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Case:
BGH NJW 1993, 3321
Date:
19 October 1993
Note:
Translated German Cases and Materials under the direction of Professors P. Schlechtriem, B. Markesinis and S. Lorenz
Translated by:
Mr. Raymond Youngs
Copyright:
Professor B .S. Markesinis

Although German compensation law proceeds on the basis of total reparation and thus aims for restitutio ad integrum all costs are to be reimbursed which are necessary for the complete restoration of the plaintiff's property, the rules for the compensatable harm are subject to limitations. First, if monetary compensation is required for restoration, the sum asked for by the plaintiff must be "necessary", § 249 S 2 BGB. The plaintiff cannot, therefore, take as a basis for his computation of the damage the most expensive way to a restitutio ad integrum if other ways exist for getting better value for money. Besides this, however, § 251 II BGB limits the applicability of the yardstick of restitutio ad integrum. If this requires disproportionate expenditure, the plaintiff can only ask for a - lesser - "equivalent". In interpreting the concept of "disproportionate", the costs of the restoration are to be compared with the plaintiff's loss that results to him from the damage to his property. When vehicles used for business are damaged, the profit, which the plaintiff loses, is therefore to be compared with the costs of restitutio ad integrum by hiring of a replacement vehicle. In the present decision the Bundesgerichtshof has, however, explained that only a price for the hiring of a replacement vehicle which is "entrepreneurially unjustifiable" in comparison with the profit which the plaintiff would have obtained with the damaged vehicle is to be regarded as "disproportionate".

[Heading and summary of issues omitted].

BGH judgment of 19th October 1993 - VI ZR 20/93 (KG).

Facts:

The plaintiff hires out vehicles that can be used as taxis. [In this action] he seeks compensation on the basis of an assigned right for vehicle hire costs arising from an accident that occurred on 13th December 1989 in which the taxi business proprietor L and the driver of a car insured with the defendants were involved. In this accident L's Mercedes Benz 250 D was - according to the plaintiff's assertion the only taxi used by him at the time - substantially damaged. The duty of the defendant to make good in full [the damage inflicted on the plaintiff] is, in principle, beyond dispute. The damaged vehicle was being repaired during the period 13th December 1989 until 4th January 1990. By a contract of the 14th December 1989 L hired a replacement taxi from the plaintiff in which he assigned to insurers his claim for compensation against the defendant in relation to the vehicle hire costs. Until the 4th January 1990 L travelled 5875 km with the hired taxi for business purposes. Between the 14th and 31st December 1989 he thereby earned a total of 6211.50 DM. His income during the early days of January 1990 has not been supplied. The plaintiff charged L vehicle hire costs for the total hiring period in the sum of 13,422.19 DM (without VAT). In the present legal action the plaintiff at first claimedthe full vehicle hire costs against the defendant.

The Landgericht rejected the claim. In the appeal proceedings the plaintiff limited its money claim to a sum of 11,408.86 DM taking into account the expenditure saved by L by the non-use of his own vehicle of an estimated 15% of the vehicle hire costs. The Court of Appeal - rejecting the remainder of the plaintiff's appeal - gave judgment against the defendant in the sum of 4032.39 DM with interest. The plaintiff’s appeal on a matter oflaw was successful for the following reasons

1. The Court of Appeal is of the view that L's claim for compensation assigned to the plaintiff does not justify claiming from the defendant the cost of hiring the replacement taxi.

