Turning Over a New Leaf? – A Judgment by the German Supreme Court on Investments in Trees
This post was written by Felix M. Wilke, Bayreuth, although the metaphors almost wrote themselves.
Money Does not Grow on Trees…
The idea of investing in trees, i.e. in growing valuable types of wood, has popped up in the PIL community at least because of a 2022 judgment by the CJEU (that Matthias Lehmann covered in a previous post). I do not think I am going out on a limb when I say that quite a few of these investments were not successful. There was a series of lower court judgments at least in Germany and Austria: dissatisfied consumers wanting their money back when it turned out that money did not, in fact, grow on trees.
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The facts were similar. There were contracts about purchasing trees, leasing the ground on which they stood, and different services of tree care. They were concluded between a Swiss company and consumers from Germany or Austria. The standard terms and conditions contained a choice of court agreement in favour of Switzerland and a choice of law agreement in favour of Swiss law. The consumers sued in their home country under their local law. The cases raised obvious questions about jurisdiction and conflict of laws, but also the substantive issue of on what possible grounds consumers could rely to get out of the contracts.
… Not Even in Costa Rica
The German Supreme Court (Bundesgerichtshof: BGH), in a recently published judgment of 15 May 2024 (VIII ZR 226/22, ECLI:DE:BGH:2024:150524UVIIIZR226.22.0), now decided such a case on appeal for the first time. While the case at hand contained all the features just outlined, it was peculiar in that the investments were concluded 14 and 11 years ago, respectively, with the claimant starting the action a decade after the first investment. He had purchased a total of 1,400 teak trees in Costa Rica for approximately EUR 81,200. He now tried to exercise his right of withdrawal under substantive German consumer law (which, of course, is a transposition of EU consumer law directives). The mostly convincing decision addresses all the issues outlined above.
Jurisdiction: Consumer Protection under the Lugano Convention
Jurisdiction for an action in Germany against a defendant domiciled in Switzerland is governed by the Lugano Convention. Accordingly, the BGH analysed Articles 15(1)(c) and 16(1) Lugano Convention, corresponding to Articles 17(1) and 18(1) Brussels Ibis. As often, the main question concerned whether the professional had directed its activities to Germany. The central precedent still is the 2010 CJEU judgment in “Pammer/Alpenhof” with its somewhat uneven list of items of evidence capable of demonstrating an activity directed to a Member State (paras 81 et seq.).
In the present case, the Higher Regional Court of Cologne had relied (1) on the German language used on the defendant’s website, (2) the latter’s international top level domain (“.com”), (3) the contractual currency of Euro (instead of Swiss franc), (4) the defendant’s assertion to donate an amount in EUR to UNICEF for any tree purchased, and (5) the specification of German bank details. The BGH confirmed this reasoning. Thus, Articles 15 and 16 Lugano Convention applied, making the room for a choice of court agreement very slim (Article 17 Lugano Convention): too slim for the defendant.
To dwell a bit more upon the issue of “directing activities”, the case serves as a good example for the necessity to combine different factors. Items (2)–(4) only demonstrate that the defendant directed its activity towards some EU Member State, whereas item (1) on its own was not indicative of anything, as the defendant was based in a German-speaking part of Switzerland. Item (5), however, ties everything together. The conclusion now seems reasonable that the defendant wanted to enter into contracts with consumers from Germany specifically. The appeal barked up the wrong tree to the extent that one of their bones of contention was the issue of currency. I would submit that the analysis of “directing activities” would come out the same even if one removed this aspect.
Conflict of Laws: A (Now) Straightforward Case for Article 6 Rome I
Against this background and the 2022 CJEU judgment, the determination of the applicable law proved easy. Article 6(2) cl. 2 Rome I meant that the choice of law could have no effect to the extent that German law, applicable pursuant to Article 6(1) Rome I, was more favourable to the claimant. The requirements of Article 6(1) Rome I correspond to Article 15(1)(c) Lugano Convention. True, Article 6(4) Rome I contains some exceptions not found in the Lugano Convention. But in this regard, the CJEU had ruled that, in particular, neither alternative of Article 6(4)(c) Rome I – contracts relating to a right in rem in immovable property or to a tenancy of immovable property – applies to such tree investments. While the Court’s reasoning on the rights in rem issue was unconvincing, the German courts were right to treat the matter as settled.
Article 6(4)(a) Rome I did not apply, either. Just as in the previous CJEU case of “VKI/TVP”, reporting duties to be fulfilled in the consumer’s home state blew up in the defendant’s face. They demonstrated that its service obligation was not one exclusively to be supplied outside the consumer’s country of habitual residence.
The one aspect to be challenged in this part of the judgment is of a conceptual nature. The BGH states that the determination of the applicable law follows from Article 6(1) Rome I and only then considers Article 6(2) Rome I. But this has the whole thing backwards. The applicable law is determined primarily by the parties’ choice (Article 6(2) cl. 1 Rome I) whose effect, as a secondary issue, Article 6(2) cl. 2 Rome I limits – at which stage the law applicable pursuant to Article 6(1) Rome I comes into play.
Substantive Law: A Right to Withdrawal after More than a Decade
Just because PIL consumer protection applies, a consumer is not out of the woods yet. The substantive law of his habitual residence must provide a (more favourable) remedy. Several German lower courts had decided in similar circumstances against consumers on the merits. But, in this case, the claimant thus far had been successful – and he also won on appeal. It is beyond the scope of this blog to explain in detail why the court assumed a right to withdrawal a decade after the conclusion of the contract. The gist is that there was no information on the right of withdrawal under German law (the defendant had, after all, likely assumed that Swiss law would apply), and that no absolute deadline to exercise the right applied for this type of contract. Hence, the claimant could pull a “withdrawal joker” from his deck of legal playing cards. (The Widerrufsjoker is a common shorthand in Germany for such situations.)
An issue that is often relevant for decisions on PIL as well, however, is that the BGH once again refused to refer questions on the interpretation of EU law to the CJEU. This approach can almost be said to be rooted in tradition. The argument, as always: acte claire. But how can it be an acte claire if the court had to explain its interpretation of the law in 14 paragraphs, equalling seven pages or more than a fifth of the decision? Not to mention that lower courts and eminent scholars had assumed a different point of view…