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22.4.2016

The upcoming reform of the German warranty law

The German government initiated on 02/03/2016 a significant change concerning the German warranty law.

The draft law of the federal government is a response to the current varying application of the compensation obligation of sec. 439 BGB (German civil code) concerning, on the one hand, business transactions and, on the other hand, consumer transactions. According to sec. 439 BGB, German contract law provides for a compensation right, according to which a buyer in the context of a purchase or work and services contract has the right to obtain compensation in case of a defective purchased or produced good or work.

The starting point of the initiative has been a famous judgment by the Federal Court of Justice of Germany (BGH) in 2008, the so-called “parquet-strips” judgment. According to this ruling, the right of the buyer to obtain compensation does not extend to the compensation of expenses incurred through the removal of the defective item and the installation of a defect-free item. The European Court of Justice (ECJ) disagreed with the BGH and ruled that in the context of consumer transactions, sec. 439 BGB had to be interpreted in the light of the European directive on certain aspects of the sale of consumer goods and associated guarantees (D 1999/44/EC). Thus, according to the ruling of the Court on 16/06/2011 (AZ. C 65/09; C 87/09), in the context of the compensation obligation towards a consumer, the seller of a good can either be obliged to remove the already installed item from the purchased good and replace it by a defect-free item or to bear the costs for both those actions.

As a result, the BGH has followed the ECJ’s ruling, but only as far as it concerns consumer good purchase agreements. However, with regard to sale agreements between professionals, the Federal Court of Germany has ruled that the seller is only to be held liable for the costs incurred by the removal and installation of the items, if the legal requirements of (a fault-based) liability for compensation claims are met (see BGH ruling from 17/10/2012, Az. VIII ZR 226/11; ruling from 16/04/2013, Az. VIII ZR 375/11; ruling from 02/04/2014, Az. VIII ZR 46/13).

In this context, the German legislator saw need for corrective action. Such a varying application particularly disfavored companies standing between their consumer-clients on the one hand and their suppliers on the other hand.

In principle and according to the ECJ’s ruling, the seller in his relation to consumers will be held liable independently of any fault for the removal of the defective item and the installation of the defect-free item, as well as for any expenses arising out of those actions. However, outside the scope of sec. 478 f. BGB, a compensation claim of the seller towards his supplier would only be possible to the extent that the latter is responsible for the defectiveness of the item. An exceptional compensation in the sense of sec. 478 BGB based on a fault-free liability for removal and installation costs in the context of business transactions remains questionable.

This situation appears particularly problematic for the work contractor, who buys defective construction material and installs it without knowledge of the defect. According to the provisions of work contracts, the work contractor is bound to remove the defective item and install the defect-free construction material. By contrast, the work contractor can only ask the seller for the delivery of the necessary construction material.

From a practical point of view, such situations are of great importance for all sectors with supply chains.

Main content of the draft law (state of 02/03/2016):

  • Legal compensation right for removal and installation costs

The compensation right of the buyer has to be expressly extended in such a way that in the future, the seller will either be obliged to remove the defective item and install a defect-free item or to compensate the buyer for the expenses incurred through those actions (see sec. 439 para.3 BGB-E). Furthermore, this extension of the compensation right should also apply to business transactions. The condition of the legal compensation right concerning the removal and installation costs in the sense of this draft law, consists of an installation of the defective item in accordance to its nature and intended purpose on the one hand, and of the buyer’s non-grossly negligent ignorance of the default at the time of the installation, on the other hand.

A modification of the extended compensation right through the General Terms and Conditions has to be considered void in the sense of sec. 309 nr. 8 lit. b cc BGB-E. Although the prohibition of certain clauses in the sense of sec. 309, 309 BGB is not directly applicable in the context of business transactions, General Terms and Conditions between professionals are also subject to a content review in the sense of sec. 307 BGB. Consequently, and as the official justification of the draft law explicitly points out, it has to be kept in mind that a clause, prohibited in application of sec. 309 BGB when used in consumer contracts, may be, according to consistent German case law, a strong indication that such use within professional contracts may lead to an unreasonable disadvantage and thus may be considered as void.

  • Extension of legal recourse provisions

In order to compensate for the extension of the compensation right of the buyer, new recourse provisions will enable the seller to hold his supplier liable. The aim of the legislator is to provide the final and intermediary sellers with the possibility to obtain compensation for the expenses incurred through the performance of their compensation obligation, by holding the originator of the defect liable. For that purpose, sec. 445a and 445b BGB-E will be introduced into the commercial law. To date, German law only provides for recourse possibilities in the context of consumer good purchase agreements.

According to sec. 445a BGB-E, the seller will have a right to obtain from his supplier the compensation of expenses incurred through the performance of his compensation obligation towards the buyer, if the damage claimed by the buyer already existed at the time when the risk passed on to the seller. In other words, the rules that have already been applied exclusively within business to consumer relations, will in the future be applied within business to business relations.

Sec. 445 BGB-E has its own limitation rule for recourse. The claim becomes time-barred at the latest within five years after delivery of the item.

Implementation:

The draft law currently runs through the legislative process. Its implementation is expected in 2017. Criticism has already been raised by the German Federation of Wholesale and Foreign Trade (BGA), particularly concerning the extent of the new provisions and the application of consumer law to the relation between professionals. From today’s point of view, this change will eventually happen. However, it remains to be seen under which form and scope it will finally be realized.

Julia SCHMITT

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