplied by [Seller] were irradiated; this requires that the material tested by the laboratory was the paprika powder delivered by [Seller] – which [Seller] has denied – and that the goods, per [Buyer]’s statement, were irradiated neither in its own, [Buyer]’s, domain, nor in the domain of its customer. If these allegations of [Buyer] should turn out to be correct, the proof of the breach of contract would at the same time prove its claim that the powder was irradiated either in [Seller]’s facility or at the facility of [Seller]’s supplier. Based on its own knowledge, [Buyer] is unable to determine which of these two possible causes, which were not within the scope of its responsibility, led to the contractual non-conformity of the paprika powder. [Buyer] could only allege “into the blue” as to the internal operations of [Seller]; it cannot be expected, as an outside buyer, to have sufficient knowledge of the internal production conditions of its seller, which produced the supplied goods or processed them. In contrast, [Seller] was certainly able to make a statement in this regard. In this connection, [Seller] testified that the paprika powder was not irradiated in its facility and that this is excluded already by the fact that it does not possess the necessary equipment. If [Buyer] is able to provide proof that the goods were irradiated before delivery, it will need to address [Seller]’s evidence to support its claims to the contrary. If the paprika powder was in fact irradiated in [Seller]’s facility, it could, if this was merely a mistake, claim slightly negligent behavior only if it could sufficiently explain how this type of serious error occurred in its facility, despite appropriate precautions, and why it did not become aware of this; that is so because the burden of explanation must be put on the seller, in whose domain the breach of contract occurred, as to why such a serious error occurred and how it went undetected in its facility (compare Panel Decision of 5 July 1989 – VIII ZR 123/88, NJW 1989, 3097 under 2 d re. Art. 40 EKG [*]).

A different consideration applies under the aspect of grossly negligent ignorance if the raw material that [Seller] purchased from its supplier was already contaminated. It is true that the delivery of irradiated powder to [Buyer], contrary to the agreements made, would constitute a significant breach of contract. But this is not an indication yet that [Seller] remained unaware, as a result of gross negligence, of the pre-contamination of the goods. To that extent, it must be taken into consideration that at least a random sample testing of the paprika powder for irradiation could be expected as little from [Seller] as from [Buyer] due to the related costs. There would be no gross negligence if [Seller] could show that it had taken suitable other precautions, for example, appropriate contractual stipulations with its supplier, ensuring that only uncontaminated raw material would be used for [Buyer]’s order.

3. If, according to the conclusions reached thus far, it can therefore not be excluded that the paprika powder delivered to [Buyer] – according to its statements on appeal that the irradiation allegedly took place at [Seller]’s facility or in that of its supplier – was irradiated at the time of the passing of the risk, contrary to the contractual agreements, and if it must further be assumed, on the basis of [Buyer]’s assertions, that the breach of contract could not have been concealed from [Seller], then [Seller] could not rely on the untimeliness of [Buyer]’s notice pursuant to Art. 40 CISG. As a result, the set-off declared by [Buyer] of its claim for damages against [Seller]’s price demand would prevail.

III. In view of the above, the appealed judgment cannot stand because, based on the above, additional clarification is required for a ruling on this legal dispute. Upon [Buyer]’s appeal to the Supreme Court, the judgment by the Court of Appeals is therefore vacated, and the matter is remanded to the Court of Appeals for a new hearing and decision (§ 563(1) ZPO [*]). In the new hearing on appeal, the parties will have the opportunity to supplement their submissions regarding the factual and legal aspects addressed here.

Dr. Deppert     Dr. Beyer     Wiechers      Dr. Wolst      Hermanns

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichtshof (Civil Panel VIII) January 9, 2002 [VIII ZR 304/00], Neue Juristische Wochenschrift 2002, 1651

Translation [*] by Alston & Bird LLP
Editors: William M. Barron, Esq. & Birgit Kurtz, Esq.

Facts

The plaintiff [buyer 1] and the assignor [buyer 2], both located in the Netherlands and trading in dairy products, purchased a total of 2,557.5 tons of powdered milk in the first half of 1998, based on a number of contracts, from defendant [seller 1], which is headquartered in Germany, and its major shareholder [seller 1A]. Of this powdered milk, [buyer 1] and [buyer 2] sold 7.5 tons to the Dutch company I. and 2,550 tons to the Algerian company G.I., owned by P.L. S.p.A. (hereinafter G. S.p.A.), formerly known as O.R. S.p.A. The contents of the telephonic orders were recorded by [buyer 1] and [buyer 2] and/or by [seller 1] and [seller 1A] in written confirmations. The letters of confirmation of delivery of [seller 1] and [seller 1A] (whose production facility in L. [seller 1] acquired in the beginning of 1998 with all existing contractual relationships) each contained in the footer the following text:

“We sell exclusively pursuant to our general terms and conditions. Contrary statutory conditions or contrary general terms and conditions of the buyer are expressly not acknowledged and are therefore not part of the contract.”

The terms and conditions at issue contain the following warranty clause:

“VI. Warranty and Notification of Defects

The buyer must inspect the goods immediately upon delivery and note any complaints on the delivery note … Defects that are not noticeable at the time of delivery can only be claimed before the printed expiration date … The buyer must make available the goods at issue or enough samples of the goods at issue; if he does not do so, the buyer cannot make any warranty claims.”

Condition No. 8 in the so-called M.P.C. conditions referred to by [buyer 1] provides:

“Section 10. Sampling and Complaints

Notwithstanding any duty of the seller to pay back the purchase price, or a part thereof, the liability of the seller for damages suffered (and/or to be suffered) is at all times limited to the invoiced amount for the delivered goods.”

The powdered milk, which was packaged and delivered by [seller 1], was inspected through spot-checks by [buyer 1] and/or [buyer 2] with the assistance of “I.S. Nederland B.V.” (hereinafter “I.S.”) without any special results, then it was newly palletized in the harbor of Antwerp and thereafter shipped to Algeria and, to the extent it was sold to I., to Aruba/Netherland Antilles.

After local subsidiaries of G S.p.A. processed the powdered milk delivered to Algeria, some of the produced milk had a rancid taste. Thereupon, G. S.p.A. complained to [buyer 1] and [buyer 2] about a total of 207.6 tons of powdered milk as well as part of the powdered milk that had already been processed into 10,000 liters of milk. On June 24 and August 19, 1998, representatives of G. S.p.A., of [buyer 1], of [buyer 2] and of [seller 1] had several meetings in A. to clarify the question of the compensation for G. S.p.A. The result of these negotiations, during which [buyer 1] and [buyer 2] each promised certain compensation to G. S.p.A., was recorded in four “minutes of amicable settlement”; these documents were also signed by the representative of [seller 1].

By letter dated August 24, 1998, the legal department of [seller 1A], which was entrusted by [seller 1] with the resolution of the matter, informed [buyer 1] and [buyer 2] of the following, among other things:

“We acknowledge that a partial quantity of 177 tons of the total quantity of 3,495 tons of powdered milk, delivered pursuant to the letters of confirmation of delivery dated … did not meet the contractual requirements.

“We do not deny that you have warranty claims because of the quality deviation, but the following two aspects must be considered:

1. […]
2. All letters of confirmation of delivery mentioned above refer to our general terms and conditions, which must therefore govern our legal relationship. Thus, S. AG does not have to deal with any warranty or damages claims raised by company G.

“… We expressly emphasize here that we are willing to rescind the contractual relationship with you and/or company A. because of the 177 tons of inadequate powdered milk. Further claims that company G. may raise against you or company A. are not substantively justified and will not be accepted by us.”

By letter dated September 1, 1998, [buyer 2] claimed damages from [seller 1] in the amount of $198,150.36; it assigned this claim to [buyer 1] on November 30, 1998.

Company I. also complained to [buyer 1] regarding the delivery of 7.5 tons of powdered milk because of, among other things, a sour taste of the powdered milk, and claimed damages in the amount of Hfl [Dutch florin] 29,256, which [buyer 1] paid.

[Buyer 1] alleged that the rancid taste, noticed by the ultimate buyers, was caused by an infestation of the powdered milk by lipase that already existed at the time of the transfer of the risk as a result of the faulty processing of the milk. [Translator’s note: lipase is an enzyme.] This defect was only noticeable after the delivery and was immediately complained of by it. [Seller 1] acknowledged its warranty in the agreements recorded in Algeria as well as in its letter dated August 24, 1998. Under the rules of the CISG, [seller 1] is liable for the damages incurred by [buyer 1] and [buyer 2] that resulted from the payment of damages to the ultimate purchasers and the travel costs for the meeting in A., totaling DM[Deutsche Mark] 780,506.46; this was not excluded by [seller 1]’s general terms and conditions of delivery.

[Seller 1] alleged that the lipase infestation of the powdered milk delivered to Algeria first occurred after the transfer of the risk, or at least it was not caused by it. The powder delivered to company I. could not be consumed because of an insect infestation. In any case, the application of the CISG is excluded by its general terms and conditions. Thus, the German BGB [*] governs, with the consequence that [buyer 1] has no claim for damages because the delivered powdered milk did not lack an assured quality.

The Regional Court [Landgericht] dismissed the complaint for payment of the above-referenced amount. On appeal by [buyer 1], the Higher Regional Court [Oberlandesgericht] granted the claim in the amount of DM 633,742.45 – after obtaining an oral expert opinion regarding the cause of the defect – and dismissed the appeal as to the rest, especially insofar as the complaint concerns the last partial delivery to G. S.p.A. on July 6, 1998 (650 tons) and the delivery to company I. On appeal to the Supreme Court, [seller 1] continues to request the dismissal of the case in its entirety.

Grounds for the decision

I. The Court of Appeals stated in essence:

The warranty claims asserted by [buyer 1], based on its own rights and on rights assigned to it, are justified according to the rules of the CISG. The CISG was neither totally nor partially replaced by the General Terms and Conditions and Delivery Conditions of [seller 1] nor by the M.P.C. conditions used by [buyer 1]. The latter did not become part of the agreements with [buyer 2] and was also altogether superseded by the rejection clause in the General Terms and Conditions of [seller 1]. The fact that the mutual general terms and conditions partially contradicted each other did not prevent the existence of the sales contracts because the parties did not view this contradiction as an obstacle to the execution of the contracts.

[Seller 1] must pay damages under Arts. 74, 75 CISG because 177.6 tons of the delivered powdered milk must be considered defective, the defects were claimed in time and the liability of [seller 1] was not excluded under Art. 79 CISG. According to the expert report of Prof. Dr. F., the powdered milk was infested by lipase. Because [seller 1] acknowledged the defect in 177.6 tons of powdered milk by letter dated August 24, 1998, which caused a reversal of the burden of proof according to the applicable (non-CISG) German law, it was its duty to show and prove that the powdered milk met the requirements of the contract at the time of the transfer of the risk. [Seller 1] did not submit such evidence. According to the expert report of Prof. Dr. F., it cannot be ruled out that the powdered milk was infested by inactive lipase at the time of the transfer of the risk. This assumption was not changed by the considerations of the private expert Prof. Dr. B. (who was retained by [seller 1]), which are based on the fact that no lipase activity was diagnosed in the analysis of the powdered milk by I.S.; that is so because the expert does not deal with the question whether the contamination by inactive lipase could have been determined. Therefore, the commissioning of another report, as requested by [seller 1], is not necessary, the more so since the expert Prof. Dr. F. has testified that, in 1998, there was no scientifically accepted method to quantitatively determine inactive lipase in powdered milk.

The assertion of [seller 1] about the comprehensive sensory, physical and microbiological examination of the powdered milk, carried out in its facilities, can be assumed to be correct, because also through this examination, knowledge could also not be gained about the existence of inactive lipase. Even if – as asserted by [seller 1] – the powdered milk was stored in Algeria at high temperatures and very high humidity, according to the statements of the expert Prof. Dr. F., it must remain undecided whether the cause of the spoiled flavor commenced first after the transfer of the risk or whether the powdered milk was infested by lipase from the outset. At least to that extent, a new trial is not necessary because the improper storage is only one possible explanation for the spoiled flavor, which does not, however, exclude the oxidation processes caused by lipase. Finally, a contamination by inactive lipase that already existed at the time of delivery cannot be excluded by the fact that the lipase-induced taste allegedly appeared already at the time the powdered milk was mixed because that could be easily explained with inactive lipase existing in the powdered milk.

[Seller 1] did not sufficiently set forth the requirements of an exemption from the duty of compensation under Art. 79(1) CISG. It may remain open whether this rule can generally be applied to goods that do not meet contractual requirements; in any case, [seller 1] did not show that the causes for the inactive lipase were outside its sphere of influence. It is true that, because of the expert report of Prof. Dr. F., it can be ruled out (in favor of [seller 1]) that the powdered milk was infested by lipase-forming microorganisms or by inactive lipoprotein-lipase (at the time of the transfer of the risk). But there is still the possibility of the contamination by inactive lipase, which must have developed either in the milk that was delivered by the milk producers, or in the production process at [seller 1]’s facilities; [seller 1] is liable for either. In addition, [seller 1] also did not show that it was unable to avoid the lipase infestation. It is true that, according to the expert report, it must be assumed that, even with the highest diligence, the existence of heat resistant lipase in the powdered milk cannot be ruled out with certainty. That does not, however, say anything about the question whether the undisputedly existing lipase was caused by a development that was fateful for [seller 1] or by the failure to comply with optimal standards.

The amount of damages granted must not be diminished because of a violation of a duty of [buyer 1] and [buyer 2]. [Seller 1] has agreed to the stipulated resolution of the damages question between [buyer 1], [buyer 2] and G. S.p.A., and it therefore cannot now argue that the defective powdered milk cannot be returned to it.

II. These elaborations do not withstand legal scrutiny on all points. Because of the current status of the facts and the dispute, it cannot be ruled out that the defects in the powdered milk are based on causes for which [seller 1] is not liable under Arts. 36, 45, 74 CISG.

1. The Court of Appeals, however, correctly assumed that the compensation rules of the CISG for the claims of [buyer 1] are not excluded by its General Terms and Conditions (“M.P.C. conditions”), which provide considerable limitations of liability for the seller, inter alia, by restricting any compensation to the amount invoiced for the delivered goods.

a) The Court of Appeals correctly assumed that the partial contradiction of the referenced general terms and conditions of [buyer 1] and [seller 1] did not lead to the failure of the contract within the meaning of Art. 19(1) and (3) CISG because of the lack of a consensus (dissent). His judicial appraisal, that the parties have indicated by the execution of the contract that they did not consider the lack of an agreement between the mutual conditions of contract as essential within the meaning of Art. 19 CISG, cannot be legally challenged and is expressly accepted by the appeal.

b) The Court of Appeals further correctly stated that the warranty clauses in the M.P.C. conditions used by [buyer 1], which are beneficial to [seller 1], were replaced by the rejection clause of [seller 1]. The objections raised by the appeal in this regard are not persuasive.

The question to what extent colliding general terms and conditions become an integral part of a contract where the CISG applies, is answered in different ways in the legal literature. According to the (probably) prevailing opinion, partially diverging general terms and conditions become an integral part of a contract (only) insofar as they do not contradict each other; the statutory provisions apply to the rest (so-called “rest validity theory”; e.g., Achilles, Komm. zum UN-Kaufrechtsübereinkommen [Commentary to the CISG], Art. 19 ¶ 5; Schlechtriem/Schlechtriem, CISG (3d ed.), Art. 19 ¶ 20, esp. p. 226; Staudinger/Magnus, CISG (1999), Art. 19 ¶ 23). Whether there is such a contradiction that impedes the integration, cannot be determined only by an interpretation of the wording of individual clauses, but only upon the full appraisal of all relevant provisions. The appeal misunderstands this when it wants to compare only the limited rejection clause of [seller 1] to [buyer 1]’s warranty clauses, which are favorable to [seller 1]. As the Court of Appeals has correctly determined, the Dutch M.P.C. conditions contain substantial deviations from the CISG’s warranty rules – which would essentially remain applicable based on the General Terms and Conditions of [seller 1] – and it cannot be assumed that [buyer 1] wanted to have the M.P.C. conditions, which are internally balanced, apply to it insofar as they are noticeably more detrimental than the statutory provisions without having the benefit of the clauses that are favorable to it. Vice versa, there is nothing to show that [seller 1] wanted those clauses of the M.P.C. conditions that are unfavorable to it apply to the contracts.

The result is no different if one follows the contrary opinion (“Last shot” doctrine; re. the current status of opinions and the concerns against the application of this theory where the CISG applies, compare Schlechtriem/Schlechtriem, supra, ¶ 20 and fn. 62). Certainly under the point of view of good faith and fair dealing (Art. 7(1) CISG), [seller 1] should not have assumed that the question whether certain provisions of the opposing terms and conditions contradicted its own (even insofar as it served its Terms and Conditions last) could be answered in isolation for individual clauses with the consequence that the individual provisions that were beneficial to it would apply.