It was true that a taxi proprietor could, in principle, when his vehicle was damaged, claim for harm he suffered by asking for reimbursement of the costs of a hired replacement taxi. A claim of this kind would, however, be denied to the taxi proprietor if the boundary set by § 251 II BGB were overstepped because the expenditure were disproportionately high. This would be so if the claiming of a hired vehicle by a business-minded plaintiff, as he would have seen it at the time, were simply indefensible. That was the case here. In this respect, the vehicle hire costs (subject to deduction of his own expenditure thereby saved) were to be set against the loss of earnings, which the taxi proprietor would have suffered without the hiring of the replacement vehicle. For this expected loss of earnings, the takings actually obtained with the hired vehicle were to be taken into account. One should start with L's income between the 14th and 31st December 1989 (6211.50 DM). To this one should add the takings for the period from the 1st to 4th January 1990. Because of the lack of more exact information, these could [only] be assessed from an average calculation on the basis of the months of October and November 1989 at 137.11 DM daily. Thus the gross income, resulting for the above hire period, was 6759.94 DM altogether. Value added tax, saved overheads which could be estimated at 30% of the takings for diesel vehicles, as well as expenditure which L had effected in the hiring period for assistant drivers, were to be deducted from this. There then remained a fictitious profit yield of 4032.39 DM which was to be compared with the reckonable vehicle hire costs in the sum of 11,408.86 DM. This led to aratio of 1: 2.83.

The limit of disproportionate expenditure in the sense of § 251 II BGB was thereby exceeded.

The Court of Appeal was of the view that in general one should proceed on the basis of expenditure being disproportionate if the vehicle hire costs amounted to more than double the loss of earnings to avoid which the replacement vehicle was hired. By this limit, the interest of the taxi undertaking in the maintenance of its business was sufficiently taken into account. Otherwise there would be the threat of a violation of the principle that the plaintiff should not profit from the damage-causing event. To be sure, special circumstances could lead to an approval of proportionately higher vehicle hire costs. This could, for instance, happen where a taxi proprietor was particularly dependent in his business on a regular clientele and, as a result of a temporary loss of his vehicle (and the suspension of his activities), the existence of his business was seriously under threat. Such a state of affairs was, however, not present in this case. Instead, it had been foreseeable here that the hiring of the replacement taxi would be completely uneconomical. Thus L should not have done this and, instead, should have calculated his harm on the basis of his lost earnings. This was because he was, as a plaintiff, obliged to choose from amongst several possibilities leading to compensation for the harm the one that required the least expenditure. In these circumstances it was also not justified to allow the plaintiff a part (within the limits of § 251 II BGB) of the vehicle hire costs as compensation for the harm. On the other hand, the claim was not completely unfounded as the plaintiff had a claim to compensation on the basis of the fictional loss of earnings thatwas to be assumed to be 4032.39 DM.

II. The judgment appealed against does not stand up to legal scrutiny insofar as the remainder of the plaintiff's appeal has been rejected and the claim to compensation for the vehicle hire costs denied.

1. The appeal court proceeded correctly in law from the principles laid down in the judgment of the Senate of the 4th December 1984 [references omitted] on restitution in kind on the loss of a motor vehicle used exclusively for business purposes by the hiring of a replacement vehicle:

§ 249 S.1 BGB requires the restoration of the status quo as it existed before the event causing the harm. In the case of damage causing the loss of a motor vehicle, whether this is used privately or for business, restoration is usually best achieved by the plaintiff hiring a replacement vehicle for which the defendant has to pay: (§ 249 S.2 BGB). In such cases the limit to which restitution in kind (through the hiring of a replacement vehicle) can be asked for, is determined by § 251 II BGB. According to this, monetary compensation (here allocating to the plaintiff compensation for the gain he did not obtain) will only take the place of restoration if the latter is possible only with disproportionate expenditure. In assessing whether to proceed on the basis of such disproportionality, it is important to compare the cost of hiring a replacement vehicle and the threatened loss of earnings if the hiring does not proceed. But this is only one of a number of aspects within the global consideration to be undertaken of the interests of the plaintiff in the undisturbed continuance of his business. This is because his other interests that are worthy of protection must also be considered. [This means] for instance [taking into account] his desire not to endanger the good reputation of his business, to have at his disposal a full fleet of vehicles, and not to have to place excessive demands on the capacity of the remaining vehicles etc. The boundary of § 251 II BGB is not overstepped simply because the costs for the obtaining of a hired vehicle exceed (even significantly) the loss of profit which is otherwise threatened. But it is [exceeded] if the hiring of the replacement taxi is simply indefensible from an entrepreneurial point of view for a business-minded plaintiff … [but]this will only exceptionally be the case.

