Automotive suppliers (not) liable for customer specifications
In a judgment of 9 October 2019 (Case No. 10 O 193/13), the District Court of Stuttgart dismissed a complaint from a German vehicle manufacturer (OEM) against its supplier. In the complaint, the OEM alleged costs in the hundreds of millions (including interest) for extensive remedial measures as a result of a defective part from the supplier in question. The complaint was dismissed by the court in its entirety, finding that the defect in question was attributable to the OEM's specifications and that even a specialized supplier was not generally liable for its customer's specifications.
As is the typical practice in the automotive industry, the supplier first developed the part and was then awarded a contract from the OEM to supply the part in bulk. The part in question was a coolant outlet connector, which was to be attached to the charge air distributor using flanges and two screws for use in the OEM vehicles as a standard feature.
But the integrity of this design began to fail after the vehicles were operated for some time, resulting in coolant leaks and engine failure. In the course of the court proceedings, an expert determined that the leaks can be attributed to the way in which the part was designed (in particular, that it used two screws instead of three).
The court's assessment
The court made two points:
- The court acknowledged that the supplier's design was not suitable for the intended use, as the connection was not sufficiently tight, so that the part was defective. However, the court pointed out that this inadequacy can be ascribed to the OEM's own specifications, which required two screws rather than three. The court therefore adopted the argument made by the expert that the OEM's specifications presented an inadequate overall concept. As a result, the court applied a principle originating in the law governing contracts for work and services, under which a contractor is not liable for defects which are attributable to the customer's erroneous instructions or specifications (§ 645(1) of the Civil Code).
- The court also found that the supplier did not breach its duties of inspection and notification when it failed to point out to the OEM in advance that its specifications were erroneous. While contractors are subject to such duties of inspection and notification in accordance with § 645(1) of the Civil Code, those duties cannot be breached unless it is evident to the contractor that the specifications were erroneous. The question as to whether this was evident is to be determined on a case-by-case basis. But as a general rule, the greater the customer's technical expertise, the more the contractor can rely on the fact that the customer's specifications are not erroneous.
Even though the supplier had specialized knowledge of its own products, the court ruled that it was justified in relying on the OEM's specifications in the present case, as a customer with a high degree of technical expertise, so that the supplier was only required to inspect and report obvious defects. The court found that a two-screw connection was not an obvious defect, since no more suitable type of connection was evident e.g. from a DIN standard or any other generally accepted engineering standard.
This judgment from the District Court of Stuttgart, which is already final and binding, is one of the first judgments in the automotive industry dealing with the question of liability for customer specifications of this kind, and it is a welcome development from the viewpoint of suppliers. After all, the standard practice is that even highly specialized suppliers have to meet detailed specifications from OEMs which can only be revised after a lengthy approval process, if at all. Moreover, suppliers often do not have access to all the data they would need to fully evaluate those specifications.
The judgment may also have significance in case of an arrangement which is common in the automotive industry, in which suppliers are required to use sub-suppliers which are selected in advance and prescribed by the OEM (directed part suppliers). If a supplier places orders with a directed part supplier and uses its products, this may be viewed as adherence to the OEM's specifications. As a result, the supplier may be able to deny liability in cases where the design and/or products in question are defective, on the grounds that it was only adhering to the customer's specifications.