2. We also reject as unsubstantiated the argument in the appeal to this Court that the Court of Appeals incorrectly placed the burden of proof on [seller 1] for the allegation that the partial amount of 177.6 tons of the delivered powdered milk met the requirements of the contract at the time of delivery.

a) According to the case law of the Panel [of the Federal Supreme Court] referenced by the Court of Appeals, where the CISG applies and where the goods were accepted by the buyer without any complaints, it is the buyer who must show and prove that the goods did not meet the contractual requirements, and it is not the seller who must show and prove that the goods met the contractual requirements (BGHZ [*] 129, 75, 81). It is true that, in the instant case, no claim was made at the time of delivery. But the Court of Appeals correctly assumed that the letter from [seller 1A] dated August 24, 1998 led to a reversal of the burden of proof. The appeal objects to this holding mostly with the argument that the CISG also regulates the question of the burden of proof, so that any recourse to the national laws is blocked; [the appeal argues that] the CISG does not, however, contain a reversal of the burden of proof based on actual admissions of liability. [The appeal argues, that] thus, the rule/exception principle, which applies to all burdens of proof where the CISG applies, remains. [The appeal argues that,] as a consequence, [buyer 1] must prove that the goods were already defective at the time of delivery; [the appeal argues that] the uncertainty acknowledged by the Court of Appeals therefore had be detrimental to [buyer 1]. This argument cannot be followed.

b) The starting point of the appeal to this Court is correct, that the CISG regulates the burden of proof explicitly (e.g., in Art. 79(1)) or tacitly (Art. 2(a)), so that consequently, recourse to the national law is blocked to that extent, and that the CISG follows the rule/exception principle (compare in detail Baumgärtel/Laumen/Hepting, Handbuch der Beweislast [Manual of the Burden of Proof], Vol. 2 (2d ed.), Introduction before Art. 1 CISG, ¶ 4 et seq. and 16 et seq.; Achilles, supra, Art. 4 ¶ 15; Schlechtriem/Ferrari, supra, Art. 4 ¶ 48 et seq.; Staudinger/Magnus, supra, Art. 4 ¶ 63 et seq.; also Panel [of the Supreme Court] decision BGHZ [*] 129, 75, 81). The appeal to this Court overlooks, however, that the burden of proof rules of the CISG cannot go farther than the scope of its substantive applicability. That scope results from Art. 4(1) CISG; according to that provision, the CISG regulates exclusively the execution of the sales contract and the duties and responsibilities of the buyer and the seller resulting from that contract. The question whether and possibly which evidentiary consequences an actual admission of liability has, is not part of that scope. That question – just like the meaning of a defective mens rea, an assignment, a set-off, or similar issues – does not implicate a specific sales-law-related problem, but rather a legal aspect of a general type; there is no intimate relationship to the actual or legal aspects of the international trade in goods, which make up the regulatory subject of the CISG.

c) Under these circumstances, we do not fault the Court of Appeals’ view that the letter from [seller 1A] dated August 24, 1998 contained a statement that was, as an actual admission, generally able to result in the reversal of the burden of proof, and that it further came to the conclusion, based on its judicial evaluation of the letter, that in the letter, [seller 1A] acknowledged the existence of a defect for which it was liable – with an effect for and against [seller 1]. In view of the clear wording of the latter, which mentions a partial amount “that does not meet the contractual requirements” and “defective” powdered milk and “the rescission of the contractual relationship,” the appeal to this Court with the argument that the letter was only meant to clarify that [buyer 2] did not have any legal right to damages, is baseless. The special circumstances of the case – dispatch of two employees of [seller 1] to the Algerian purchaser of [buyer 1]’s goods, where at least one of them was able to gain its own knowledge regarding the quality of the powdered milk and the milk produced from the powdered milk, [seller 1]’s own expertise – justify the evaluation that the content of the letter resulted in a reversal of the burden of proof and did not serve only as circumstantial evidence.

d) The argument in the appeal to this Court that the prerequisites for a reversal of the burden of proof are not present because [buyer 1] and [buyer 2] did not, in reliance on the letter, give up on otherwise possible exploratory possibilities and they therefore did not suffer any evidentiary problems, is also baseless; according to the appeal to this Court, that is so because the proof that the powdered milk was infested by inactive lipase could not have been ascertained before or after the letter dated August 24, 1998. The appeal to this Court explains that, except for cases of factual statements of actual observations of the party, the reversal of the burden of proof is only possible in cases where such reliance must be protected (compare BGH [*], Decision of January 10, 1984, VI ZR 64/82, NJW [*] 1984, 799). This argument cannot be successful for factual reasons. In the part of the Court of Appeals’ opinion referenced by the appeal to this Court, the Court of Appeals explained that, according to the expert report of Prof. Dr. F., the result of the analysis of I.S. – which was based on a spot check analysis of the powdered milk upon arrival in Antwerp – did not permit a definitive statement about the “sole decisive question” whether the powder was infested by inactive lipase at the time of the transfer of the risk. It thus does not seem far-fetched that, upon targeted investigations after August 24, 1998 – for example, if [seller 1A] had denied all liability – the existence of inactive lipase at the time of the transfer of the risk could have been proven or that at least other causes, especially the subsequent contamination of the powdered milk or the spoiling through inadequate storage, could have been excluded. Thus, the evidentiary situation has deteriorated to the detriment of [buyer 1] and [buyer 2] by the fact that they relied on the written statement of [seller 1] dated August 24, 1998 and therefore refrained from conducting further investigations.

Based on all this, the Court of Appeals correctly assumed that, based on the reversal of the burden of proof resulting from the letter dated August 24, 1998, [seller 1] should have shown and proven that the powdered milk at issue met the requirements of the contract at the time of the transfer of the risk.

[3. In this section of the decision, the Supreme Court, based on its prior case law, discusses the Court of Appeals’ incorrect evaluation of the evidence as a procedural error. The expert opinion presented by [seller 1] regarding the defect in the powdered milk at the time of the transfer of the risk contradicted the oral expert opinion (which had been commissioned by the Court) in a decisive point. According to the Supreme Court, the Court of Appeals, without its own know-how in this question, should have at least obtained a supplementary statement of the expert on the issue of the contradictory expert opinion presented by [seller 1].]

III. For the further proceedings, the Panel [of the Supreme Court] notes the following:

If, after a new trial, it should appear that an infestation of the powdered milk by microbiological inactive lipase cannot be excluded at the time of the transfer of the risk, the outcome will depend on whether [seller 1] is not liable for this infestation under Art. 79 CISG. The appeal to this Court is of the opinion that Art. 79 CISG also applies to the delivery of goods that do not meet the requirements of the contract (left open in the Panel [of the Supreme Court] decision BGHZ [*] 141, 129, 132); it argues that the failure to fulfill the contractual duties to perform of [seller 1] was based here on a ground for which it was not responsible under Art. 79 CISG because (according to its evidence) the powdered milk had been manufactured according to the current knowledge of science and technology and that any existing lipase stock could have only been such stock that could have never been excluded based on standard procedure. In this context, we note, as a precaution, that [seller 1] can only be freed from its obligation to pay damages for its failure to comply with the contract if it can prove that any lipase infestation of the delivered milk would not have been detectable, even upon the careful use of the necessary methods of analysis before any further processing, and that a possible infestation in the manufacture of the powdered milk was based on grounds that were outside of its sphere of influence. As long as the cause of the lipase infestation before the transfer of the risk cannot be determined, the factual testimony of [seller 1], as taken into account by the appeal to this Court, lacks the necessary cumulative exonerative proof.

Footnote

* Amounts in German currency [Deutsche Mark] are indicated as [DM]; amounts in Dutch currency [Dutch florin] are indicated as [Hfl].

Translator’s note on other abbreviations: BGB = Bürgerliches Gesetzbuch[German Civil Code]; BGH = Bundesgerichtshof [German Federal Supreme Court]; BGHZ = Die amtliche Sammlung der Entscheidungen des Bundesgerichtshofes in Zivilsachen [Official Reporter of Decisions of the German Federal Supreme Court in Civil Matters]; NJW = Neue Juristische Wochenschrift [German weekly law journal].

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichtshof October 31, 2001 [VIII ZR 60/01], with case note

This case is published in the German Law Archive courtesy of Pace Law School Institute of International Commercial Law.

Translation edited by William M. Barron and Birgit Kurtz, Alston & Bird LLP

Facts

Defendant No. 1 [seller] sold to the plaintiff [buyer], a company located in Spain, pursuant to an order confirmation of June 25, 1998, “based” on [seller’s] Sales and Delivery Terms, a used computer-controlled CNC rolling-milling machine of the make L., model L 1202, year of manufacture 1981, “incl. the provision of an L. mechanic at your plant for the duration of one business day” for the price of DM [Deutsche Mark] 370,000; the Sales and Delivery Terms of the [seller], according to which used machines are sold and delivered “without any warranty against defects,” were not attached to the order confirmation of June 25, 1998.

After the machine was transported to Spain by a moving company hired by the [buyer], the [buyer] had the machine installed and connected by a Spanish company. Mechanic A., who was dispatched by company L., was unable to put the machine into operation during his visits of July 15 – 18, 1998 and July 21 – 27, 1998. With the assistance of an electronics specialist from company L., only during a third visit of September 28 to October 1, 1998, were the problems resolved; since then, the machine has been working without problems.

The Plaintiff [buyer] demands from the Defendant No. 1 [seller], and from Defendant No. 2, the personally liable shareholder, the damages that arose in connection with this work. The Landgericht [Regional Court, Court of First Instance] granted the [buyer’s] claim in the amount of DM 46,519.18 plus interest and dismissed [buyer’s] claim with respect to an amount of DM3,449.57. The Court viewed the order confirmation of June 25, 1998 as providing that the [seller], by promising to provide a mechanic for the duration of one business day, wanted to be responsible for the successful putting into operation of the machine, so that the [seller] was responsible for dispatching a sufficiently qualified technician and is liable for the costs of the technically under-qualified mechanic A. The Oberlandesgericht [Court of Appeals, Court of Second Instance] vacated the judgment of the Court of First Instance insofar as the Defendants were found liable to pay and remanded the matter to the Lower Court.

With their – permissible – appeal, the Defendants further pursue their motion to dismiss.

Reasons for the decision

I. The Court of Appeals explained that the proceeding in the Lower Court suffers from a material defect because the Court of First Instance did not completely understand and take into consideration the statements of the [seller] concerning the “provision of an L. mechanic,” thus incorrectly interpreted the agreement of the parties and, on this basis, omitted the necessary further clarification. The duty to “provide an L. mechanic … for the duration of one business day” is already “per se,” according to its wording, unambiguous and not to be interpreted the way the appealed decision did. The undisputed statements of the [seller] that the agreement was reached within the framework of the price negotiations after the [seller] was not prepared to agree to further price reductions and the [buyer] pointed to its costs for the installation and instruction, squarely contradicts the interpretation of the Court of First Instance. Against this background, the Court of Appeals held that the temporally clearly-defined promise to “provide an L. mechanic” must be deemed a financial accommodation alone.

The Court of Appeals held that the lawsuit is also not ripe for decision for any other reason. The [buyer] has properly pleaded a claim for damages under Arts. 45(1)(b), 35(1), 74 CISG against the [seller], for which Defendant No. 2 is liable under §§ 162(2), 128 HGB.[*] The [seller] has not effectively precluded its liability for any breach of contract. Because the [seller’s] Sales and Delivery Terms were not made applicable to the contractual relationship pursuant to the CISG, the warranty exclusion in that body of law does not apply. The decision of the lawsuit, thus, depends on whether the rolling-milling machine was afflicted with a defect that was covered by a warranty at the time of the transfer to a freight carrier and what costs arose from its removal. The Court of First Instance must evaluate the evidence relating to this issue.

II. These arguments do not withstand legal scrutiny in all respects.

1. The appeal successfully argues that the conditions of a remand by the Court of Appeals to the Court of First Instance under § 539 ZPO [*] were not met.

a) According to the jurisprudence of the German Federal Supreme Court, a serious procedural error within the meaning of § 539 ZPO is only given when the proceeding in the Trial Court suffers from such a vital defect that it cannot be the proper foundation for a final judgment. The rule in § 539 ZPO, which presents an exception to the duty under § 537 ZPO of the Court of Appeals to fully analyze and decide the matter again, must be narrowly interpreted (Federal Supreme Court, Decision of December 1, 1993 – VIII ZR 243/92, NJW-RR 1994, 377 = BGHR ZPO § 539 procedural defect 12 under II 1; Federal Supreme Court, Decision of December 10, 1996 – VI ZR 314/95, NJW 1997, 1447 = BGHR ZPO §539 procedural defect 16 under II 2 a, each with further citations). Mistakes in the interpretation of a contract by the Trial Court are generally defects in the application of substantive law and, therefore, do not justify the remand of the matter under § 539 ZPO. The interpretation of a contract can, however, in special cases, be based on procedural errors, e.g., if the Court not only improperly evaluated the content of contractual provisions or not only did not grant them the necessary significance, but when obvious contractual provisions were not noted at all or were linguistically misunderstood (Federal Supreme Court, Decision of November 3, 1992 – VI ZR 362/91, NJW 1993, 538 = BGHR ZPO § 539 procedural defect 10 under II 2 a, with further citations; Federal Supreme Court, Decision of March 19, 1998 – VII ZR 116/97, NJW 1998, 2053 = BGHR ZPO § 539 procedural defect 17 under II 1, in BGHZ 138, 176 et seq., not printed).

b) When considering these principles, a serious procedural defect by the Court of First Instance cannot be found. The Court of First Instance interpreted the agreement, according to which the [seller] had to provide the [buyer] with an “L. mechanic” for one business day in Spain, to contain a duty of the [seller] to successfully put into operation the rolling-milling machine. The Court of Appeals, on the other hand, viewed the agreement as “per se” unambiguous and not subject to interpretation; the Court of Appeals held that, in any event, the interpretation by the Court of First Instance is “squarely” contradicted by the undisputed statements of the [seller], which have not been taken into consideration by the Court of First Instance, that the agreement was entered into within the framework of the price negotiations after the [seller] was not prepared to agree to further price reductions and the [buyer] pointed to its costs for the installation and instruction. The Court of Appeals, therefore, viewed the temporally-fixed promise to provide a mechanic merely as a financial accommodation, not as an obligation to provide a success-based secondary duty exceeding the duty to deliver the machine. The Court of Appeals, thus, believed that a violation by the Court of First Instance of generally accepted principles of interpretation is present because not all the facts that are material for the interpretation were taken into consideration. Such a violation does not, however, represent a procedural defect but a mistake in the interpretation of substantive law (Federal Supreme Court, Decision of November 3, 1992, supra; Federal Supreme Court, Decision of March 19, 1998, supra). Even if the Court of First Instance did not expressly address the [seller’s] statements concerning the negotiations, it cannot be assumed from that Court’s decision that it did not consider the statements and, thus, violated the [seller’s] right to be heard. Rather, the Court of First Instance interpreted the statements of the [seller] as to their legal significance and scope different from the Court of Appeals (Federal Supreme Court, Decision of November 3, 1992, supra, under II 2 b).

2. Because of the lack of a serious procedural error by the Court of First Instance, the appealed decision can therefore not stand.

III. The Panel is, however, not able to issue its own decision pursuant to § 565(3) (No.1) ZPO. It is true that such a decision is available to the Supreme Court in the case of a vacating decision by the Court of Appeals for reasons of judicial economy if the analysis to be performed under § 539 ZPO [*] shows that the substantive analysis of the relationship between the parties leads to a final and conclusive result (Decision of the Panel of January 31, 1996 – VIII ZR 324/94, WM 1996, 822 under III; Decision of the Panel of January 22, 1997 – VIII ZR 339/95, WM 1997, 1713 under II 4; Federal Supreme Court, Decision of April 3, 2000 – II ZR 194/98, NJW 2000, 2099 = BGHR ZPO § 539 remand 2 under B II 3 a). That would be the case if the [seller] had effectively precluded its liability for breach of contract within the meaning of Art. 45 CISG. As the Court of Appeals correctly found, however, a valid inclusion of the Sales and Delivery Terms of the [seller], which provide the exclusion of warranties for used machines in Item No. 6, into the agreement existing between the [buyer] and the [seller], is missing.

1. According to the general view, the inclusion of general terms and conditions into a contract that is governed by the CISG is subject to the provisions regarding the conclusion of a contract (Arts. 14, 18 CISG); recourse to the national law that is applicable based on a conflict of laws analysis is generally not available (Staudinger/Magnus, 2000, Art. 14 CISG ¶ 40; Schlechtriem/Schlechtriem, CISG, 3d ed., Art. 14 ¶ 16; Soergel/Lüderitz/Fenge, 13th ed., Art. 14 CISG ¶ 10; Schmidt in Ulmer/Brandner/Hensen, AGBG, 9th ed., Appendix § 2 ¶ 12; Lindacher in Wolf/Horn/Lindacher, AGBG, 4th ed., Appendix § 2 ¶ 76; Piltz, International Sales Law, 1993, Art. 3 ¶ 75; Piltz, NJW 1996, 2768, 2770). The CISG does not, however, contain special rules regarding the inclusion of standard terms and conditions into a contract. This was not deemed necessary because the Convention already contains rules regarding the interpretation of contracts (Schlechtriem/Schlechtriem, supra, fn.100).

2. Thus, through an interpretation according to Art. 8 CISG, it must be determined whether the general terms and conditions are part of the offer, which can already follow from the negotiations between the parties, the existing practices between the parties, or international customs (Art. 8(3) CISG). As for the rest, it must be analyzed how a “reasonable person of the same kind as the other party” would have understood the offer (Art. 8(2) CISG).

It is unanimously required that the recipient of a contract offer that is supposed to be based on general terms and conditions have the possibility to become aware of them in a reasonable manner (Staudinger/Magnus, Art. 14 ¶ 41; Schlechtriem/Schlechtriem, supra; Soergel/Lüderitz/Fenge, supra; Reithmann/Martiny, International Sales Law, 5th ed., ¶ 651). An effective inclusion of general terms and conditions thus first requires that the intention of the offeror that he wants to include his terms and conditions into the contract be apparent to the recipient of the offer. In addition, as the Court of Appeals correctly assumed, the Uniform Sales Law requires the user of general terms and conditions to transmit the text or make it available in another way (see also Piltz, Sales Law, § 3 ¶ 77 et seq.; Piltz, NJW, supra; Teklote, The Uniform Sales Law and the German Law on General Terms and Conditions, 1994, p. 112 et seq.; Hennemann, General Terms and Conditions Control and the CISG from the German and French Viewpoints, Ph.D. Thesis 2001, p. 72 et seq.; similarly, Staudinger/Magnus, supra, with reference to the Supreme Court of Austria, RdW 1996, 203, 204, with an annotation by Karollus RdW 1996, 197 et seq.; different view, Holthausen, RIW 1989, 513, 517).

The opponent [other party] of the user of the clause can often not foresee to what clause text he agrees in a specific case because significant differences exist between the particular national clauses in view of the different national legal systems and customs; also, a control of the content of general terms and conditions under national law (Art. 4 (second sentence)(a) CISG) is not always guaranteed (Soergel/Lüderitz/Fenge, supra). It is true that, in many cases, there will be the possibility to make inquiries into the content of the general terms and conditions. This can, however, lead to delays in the conclusion of the contract, in which neither party can have an interest. For the user of the clauses, however, it is easily possible to attach to his offer the general terms and conditions, which generally favor him. It would, therefore, contradict the principle of good faith in international trade (Art. 7(1) CISG) as well as the general obligations of cooperation and information of the parties (Staudinger/Magnus, Art. 7 ¶ 47; Schlechtriem/Ferrari, Art. 7 ¶ 54) to impose on the other party an obligation to inquire concerning the clauses that have not been transmitted and to burden him with the risks and disadvantages of the unknown general terms and conditions of the other party (Teklote, supra, p. 114; Hennemann, supra, p. 74).

3. Insofar as the general terms and conditions at issue become a part of the contract under German non-CISG law and/or in commercial relations between merchants where the customer does not know them but has the possibility of reasonable notice – e.g., by requesting them from the user (compare BGHZ 117, 190, 198; Panel Decision of June 30, 1976 – VIII ZR 267/75, NJW 1976, 1886 under II 1, each with further citations), this does not lead to a different result. In the national legal system, the clauses within one industry sector are often similar and usually known to the participating merchants. To the extent that this does not apply to a commercially-active contract party, it can be expected of him, in good faith, that he make the clauses available to the other party, if he wants to close the deal – as offered by the user based on the general terms and conditions. These requirements do not, however, apply to the same extent to international commercial relations, so that, under the principles of good faith of the other party, a duty to inquire cannot be expected of him.

4. The Court of Appeals correctly notes that, pursuant to Art. 1(3) CISG, it is irrelevant to the application of the Convention whether the parties are “merchants or non-merchants,” so that, in a different interpretation, non-merchants would also be subject to the heightened duty of inquiry. To the extent that the appeal argues that a “consumer purchase” under Art. 2(a) CISG is excluded from the application of the Convention, this argument cannot be followed. The purchase referred to in Art. 2(a) CISG requires that the seller know or should have known the purpose before or at the time of the conclusion of the contract, whereas, if the buyer is a consumer within the meaning of § 13 BGB [*], it does not require such knowledge of the seller. This can, therefore, lead to an overlap, where sales contracts are subject to binding national consumer protection laws and, at the same time, to the CISG (Staudinger/Magnus, Art. 2 ¶ 29; Schlechtriem/Ferrari, Art. 2 ¶ 24). In the interest of a practical application of the law as well as to avoid discrimination against non-commercial contract parties, it is, therefore, necessary to make the inclusion of general terms and conditions for contracts governed by the CISG subject to uniform principles.