2. The observations which led the Court of Appeal to find that in the instant case the proportionality boundary of § 251 II BGB had been overstepped do not meetthese principles in the required manner.

a) A decision as to whether the prerequisites of § 251 II BGB are present is primarily a matter for assessment by the judge of fact when applying § 287 I ZPO. However, this appeal may examine whether the relevant circumstances and standards, especially all the essential calculation factors, have been considered in the requiredmanner [references omitted].

b) This appeal unsuccessfully challenges the calculations of the Court of Appeal on expected lost profit in the case where no replacement vehicle is hired.

aa) The judge of fact is not prevented in this respect from putting the net vehicle hire costs (reduced by the expenditure which the taxi proprietor has saved) against the profit which he has in fact made by use of the hired vehicle [reference omitted]. The figures relating to the turnover here which L made with the replacement taxi in the greater part of the hiring period namely between the 14th and the 31st December 1989 were available to the Court of Appeal. An average turnover, applying § 287 ZPO, had to be estimated for only a few days (1st to 4th January 1990) on the basis of the turnover figures of the previous months. The Court of Appeal’s method of proceeding here is not open to objection. Even a differently attempted calculation of the turnover, which proceeded on the basis of the total of 5875 kilometres travelled with the hired vehicle and which charged a turnover of 1.20 DM for every kilometre travelled (which was, all along, regarded by the plaintiff as realistic), would still produce a total turnover which is not significantly higher. (7050 DM as againstthe sum reached by the Court of Appeal of 6759.94 DM).

bb) There are no legal objections to the fact that the Court of Appeal deducted from the gross turnover an estimated 30% for value added tax and saved overheads. (This is not challenged by the appeal in law). Contrary to the appellants’ view, the Court of Appeal correctly deducted from the net turnover a further sum of 390 DM as payment for assistant drivers. Payments to drivers of taxis only have to be left out of consideration if they are fixed costs independent of performance which would have had to be paid by the taxi proprietor even if he had not hired a vehicle [references omitted]. But such costs are not involved when paying assistant drivers who are not in a fixed employment relationship but are called upon for work from case to case at irregular intervals. The Court of Appeal could, on the basis of the party's submissions and without violating the law, come to the conclusion that the expenditure here for assistant drivers would not have arisen for the taxi proprietor L if he had not hired the replacement taxiand therefore had not used any assistant drivers.

c) The appeal, however, correctly objects to the standards on the basis of which the vehicle hire costs which have arisen were considered by the Court of Appeal to be disproportionate expenditure, in the sense of § 251 II BGB, by comparison with the threatened loss of profit. In particular the considerations on which the appeal court might always regard the boundary of disproportionality of the vehicle hire costs as exceeded if the latter amounted to more than double the loss of earnings givecause for serious doubts.

aa) By indicating that the taxi proprietor L was, as plaintiff, under a duty to choose from several possibilities leading to compensation the one which required the least expenditure – in this case the calculation of the loss of earnings - the Court of Appeal calls upon a principle of liability law which is not suited to the making of an assessment within the framework of § 251 II BGB. The plaintiff has to choose the most economical alternative from several possibilities of remedying harm only if they are equivalent in outcome (for instance between two alternatives which both lead to restitution in kind [references omitted]). But here it is not a question of choice between two equivalent alternatives. Instead, only the hiring of a replacement vehicle represents restitution in kind for the taxi proprietor, and he can ask for this up to the limit of disproportionate expenditure determined in § 251 II BGB. It is true that this provision also, like liability law in general, is subject to the postulate that the remedying of the damage be economical. But the legislator has, by drawing the limit of disproportionate expenditure, emphasised that restoration in kind has priority over monetary compensation and this does not have to be given up simply because monetary compensation requires a lesser expenditurefor the defendant.

