Since 1 January 2018 at the latest, the following has been made clear due to the modification of § 439 subs. 3 of the German Civil Code (BGB): The seller must reimburse the buyer for the cost of removal and installation incurred as a result of a defective item, regardless of fault. However, this only applies if the defective item was integrated into or attached to another item in keeping with its nature and purpose (hereinafter: “installation”) before the defect became apparent.
Even if the discussion about the requirement of fault has thus ended, the cost of removal and installation still holds potential for disputes. The focus is usually on the amount and the necessity of the costs incurred, but also on the question of whether an installation within the meaning of the law has taken place at all. The latter question was addressed by the German Federal Court of Justice (BGH) in its ruling of 21 June 2023.
Facts of the case
In the case in question, the plaintiff ordered stainless steel pipes from the defendant for a total price of 785,038.64 EUR in order to install them as part of piping systems in cruise ships. After delivery, the plaintiff began the prefabrication of the piping systems by welding the ordered stainless steel pipes together with the aid of connecting elements to form so-called “piping pools”. Only after this process did material defects in the stainless steel pipes become apparent, so that the plaintiff discontinued the prefabrication and disassembled the piping pools in order to be able to reuse the connecting elements used (pipe fittings and gauge connections) for the renewed prefabrication of piping pools after replacing the stainless steel pipes. The plaintiff claimed from the defendant reimbursement of the costs of 1,372,516.82 EUR (plus interest), which had already been incurred by the disassembly and which would still be incurred during the renewed prefabrication. The action was unsuccessful in the lower courts but was successful before the court of second appeal (Revision).
Legal grounds
The court of first appeal (Berufung) had denied the assumption of an installation within the meaning of the law and thus rejected the claim for reimbursement of costs because the planned integration of the pipes into the cruise ships had not yet taken place. Moreover, so the court argued, reimbursement of costs was also excluded because the plaintiff had created a new item by welding the pipes together with the help of connecting elements and the buyer had to bear the risk related to the creation of a new item.
The BGH rejected these positions. According to the BGH, the plaintiff is entitled to reimbursement of costs under § 439 subs. 3 sentence 1 BGB (old version), regardless of fault, because the stainless steel pipes are to be integrated into another item so that an installation within the meaning of the law is given.
The BGH argues that it does not matter whether the planned installation has already been fully completed or whether a new item is created. The court holds that there is no indication that would justify such a restrictive interpretation of the provision in § 439 subs. 3 BGB. Rather, the installation process can take place in several stages and must therefore not be reduced to the completion of the final stage. Instead, the decisive aspect is whether the relevant prefabrication process corresponds to the nature and purpose of the item. Otherwise, the accrual of a claim to reimbursement of costs would often depend on chance, namely on when a defect becomes apparent in the fabrication process. As to the arguments invoked by the court of first appeal with respect to the creation of a new item, the BGH takes the following standpoint: The provision of § 439 subs. 3 BGB only ceases to apply when the defective item no longer exists in its original form, for example due to blending or mixing. However, as long as the integration of the item, i. e. the installation, is reversible, individual changes to the item in the course of working or processing do not lead to the exclusion of a claim to reimbursement of costs for removal and installation.
According to the BGH, the prefabrication carried out by the plaintiff in this case corresponds to the nature and purpose of the stainless steel pipes, which is why an installation within the meaning of § 439 subs. 3 BGB is to be affirmed. The BGH holds that this applies despite the fact that the stainless steel pipes had not yet been integrated into the hull and thus the final installation had not yet taken place.
The BGH further argues that the historical interpretation also speaks in favour of a broad understanding, because the legislator’s intention in adopting this provision was to ensure that craftsmen and entrepreneurs are not left to bear the follow-up costs of product defects for which the supplier or manufacturer is responsible. The interests of the defendant are sufficiently safeguarded in that the defendant can have recourse to the manufacturer as the causer of the defect according to the provisions on recourse claims in the supply chain.
Evaluation and consequences
The ruling of the BGH is the logical conclusion from the interpretation of § 439 subs. 3 BGB in conformity with the pertinent EU Directive and, moreover, also corresponds to the intention of the German legislator (BT-Drucks. 18/8486, p. 1, p. 2 and p. 39). With the amendment of § 439 subs. 3 BGB, the legislator primarily intended to relieve craftsmen and entrepreneurs who have purchased defective (building) materials. They should be able to claim from the seller reimbursement of the resulting costs, irrespective of fault. A too restrictive interpretation of § 439 subs. 3 BGB with regard to the assumption of an installation would run counter to this.
The ruling is of high practical relevance to companies that are active in an upstream fabrication stage or have processes upstream of their actual fabrication or services. Typically, for instance, 2nd- and 1st-tier suppliers in the automotive supply industry are often concerned thereby. Based on the above argumentation of the BGH, for example, steps carried out by suppliers for assembly (mounting, welding, gluing, plugging, screwing, etc.) can constitute an installation within the meaning of § 439 subs. 3 BGB, even if the final installation into the supplier’s product or the installation into the final vehicle has not yet been completed. As a consequence, suppliers who carry out such upstream fabrication steps can generally also claim reimbursement of installation and removal costs from sellers of defective parts.
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