5. If, therefore, the effective inclusion of the Sales and Delivery Terms of the [seller] into its contract with the [buyer] is missing, the objections raised – in the alternative – by the [buyer] against the effectiveness of a complete exclusion of warranties in the sale of used machines, is irrelevant.

IV. The appealed judgment is thus vacated, and the matter remanded to the Court of Appeals for further clarification concerning the defects in the delivered rolling-milling machine alleged by the [buyer] and, if appropriate, concerning the extent of the necessary expenses for removal.

Footnotes

* For purposes of this translation, the Plaintiff of Spain is referred to as [buyer], Defendant No. 1 of Germany is referred to as [seller], and Defendant No. 2, the personally liable shareholder of Defendant No. 1, remains referred to as Defendant No. 2. Also, monetary amounts in German currency (Deutsche Mark) are indicated by [DM].

Translator’s note on other abbreviations: BGB = Bürgerliches Gesetzbuch[German Civil Code]; HGB = Handelgesetzbuch [German Commercial Code]; ZPO = Zivilprozessordnung [German Code of Civil Procedure].

Case Commentary

On the Treatment of General Terms and Conditions of Business under the UN Convention on Contracts for the International Sale of Goods (CISG)

Commentary on decision of German Federal Supreme Court of 31 October 2001 [VII ZR 60/01]¹

By Dr. Martin Schmidt-Kessel

Translation [*] by Todd J. Fox 

Introduction
I. The Decision of the Federal Supreme Court
II. Inclusion “Control” under the CISG
1. The Inclusion of Standard Terms According to the Convention
2. Awareness of Party Intent
3. Duty to Transmit
a) Considerations of speed and cooperation
b) Consumer protection
c) Hidden content control [versteckte Inhaltskontrolle]
d) A deviating foreign decision
4. Consequences
Comments on Content Control

Introduction

The use of general terms and conditions of business (standard terms) is part of the daily bread of international commerce. For some branches and types of business, standard terms have attained such an importance that a separate normative value is ascribed to them and the principles contained within them under the heading “lex mercatoria.”² Such clauses are in any case generally suitable to establish usage of trade and guidelines of contract interpretation for the branch of business concerned.³ However, beneath this threshold, under what conditions do the standard terms of the individual parties become part of the contracts they conclude? It was this question that the VIIIth Panel of the Federal Supreme Court had to ask itself with regard to contracts subject to the CISG in the decision commented upon.

The question concerning the inclusion of standard terms in a contract under the CISG becomes even more important due to the common practice of excluding the application of the Convention in standard terms.⁴ Whether such standard terms effectively become part of the contract is predominantly decided by the CISG itself and not by autonomous national law.⁵

The reason for this lies in Art. 1(1)(b) CISG, which makes the Convention national substantive law for international sales contracts. Should the parties wish to exclude the Convention in their standard terms, then their rules on inclusion, as part of the national law of the relevant Contracting State designated through the rules of private international law, decide over the effectiveness of that exclusion.⁶ The conflicts of law rule that the validity of a choice of law agreement depends on the intended legal system⁷ is not applicable to this purely substantive exclusion of the CISG. This result could only be avoided by choosing the law of a Non-Contracting State, which is usually not an attractive option.

I. The Decision of the Federal Supreme Court

The German defendant had sold the Spanish plaintiff a used machine. According to the seller’s Sales and Delivery Terms, used machines are sold “without any warranty against defects.” The seller’s order confirmation was expressly “based” on its Sales and Delivery Terms, which, however, were not enclosed with the order confirmation. The buyer later requested damages suffered due to difficulties in getting the machine to operate. The case would have been dismissed before the Federal Supreme Court had the seller effectively disclaimed its warranty. However, the Supreme Court held that the Sales and Delivery Terms were not part of the contract and remanded the case to the appellate court. Under the CISG – according to the decisive sentence of the decision – “the user of general terms and conditions is required to transmit the text to the other party or make it available in another way.”

II. Inclusion “Control” under the CISG

The decision causes considerable concern because it oversteps the requirements for the inclusion of standard terms in international contracts for the sale of goods. A general duty to transmit such terms cannot be inferred from the provisions of the CISG. Nor does it accord with the provisions on the substantive sphere of application. This decision therefore goes against the liberal commercial spirit of the Convention.

1. The Inclusion of Standard Terms According to the Convention

The Supreme Court’s starting-point is correct:⁸ If the CISG is applicable to an international sales contract, then whether standard terms become part of this contract depends on the rules of the Convention.⁹ The Convention does not contain any particular rules for this problem and the question is therefore dealt with under the provisions on interpretation (Art. 8 CISG) and contract formation (Arts. 14-24 CISG). With the exception of § 305(2), (3) BGB [*] [special requirements for consumer contracts], this corresponds exactly with the situation in German law. Since, therefore, there is regarding the inclusion of standard terms neither an external gap nor a gap within the meaning of Art. 7(2) CISG, recourse to national law is excluded.

2. Awareness of Party Intent

The buyer had apparently not contested the reference to the Sales and Delivery Terms; decisive for their inclusion in the contract was therefore the interpretation of the seller’s order confirmation. If standard terms should be considered part of a contract’s formation, then the requirements of Art. 8 CISG must be fulfilled. This provision requires either knowledge or grossly negligent unawareness of the other party’s intent (Art. 8(1) CISG), or the corresponding understanding that a reasonable person of the same kind would have had (Art. 8(2) CISG). The Supreme Court concisely but correctly combines these two alternatives into a requirement of awareness of party intent and rightly does not call this into question here.¹⁰

3. Duty to Transmit

Apart from the requirement of awareness of party intent to include standard terms, the Supreme Court now requires that the terms be transmitted, a position which differs from that supported in the German literature.¹¹ The Supreme Court also consciously deviates¹² from the prevailing jurisprudence on the inclusion of standard terms under internal German law; this jurisprudence merely demands the possibility for appropriate awareness and therefore allows the possibility to request such terms from the user to suffice.¹³ If one takes this decision literally, it even goes beyond the requirements for consumer contracts, since § 305(2) & (3) BGB do not require the standard terms to be conveyed in every case.

An opposing opinion has correspondingly allowed the possibility for appropriate awareness to suffice under the CISG as well.¹⁴ It is certainly possible that Art. 8 CISG might occasionally require such a transmission – or, as likely envisaged by the Supreme Court in view of Internet business, an equivalent way of making such terms available – however, a general duty to transmit rightly finds no support in the Convention. The Supreme Court’s three lines of argument can also not establish such a duty.

a) Considerations of speed and cooperation 

In one argument, the Supreme Court refers to the interest of speed and the duty of cooperation of both parties. The Supreme Court asserts that if one party must first make inquiries about the content of the general terms and conditions, it could lead to delays in the conclusion of the contract. The user of the standard terms, however, can easily supply the terms along with his offer. Furthermore, burdening a party with the risks and disadvantages of non-transmitted clauses through a duty to inquire would contradict Art. 7(1) CISG and the parties’ general obligation to cooperate.¹⁵

Both these arguments are ambivalent. The user of the standard terms willingly assents to a delay due to a duty to inquire when he does not supply his general terms and conditions with his offer. Moreover, the cooperation obligations do not just concern him, but the other party as well; as a general duty to check with the other party, such obligations are set under the objective standard of Art. 8 CISG.

b) Consumer protection

In another argument, the Supreme Court refers to the fact that the Convention also is applicable to non-merchants. The diverging delimitation of consumer contracts in Art. 2(a) CISG and § 13 BGB [definition of consumer] could lead to an overlap of legal provisions. “In the interest of a practical application of the law as well as to avoid discrimination against non-commercial parties, it is therefore necessary to make the inclusion of general terms and conditions for contracts governed by the CISG subject to uniform principles.”

The Supreme Court is basing its argument here on a distinction unknown to the CISG, namely the difference between commercial and non-commercial parties. In fact, Art. 1(3) of the CISG explicitly rejects exactly this type of distinction. The only boundary that the Convention itself sets is the characteristics of a consumer sale in Art. 2(a) CISG. In introducing – not as a flexible indication, but rather as a normative element such as in § 13 BGB – the figure of the non-commercial contracting party into the interpretation of Art. 8, the decision violates the mandate to promote a uniform interpretation of the Convention. The CISG forbids the consideration of obligatory national consumer protection laws within the sphere of its application.¹⁶

c) Hidden content control [versteckte Inhaltskontrolle]

The actual key to the decision, however, likely lies in the Supreme Court’s concern over the lack of assurance of controls on the content of standard terms. The Convention does not expressly regulate this (Art. 4(a) CISG) and leaves such control to the relevant national law. Of course, as the Supreme Court correctly noted,¹⁷ such circumstances do not always ensure control of the content of the terms. The tightening here of the constraints for inclusion is meant to offer a certain substitute; the stated deliberations over consumer protection also attest to this.

However, such a hidden content control on the constraints for inclusion, regardless of the fact that it is known to several legal systems,¹⁸ is not reconcilable with the CISG. This follows first of all from the conscious rejection of validity rules in Art. 4(a) CISG, which forbids imparting the idea of protection against “false” content into the provisions on interpretation and contract formation. Moreover, the catalogue in Art. 19(3) CISG makes clear that contract content is to be guided by agreement and not by conscientious legislative or judicial valuations.

d) A deviating foreign decision

Furthermore, the decision of the Federal Supreme Court is open to attack on the basis of Art. 7(1) CISG since the decision does not address the differing opinion of the Tibunal Commercial of Nivelles (Belgium).¹⁹ The issue in that case was whether the mere reference to the standard terms of the Swiss Machine Industry Association by the Swiss seller in his acceptance sufficed for their inclusion in a Swiss-Belgian sales contract. The court, with reference to Art. 8(1), (3) CISG, supposed so and dismissed the action as inadmissible due to the jurisdiction clause contained in the standard terms. In failing to give attention to this decision, the Supreme Court ignores the mandate to promote a uniform interpretation of the Convention.

4. Consequences

Finally, the decision also does not convince because its consequences do not do justice to commercial practice. The development of a general duty to transmit without recognizable exceptions would have the effect that other, better known standard clauses – such as Incoterms 2000, the several ECE-Terms, or branch-specific terms such as GAFTA 100 or the rules of the Sugar Association of London – could not become the basis of contracts without being transmitted. For established market participants, a solution to this problem could easily be found through Art. 9(1) CISG; for new market participants, however, this presents an (surely unwanted) access barrier.

Comments on Content Control

The Supreme Court did thus not affect a content control; such a control would also probably not have seriously endangered the effectiveness of the clause. Domestic German law, which according to Art. 4(a) CISG and Art. 28(1), (2) EGBGB [*] [terms implied by law on choice of law] would have applied, would have had to answer the question here on the basis of § 9 AGBG [*] [former general clause on content control] (now § 307(1), (2) BGB). The provisions of the Convention, in particular Arts. 45(1)(b), 35(1) and 74 CISG, would have been the proper model to use as a standard for the content control. In accord with the prevailing national jurisprudence on warranty disclaimers in the sale of used goods,²⁰ which particularly takes into consideration the price reduction allowed in these cases, it would have been reasonable to consider the warranty disclaimer permissible.

Footnotes

* Translator’s notes on abbreviations: AGBG = Allgemeine Geschäftsbedingungensgesetz [former General Terms and Conditions of Business Act of Germany]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; EGBGB = Einführungsgesetz zum BGB [Introductory Act to the German Civil Code, containing the conflict of law rules]; HGB = Handelsgesetzbuch[German Commercial Code].

1.  Translation of German text of commentary prepared for publication in Neue Juristische Wochenschrift (2002). ↩︎
2. See Andreas Kappus, “Lex mercatoria” in Europa und Wiener UN-Kaufrechtskonvention 1980: “Conflict avoidance” in Theorie und Praxis schiedrichterlicher und ordentlicher Rechtsprechung in Konkurrenz zum Einheitskaufrecht der Vereinten Nationen (1990); Klaus Peter Berger, Formalisierte oder “schleichende” Kodifizierung des transnationalen Wirtschaftsrechts: zu den methodischen und praktischen Grundlagen der lex mercatoria (1996). ↩︎
3. Wolfgang Witz et al., international einheitliches kaufrecht: Praktiker-Kommentar und Vertragsgestaltung zum CISG [Commentary on the CISG] vor Art. 14, Rn. 12 (2000); see also Art. 9 CISG, Art. 1.8 UNIDROIT Principles of International Commercial Contracts, § 346 HGB [*], Peter Schlechtriem et al., Kommentar zum Einheitlichen UN-Kaufrecht [Commentary on the CISG] Art. 9, Rn. 8 (3d ed. 2000). ↩︎
4. This practice clearly seems questionable, especially since with the application of the CISG one of the few possibilities to excape the burdens of the new § 478 BGB [recourse for the seller of consumer goods against his supplier] exists, possibly even with regard to paragraph (4) of this provision. The failure to consider this option in legal consultation could be a liability risk. ↩︎
5. See Witz et al., supra note 3, at vor Art. 14, Rn. 16. ↩︎
6. This does not apply for States that have declared a reservation under Art. 95 CISG. Of the 61 Contracting States only China, Saint Vincent and the Grenadines, Singapore, Slovakia, the Czech Republic and the United States have declared such a reservation. ↩︎
7. Münchener Kommentar zum Bürgerlichen Gesetzbuch [Commentary to BGB] § 12 AGBG, Rn. 27 (4th ed. 2001) [hereafter Münchener Commentary]. ↩︎
8. See sub III. 1. of the reasons for the decision. ↩︎
9. This is the general view, see Schlechtriem et al., supra note 3, at Art. 14, Rn. 16 with further citations. ↩︎
10. See sub III. 2. of the reasons for the decision. ↩︎
11. Except for the views cited in the decision, for instance, Witz et al., supra note 3, at vor Art. 14, Rn. 12 (“regularly”). The notion goes back to Burghard Pilz. ↩︎
12. See sub III. 3. of the reasons for the decision. ↩︎
13. Entscheidungen des Bundesgerichtshofs in Zivilsachen [BGHZ] 117, 190 (198) (F.R.G.); criticizing the decisions, see Münchener Commentary, supra note 7, at § 2 AGBG, Rn. 48 (limited to standard terms that are usual in the branch). ↩︎
14. See Schlechtriem et al., supra note 3, at Art. 14, Rn. 16; Soergel et al., Band 13, Bürgerliches Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Art. 14, Rn. 10 (13th ed. 2000). See also Landgericht Oldenburg, 28 February 1996, 12 O 2943/94, CISG-Online 189 [<http://cisgw3.law.pace.edu/cases/960228g1.html>] (no inclusion); Amtsgericht Nordhorn, 14 June 1994, 3 C 75/94, CISG-Online 259 [<http://cisgw3.law.pace.edu/cases/940614g1.html>] (inclusion). ↩︎
15. See sub III. 2. of the reasons for the decision. ↩︎
16. To the extent that the Supreme Court probably contemplated a conflict between the CISG and the requirements of European Communty law, such a conflict is, in the end, to be decided under the relevant “conflict norms” of the Convention (Arts. 90, 94 CISG) and those of the EEC Treaty (particularly Art. 305 of said treaty). ↩︎
17. See sub III. 2. of the reasons for the decision. ↩︎
18. See Art. 1341(2) of the Italian Codice civile. ↩︎
19. Tribunal Commercial de Nivelles, 19 September 1995, R.G. 1707/93, UNILEX D.1995, 24.2 [<http://cisgw3.law.pace.edu/cases/950919b1.html>]. But cf. Cour d’Appel de Paris, 13 December 1995, J.C.P. 1997, II, 22772 [<http://cisgw3.law.pace.edu/cases/951213f1.html>] (obiter dictum), which conforms in result with the opinion of the Supreme Court, and the decision of the Austrian Supreme Court, OHG, 6 February 1996, 10 Ob 518/95, CISG-Online 224 [<http://cisgw3.law.pace.edu/cases/960206a3.html>], in which a reference to the standard terms was lacking. ↩︎
20. Entscheidungen des Bundesgerichtshofs in Zivilsachen [BGHZ] 74, 389 (F.R.G.); Otto Palandt et al., Bürgerliches Gesetzbuch (Commentary on BGB) § 11 AGBG, Rn. 74 (61st ed. 2002). ↩︎

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichtshof 3 November 1999 [VIII ZR 287/98], Der Betrieb 2000, 569, with case note

This case is published in the German Law Archive courtesy of Pace Law School Institute of International Commercial Law.

Translation [*] by Alston & Bird LL.P.
Editors: William M. Barron, Esq. & Birgit Kurtz, Esq.

and Schönherr Rechtsanwälte OEG, Vienna, Austria
Editor: Dr. Peter Konwitschka, Esq.

Key CISG provisions at issue

Articles 38(1), 39(1)

Facts

Plaintiff [buyer’s assignee] is a paper converting company and produces, inter alia, H.-moist tissues. It purchases the required semi-finished moist tissue-crepe from T. paper factory in B./Switzerland [buyer] in an ongoing business relationship; for the manufacture of the semi-finished product, the [buyer] uses cellulose material that is refined in a PM 3 paper machine in several production stages. This machine contains three grinding gears which are connected in series, so-called double-disk refiners, which are equipped either with model EWR 5/76/60 grinding devices of the manufacturer E. or with model E 6533 R/L grinding devices of the defendants [sellers].

On March 31, 1993, the [buyer] ordered one E 6533 R/L grinding device set from the [sellers] at the price of DM [Deutsche Mark] 3,065; at the time, the [sellers] did not know that this grinding device was intended for the production of moist tissues. The grinding device, which was delivered on April 7, 1993, was assembled on April 13, 1993 into the PM 3 paper machine as double disk refiner No. 1, which is connected in series prior to double disk refiners Nos. 2 and 3, and was put into operation on April 17, 1993. On April 25, 1993, the [buyer] first discovered a total loss of double disk refiner No. 2, which had been equipped with a grinding device supplied by company E.; as a result, the defective grinding device was replaced on April 26, 1993. On April 26, 1993, the grinding device which had been delivered by the [sellers] suffered a total loss; as a result, it was replaced by a grinding device supplied by company E.