bb) The observation in the judgment appealed against, that exceeding of the loss of earnings by the vehicle hire costs by 100% - which was barely acceptable - could only be justified if the taxi proprietor was to be allowed a special interest in the maintenance of his business and the retaining of a regular clientele, also shows that the Court of Appeal has not adequately satisfied the standards to be applied within the framework of § 251 II BGB. The taxi proprietor, suffering harm, has as a rule a claim to restitution in kind on the basis of § 249 S.1 and S.2 BGB. This in principle needs no special justification even if he requires expenditure which exceeds - if necessary, even substantially - a compensation interest of the plaintiff (consisting here of the lost profit if no step was taken to cover for the loss of the accident vehicle). On the other hand the denial of restitution under the prerequisites of § 251 II BGB according to the state of the law represents the exception, which the defendant needs to show and provide a basis for, to the rule in § 249 BGB. This rule-exception relationship has not been taken into account in an appropriate way in the considerationsof the Court of Appeal.

cc) The Court of Appeal also seeks to justify the "200% limit" which it considered to be correct because otherwise there is no longer any conformity with the principle that the plaintiff should not make a profit out of the damage-causing event. However, the taxi owner suffering damage, who has hired a replacement vehicle (and has to pay for this), does not gain from the event causing the harm, regardless of whether the vehicle hire expenditure is kept within the framework of the proportionality limit of § 251 II BGB or not. This is because the compensation by the defendant for the vehicle hire costs does not remain with the plaintiff, increasing his own assets; but passes to the personhiring out the replacement vehicle.

d) The argument of the Court of Appeal in favour of establishing a "boundary rule" of double the loss of earnings for the compensability of the vehicle hire costs of the taxi owner is not only legally inappropriate. Such a "boundary rule", also favoured by the 31st German Verkehrsgerichtstag 1993 [reference omitted], is also unjustified in this case. This is because the delimitation of the exceptional case envisaged by § 251 II BGB is a matter of fact that depends on all the surrounding circumstances of each case and should not be made to turn on the existence of a general threshold, whether this is fixed by reference to double the lostprofit or on any another proportion.

aa) The assessment of the disproportionality of the expenditure in the sense which is relevant here depends on a variety of factual issues which cannot be assessed by a set figure. Importance attaches to circumstances that relate to the taxi undertaking of the person suffering harm and its place in the market as well as to those which concern the accident itself and its consequences. For instance, the following points can be relevant and therefore are to be taken into overall consideration. They include: size and development of turnover of the undertaking; period of existence so far and intensity of penetration of the market; number of taxis available and used in the undertaking; degree of utilisation of the vehicles and the drivers; personnel and cost structure of the undertaking (for instance drivers in permanent employment, assistant drivers etc), composition of its clientele (regular customers, one-off journeys); structure of the market (e.g. in a large city or in a rural area); competition situation; conditions of connection to the radio centre; possibilities of co-operation with other taxi businesses; extent of and period for repair of the accident vehicle; business prospects for taxis during the repair period ("high season" because of holidays, congresses or the like). This wealth of individual aspects which characterise the overall picture to be obtained within the framework of § 251 II BGB, forbids the determination of the exceptional case (in which there must be a deviation from the principle of restitution in kind) in a normative way from a "rule boundary".

bb) In the face of the given price situation, the costs of a hired vehicle will as a rule exceed the predictable loss of earnings of a taxi undertaker. The hiring of a replacement taxi can however only be rated as disproportionate if it is indefensible for a business minded plaintiff and was thus from the point of view of a sensible businessman simply a question of a stupid decision. Such a judgement cannot automatically be made when the vehicle hire costs are more than 100% or some other percentage in excess of a predictable loss of profit. This is because it is part of the nature of entrepreneurial organisation and the freedom to make business arrangements to put up with short term losses, even if these are considerable, for the sake of longer term advantages, at least for a foreseeable period of time. For this reason, it will seldom appear indefensible from the viewpoint of a sensible businessman to accept hire costs for several weeks that will probably substantially exceed the output to be obtained from the thing hired. This will be the case if he can thereby maintain his business undisturbed, secure the entrepreneurial "goodwill", keep his regular clientele, remain present in the market and in the organisation of the radio centre and so on. Accordingly, the compensability of the hiring costs has been accepted in the case law of the courts of first instance even in cases in which this was distinctly more than 100% in excess of the loss of earnings [referencesomitted].