From April 19 until April 22, 1993, the [buyer] produced with the aforementioned PM 3 paper machine a total of 243.51 tons of semi-finished moist tissues, of which the [buyer] delivered 120.953 tons in April and May 1993 to the [buyer’s assignee]. On May 17, 1993, the [buyer’s assignee] gave notice by telephone to the [buyer] that the already processed H. semi-finished moist tissues showed patches of rust and that the not yet processed semi-finished moist tissue-crepe also showed a tendency to brownish specking. On May 27, 1993, the [buyer] commissioned company P. in M. to identify the patches of rust and, for this purpose, had the grinding device inspected together with other things that had been delivered by the [sellers]. After receipt of the test report prepared by company P. dated June 9, 1993, which the [buyer] received on June 11, 1993, the [buyer] contacted the [sellers] by letter dated June 14, 1993 and, as a precaution, stated that it held them liable for the damages incurred because the [buyer] suspected that the grinding device delivered by the [sellers] on April 7, 1993 was defective. After the [buyer] assigned to the [buyer’s assignee] all of its claims arising from the purchase agreement concluded with the [sellers] on March 31, 1993, the [buyer’s assignee] claims a partial amount of DM 100,000 as damages arising from the lack of conformity of the grinding device with the contract. The [sellers] opposed this claim on the grounds that, inter alia, neither the [buyer] nor the [buyer’s assignee] had met their obligations to examine and to give timely notice; the [buyer’s] notice to the [sellers] of the defect was untimely. Further, the [sellers argued,] no particular specification of the grinding device delivered on April 7, 1993 had been agreed upon; in addition, the [buyer] had overloaded the delivered grinding device during its use.

The Regional Court dismissed the complaint, and the [buyer’s assignee’s] appeal against that decision was unsuccessful. On appeal, the [buyer’s assignee] pursues its claims further.

Grounds for the decision

[Translator’s note: In part I, the Supreme Court recites the holding of the Court of Appeals, and in part II, it analyzes the applicable law.]

I. The Court of Appeals explained: It can remain undecided whether the [buyer] has met its obligation to examine pursuant to Art. 38(1) CISG. Even on the assumption that the defect in quality alleged by the [buyer’s assignee] was a latent defect, the period for making a claim pursuant to Art. 38(1) CISG began on April 26, 1993 upon the total loss of the grinding device delivered by the [sellers] on April 7, 1993. The [buyer’s assignee] (correctly: the [buyer]) should not have simply accepted the total loss of the grinding device in question on April 26, 1993 and should not have blamed itself or an operating error of its employees, which it apparently did. According to the [buyer’s assignee’s] own argument, either an operating error or a lack of conformity with the contract was a possible reason for the total loss. A possible operating error by its own employees could have been clarified without difficulty and did not occur according to the [buyer’s assignee’s] own assertions. All the more, the defectiveness of the delivered grinding device must have been apparent. If the grinding device delivered by the [sellers] was destroyed after only a few days of use, then there was cause for the examination which the [buyer’s assignee] (correctly: the [buyer]) omitted at first. Notice of latent defects must be given not only after actual discovery in each specific case but within a reasonable time after the buyer ought to have discovered them.[**] Upon review of the possible causes of the loss, a clue as to the defectiveness of the delivered grinding device suggested itself upon the total loss on April 26, 1993, so that, at that time, the examination and notice period under Article 39(1) CISG commenced. Assuming that the [buyer], as it did later, ordered an expert opinion immediately after the total loss on April 26,1993, the communication of the result thereof had to be expected within no more than two weeks. If one added on a period of one month for the notice of the defect, then the notice letter dated June 14, 1993 was untimely – if only by a few days.

As the [buyer] therefore lost its right to rely on the alleged lack of conformity, the [buyer’s assignee] cannot proceed upon the assigned right. It can therefore remain undecided whether the letter dated June 14, 1993 met the substantive requirements of Art. 39(1) CISG, which quality of the grinding device had been agreed upon and whether there was a deviation relevant to the damages incurred.

II. These elaborations do not withstand scrutiny.

1. The Court of Appeals correctly and undisputedly applies the United Nations Convention on Contracts for the International Sale of Goods of April 11, 1980 (CISG), which became effective for the Federal Republic of Germany on January 1, 1991 and for Switzerland on March 1, 1993, to the purchase agreement entered into by the [buyer] and the [sellers] dated March 31, 1993.

2. In the absence of a contrary ascertainment of facts by the court of appeals, it must be assumed, for purposes of the proceedings on appeal, that the grinding device’s defect claimed by the [buyer’s assignee] is a latent defect that could not have been discovered by an appropriate examination (Art. 38(1) CISG) either upon delivery on April 7, 1993 or upon the installation on April 13, 1993 or during its use. If, thereafter, the lack of conformity with the contract of the delivered grinding device showed up for the first time at the time of the total loss on April 26, 1993, the beginning of the examination and notice period under Arts. 38(1), 39(1) CISG cannot yet be assumed at April 26, 1993.

a) In this context, it can be left undecided whether, under UN Sales Law, latent defects must, as the appeal argues, be brought to the [sellers’] attention only after actual discovery in each specific case, so that the reasonable period of time referred to in Art. 39(1) CISG only begins at the time of the (later) actual discovery of the defect, or whether, as the court of appeals assumes, the time at which the latent defect could be discovered is relevant to the beginning of the reasonable period of time (compare Schwenzer in von Caemmerer/Schlechtriem, CISG, 2d ed., Art. 39 20 for “defects occurring later catching one’s eye”; Koller in Staub, Großkommentar HGB [Comprehensive Commentary to the German Commercial Code], 4th ed., before § 373 Art. 39 WKR [CISG] 674; Honsell/Magnus, Kommentar zum UN-Kaufrecht [Commentary to the UN Sales Law], 1997, Art. 39 17; Piltz, Internationales Kaufrecht [International Sales Law], 1993, § 5 64; Heilmann, Mängelgewährleistung im UN-Kaufrecht [Warranties under the UN Sales Law], 1994, p. 324 et seq; see also Staudinger/Magnus, CISG, 1994, Art. 39 32, who derive such an obligation of the buyer from the principle of good faith).

b) Even if the [buyer] were not allowed to let the total loss of April 26, 1993 rest, but rather had to take measures to detect the cause of the damage, the court of appeals should not have assumed, as the appeal correctly argues, on the basis of the facts ascertained so far, that a possible operating error of the [buyer’s] own employees “could have been clarified without difficulty,” so that the defectiveness of the delivered grinding device must have suggested itself to the [buyer] already on the day of the loss.

aa) A possible reason for the total loss on April 26, 1993 was, as the [buyer’s assignee] submitted uncontestedly, and as the court of appeals also discussed, either an operating error or a lack of conformity with the contract of the delivered grinding device. The independent evidentiary process later initiated by the [buyer’s assignee] was supposed to clarify which of the two reasons for the loss was the case; even in the instant lawsuit, the [sellers] still claimed improper handling because the grinding discs moved at a very short distance (quasi-zero-zero-distance) in opposite direction. If hence an operating error could also have occurred unnoticed, it is not evident how such an error could have been excluded immediately after the damage occurred, without special effort, by merely questioning the [buyer’s] employees.

bb) Even if the [buyer] could have excluded a possible operating error quickly by internal investigation and without commissioning an expert opinion, it had to be allotted, in any case, a certain period of approximately one week for the decision as to what to do next and for the initiation of necessary measures – e.g., the selection and commissioning of an expert – followed by the two weeks assumed by the Court of Appeals for the expert’s investigation, followed by the – regular – one-month notice period pursuant to Art. 39(1) CISG (compare BGHZ [***] 129, 75, 85 et seq.). But in that case, the [buyer’s] notice letter to the [sellers] dated June 14, 1993 – seven weeks after the total loss – was not untimely.

3. The notice letter dated June 14, 1993 also met the substantive requirements of Art. 39(1) CISG, an issue the Court of Appeals was able to leave open based on its legal view point. By means of this provision, pursuant to which the buyer must specify “the nature of the lack of conformity,” the seller shall be enabled to get an idea of the lack of conformity in order to take the necessary steps. In that context, the buyer, in any case, must specify the complained-of deviation of quality; concerning machinery and technical equipment, only an explanation of the symptoms can be demanded, not an explanation of the underlying causes (Schwenzer, id., Art. 39 6 et seq.; Staudinger/Magnus, Art. 39 21). Here, the [buyer] gave notice to the [sellers] by letter dated June 14, 1993 that a customer had found steel splinters in the semi-finished goods that had been produced using the grinding device in dispute and that, as a result, when processing the semi-finished goods into moist tissues, patches of rust occurred thereon. At the same time, the [buyer] expressed the suspicion that the grinding device delivered on April 7, 1993 was defective, so that the [buyer], as a precaution, stated that it held the [sellers] liable for all damages incurred and to be incurred in the future. Thus, the complained-of lack of conformity of the shipment was sufficiently specified in accordance with the [buyer’s] state of knowledge at that time, so that the [sellers] were able to learn from the letter dated June 14, 1993 the delivery item as well as the complained-of lack of conformity with the contract.

4. Because the Court of Appeals – consistent with its legal view point – did not make any findings on the existence of the complained-of lack of conformity with the contract, on a possible limitation of liability of the [sellers] or on the extent of the alleged damages, the matter had to be remanded to the court of appeals for further clarification. Prior decisions: OLG [***] Bamberg, LG [***] Bayreuth.

Footnotes

* For purposes of this translation, the assignor of the Plaintiff of Switzerland is referred to as [buyer]; the Defendants of Germany are referred to as [sellers]. Amounts in German currency (Deutsche Mark) are indicated as [DM].

** Translator’s note: The German original uses the term “objektive Erkennbarkeit“, which means “objective discoverability.”

*** Translator’s notes:
BGHZ = Die amtliche Sammlung der Entscheidungen des Bundesgerichtshofes in Zivilsachen [Official Reporter of Decisions of the German Federal Court of Justice in Civil Matters];
LG = Landesgericht [District (trial) Court];
OLG = Oberlandesgericht [Higher Regional Court, a Court of Appeals].

Case commentary

Comments on Bundesgerichtshof VIII ZR 287/98, 3 November 1999

Peter Schlechtriem
Albert-Ludwigs-Universität Freiburg
January 2000

Translation by William M. Barron, Esq., Birgit Kirtz, Esq., Alston & Bird LL.P.
and
Dr. Peter Konwitschka, Schönherr Rechtsanwälte OEG, Vienna

Headnote

Articles 38(1), 39(1) CISG; cross-border sale; examination and notice period

The notice period pursuant to Art. 39 CISG does not always commence upon the occurrence of destruction of property that was possibly caused by a lack of conformity of the purchased good.

Comments

1. On April 7, 1993, defendant delivered a so-called grinding device to a Swiss paper factory (buyer) for its paper machine for the production of moist tissues. The semi-finished moist tissues that were produced on this machine were delivered to the plaintiff, who objected to rust-spots. As early as April 25, 1993, the grinding device caused a total loss of certain parts of the paper machine that were connected in series; the device itself was destroyed and replaced by a different product on April 26, 1993. On June 14, 1993, the paper factory gave notice of the defect to the defendant and claimed damages; it assigned its claims to the plaintiff, who sued for a partial amount of DM 100,000.

Because of the plaintiff’s notice, the buyer initially commissioned an expert company to investigate the symptoms of the defect and the grinding device; its test report was received on June 11, 1993. Defendant opposed this claim on the grounds of, inter alia, a failure to examine and to give notice in a timely fashion. The appellate court dismissed the complaint, reasoning that the period to give notice pursuant to Art. 39(1) CISG had begun upon the total loss on April 26, 1993. The Federal Supreme Court, however, held that notice given seven weeks after the occurrence of the total loss was timely, reversed the appellate court’s decision and remanded the matter for an analysis of the lack of conformity and other questions that had to be clarified.

2. According to the Federal Supreme Court’s opinion, “a commencement of the examination and notice period under Art. 38(1), 39(1) CISG cannot yet be assumed at the time of the total loss.” The Federal Supreme Court left undecided whether defects that could not have been discovered upon delivery in spite of an examination had to be brought to the seller’s attention as soon as they ought to have been discovered later, or whether notice was not required until the time of actual discovery; the Court did so because the notice was not untimely even if the notice period had begun at the time at which the defect ought to have been discovered. In this context, the Federal Supreme Court stated that the buyer had to be allotted a period of approximately one week on discovery of symptoms of defects for the decision on what to do next, followed by a period of two weeks for the expert’s investigation. A “regular” one-month notice period followed, so that the notice given seven weeks after the loss was not untimely.

3. In regard to the periods to which a buyer must adhere in order to preserve his rights arising from a lack of conformity, the examination period and the notice period must be strictly distinguished and must not be added up to one lump sum period. A period “as short . . . as is practicable under the circumstances” is available to the buyer for the examination, Art. 38(1) CISG. Among these “circumstances,” there is doubtless the time needed by an expert for the examination as to whether and, if applicable, which lack of conformity is present and can be specified in the notice; in the case at issue here, this period was therefore two weeks. In addition, the Federal Supreme Court, rather generously, granted the buyer one week to consider and to decide if the commissioning of an expert was necessary and to clarify possible operating errors; this is understandable, especially in cases of complex machines, where the causes of malfunction can be difficult to ascertain and perhaps only through specific experts, although this should not become a rule for all cases. Contrary to a misleading statement of the Federal Supreme Court’s decision (see II.2.a.e.) that seems to stand for the adding-up of both periods into one single period, the examination period began in any case upon the total loss, i.e., upon the occurrence of the symptoms of the defects; under the circumstances, the period was set at three weeks. Although not stated explicitly in Art. 38(1) CISG, it is true that the examination period generally begins upon the arrival of the goods at the buyer’s establishment (compare Art. 38(2) and (3) CISG). But this does not mean that the examination obligation and the examination period are irrelevant in cases of latent defects; rather, the period and the obligation begin when causes for suspicion later suggest a — possibly renewed — examination.

Only at the end of the short examination period, which has to take account of the circumstances, does the reasonable notice period pursuant to Art. 39(1) CISG begin, which the Federal Supreme Court set as a “regular” four-week period.

4. Chiefly, it is a welcome development that, contrary to some German decisions which, regarding the specification requirement of notices of lack of conformity, had set extremely rigorous demands, at least in the case of complex and complicated goods, notice of the defect symptoms shall be sufficient (but compare BGH 25 November 1998, NJW-RR 97, 680 = EWiR 97, 653 (Schlechtriem/Schmidt-Kessel with further references)). A general adding-up of the examination period and the notice period resulting in the buyer’s option to remedy his default during one period by his accelerated action during the other period will, however, probably not comply with the statutory provisions. The statement that the notice period is “regularly” one month must also give rise to concern. The reasonableness of the period depends mainly on the goods, but also on the type of the business and other circumstances. For certain goods, significantly shorter notice periods are advocated and applied by the courts; of course, these shorter periods must also not be misunderstood as standard periods. In the case of easily perishable goods or goods whose price fluctuates greatly, the buyer’s right to give notice within four weeks would put the seller at an unreasonable disadvantage (compare OLG Saarbrücken 3 June 1998, NJW 1999, 780 (flower business): “on the same day”; OLG Düsseldorf 8 January 1993, IPrax 1993, 413 (cucumbers): “seven days was already untimely”). Also in the case of an unambiguous identification of the defect, for example by experts, a faster reaction by the buyer could be “reasonable” (in the case at issue, he gave notice three days after receipt of the expert’s opinion!). But above all, when applying international uniform law, the Federal Supreme Court cannot, as it can for German law, claim the last word and suggest with the term “regular” a ruling with precedential effect; instead, it must — Art. 7(1) CISG — in the interest of keeping legal uniformity, consider how foreign case law and legal scholars interpret the reasonable period.

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichtshof 24 March 1999 [VIII ZR 121/98], BGHZ 141, 129, with case note

This case is published in the German Law Archive courtesy of Pace Law School Institute of International Commercial Law.

Translation [*] by Alston & Bird LL.P.
Editors: William M. Barron, Esq.; Birgit Kurtz, Esq.

1. CISG Art. 79 On the question of the exemption of the seller under CISG Art. 79 when, in the case of a delivery not conforming with the contract, he was only acting as an intermediary, and the reason for the goods’ non-conformity is in the control of his supplier or his supplier’s supplier.

2. CISG Art. 77; ZPO § 304 (1) On the admissibility of a judgment as to the existence of a damage claim without considering mitigation of damages pursuant to CISG Art. 77.

BGH,[*] decision dated March 24, 1999 – Index No. VIII ZR 121/98 (Pfälzisches OLG Zweibrücken, LG Frankenthal [**]).

The Eighth Civil Panel of the Federal Court of Justice has decided, after the hearing of March 24, 1999 (judges Dr. Zülch, Dr. Beyer, Dr. Leimert, Wiechers and Dr. Wolst):

Upon the appeal of the defendant, the judgment dated March 31, 1998 of the Eighth Civil Division of the Pfälzisches Oberlandesgericht Zweibrücken is reversed.

The case is remanded to the Court of Appeals for another hearing and decision, also regarding the costs of the appeal.

[…]

Facts

Plaintiff runs a vine nursery in Austria dealing, inter alia, with the breeding and refinement of vines as well as the sale of these vines. In the grafting process, the [plaintiff] uses a special wax in order to protect the vines from drying out and in order to reduce the risk of infection. The wax, which plaintiff also in part resold, was purchased by [plaintiff] for many years from the defendant, whose owner also runs a vine nursery. The defendant in turn obtained the wax from the F.W. company. The manufacturer of the wax was the company S. Werke GmbH.

In a letter dated January 18, 1994, plaintiff asked defendant, as in previous years, to submit an offer for “about 5,000 kg black vine wax.” With reference to this letter, the defendant offered to plaintiff, in a letter dated January 21, 1994, 5,000 kg of “black vine wax” at the price of DM [Deutsche Mark] 5.43 per kilogram. On January 31, 1994, plaintiff placed such an order.

The wax which was thereupon delivered to plaintiff was a type of wax newly developed by S. Werke, as requested by defendant. Defendant had neither actually received accepted nor inspected the goods prior to delivery to plaintiff. The delivery took place in the original packaging directly from the manufacturer, S. Werke, as requested by defendant via the F.W. Company.

Plaintiff partially used the wax for the treatment of its own vines. In addition, plaintiff also sold the wax and vines which had been treated in its nursery with the wax to other nurseries which, in turn, treated their vines with the wax and also delivered vines that had been treated with the help of the wax to other customers.

In a letter dated June 16, 1994, plaintiff gave notice of the defective wax to defendant and complained of major damage to vines treated with the wax. In the lawsuit at issue, plaintiff demands the value of sA [Austrian Schillings] 14,146,348.40 in damages from the defendant. Defendant refuses to compensate [the buyer]. [The defendant] attributes the alleged damages to frost and argues that it is exempt from any liability as an intermediary pursuant to Art. 79 CISG because the reasons for the damages are out of its control. In addition, [defendant argues that] the asserted damages are excluded by its general terms and conditions of sale.

The Landgericht [Court of First Instance] dismissed the complaint. Upon the appeal of the plaintiff, the Oberlandesgericht [Regional Appellate Court] held that the complaint presented a valid cause of action and remanded the case to the Landgericht for further hearings on the amount of damages. The appeal of defendant argues against this and requests the reinstatement of the Landgerichtjudgment.

The Reasons for the Decision

I. The [Regional] Court of Appeals held:

[The Court held that] plaintiff had a claim for damages against defendant pursuant to CISG Art. 45(1)(b) in connection with Art. 74 – 77, from which defendant could not be exempted by CISG Art. 79.

[The Court found that] the black vine wax delivered by defendant did not meet industry standards and was therefore not in conformity with the contract pursuant to CISG Art. 35(1). [The Court stated that] on the basis of the expert’s opinion, the defectiveness of the wax was proven without a doubt. [The Court pointed out that] insofar as defendant denied that the delivered vine wax was the cause of the damage, this was unsubstantiated.

[The Court held that] defendant’s liability was not excluded by defendant’s terms and conditions of sale. They did not become part of the contract. Moreover, they were invalid because they violated AGBG [*] § 9 by excluding damage claims completely.

[The Court held that] defendant’s liability was also not exempted by CISG Art. 79. Because defendant itself herself had commissioned the development of the new type of wax that was delivered to plaintiff, an exemption was only possible if defendant could rely on the newly developed wax having been exhaustively tested. This was not, however, the case. [The Court stated that] as a result, the impediment pursuant to CISG Art. 79(1) was not beyond defendant’s control. Defendant could have avoided the defect. It [defendant] should have had the new product tested for plant compatibility.

[The Court held that,] therefore, plaintiff has a cause of action for compensation of its actual financial damages because of the delivery of the defective wax in 1994.

[The Court held that,] with respect to the extent of the damages caused by the defect, the matter was not yet ripe for decision. For this purpose, further determinations, especially an evidentiary hearing, are necessary to determine the extent of the damages suffered by plaintiff in its own vine nursery with respect to the vines intended for sale as well as the extent of its losses as a result of having to reimburse its customers for damages suffered due to the defective vines and its customers’ property loss caused by the use of the defective wax.

II. These views do not withstand legal scrutiny on appeal in all points.

1. The appeal tries unsuccessfully to overturn the decision of the Lower Court with respect to the defectiveness of the black vine wax delivered to plaintiff by defendant in 1994.

The Court of Appeals correctly justifies its decision by the fact that the expert determined, without any reservations, that pursuant to his experiments and analyses there is no doubt that a causal connection existed between the vine wax used and the damages to the vine nursery’s field.

The appeal unsuccessfully attacks the expert’s knowledge with the reproach that, while he was only an expert in biology, he still conducted chemical and physical experiments and analyzed the results himself. The deciding determination that the use of the sold wax caused the damage to plaintiff’s plants, was found by the expert in a field test whereby 500 vines were paraffined with the result that the plants that were treated with the wax in dispute were heavily damaged. Contrary to the argument of the appeal, there is no need for an additional expert’s opinion based on chemistry and physics to determine which specific harmful substance in the wax was responsible for the damages. The Court of Appeals correctly relies on the fact that defendant was obligated, pursuant to CISG Art. 35(2)(a), to deliver wax that is suitable for the treatment of vines, but that the black vine wax delivered by defendant in 1994 did not meet the industry standards – of which both parties were aware and which both parties applied – and that therefore the wax was not in conformity with the contract within the meaning of CISG Art. 35.

2. The appeal further asserts that defendant is, in any event, not liable for the damages caused by the use of the vine wax because it was only the intermediary and, therefore, the vine wax’s non-conformity with the contract was beyond its control (CISG Art. 79). This attack is also unsuccessful.

a) It may remain undecided whether CISG Art. 79 encompasses all conceivable cases and forms of non-performance of contractual obligations creating a liability and is not limited to certain types of contractual violations and, therefore, includes the delivery of goods not in conformity with the contract because of their defectiveness (compare Schlechtriem/Stoll, Kommentar zum einheitlichen UN-Kaufrecht, 2d ed. 1995, Art. 79 ¶¶ 45-47; Staudinger/Magnus, Wiener UN-Kaufrecht, 1994, Art. 79 ¶¶ 25-26; Piltz, Internationales Kaufrecht, Munich 1993, § 4 ¶ 217 et seq.; Herber/Czerwenka, Internationales Kaufrecht, Munich 1991, Art. 79 ¶ 8; Schlechtriem, Internationales UN-Kaufrecht, Tübingen 1996, p. 164et seq.), or whether a seller who has delivered defective goods cannot rely on Art. 79 CISG at all (compare Nicholas, Impracticability and Impossibility in the UN Convention on Contracts for the International Sale of Goods, in: Galston N.M./Smit H., International Sales, New York, Mathew Bender, 1984, Chapter 5 § 5.10 to 5.14; Tallon, in Bianca/Bonell, Commentary on the International Sales Law, Milan 1987 Art. 79 cmt. 2.6.2.; Honnold, J.O., Uniform Law for International Sales under the United Nations Convention, December 1982, Art. 79 N. 427; compare also Lautenbach, Die Haftungsbefreiung im internationalen Warenkauf nach dem UN-Kaufrecht und dem schweizerischen Kaufrecht, Doctor’s Thesis of the University of Zurich, 1990 p. 33 et seq.; Keil, Die Haftungsbefreiung des Schuldners im UN-Kaufrecht, Doctor’s Thesis of the law faculty of the Ruhr-University Bochum, Frankfurt am Main 1993, p. 18 et seq.). An exemption pursuant to Art. 79 CISG, upon which the Court of Appeals correctly based its decision, is not applicable because, in any case, the defectiveness of the vine wax was not outside defendant’s control. It is, therefore, responsible for the consequences of a delivery of goods not in conformity with the contract.

The possibility of exemption under CISG Art. 79 does not change the allocation of the contractual risk. According to the [CISG], the reason for the seller’s liability is that he has agreed to provide the purchaser with goods that are in conformity with the contract. If the supplier’s (or suppliers’) breach of the contract is a general impediment within the meaning of CISG Art. 79 at all, it is generally an impediment that the seller must avoid or overcome according to the content of the contract of sale. This follows the typical meaning of such a contract (Magnus in: Honsell [publisher], Kommentar zum UN-Kaufrecht, 1997, Art. 79 ¶ 10; but see Schlechtriem/Stoll, supra, Art.79 ¶ 47 et seq. with further citations). From the buyer’s point of view, it makes no difference whether the seller produces the goods himself – with the consequence that the non-performance is generally in his actual control so that, as a rule, a dispensation pursuant to CISG Art. 79(1) is generally excluded – or whether the seller obtains the goods from suppliers. Just as in the case of unspecified obligations, where the seller is liable for the timely delivery by his supplier (compare, e.g., Staudinger/Magnus, supra, Art. 79 ¶ 22; Schlechtriem/Stoll, supra, Art.79 ¶ 30 et seq.), he is also responsible to see that his supplier delivers defect-free goods. In this respect, the [CISG] does not distinguish between an untimely delivery and a delivery of goods not in conformity with the contract. For both breaches of contract the same standard of liability applies. The appeal does not indicate that the parties agreed to a different allocation of risk at the formation of the contract, nor is this otherwise apparent.

Pursuant to CISG Art. 79, the seller’s exemption from consequences of goods not in conformity with the contract can only be considered – if at all (see above) – when the non-conformity cannot be deemed to be within the seller’s control. Because the seller has the risk of acquisition (as shown), he can only be exempted under CISG Art. 79 (1) or (2) (even when the reasons for the defectiveness of the goods are – as here – within the control of his supplier or his sub-supplier) if the defectiveness is due to circumstances out of his own control or out of each of his suppliers’ control. The appeal cannot show this. Insofar as the appeal points out that the manufacturer, in 1994, used an inappropriate raw material possibly imported from Hungary during the production of the delivered vine wax, this is not relevant with respect to CISG Art. 79 because the manufacturer would be liable – and thus also plaintiff vis-à-vis defendant – for those product defects within its control.

b) For this reason, the basic responsibility of defendant for plaintiff’s damages is not questioned by the appeal’s argument that the damage would have occurred in the same way if defendant in 1994 had delivered the same vine wax to plaintiff as it had delivered in prior years and that was used by plaintiff without any damages instead of the newly developed vine wax, because all brands of vine wax produced by the manufacturer in that year had the same defect due to the defective raw materials used only in this year. That is so because defendant would also have been liable for plaintiff’s damages in this hypothetical case. The liability under the [CISG] is, contrary to the Lower Court ‘s opinion, not based on the supplier’s obligation to inspect the goods before delivery to its purchaser, which – according to the appeal – was not necessary in this case because the vine wax previously purchased had always been free of defects. That is so because the seller’s culpability is not important due to the statutory allocation of risk and the lack of a different agreement between the parties concerning the allocation of risk, resulting in a guarantee [warranty] liability of the seller.

3. We do not disagree with the Appeals Court ‘s view (not questioned on this appeal) that defendant’s liability was not excluded under its terms and conditions because they did not become part of the contract and, moreover, violated AGBG § 9 by completely excluding damage claims.

4. The appeal, however, correctly argues that the Court of Appeals did not review the question whether and to what extent plaintiff carries a joint responsibility for the damages pursuant to CISG Art. 77.

a) The question whether, during the litigation with respect to the legal basis of the claim, a decision must be made concerning the violation of an obligation to mitigate the damages pursuant to CISG Art. 77 or whether it is reserved for separate proceedings concerning the amount of the claim, must be decided according to the principles developed with respect to BGB [*] § 254; the principle of autonomous interpretation of the [CISG] (CISG Art. 7) is not contradictory because this is a question of procedural law.

CISG Art. 77 establishes a defense that may exclude a claim and must be considered sua sponte (Schlechtriem/Stoll, supra, Art. 77 CISG ¶ 12 with further citations). The failure to meet the duty to mitigate damages can result in the complete exclusion of compensation insofar as damages could have been avoided altogether (compare Schlechtriem/Stoll, supra). As a rule, the review of the failure to observe the duty to mitigate damages pursuant to CISG Art. 77 must take place as part of the decision as to the existence of a cause of action. Only when it is certain that the failure to meet the duty to mitigate damages does not lead to the exclusion of liability and, thus, a claim of the injured party remains, the decision about [the failure to mitigate damages] can be reserved for separate proceedings concerning the amount of the claim. If, in the decision with respect to the existence of a claim, some individual questions regarding the existence of a claim are ignored and their clarification is left to a separate proceeding concerning the amount of the claim, the main holding, or at least the grounds of the decision, must show which points concerning the existence of the liability have not been decided in the decision on the existence of a claim. This has long been accepted by the Court s in the review of contributory negligence pursuant to BGB § 254 (compare BGH, judgment dated July 11, 1974, II ZR 31/73 = VersR [*] 1974, 1172 at 6; Civil Panel, judgment dated January 31, 1990, VIII ZR 314/88 = NJW [*]1990, 1106 at II 2 b aa; Civil Panel, judgment dated January 31, 1996, VIII ZR 243/94 = NJW-RR [*] 1996, 700 at II 1 d aa), and the same applies to CISG Art. 77.

b) The Court of Appeals did not, as the appeal correctly argues, deal with the question of plaintiff’s joint responsibility for the damage, neither in the main holding nor in the grounds for the decision. It thus passed over defendant’s argument that plaintiff continued to use the vine wax in dispute after it – when only a little more than half of the vines in the vine nursery had been treated – had learned about its defectiveness. Because the Court of Appeals did not make an appropriate reservation, it would be prevented by ZPO [*] § 318 from considering plaintiff’s alleged joint responsibility for the damages in the further course of the lawsuit (compare Civil Panel, decision dated January 31, 1990, supra).

5. Finally, the appeal correctly argues that the Court of Appeals did not address defendant’s argument that plaintiff had also applied the wax for a purpose not intended, namely the treatment of young vines supposed to be planted into so-called “young fields,” even though it was only offered by defendant and ordered by plaintiff for the purpose of vine grafting.

If plaintiff used the delivered vine wax for a purpose for which it was not meant to be used under the contractual agreement, defendant is not liable for resulting damages. There would be no causal connection between the violation of the statutory obligations set forth in CISG Art. 35 and the damages appearing in the young fields.

According to the reasons under Point 4, the [Court of Appeals] should have either made an explicit decision about defendant’s liability for the damages caused by the use of the delivered wax on “young fields,” or – if not – the Court at least should have made an appropriate reservation in the decision. Both are missing.

III. Because further determinations by the trial judge are necessary, the Appeal Court ‘s decision must be reversed and remanded to the Court of Appeals for further trial and decision.

Footnotes

* Translator’s notes: AGBG = Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen [Act Regarding the Regulation of the Law of General Contractual Terms and Conditions]; BGB = Bürgerliches Gesetzbuch [German Civil Code]; BGH = Bundesgerichtshof [German Federal Supreme Court]; Landgericht = Regional District Court, here the Trial Court; NJW = Neue Juristische Wochenschrift [pre-eminent German weekly law journal]; NJW-RR = Neue Juristische Wochenschrift – Rechtsprechungsreport [weekly law journal reporting on civil and criminal judgments]; sA = Austrian shillings; VersR = Versicherungsrecht [monthly law journal specializing in insurance law]; ZPO = Zivilprozeßordnung [German Code of Civil Procedure].

** Translator’s note: LG Frankenthal, the Regional Court of Frankenthal, was the Trial Court in this matter, and Pfälzisches OLG Zweibrücken, the Higher Regional Court decided the appeal from the Trial Court.

Case Commentary

Also available at Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001) 383-407

Federal Supreme Court (Bundesgerichtshof), Civil Panel VII March 24, 1999, Index No. VIII ZR 121/98

Commentary by Peter Schlechtriem¹

Translation by Todd Fox & Sonja Corterier

This decision is significant because it clarifies important and internationally disputed questions concerning a seller’s liability for delivery of non-conforming goods under the United Nations Convention on the International Sale of Goods (CISG). To understand the scope of the decision it is necessary to recall the entire context of seller’s liability for non-conformity. The possibility of exemption for an obligor for a breach of duty due to an impediment beyond his control and which was neither foreseeable nor avoidable for him is limited to the obligee’s claims for damages. According to Art. 79(5) CISG other remedies still remain viable when an obligor qualifies for an exemption. For the seller’s liability due to non-conforming goods that means that the buyer still has the right to a price reduction under Art. 50 CISG, to demand cure so long as the necessary prerequisites for cure or delivery of substitute goods are met, and in certain exceptional cases to declare the contract avoided.² As under §§ 459, 480 (1) BGB [German Civil Code] the seller is in this respect still liable for defects, i.e., for the non-conformity of the goods.

1. According to the CISG a party is not liable for damages due to “failure to perform any of [a party’s] obligations” if the prerequisites for an exemption stated in Art. 79(1) CISG are met. In simple terms this would include impediments that were unforeseeable and beyond the control of the party in breach and therefore unavoidable. The terminology of the Norwegian text is especially appropriate in using the term “sphere of control” to circumscribe the responsibility of the obligor and his risk of liability if damages arise. The prevailing view, not only in Germany, is that “a failure to perform any obligation” within the meaning of Art. 79(1) CISG includes the delivery of non-conforming goods. This means, at least theoretically, that a seller can escape his liability for damages by an excuse under Art. 79 CISG. The Bundesgerichtshof [German Federal Supreme Court, BGH] left open the question “whether Art. 79 CISG includes every possible case and form of failure to comply with obligations under the contract” as well as the question “whether the exemption applies to delivery of non-conforming goods.” However, the court’s holding that a seller is liable for defects attributable to his suppliers, and its reasoning why indicate that the court deemed Art. 79 CISG applicable for damages liability due to non-conformity; otherwise the court’s reasoning in denying an exemption for the seller would be superfluous.

To evaluate the question of whether the seller’s duty to deliver conforming goods under Art. 35 CISG is included under the obligations covered in Art. 79, and therefore whether an exemption for the seller is possible, and to give the appropriate weight to scholarly comments on this question, it is necessary to distinguish two lines of argument. Firstly, whether non-conformity is actually failure to perform an obligation within the meaning of Art. 79(1) or 79(2) CISG and whether it should be according to the intention of the drafters of the Convention. Secondly, if the answer to the first question is yes, whether non-conformity can depend on circumstances beyond the seller’s control that he cannot reasonably be expected to have taken into account at the time of the conclusion of the contract or to have avoided or overcome their consequences. Thus, whether and when an exemption for the seller from liability due to defective goods can be considered.³

a) The wording “any of his obligations,” which would include those of the seller under Art. 35 CISG, and the placement of this exemption provision in the CISG (Chapter V “Provisions Common to the Obligations of the Seller and of the Buyer”) clearly imply its applicability in cases where damages are claimed against the seller due to non-conformity of the goods. An interpretation leading to different results would go against the text of the Convention.

b) The legislative history of the CISG also supports this position. The question was already disputed during the preparations for the Hague Convention (ULIS) and seemingly decided that the exemption provision of Art. 74 ULIS in principle should also apply to non-conformity cases.⁴ In the Secretariat Commentary⁵ on the 1978 New York Draft,⁶ which served as the basis for the Vienna Conference, the example chosen to illustrate 1978 Draft Art. 65(1) (=Art 79(1) CISG) was the liability and possible exemption of a seller who failed to package the goods in accordance with the contract. However, adequate packaging was already in Art. 33 of this Draft, as well as presently in Art. 35 CISG, classified as necessary for the goods to conform to the contract.⁷ Anglo-American literature refers to the first sentence of Art. 79(4) CISG and argues on the basis of the wording of the text that this sentence clearly would not fit the case of delivery of non-conforming goods.⁸ However, this sentence only makes clear that, in applying Art. 79 CISG, one has to differentiate between the modalities of the breach of contract. There is also, of course, the possibility that the party who cannot deliver conforming goods is able to communicate the reason for this hindrance prior to the delivery. The reference to damages in the second sentence of Art. 79(4) CISG makes sense for the buyer if exemption in cases of non-conformity to the contract is principally deemed possible in such a situation.

c) Especially practical considerations speak for qualifying delivery of non-conforming goods as “failure to perform an obligation” within the meaning of Art. 79 CISG. If the delivery of non-conforming goods were to be excepted from the possibility of exemption under Art. 79 CISG then the seller would, at least in borderline cases which would qualify for remedies under both liability for non-conformity and failure to comply with a collateral duty under German (national) sales law, be able to qualify for an exemption for breach of a collateral duty but not for breach due to non-conformity of the goods. Packaging that does not conform with the contract (Art. 35(1), (2)(d) CISG) could also be construed as a breach of a collateral duty to adequately pack the goods. The seizure of instruments which do not comply with certain security standards could be construed to be the result of delay in producing the required test-certificates and therefore as a breach of a collateral duty for which an exemption would be conceivable (e.g., if the administrative agencies worked slowly).⁹ This would be a further case of an unsure, and therefore, unwanted borderline between liability for non-conformity and liability for breach of a collateral duty.

d) The differing opinions cited by the German Federal Supreme Court (BGH) have the following background. In the course of the preparations for ULIS Art. 74 (and later during the deliberations on the UNCITRAL Draft of the CISG) and in the discussions concerning the possibility of including an exemption for the seller in non-conformity cases, there was concern that, at least for courts whose system of contractual liability is based on fault, Art. 79 CISG could be misunderstood as a kind of weakened fault-liability principle.¹⁰ An exemption for the seller due to lack of fault would however be so contrary to the Anglo-American legal tradition of seller’s liability based upon warranties,” that the CISG would therefore have been unacceptable to certain common law countries.