cc) In the "normal” case, therefore, in which a replacement taxi, the full utilisation of which is within a framework consistent with business practice, is hired for an average repair period, there will be no cause, having regard to § 251 II BGB, to deny reimbursement of vehicle hire costs which are in line with the market price. The plaintiff can only be confined to monetary compensation for the amount of his loss of earnings if consideration in business terms of the circumstances of the individual case as a whole leads to the conclusion that exceptionally the business decision to hire a replacement vehicle is no longer defensible. In this framework, besides all those interests of the plaintiff worthy of protection, comparison will have to be made between the hire costs and the probable loss of profit of the taxi undertaking and also the level of the hiring charge as such can play a significantrole.

3. Bearing these principles in mind, the limit to the proportionality of the hiring expenses in the sense of § 251 II BGB cannot in the present case be regarded as yet exceeded. This is so, even though the hiring charge for the replacement taxi may lie in the upper regions of what is defensible in business terms. The Senate can make this decision finally itself as no more findings need to be made by the judge of fact which are important for the decision. The Court of Appeal has not given the legally required status to the relevantcircumstances here.

a) If, as the plaintiff has claimed, the taxi proprietor L had at the time of the accident only one taxi in operation - the accident vehicle - he would have been obliged, had he not hired a substitute, to shut down his taxi business for the entire period of the repair. Thus, he would neither have been able to serve his regular clientele nor would he have been available to the radio centre for the providing of occasional journeys.

If a taxi proprietor, who has several taxis, loses one as a result of an accident he has a legitimate interest to secure the undisturbed continuance of his business by hiring a replacement vehicle so as to continue working with a complete fleet of vehicles [references omitted]. The interest of the "one-taxi proprietor" in not having temporarily to shut down his business on the loss of his single vehicle must, if anything, be rated much higher. This is because the compulsion for temporary suspension of independent vocational activity means a very severe interference for the person affected even if financial harm arising from this can be compensated for in a sufficient manner. It cannot therefore, in principle, be [an economically] indefensible practice for a taxi proprietor, in order to avoid the temporary closing of the business with all the resulting loss, to hire a replacement taxi for a foreseeable repair period, … even if this involves expenditure which significantly exceeds the profit expected from itsuse.

b) But even if L had not been a "one taxi proprietor", but at the time of the accident used further vehicles, the expense of the hiring - which here certainly appears high - could, according to the principle for the "normal case" explained above, still not be assessed as disproportionate in the sense of § 251 II BGB. One must also note the fact that the enforced temporary interference with the business, even through the loss of only one of several taxis, would have affected the pre-Christmas, Christmas and New Year's Eve trade. This is a period in which - according to the findings of the Court of Appeal also - the need for taxis is especially great and the opportunities for custom and earning money are especially favourable. In this period, an undisturbed maintenance of business by means of a hired replacement taxi - even accepting a higher expenditure - could appear to a sensible business minded taxi proprietor more the obvious thing to do than at any other time. The other circumstances, as they are to be deduced from the established facts of the case and the party's submissions, give no cause to find here an exceptional case in which Lwould have had to give up restitution in kind.

III. The judgment of the Court of Appeal must, therefore, be quashed insofar as the appeal of the plaintiff was rejected. As further elucidation of the case is no longer needed, the plaintiff's appeal is to be allowed according to his appeal application in accordance with § 565III no.1 ZPO.

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