The cited contrary views are from authors who represented their countries during the 1964 Hague Conference and fought there, with a provision to exculpate a seller from liability for defects he could not detect by exercising due care, against the attempts of the German delegates to introduce fault-based liability.¹¹ The assertion that (at least) for non-conformity of goods there is no exemption for the seller is, therefore, to be understood as an attempt to restrict the exemption provision of Art. 79(1) CISG and prevent its misconstruction. Additionally the influence of the respective national law in construing the CISG is never entirely suppressible. This is especially true for French opinions since, according to French law, the commercial seller is presumed to be acting in bad faith and therefore is liable for damages — without the possibility of exemption — according to French Civil Code Art. 1645. Art. 79 CISG is construed in France accordingly. Here, “nationally developed legal principles [work] as background information.”¹²

In most cases in which the seller produced the goods himself an exemption for non-conformity to the contract would be out of the question. Even in cases in which impediments beyond one’s control occur during the production process (e.g., due to power fluctuations), the consequences are avoidable through appropriate quality controls before the goods leave the production site. Thus, the failure to comply with the contract occurs within the seller’s “sphere of control.” The same must be true for cases where the non-conformity of the goods under Art. 35(2)(b) CISG is due to influences in the buyer’s land such as climate, public law standards, cultural convictions, etc. which affect the suitability of the goods. If the fitness of the goods for a particular purpose was part of the determination of conformity to the contract because the seller knew of this particular purpose, then the cause of the damage and its consequences in the meaning of Art. 79(1) CISG could have been avoided by the seller through observation of these specific contractual obligations. This is, of course, a question of normative allocation of risk. The seller cannot always control the physical nature of the goods, but he can control the risk of damage liability. If he cannot bear that risk, or does not want to, he must contractually limit it or exclude it, thereby bearing the risk of losing customers or finding his exculpatory clause held invalid.

2. Another issue is whether and to what extent activities of suppliers and their suppliers are within the seller’s sphere of control, i.e., within his sphere of risk. Here one must first ask whether Art. 79(1) or 79(2) CISG is applicable. This issue was much debated at the Vienna Conference. The dispute was influenced by insecurity over the preliminary question of whether Art. 79(2) CISG was meant to facilitate the possibility of exemption for a seller or make it more difficult. This led to motions to explicitly adopt liability for “suppliers” in Art. 79(2) CISG and opposing motions not to mention suppliers and suppliers’ suppliers at all and thereby practically limit “third persons” in this provision to subcontractors. These questions were essentially whether in cases of “failure by a third person” the prerequisites for exemption should be required to be met cumulatively by both the seller and the third person (thereby restricting exemption) or whether the word “and” in Art. 79(2)(a) CISG should be read as “or.” Many motions and comments at the Vienna Conference clearly indicate that Art. 79(2) CISG (= Draft Art. 65(2)) was perceived by some delegates as a dangerous facilitation of a seller’s exemption for his supplier.¹³ Other delegates, however, correctly recognizing subparagraph (2) as a means of restricting exemption, wanted to expressly include suppliers in the provision in order to secure equal treatment of subcontractors and suppliers and to avoid “that a party should be exempted from liability because he had chosen an unreliable supplier.”¹⁴

The final rejection of the motions to expressly include suppliers in Art. 79(2) was mainly due to the confusion and misunderstandings over whether subparagraph (2) meant to tighten or loosen liability.¹⁵  The rejection of the propositions to view all independent subcontractors as included under subparagraph (2) can therefore hardly be seen as a clear vote for treating suppliers and their suppliers as part of the seller’s sphere of control pursuant to Art. 79(1). The majority opinion, which wanted (or considered as self-evident) a limitation on the possibility of exemption for suppliers and their suppliers in the case of non-conformity of the goods would have naturally been better served with an explicit classification of these “third persons” in subparagraph (2). This construction is, however, not necessarily excluded by the vote in Vienna.

There is much to be said in favor of considering suppliers and their suppliers as third parties under Art. 79(2) CISG. This would practically eliminate an exemption for the seller in cases of non-conformity to the contract since the suppliers and their suppliers would not qualify for exemption as far as they produced the goods themselves.¹⁶ The result of the decision of the German Federal Supreme Court (BGH) that the seller is liable for suppliers and (all of) their suppliers as though the seller had himself produced the goods (the defect thus comes from within his “sphere of control”) could thus easily be arrived at. Particularly, an exemption for undiscoverable defects, despite the exercise of appropriate due care, would be ruled out.¹⁷

Nevertheless, it should be understandable that the BGH did not take this easy path to the desired policy goal of imposing liability on the seller for defects occurring within the sphere of influence of his suppliers, since that would practically cut off the exemption for the seller in cases of delayed performance or complete non-performance. Delay in performance or non-performance could certainly not be attributed to the seller if he had no influence on the choice of supplier. In that case his suppliers are fully outside of his sphere of influence (e.g., when the seller must rely on a government monopoly for certain materials or energy supply). It was cases such as these which caused the German delegation in Vienna to vote against an express inclusion of suppliers and their suppliers in Art. 79(2) CISG.¹⁸ In addition, the buyer may have insisted upon the use of certain suppliers, which likewise upon their failure must lead to an exemption for the seller under Art. 79(1) CISG without having to resort to the, in this instance, overly broad Art. 80 CISG.¹⁹ Here one can see that a unitary rule of exemption, the highly acclaimed “unitary, contractual approach”²⁰  can especially cause problems in dealing with the responsibility of suppliers and their suppliers. It seems therefore correct to have attributed responsibility for these third persons to the seller pursuant to Art. 79(1) CISG and to assign the procurement of non-conforming goods or their components to the seller’s sphere of risk. In the exact regulation and assignment of this risk the contract provisions and the construction of the contract are important.²¹

Here, however, as in the case of sales of self-produced goods, it is especially a question of normative assignment of risk of damages. The seller is perceived as the best suited to avoid, and therefore bear, this risk. Therefore, the BGH was correct to use the term “Garantiehaftung” [liability due to an implied warranty rather than fault] with regard to the seller.²² The standard of liability thereby established will also satisfy those lawyers whose national laws operate on a system of implied warranty or presume the commercial seller to always act in bad faith: systems based on liability without fault where, theoretically at least, an exemption would never be allowed.

An exemption for the seller in cases of non-conforming goods is, however, not necessarily precluded. It would, however, go too far, corresponding to the German case law concerning the seller’s duty to inspect the goods as prerequisite to liability under the national legal doctrine of “pVV” [positive Vertragsverletzung, fault-based liability], to grant an exemption in cases of hidden defects which could not have been discovered by a reasonable person in the seller’s situation.²³ This concretization and limitation of the seller’s responsibility, traced to the prerequisites of § 276 BGB [German Civil Code], would, as mentioned above, confirm the concerns of the Anglo-American lawyers that the possibility of exemption in Art. 79(1) CISG could be (mis)understood by German courts as an expression of a fault-based liability principle. Limitations on liability for damages should only be considered to the extent provided in the second sentence of Art. 74 CISG (foreseeability), especially in dealing with consequential damages.

Thus, cases in which a seller can qualify for exemption for delivering non-conforming goods under the contract are hardly conceivable.²⁴ However, that does not mean that the possibility of such cases is excluded. If, for example, foodstuffs are suspected of being poisoned or contaminated due to their origin in such a way that the buyer (foodstuff dealer) effectively cannot resell them, the seller might qualify for an exemption, provided he can prove that the goods sold by him were indeed not affected by this suspected contamination. No seller can be held liable for a general suspicion on specific goods which as a consequence renders the goods unusable and thereby non-conforming to the contract under Art. 35(2)(a) and Art. 35(2)(b) CISG. The buyer still has the remedies of price reduction and avoidance²⁵ or a claim for cure by the seller. The fact that the buyer cannot recover further damages, such as lost profits on resale and perhaps damage to good will, is a consequence of the risk connected to the goods in which he deals. The risk exists for both the buyer and the seller that such goods might become useless due to a general suspicion over which the parties and their suppliers have no influence. It is therefore appropriate that the German Federal Supreme Court left open the possibility of an exemption in cases of non-conformity of goods when the non-conformity is a consequence of a risk that can neither be attributed to the sphere of influence of the seller nor that of his suppliers.

3. The case also holds that a violation of the obligation to mitigate damages must be considered ex officio and could result in the loss of all rights to damages if compliance would have prevented the damages as a whole.²⁶

This decision of the German Federal Supreme Court can therefore rightly be viewed as a “landmark decision.” This Anglo-American term seems to be especially appropriate for a decision of such international importance and it is quite certain that it will also garner the appropriate attention of courts and lawyers outside of Germany.

Footnotes

1. This is an English adaptation of a commentary by Prof. Peter Schlechtriem, published in Germany in 15/16 Juristenzeitung [JZ] 794-797 (13 August 1999). ↩︎
2. See Medico Marketing Int’l, Inc., v. Internationale Medico Scientifica, S.r.l., 1999 WL 311945 (E.D. La. 1999) available in (last visited Mar. 21, 2000) http://cisgw3.law.pace.edu/cases/990517ul. An American buyer avoided a contract due to non-conformity of medical equipment that did not meet administrative security standards. The failure to deliver conforming goods was regarded as a fundamental breach of contract that enabled the buyer to declare avoidance. ↩︎
3. Precise in distinguishing these two questions, Bernard Audit, La Vente Internationale de Marchandises, Convention des Nations-Unies 1980 No. 181 (Paris 1990) [hereinafter Audit]. ↩︎
4. Otto Riese, Die Haager Konferenz über die Internationale Vereinheitlichung des Kaufrechts, Rabels Zeitschrift für Ausländisches und Internationales Privatrecht [RabelsZ] at 53-55, 79-81 (1965); Hans Dölle & Hans Stoll, Kommentar zum Einheitlichen Kaufrecht Art. 74 § 9, 101 (indicating other sources) (Peter Schlechtriem ed., 1976); regarding the choice of words in this context, see also John Honnold, Uniform Law for International Sales under the 1980 United Nations Convention Art. 79, § 427 (3d ed. 1999); on the preparations including Rabel’s first drafts, see Ulrich Krüger, Modifizierte Erfolgshaftung im UN-Kaufrecht, Die Haftungsbefreiung bei Lieferung vertragswiedriger Ware gemäß Art. 79 CISG 84-98 (1999). Tracing the legislative history of CISG Art. 79 from ULIS to the CISG, Krüger reports in detail that already in 1935 an exemption for the seller of non-conforming goods was contemplated if the failure to comply with the contract was due to an impediment beyond his control. Later the different provisions for possible sellers’ exemptions were incorporated into one general provision. At the Hague Conference in 1964 on Uniform International Sales Law (ULIS), an effort by the German delegation to clarify the wording on the issue of exemption in cases of non-conformity led to discussions on this very issue. The American representative Honnold proposed wording, which facilitated the possibility of a construction allowing exemption in cases of non-conforming goods (which he later fought against for the CISG). The German delegation’s insistence on the principle of fault based liability, which was not adopted, made the Anglo-American delegates especially concerned that the exemption provision Draft Art. 65 (= Art. 79 CISG) could be used as a “back-door” to introduce the German principle of fault based liability. Especially an exemption for damages for hidden defects should remain precluded. See id. at 92, 93. With the choice of the word “impediment” in the drafts of the CISG, Honnold meant to exclude an exemption for damages due to non-conformity of the goods. See id. at 95, 96. Krüger’s detailed analysis, however, leads him to conclude, “in the entire legislative history of the UN Convention an exemption for damages due to non-conformity of the goods was never unanimously and explicitly excluded.” Id. at 97. ↩︎
5. Commentary on the Draft Convention on Contracts for the International Sale of Goods, prepared by the UNCITRAL-Secretariat, Document A/CONF/97/5, Art. 29, No. 5, United Nations Conference on Contracts for the International Sale of Goods, Official Records, New York 1981 (A/CONF.97/19, 53 [hereinafter Official Records]). ↩︎
6. Regarding the preparatory work of the 1978 Draft, See Ernst Von Caemmerer & Peter Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht Einleitung Sub I. (2d ed. 1999). ↩︎
7.  See Official Records, supra note 4, at 56. However, Honnold, who (as this author) was a delegate for his country to the Vienna Conference, disagrees with this construction of the language and legislative history, pointing out that CISG Art. 79(4) would not fit cases of non-conformity. Honnold supra note 4, Art. 79 at 427. ↩︎
8. See id. ↩︎
9. See Medico, supra note 2, where the seizure was indeed the consequence of failing inspection procedures which were required as proof of conformity to safety standards; See also BGHZ 90, 198, 202 = JZ 1984, 842 (lack of a type of inspection required under regulations for the prevention of accidents for the operation of a delivered crane). ↩︎
10.  See Barry Nicholas, Impracticability and Impossibility in the U.N. Convention on Contracts for the International Sale of Goods, in Nina M. Galston & Hans Smit, International Sales 5-14 § 5.02 (1984). For the reasons for this anxiety Seesupra note 4. ↩︎
11. See id. ↩︎
12. Helga Rudolph, Kaufrecht des Export- und Importvertrags Art. 79 Rn. 12 (1996). This should especially apply to the opinion of Denis Tallon in C. Massimo Bianca & Michael Bonell, Commentary on the International Sales Law, The 1980 Vienna Sales Convention Art. 79 Anm. 2.6.2 (1987), since he particularly points to French national sales law. See also Karl H. Neumayer & Catherine Ming, Convention de Vienne sur les contrats de vente internationale de marchandises, CEDIDAC, Art. 79 Anm. 10, 529 (1993). Here the same influence of national solutions as background information. This applies as well to the German authors who still advocate the possibility of exemption from liability if the seller examined the goods with due care. ↩︎
13. See Official Records, supra note 5, at 378, para. 21, a motion from Turkey. See also the comment from Michida (Japan) in subparagraph 2 in which he pointed to the decision of the working group in January/February 1974 to strike the words “by his supplier or” “because they would thus tend to exempt the seller from liability…” and the comment from the Chairman of the First Committee. Id.at 380, para. 36. The working group, which was to resolve the dispute over the appropriate construction of the provisions. proposed two possible wordings. However, the different interpretations continued in the debate over these formulations. See id. at 410 paras. 3 et seq. This caused renewed uncertainty over the meaning of the word “impediment” for cases in which a third person was the cause for the failure to perform a duty under the contract. Regarding the consequences of this uncertainty in cases of delivery of non-conforming goods obtained from a supplier’s supplier, see Nicholas, supra note 10, at 5-10, § 5.02, who states that the choice of the term “impediment” was the result of the common wish to assure that the seller could not qualify for exemption in the case of non-conformity of the goods. ↩︎
14. See Official Record, supra note 5 at 379 para. 23 for the reasons concerning the Danish motion; see also Kruse (Denmark), id. at 380 para. 55 (the provision was meant to be an exception to subparagraph (1) “… but … in fact constituted a broadening of the party’s liability.”); Rognlien (Norway), id. at 380 para. 44 (“… wide differences of interpretations …”). The result of subparagraph (2) is in fact stricter liability. ↩︎
15. See Andreas Keil, Die Haftungsbefreiung des Schuldners im UN-Kaufrecht 143, 144 (clearly indicating that the insertion of “supplier” in Art. 79(2) CISG was misunderstood by some delegates as liability exemption and was for that reason rejected.); Albert Kritzer, International Contract Manual Art 79, 626 (1994); Frank Vischer, Gemeinsame Bestimmungen über Verpflichtungen des Verkäufers und des Käufers, in Schweizerisches Institut für Rechtsvergleichung 179 (Lausanner Kolloquium ed., 1985). Vischer reports “chaotic discussions.” The private notes of this author, written in the evening of each day of the session, show more clearly than the official protocol (which was edited by the delegates afterwards) that many misunderstandings over the meaning of subparagraph (2) prevailed which led to statements and motions to take suppliers out of the — supposed facilitated — possibility of exemption under Art. 79(2). ↩︎
16. See supra concerning the seller in this respect. The decisions of arbitral tribunals and state courts vary in subsuming suppliers and their suppliers under Art. 79(1) or 79(2) CISG, even though their arguments are almost interchangeable. See OLG Hamburg [Regional Court of Appeals Hamburg] Entscheidungen zum Wirtschaftsrecht [EwiR] 791 (1997), available in (last visited Mar. 20, 2000) http://cisgw3.law.pace.edu/cases/970228g1.html, which considers the reliability of the supplier to be part of the “general risk of procurement” (an exemption under Art. 79(1) CISG was considered and denied); Arbitral Tribunal of the Hamburg Chamber of Commerce (partial award of March 21, 1996, RIW 1996, 766-771, available in (last visited Mar. 20, 2000) http://cisgw3.law.pace.edu/cases/960321g1.html also considered the responsibility for suppliers under Art. 79(1) CISG. The seller was considered to be not as responsible for the producer or suppliers’ suppliers as he is for subcontractors and his own personnel under Art. 79(2) CISG. However, the seller was considered to bear the risk of procurement, even under adverse conditions, and therefore is held liable for its supplier. But see Arbitral Tribunal of the International Chamber of Commerce (ICC International Court of Arbitration) 8128/1995, UNILEX J.D.I. 1996, 1024-1028, 1026, available in (last visited Mar. 20, 2000) http://cisgw3.law.pace.edu/cases/958128i1.html, which based the seller’s liability for his “fournisseur” on Art. 79(2) CISG. The seller’s responsibility for his supplier is considered an integral part of his general risk of procurement. Some decisions simply leave undecided whether the responsibility for the supplier is based upon Art. 79(1) or 79(2) CISG. See Arbitral Tribunal of the Chamber of Commerce of the Russian Federation of March 16, 1995, 155/1994 — abstract in CLOUT 140 — available in (last visited Mar. 20, 2000) http://cisgw3.law.pace.edu/cases/950316r1.html (the complete reasoning is not available, therefore the general basis on Art. 79 CISG in the abstract may be misleading). The question, however, in all these cases was not one of non-conforming goods but rather of non-delivery. ↩︎
17. For a convincing argument against the possibility of exemption due to undiscoverability, see Honnold, supra note 4, Art. 79, para. 427 at 482. (If the seller buys and resells complex machinery in sealed containers examination is practically impossible; yet this (alone) should not exempt the seller from liability). ↩︎
18. See Official Records, supra note 5 at 379, para. 29; Peter Schlechtriem, Einheitliches UN-Kaufrecht 97, 98 (1981). ↩︎
19. See Audit, supra note 3 (defects resulting from the relevant instructions by the buyer concerning the material to be used). ↩︎
20. Honnold, supra note 4, Art. 79 para. 427. ↩︎
21. On the question of seller’s liability as an allocation of the risk imminent to the contract see Krüger, supra note 4, at 152 et seq., who, in cases of non-conformity, correctly interprets liability for “impediments to be considered at the conclusion of the contract” as a reasonably undertaken guarantee against damages, which must be covered in the price through a risk related price calculation. ↩︎
22. See BGH, Decision from March 24, 1999, VIII ZR 121/98 at sec. II.2.b. ↩︎
23. See LG Köln [Regional Court of Cologne] (Nov. 16, 1995) available in (last visited 20 Mar. 2000). http://cisgw3.law.pace.edu/cases/951116g1.html, aff’dOLG Köln, May 21, 1996. ↩︎
24. Regarding cases of delivery of non-conforming goods where an exemption from liability might be possible, See Krüger, supra note 4, at 166 et seq. and especially at 185 et seq. (non-conformity due to force majeure). ↩︎
25. It would have to be considered a fundamental breach of contract if the goods could only be disposed of as hazardous waste. ↩︎
26. See BGH, supra note 22 at sec. II.4.a. See also OLG Köln, Aug. 21, 1997, OLG Rspr. Köln 1998, 2-4, JMB1 NW 1998, 76-78, available at (last visited Mar. 20 2000) http://cisgw3.law.pace.edu/cases/970821g1.html. The Regional Appellate Court of Cologne held that where the buyer stored aluminum hydroxide in a silo with defective aluminum hydroxide and the use of the aluminum hydroxide would have caused damages in the buyer’s glass production, the buyer’s damages came to nothing. ↩︎

© 2005 Pace Law School Institute of International Commercial Law. This HTML edition © 2006 Gerhard Dannemann.

Bundesgerichtshof judgment of 2 April 1998, III ZR 245/96.

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 Raymond Youngs, Southampton Institute

Facts

The plaintiff is the receiver of the assets of the G AG. Its predecessor (G GmbH & Co.) acquired from H, the sole member of the S GmbH (hereafter called STN) all the shares in the business by a notarised contract dated the 12th October 1992. This was immediately after H had brought in to this company the real property company which owned the business premises and the buildings on them which were let to STN in accordance with § 20 of the Conversion Tax Act. The purchase price was 2.5 million DM, payable immediately.

The plaintiff demands from the defendant auditors compensation for incorrect information. The defendants had been commissioned by H to carry out a compulsory audit in accordance with §§ 316ff HGB. They had been occupied since July 1992 with the audit of the annual accounts of STN for the year 1991, drawn up by the accountant R. Their complaints led to the annual accounts being altered by R and showing a balance of 21,891,249.03 DM and an annual surplus of 2,666,467.37 DM higher than that in the earlier accounts.

The defendants by a letter of 8th October 1992 to STN for the attention of H (and a further Telefax letter of 9th October 1992 to the B GmbH for the attention of the accountant St who had been consulted by the G GmbH & Co) stated that the now current annual accounts would not be changed by them and could be confirmed by them.

Later irregularities in STN’s accounting came to light. H had at the end of 1991 incorrectly credited nine sums for a total of almost 25 million DM. The final annual accounts, for which the defendants issued a limited note of confirmation on the 30th March 1993 in accordance with § 322 HGB, showed a deficit of 11,049,361.15 DM instead of a surplus of 2,666,467.37 DM.

The claim was in the end for 2.5 million DM. In it the plaintiff alleged that the G GmbH & Co would not have acquired the shares in the business in the knowledge of the actual business yield in 1991 (or would only have done so at a symbolic purchase price of 1 DM). It was unsuccessful at first instance. The plaintiff lodges an appeal in law against this decision.

Reasons

The appeal in law leads to a quashing of the appeal judgment and a reference of the matter back to the appeal court.

I.

1. The appeal court, whose judgment is printed in [reference omitted], accepts that liability on the part of the defendants would come into consideration, because the subsequent insolvent has been included in the protected area of the audit contract between STN and the defendants. The appeal in law accepts this assessment as favourable to it. On the other hand, the reply to the appeal in law considers that the instructions for the compulsory audit, the communication about the status of the audit and the foreseeable outcome of it could not result in any protective effect in favour of third parties.

a) According to § 323 para 1 sentence 1 of the HGB the auditor of the accounts is under a duty to carry out a conscientious and unbiased examination and a duty of secrecy. If he breaches his duties intentionally or negligently, he is under a duty to compensate the company (and, if a connected undertaking has been harmed, this as well) for the harm arising from this (§ 323 para 1 sentence 3 of the HGB). In the academic literature, it is deduced from this that according to § 323 para 1 sentence 3 of the HGB ie for the area of the compulsory audit, where there is a violation of the duties of the auditor third parties are not entitled to any claims against him [references omitted].

Insofar as the duty to compensate for harm is extended to connected undertakings, this would rest – as a correlative – on this undertaking’s duty of presentation and provision of information to the auditor of the accounts for the group in accordance with § 320 para 2 sentence 2 of the HGB [references omitted]; the connected undertaking’s entitlement to compensation presupposes that the auditor is violating a duty incumbent on him and owed to the connected undertaking [references omitted]. An extension of the duty to compensate to further third parties for harm by way of interpretation or analogy would therefore be forbidden [references omitted].

Besides this, an extension of the liability to shareholders/members or creditors of the company would run counter to the goal of – in cases of negligent breach of duty – limiting the risk of liability of the auditor (§ 323 para 2 of the HGB). It would give rise to concern that the company would have to share its claims, which are in any case limited, with third parties [reference omitted].

b) The Senate endorses this in principle. Liability of the defendants to the purchaser, who does not belong to the group of persons mentioned in § 323 of the HGB as entitled to compensation, does not therefore come into consideration from this point of view. The breach of duty of which the defendants are accused certainly belongs technically to the area which is covered by the regime of § 323 of the HGB. It is therefore here a matter of the more extensive question of whether and under what conditions an auditor who is entrusted with a compulsory audit can also be made liable for appraisals, certificates or other statements which are connected with the object of audit, to persons who are not contractual parties to the audit contract and are also not included in the associated undertakings addressed in § 323 of the HGB.

aa) The appeal court takes into consideration (correctly here) the principles according to which protective duties can arise from a contract for the benefit of a third party, who himself has no claim to the main obligation under the contract. The case law has in particular accepted such protective effects for contracts by which the client commissions a report or an expert’s opinion from a person who has at his disposal a particular specialist knowledge recognised by the state (eg publicly appointed expert, auditor, tax adviser) in order to make use of it as against a third party [references omitted].

As the purpose of the report is to induce trust in and possess evidential value for the third party, a conflict of the interests of the client and the third party is not an obstacle to the latter’s incorporation into the protective area of the contract [reference omitted].

There are no difficulties about also applying these principles in cases in which an auditor of accounts is entrusted with the compulsory audit of a company provided that it appears sufficiently clear to him that on this audit a particular work product is wanted from him which is to be used as against a third party who trusts in his expert knowledge. If § 323 para 1 sentence 3 of the HGB (only) regulates a statutory liability to the company and the associated undertaking, this does not mean that contractual liability of the auditor to third parties according to the principles developed by the case law on the third party liability of experts would thereby be excluded from the outset.

Such exclusion of the possibility of creating conditions of liability (which are justified by the interests involved and take account of the principle of private autonomy) cannot be inferred from this provision in this sort of generality. A third party liability which is essentially based on the fact that it is for the contracting parties to determine against whom a duty of protection is to be established [reference omitted] is not affected by the area of direct application of § 323 para 1 of the HGB. It also does not signify, as Ebke/Scheel [reference omitted] think, a disregard of a basic decision of the legislator in favour of a limited liability of auditors expressed in this provision. This provision, according to paragraph 4 of which the duty to compensate may neither be excluded nor limited, does not pursue such an extensive purpose.

bb) Nor does § 323 of the HGB create a material exclusionary effect against liability of the auditor in the run up to the issue of the certificate. The provision does not for instance connect the liability to the issue of the certificate as such; it presupposes instead a fault-based breach of duty in the carrying out of the audit in accordance with paragraph 1 sentences 1 and 2. Whether – in the relationship of the auditor to the company – mistakes in the context of the notification of a certificate are included as well, can be left undecided. There is in any case no ground for leaving the trust (which is worthy of protection) of a third party, who has been included within the protected area of the audit contract, that such a publication is correct simply without any sanction in liability law.

cc) Certainly, the legislative intention which is expressed in § 323 of the HGB to limit appropriately the risk of the auditor’s liability needs to be considered within the framework of the auditor’s contractual liability to third parties. Incorporating an unknown number of creditors, members or acquirers of shares within the protective area of the audit task would militate against this. It cannot be assumed as a rule that the auditor will be ready to take on such an extensive risk of liability.

It is different however if the parties to the contract on the commissioning of the work (or possibly even at a later point in time) proceed on the agreed basis that audit is to be carried out in the interest of a certain third party as well and the outcome is to assist this third party as the basis for a decision. In any case, in such cases the undertaking of the task includes a conclusive declaration of the auditor that he intends to carry out the audit conscientiously and without bias in the interest of the third party as well. There is no ground in a case of this kind for denying to a third party claims against an auditor who breaches his duty in the audit [references omitted].

c) The appeal court infers from the way the letter of the 9th October 1992 was addressed that it was recognisably intended for the use of a third party; it also considers that the defendants could have reckoned on their information being of importance for decisions by recipients with a business background. These findings are accepted by the appeal in law as favourable to it. They are unsuccessfully disputed by the reply to the appeal in law which claims on the contrary that the defendants did not have to reckon with a third party basing a purchase decision on a communication regarding the expected outcome of an audit, because in the legal world if need be an intermediate status report could be a basis for a decision of that kind.

The significance to be attributed to the letter of the 9th October 1992 is a question of interpretation which the judge of fact has to undertake, taking into consideration all the decisive circumstances, which can include the discussions preceding the letter. The appeal court will in the further proceedings have an opportunity to look at the objection raised by the reply to the appeal in law insofar as the letter of the 9th October 1992 contains no certificate corresponding to § 322 of the HGB and therefore also cannot form a basis for trust which is worthy of protection.

d) The defendants also have an opportunity in the further proceedings to give a more precise basis to their objections, raised in the appeal in law, to the assumption by the appeal court that they had breached their audit duties and given an incorrect confirmation just because they had failed to obtain confirmation of the balances.

2 a) The appeal court denies that the defendants are liable even though it bases its decision on a breach of duty. This was because the plaintiff has not proved that the insolvent would not have acquired the shares in the business of STN if the deficit for the year 1991 had been known to it. The appeal in law objects (correctly here) that its case was to the effect that the shares in the business would not have been acquired on the conditions of the contract of the 12th October 1992 if the deficit for the year 1991 had been known.

Besides this the appeal court considers the statements of the witnesses called by the defendants, in particular in relation to the calculation of the purchase price in the purchase contract, to be contrary to logic and experience and does not consider the plaintiff’s argument on this issue. The circumstance that no special point of reference was established for the value of STN in the calculation of the purchase price and the piece of land included was the decisive valuation factor for the calculation of the purchase price does not justify the conclusion expressed by the appeal court that it was a matter of indifference to the purchaser whether STN had a value at all.

Even if the managing director of the subsequent insolvent should have declared in the purchase contract negotiations that the firm was no longer worth anything anyway and he did not want to pay anything for it, it does not follow from this that the purchaser would have been prepared to put its money into an undertaking which was heavily in debt by more than 10 million DM a good nine months previously. In this connection it may remain open in proceedings in the appeal in law exactly how the purchase price clause in § 4b of the purchase contract is to be understood. The decisive factor is that the annual account for the year 1991 addressed by the defendants in the letter of the 9th October 1992 revealed an annual surplus of about 2.6 million DM whilst the annual account which was later provided with a note of confirmation by the defendants documented a deficit of more than 11 million DM. It cannot be inferred from the statements of the witnesses who have been examined that such a difference did not influence the calculation of the purchase price.

In § 10 of the purchase contract the seller warrants that the principles of proper accounting had been observed and to his knowledge no liabilities of the business existed which were not evident from the accounts. The appeal in law correctly points out that this provision argues against the appeal court’s assumption that the operative value of STN was without any significance for the purchase price. In the face of this provision and the fact that STN’s inadequate financial cover existing at the end of 1991 could only be balanced by the bringing in of the business premises, it cannot be denied that the breach of duty by the defendants (which was accepted by the appeal court) caused the purchase decision on the basis which it gave. In fact, there is a prima facie case in favour of it.

b) Also, if the appeal court had doubts about whether the breach of duty caused the purchase decision, it should not have disregarded the evidence of the witness Dr. B. who was called on this issue. Even if the negotiations about the purchase of the shares in the business were concluded on the 8th October 1992, the parties to the purchase contract were only finally bound by the documentation of the 12th October 1992. Therefore events between these two points in time could still be of importance. This applies for instance to the bringing in of the real property company by the seller on the day of the documentation of the purchase contract. Further, the appeal court itself – in spite of the conclusion of the negotiations on the 8th October 1992 – proceeds decisively on the basis that the defendants’ letter of the 9th October 1992 was a ground of liability.

But then prima facie evidence which refers to the causality of this letter is also important. The prima facie evidence ought not to be left out of consideration, as the reply to the appeal in law thinks it should be, just because the plaintiff has not explained why the witness should have had such an insight into the events relating to the decision. This is because there was a letter of the 7th October 1992 written by this witness, who represented the purchaser, which the appeal court mentioned in its version of the facts of the case and from which important circumstances for the calculation of the purchase price arise.

3. The appeal in law also correctly objects to the fact that the appeal court has denied damage. The deliberations of the appeal court are based in this respect on the legally incorrect idea that the shares in the business of STN were, insofar as they concerned the operative value of the company, without significance for the calculation of the purchase price, and it was only a matter of the value of the business premises which had been included. Whether damage has resulted to the purchaser, which has asserted that if it had been correctly informed about the circumstances of STN at the end of 1991 it would not have acquired the shares in the business or would only have acquired them for a symbolic purchase price of 1 DM, can only be established by inclusion of the value of the undertaking as a whole. It cannot be ascertained solely by the purchase price which has been paid – as the claim of the plaintiff seems to suggest – nor solely by the value of the business premises which has been brought in.

II.

The Senate cannot make a decision in the case itself, because further findings by the judge of fact are necessary on the questions addressed under I. The appeal court will also have to investigate the argument of the defendants that the purchaser had been informed about the business circumstances of STN and it was in any case attributable to it as contributory fault that it had had no intermediate status report prepared. It will further have the opportunity within the framework of its new assessment to go into the question again of whether a claim by the plaintiff can be based on an information contract or on tort. Where liability which is merely based on the protective effect of the audit contract is being considered, the limitation of liability in § 323 para 2 of the HGB is to be taken into account. This is because the provisions of § 323 of the HGB – in this respect also – take precedence as a special regime over the contract law provisions of civil law [references omitted].

©1999 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1999. HTML edition by Lawrence Schäfer. © 1999 Gerhard Dannemann.

Bundesgerichtshof (Sixth Civil Senate) 4 November 1997, NJW 1998, 377, 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 Raymond Youngs, Southampton Institute

Facts: In this case a commune in Saxony is claiming damages in respect of the harm caused by unlawful interference with development on its land.  Shortly after the reunification of Germany the plaintiff decided, against the wishes of a number of citizens, to construct an industrial park.  It entered into a development contract with H., an architect, who entrusted the work to two named building contractors.  The plans having been approved by Ministry for Economy and Employment in Saxony and the appropriate government committee, work was due to start on the morning of 22 April 1991.  On that day, however — and, according to the plaintiff, the following day as well — demonstrators from the civic movement made it impossible for any work to be done.  The plaintiff charges the defendants with taking part in the demonstration and collaborating in a plan to disrupt the work, thereby causing damage to the contractors which they put at DM 62,909.66.  This sum the plaintiff paid to them and now, having prudently taken an assignment of the contractors’ claim, seeks to recover it from the defendants.

Reasons:

I. The court below was of opinion that the first, second, third and fifth defendants were liable to the plaintiff either in tort or in unjustified enrichment, regardless of whether the plaintiff had actually paid the sum in issue to the contractors: if it had paid, it could bring a condictio against the defendants under § 267(1) BGB as a third party who has paid off a debt due from the defendants; if they had not, they could sue in tort on the basis of the contractors’ claim for damages duly assigned to it.

The court held that the defendants were at fault and had unlawfully infringed an interest of the contractors which was protected under § 823 I BGB, namely their lawful possession of the construction machinery, interference with its use being a relevant infringement.  The members of the civic movement who foregathered on the morning of 24 April did so with the intention of disrupting the construction work.  The disruption continued until the afternoon of the following day and only came to an end when, pursuant to a conversation with the mayor’s office, the citizens were shown the documents authorising the works.  During those two days the demonstrators positioned themselves so close to the machines that the work could not proceed in safety: they were effectively blockaded.  This blockade was unlawful, and not protected as the exercise of fundamental rights under art. 5(1) and 8 of the Basic Law.  The defendants were liable as collaborators and assistants for the harm resulting from this infringement of the contractors’ protected interests, for they had all been present at least for part of the demonstration and had endorsed and helped in the blockade: the third defendant had acted as spokesperson for the demonstrators, the first defendant had furthered its purposes in an administrative capacity by making telephone calls to the authorities and so on, and the second defendant had posed in the shovel of a mechanical digger for a spectacular press photograph.

Further details were required of the loss of use of machinery and vehicles suffered by the contractors, but the claim for VAT on their losses could be dismissed right away.  There was no question of contributory fault on the part of the contractors or of the present plaintiff.

Some of the appellants’ criticisms of the decision below are justified: the judgment is not fully supported by findings of fact, some of which are procedurally flawed.  [1, 2. Procedural points; 3. Discussion of the claim in unjust enrichment, and the validity of the assignment.]

The court below was right to start out from the position that the two-day blockade of the machines allocated to the construction work was an unlawful infringement, by persons at fault, of one of the contractor’s protected interests; this in principle gave the contractors a claim under § 823 I BGB even under the conditions prevailing in the newly incorporated provinces so shortly after reunification.

a) We may leave aside the question where and under what circumstances conduct such as is here alleged constitutes an unlawful infringement of an established and operative business (on which see BGHZ 59, 30, 34 = NJW 1972, 1366), for in holding that the contractors’ lawful possession of the machinery was a legally protected interest which the blockade infringed the court below was not in error.

aa) It is established by case law that if an owner is prevented from using his property as intended, this may constitute an infringement of his ownership (BGHZ 55, 153, 159 = NJW 1971, 886).

bb) The same must be true of the right of lawful possession: if the thing possessed is to be used in a particular way and such use is unlawfully inhibited, this is an infringement of a legally protected interest under § 823 I .  The equipment which the contractors brought on to the proposed industrial park on the morning of 22 April 1991 was to be used for the work of construction they had undertaken.  Conduct of the kind found by the court below which resulted in a total blockade of the machines so that they could not be used for two full working days – no negligible or fleeting disturbance (NJW 1977, 2264, 2265) – can amount to a tortious infringement of the contractors’ lawful possession.  In the circumstances we need not ask if the contractors actually owned the machines, since the appellants do not deny that the machines were in the contractors’ lawful possession.

b) On the basis that it was right to charge the defendants with the two-day blockade and consequently with an infringement, objectively speaking, of the contractors’ possession under § 823 I BGB, the court below cannot be criticised, contrary to the view of the appellants, for holding that it was unlawful.

aa) The appellants are right, however, to argue that the blockade cannot count as the “violence” required by § 240(1) Criminal Code for the crime of oppressive coercion (Nötigung).  For demonstrators to place themselves in the immediate vicinity of vehicles, machinery and so on and thereby stymie the operations by bringing moral rather than physical pressure on the contractors’ personnel does not amount to the violence required by that provision (for details see BVerfGE 92, 1 = NJW 1995, 1141).  But this does not mean that such conduct cannot count as an unlawful infringement of a protected interest under the private law of tort.

dd) But even conduct which objectively infringes an interest protected by § 823 I BGB is not unlawful if it is legitimated as the exercise of a constitutionally protected right.  The relevant right here is the right of assembly under art. 8 GG, but it does not cover a blockade of the kind and extent found by the court below.  A defendant who deliberately uses direct pressure against a particular protected interest of another cannot normally invoke the constitutional right of assembly (BGHZ 59, 30, 35f. = NJW 1972, 1366), for this right, like that of freedom of expression of opinion, is designed to safeguard the right of a group to publicise their views by intelligible means when there is a conflict of opinions such as is inherent in a democratic society (BGHZ 59, 30, 36 = NJW 1972, 1366).

cc) Even if contained within constitutional limits, the exercise of the basic right under art. 8 GG may well infringe the rights of others.  If so, this must just be accepted.  This may be the case when demonstrations have results which, though inevitable, are unintended (such as interference with traffic movements or access to the streets, squares and other places where the demonstration is being held), or when the intentional interferences are inconsiderable and of very short duration, as when, in this case, demonstrators climbed on to the machines for a media photo-call.  But when, instead of exchanging views, presenting the other side of a dispute or making a protest as such, one actively puts pressure on third parties to prevent them from exercising their rights, one leaves the area protected by the freedom of assembly.  The right of assembly protects attempts to convert opponents to one’s own opinion, not measures designed to force others to submit against their will.  The latter is the case here if, as the court below held, the demonstrators positioned themselves right beside the construction machinery and thereby, as intended, prevented the execution of the work for two full days.

dd) Although these events took place in one of the newly incorporated provinces only a few months after reunification this does not, contrary to the view of the appellants, affect the decision that this conduct was unlawful.  The special conditions facing the citizens in the new provinces at this period of abrupt change on all fronts may indeed be taken into account in the balancing and weighting of the parties’ interests which is necessary in every case.  Nevertheless the appellants cannot usefully invoke the “confrontational culture” which existed in the DDR when, in order to bring about changes in the one-party regime, citizens made frequent and intensive use of the right of demonstration.  At the time of the events now in question the rule of law was already established in the new provinces, and it would be inconsistent with it to make the lawfulness of conduct depend on standards appropriate to conflict with the previous regime.  Under the Basic Law, which was fully in force there at the time, the lawfulness of the exercise of a fundamental right and the unlawfulness of an infringement of the legally protected interests of third parties cannot be affected by considerations of what would have been licit or desirable during the events which triggered change in the DDR.

c) There is no evidence that the defendants’ experiences with the previous regime in the DDR actually led them to think that their actions were lawful, but in any case this would be relevant only to the question of whether they were at fault (see BGHZ 59, 30, 39f. = NJW 1972, 1366).  The judgment below hints that the failure of the police to intervene may have led the demonstrators to think that their actions were justified, but, as the court held, only if such a mistake of law were unavoidable could failure to realise the unlawfulness of their actions in the given circumstances prevent a finding of fault (BGHZ 118, 201, 208 = NJW 1992, 2014).  If the defendants here supposed, without making any inquiries, that the conduct charged against them was lawful, they are guilty of negligence at least.

5. The appellants are right, however, to criticise the findings of the court below as to the extent and effect of the conduct of the several defendants against whom it entered judgment.  The court based its holding that the contractors had a good claim for tortious infringement of their lawful possession on the view that the assemblies which hindered the construction works lasted for the whole of 22 and 23 April and that, as was intended, the use of the machines for their proper purpose was wholly prevented during that period.  The findings underlying this conclusion are procedurally flawed.

a) We cannot on review uphold the appellants’ objection to the finding that, as the demonstrators intended, the blockade of the machines lasted for the whole of 22 April.  This finding was open to the judge of fact, though it was based on very slender evidence.  Nor, contrary to the view of the appellants, was it a fault of procedure that the judges whose decision was based on the evidence of M did not actually hear him give that evidence: that would be relevant only if it had had important aspects which did not figure in the written report.

b) By contrast the finding that the demonstrators blockaded the construction machinery for the whole of the following day is flawed.

6. The court below held that the defendants’ participation in the blockading measures rendered them liable in tort.  The appellants are right to object to this: the findings of fact do not satisfy the requirements of § 830 I (1) and II BGB as to the liability of joint tortfeasors and accessories.

a) The court below started out correctly by noting that the question whether a person who participates in conduct involving delictual liability falls within these provisions as a joint tortfeasor or accessory depends on principles developed in criminal law (BGHZ 63, 124, 126 = NJW 1975, 49; BGHZ 89, 383, 389 = NJW 1984, 1226).  The participation must therefore be with knowledge of the facts and at least some degree of intention on the part of the individual to commit the act in conjunction with others or to facilitate the act of another; objectively there must in addition be some actual participation in the execution of the act which in some way advances its commission and is material to it.  Thus a person who participates in a demonstration will be liable if he knows it is intended to create a blockade which infringes rights and causes harm (BGHZ 59, 30,42 = NJW 1972, 1366).

There is no need to distinguish between coauthors and accessories since in tort law both are treated alike under § 830 II BGB.  The assistance lent by an accessory need not be physical in nature — moral  support may be sufficient (BGHZ 63, 124, 130 = NJW 1975, 49) — but it must be established, consistently with the requirements of the criminal law relevant to § 830 I (1) and II BGB, that each individual was guilty of conduct which supported the unlawful infringement of the rights of another and was associated with knowledge of the facts and the intention to commit such an infringement.

b) In the light of these principles the third defendant is the only one for whose liability for participating in the blockade the court below has laid a proper foundation.  The third defendant acted as spokesperson for the demonstrators so the court could rightly hold that she not only had a significant influence on the actual course of the demonstration but also, subjectively, intended that the harmful conduct should take place.  To this extent the role and functions adopted by her in the demonstration may elucidate her inner intentions (BGHZ 63, 124, 128 = NJW 1975, 49); the court below could well base its judgment on the third defendant’s leading role in the way the demonstration developed.

c) However, the liability of the other defendants is not supported by the findings made thus far.

aa) This is clearest in the case of the fifth defendant.  On the wholly conclusory evidence of S, the court held that the fifth defendant participated in the demonstration on 22 April but it made no finding as to the nature, extent or duration of such participation.  But temporary presence at the place of the demonstration and unspecified participation in the assembly are not enough in themselves to imply co-authorship or accessoryship as regards the infringements of rights here in issue.  Mere “participation in an assembly” may be a permissible way of evincing in public one’s opinion on the matter in issue, and thus be constitutionally protected by art. 5(1) and 8(1) of the Basic Law (see BGHZ 89, 383, 395 = NJW 1984, 1226).  This is true not only of presence at mass demonstrations but also of participation in smaller and less unwieldy gatherings, provided that such participation does not go beyond what is permitted by the exercise of the rights mentioned, that the individual has no part in a project to invade rights, does not subjectively endorse the harmful conduct of the others and does not join the demonstration in knowledge of its intention to create a blockade (see BGHZ 63, 124, 128 = NJW 1975, 49).  At present there is no sufficient finding that the fifth defendant in fact contributed even morally to the infringement of the contractors’ rights in any legally relevant manner, much less any findings about his mental attitude.

bb) Nor has any sufficient foundation been laid for the liability of the first defendant.

The court below relied essentially on the evidence of S, who testified that “he had spoken with her in the street and that she had said she was one of the demonstrators”; it was error in law for the court to hold that this was evidence of intentional support for the blockade and of sufficient practical assistance.

The finding actually amounts to no more than that the first defendant attended the demonstration for a short time (indeed not even on the construction site but “in the street”, very close to where she lived), and it is not explained how such conduct, in so far as it might exceed what is permitted in the exercise of fundamental rights under art. 5(1) and 8(1) of the Basic Law, could be construed as intentional support for the unlawful measures of the blockade.  Nor is it enough that the first defendant spoke on the telephone to senior members of the commune and province, for the court did not inquire whether these calls were made in aid of the blockade or in an attempt to broker a “peaceful” solution.  In view of the first defendant’s constitutional rights it was wrong to conclude without more that she was guilty of tortious interference with the rights of others.

cc) Finally the facts found are insufficient to render the second defendant liable for relevant participation in the infringement of the contractors’ rights.  The court below founded particularly on R’s evidence that at 1630 hours on 22 April he saw the second defendant taking part in the demonstration.  Here again there is no legal justification for inferring from his brief presence at the demonstration in the late afternoon that he approved of, adopted and furthered the unlawful blockading.  Nor does it follow from the fact that he briefly climbed into the shovel of a digger in response to a photo-call; such conduct, as has already been stated above, may well be covered by art. 8(1) of the Basic Law and need not constitute a relevant unlawful infringement of the rights of the contractors.

7. Finally the court has not found with the clarity required of a final judgment what harm, if any, was suffered by the contractors.

III. The decision below must therefore be vacated and the matter remanded, with leave to the defendants to raise again by way of appeal their objections to the prior findings of that court.

NOTE to BGH NJW 1998, 377

a) Only in exceptional cases does German tort law provide compensation for negligently caused pure economic harm such as arose in this case when the construction equipment was immobilised.  Normally damages can be claimed in tort only if a particular right or legal interest, listed exhaustively in § 823 I BGB, has been infringed.  This rule has, however, proved to be unduly restrictive, so the German courts have evolved various ways  of granting compensation for pure economic harm.  Thus the courts “discovered” the “right to an established and operative business” — actually invoked by the plaintiff in this case (see II 4 a) — and included it as an “other right” under § 823 I BGB.  Again the courts gave a very wide interpretation to “infringement of ownership” and held that physical damage was not required: prevention of use is now sufficient, as the present case confirms.  Finally the courts further enlarged the scope of § 823 I BGB by holding that lawful possession is an “other right”: damage to a thing or loss of its use may now be compensated without having to ask whether the claimant was actually owner or “just” possessor.  This can be seen in the instant case: the court could deal with the interference with the use of the construction equipment in the possession of the contractors without having to decide whether they owned it or not.

b) The second issue in the case is how to accommodate the protection of the contractors’ interests (ownership or possession) and the exercise by the defendants of their right of assembly.  The court drew the line between demonstrations which simply seek to persuade people and influence opinion on a contested matter and those which are designed deliberately to bring pressure on others to prevent them using their rights as they wish.

c) The third relevant point in the decision concerns the liability of associates and assistants.  In general tort liability requires a causal contribution to the infringement and the damage.  In the case of group action the requisite contribution may take the form of moral support by the defendant for those whose acts directly cause the harm.  But it is often difficult for the victim to establish the causal effect of any such moral support, so § 830 I(1) and II BGB lay down that associates and assistants are fully liable as joint tortfeasors even if the victim cannot establish their actual causal contribution.  Such contribution is, however, presumed only of those whose association or assistance was voluntary and who with knowledge of the facts intended to act along with those who directly caused the harm.  This may not be at all clear in the case of mass manifestations that get out of control so that infringements occur which some of the participants never intended.  This was critical for the defendants here this, as some of them were eager to persuade others to their point of view but not ready to infringe their rights, such as those of the building contractors.

For further details in English see; B. S. Markesinis, The German Law of Obligations, vol II, The Law of Torts 3rd edition (with corrections and additions) (1998), ch. 2.

©1998 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1998. HTML edition © 1998 Gerhard Dannemann.

BGH NJW 1998, 751
Bundesgerichtshof judgment of 16th October 1997, III ZR 23/96 (Köln).

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 Raymond Youngs, Southampton Institute

The plaintiff was until the end of 1988 a member of the board of directors of the KHG AG. On the application of the state prosecutor, the Amtsgericht (district court) ordered the arrest on the 27th February 1990 of the plaintiff and others for suspected breach of trust (Untreue) to the detriment of KHD. He was arrested on the 14th March 1990 in Italy, and brought to Germany. On the 11th May 1990 he was released from custody on conditions. The order for arrest was later revoked and the investigatory proceedings against the plaintiff discontinued. The order for arrest was based effectively on an accusation by B (who himself was in custody awaiting trial). B had claimed that he had arranged with the plaintiff at a hunting event in the Westerwald in 1983 to manipulate accounts for wood deliveries to the detriment of KHD (“the hunting hide agreement”); and that the plaintiff had received substantial sums of money for this. This accusation was substantially incorrect. At the time of his arrest the plaintiff was also managing director of the V-GmbH and had a consultancy contract with the P firm, at an annual fee of 50,180 DM. This firm terminated the contract on the 11th May 1990 with immediate effect after the press had reported the arrest of the plaintiff. On the 15th May 1990, the plaintiff and the V-GmbH agreed to cancel the managing director’s contract. The Amtsgericht decided that the plaintiff should be compensated for the harm resulting from the arrest from the 14th March to the 11th May 1990 in accordance with the Compensation for Measures related to Criminal Prosecution Act. The plaintiff claimed as material harm his loss of earnings with the V GmbH and the P firm and legal and other expenses. The Ministry of Justice of the defendant state (Land) accepted liability for material harm in the sum of 16,664.64 DM. This sum consisted of part of the legal and other expenses.

In the present claim the plaintiff seeks amongst other things compensation for loss of earnings due to the termination of the consultancy contract with the P firm, further legal costs and a finding that any further harm resulting from the termination of the consultancy contract should be compensated.

Grounds

II. The investigating state prosecutor when examining whether an order for arrest should be made against the plaintiff, stated there was strong suspicion of breach of trust (§ 266 of the Criminal Code and § 112 (1) sentence 1 of the Criminal Procedure Code). The appeal court regarded this as a culpable violation of official duty on his part. That satisfies legal examination in the end result.

1. According to the case law of the Senate certain measures by the state prosecutor, which include application for issue of an order for an arrest are not to be examined in official liability proceedings for their “correctness” but only as to whether they are justifiable [references omitted].

Proceeding from this legal principle, the appeal court held that the assumption by the state prosecutor that there was strong suspicion at that time of breach of trust by the plaintiff was unjustifiable. It interpreted the statements of B, on which the state prosecutor principally based his assessment, as meaning that the plaintiff and B in their conversation of August / September 1983 (the hunting hide agreement) had agreed to a future manipulation of accounts. This would mean that the manipulations would only have begun after this point in time. In reality, so the appeal court found, it was already obvious at the point in time of the application for the order for the arrest (on the basis of witness statements and other documents on the investigatory proceedings) that accounting manipulations of this kind had been going on since the nineteen sixties. In these circumstances, the accusation made by B was incredible from the start, and the application for the order for arrest was unjustifiable.

This assessment can only be examined by the court hearing the appeal in law by considering whether the judge of fact misunderstood the concept of justifiability, violated rules of logic or general principles of experience and considered all the circumstances which were of significance for the judgment [references omitted]. The appeal in law does not reveal mistakes of this kind. Insofar as it complains of a violation of rules of logic it puts its own assessment of the facts in place of those of the appeal court in a manner which the rules about appeals in law do not permit. The procedural objections raised by the appeal in law in this connection have been examined by the Senate and not considered to be decisive. No ground was therefore found here either (§ 565 a of the Civil Procedure Code). It accordingly has been established in a binding manner that the assumption of strong suspicion on which the application by the state prosecutor for an order for arrest was based was unjustifiable and making the application for an order for arrest was therefore contrary to official duty.

2. The appeal court also, without any legal error, found the investigating state prosecutor to be culpable. In this connection it basically assumes that no blame as a rule attaches to an official if a collegial court with several legal experts sitting on it has regarded the official action as objectively lawful [references omitted]. According to the view of the appeal court, this general principle, from which the Senate has repeatedly permitted exceptions [references omitted], did not apply here. There are no legal grounds for objecting to this in the end result.

(a) The appeal court denied that the principle applied here, even though the civil chamber of the Landgericht regarded the conduct of the state prosecutor as justifiable and therefore as objectively in accordance with his official duties. It considered that the chamber basically proceeded in this assessment from a legally flawed approach. Whether this is correct does not need to be considered, because in any case there is another ground for the said principle not applying here.

The principle is based on the consideration that a better understanding of the law cannot as a rule be expected and demanded from an official than from a collegial court with several legal experts sitting on it [reference omitted]. This justifies a denial of culpability only in those cases in which the collegial court – after careful examination – has affirmed the legality of the official action. If on the other hand the collegial court has merely approved the action on the basis of a yardstick for testing – here the yardstick of justifiability – which is reduced in comparison with the official’s own duty of testing, this does not necessarily mean that the conduct of the official should be assessed as lawful. Whilst therefore in cases like the present one the official himself has a duty to regulate his conduct entirely by the yardstick of legality, the judicial examination in the official liability proceedings decides merely on the basis of the reduced yardstick of justifiability whether he has acted in accordance with his official duty. In such cases the principle becomes subject to a further exception over and above the group of cases decided by the Senate so far. The defendant state cannot therefore successfully rely in the present case on the first instance judgment for saying that no accusation of culpability can be levelled at the investigating state prosecutor.

(b) The appeal court was also right in not considering itself to be required to apply the general principle by the decision of the 14th great criminal chamber of the Landgericht in the proceedings concerning the complaint about arrest. This is because a comprehensive and careful examination of the issue of lawfulness which could justify the application of the principle did not, according to the findings of the appeal court, take place in those proceedings. The appeal court explained in this respect, in its assessment as a judge of fact of the circumstances which influenced the proceedings concerning the complaint about arrest, that the criminal chamber had “tested in an extremely summary fashion” the question of strong suspicion “and instead of this, concentrated on the question of the…danger of flight”. It concludes this from the fact that the decision by the chamber was issued on the same day as the decision by the Amtsgerichtthat there would be no review. In a “fast-track” procedure of this kind, a dependable formation of opinion by the collegial court was not possible in the light of the scope of the documentation. This assessment, the real core of which was not addressed by the appeal in law, is confirmed by the content of the decision about the complaint:

The Amtsgericht in the original order for arrest had suspended its execution. The state prosecution service complaint against this only disputed the exemption from arrest. The attention of the criminal chamber was therefore principally directed to the question of whether the danger of flight was to be assessed as so small that a suspension of execution should be considered. It is true that the criminal chamber was also obliged of its own motion to examine the question of strong suspicion. In this respect however it contented itself, according to the wording of its decision, with referring to the order for arrest and pointing out that this was essentially based on the testimony of the co-accused B, who severely incriminated the plaintiff. This reasoning makes it clear that the assessment of strong suspicion which influenced the order for arrest and formed the basis of the application for the order for arrest, and which the appeal court regarded without any legal error as unjustifiable, has left its mark on the decision by the Landgericht about the complaint.

On the basis of the findings made by the appeal court the starting point must accordingly be that the criminal chamber did not assess the established facts of the case carefully and exhaustively; or it formed its conclusion that there was strong suspicion from facts established on the basis of procedural irregularity. In such cases the general principle does not apply [references omitted].

3. The statements of the appeal court about the extent of the claim for official liability awarded to the plaintiff and about the calculation of the period covered by the declaration are not challenged by the appeal in law.

©1999 University of Oxford. Since 2002: © Translation The University of Oxford and Professor Markesinis 1999. HTML edition by Lawrence Schäfer. © 1999 Gerhard Dannemann.