1. Area of investigation; terminology
The term ‘professional liability’ is frequently equated with the liability of freelancers. This definition is, however, in some ways too narrow: ultimately, the real question involves the peculiarities surrounding liability for services, which originate partly in history and partly in tax law. Even so, from the German standpoint the distinction between freelance and commercial work is somewhat arbitrary. In particular, the discussion of § 675(2) (formerly § 676) Bürgerliches Gesetzbuch (BGB), which concerned liability for misrepresentations, had led to an equalization of professional liability and liability for misrepresentations (vis-à-vis third persons). This is not surprising; § 675(2) BGB (or its predecessor, § 676 BGB) especially and explicitly named the exercised profession as the reason for liability—or for the application of a stricter standard of liability. Such a limitation of professional liability to liability for misrepresentations vis-à-vis third persons does not, however, seem appropriate. Indeed, it only addresses one aspect of the actions of professionals, namely the representation, and only one group of a wider circle of potential injured parties, namely third persons. Thus the real problem is liability for services vis-à-vis the contractual partner or vis-à-vis third parties; nevertheless, the liability of freelancers still remains at the centre of this dispute.
However, it can be said definitively that professional liability does not encompass worker’s liability. While this involves liability for services, in case law and in the relevant literature worker’s liability has been circumscribed—in contrast with the model presented by the BGB—because employees are not economically independent.
2. Tendencies in legal development
‘Professional liability’, taken as a unified liability system, is relatively young. On the international level, until recently it was possible to say that professional liability was not an ‘integral and distinct topic’. A major reason for this was the ever-increasing differentiation of liability law which has led, in codification-oriented systems, to legal, medical and construction services being regulated in different areas of civil law. On the other hand, it is also true, as stated above, that the diversity of liability law, especially vis-à-vis the services sector, has certain common basic principles and a unified direction.
German discussion of professional liability began with an essay by Friedrich Scheffler at the 1959 Karlsruher Forum. But it was not until the end of the 1970s that the topic benefited from enhanced scrutiny, following a series of foundational papers. Manfred Lieb’s preparation of a revision of the law of obligations in the field of general service contract law is particularly noteworthy. The broader public’s attention was then directed towards the issue by a presentation by Klaus J Hopt at the Congress of Civil Law Teachers in 1983. However, on closer inspection, it becomes clear that this subject is nothing new; indeed, it has been discussed since the days of Roman law and is present in the discussions surrounding 19th-century codifications. A renaissance of this sort implies, however, that the ‘profession’, seen as a basis for liability, had in the meantime ‘died’. Indeed, the legislative history of the civil code offers a plausible explanation: there, as described above, the profession is not even mentioned as a reason for liability. This diverges from the initial preparations for the BGB and from other, contemporary civil codes. Today’s discussion, therefore, continues that which took place in the middle of the 19th century.
3. Individual structures
The system of liability for professional breaches of obligation is, at first glance, confusing and diffuse. The parallel existence of numerous, and partly incompatible legal approaches is, however, chiefly a result of the codified legal situation; the picture is different when one includes case law, which has the tendency to strive towards harmony.
a) Legal nature of the contract
Significant differences emerge especially with respect to the legal nature of the contract between the principal and the agent. The spectrum here extends from agency (§ 675(1) in connection with § 611 BGB: lawyers, tax advisers and auditors) to the contract for services (§ 611 BGB: doctors), the contract for work and labour (§ 631 BGB: construction worker, architect) to the public-legal official relationship (notary public, public doctor); exceptions and hybrids cannot be investigated here. The major differentiation is between results- and activity-oriented contracts (contract for work and labour vs contract for services, ie those with obligations de résultat or obligations de moyens). The different ordering has its greatest impact where it leads to application of different liability rules. There is a tendency to apply the rule of fault regardless of the question as to whether fault is to be understood objectively or subjectively; it is applied more frequently when it is difficult to determine a correct performance and as the liability risk increases in the event of a breach of duty: an extreme case of this is oral advice given by a lawyer. The legal consequences of a termination (§ 628 (1) BGB: partial payments/§ 649 BGB: full payments minus expenditures saved) are also regulated differently. Additional differences, which are particularly relevant with respect to buildings, apply to the distribution of risk until acceptance in a contract for work and labour (§ 644 BGB) and the possibility of a mortgage surety (§ 648 BGB). From the doctor’s perspective, in spite of the existence of a contract for services—and thus the applicability of a positive breach of contract—tort law is virtually exclusively applied in terms of liability, while concerning architects and construction companies, despite the general applicability of §§ 631 ff BGB, §§ 823 ff BGB can also be applied. But even so, tort law only plays a minor role here, mostly due to issues related to the burden of proof and to principles developed by case law on the third-party beneficiary contract. We can see, however, that the current legal system applies numerous different liability regimes for the unified phenomenon of professional services, which is markedly different from the approach to the sale of goods.
b) Obligations towards the contractual partner
i) Extent of obligations
The content of the obligations between contractual partners stands apart from the legal nature of the contract. This may in part be explained by the fact that the legislature has abstained from detailing these obligations (with certain exceptions vis-à-vis the liability of notaries public). The courts were thus given responsibility for making the relevant open liability rules more concrete and adjusting them so that they conform with the needs of the various professions. Thus, the courts require for all professions which have, up to now, been presented to them that a sufficient investigation of the facts of the case take place beforehand. In a second step, the agent must propose a solution to his principal, indicate potential risks and alternatives and allow the latter to make a final decision about the style of implementation. In practice, instead of wide-ranging general clauses—even in all of the professions investigated here—a specification of more readily understood individual obligations has taken place. Finally, in all investigated professions, there is an ‘aftercare’ obligation.
ii) Legal consequences
Compared with contractual obligations, a glance at the legal consequences of breaching an obligation reveals much less uniformity; here, are the greatest differences. It is noteworthy that the line between contracts for services and for work and labour (and the various guarantee models) follows the distinction between ‘freelancers’ (service contract) and other professional service sector workers (contract for work and labour). The qualification of most contractual relationships as contracts for services which involve most professions which manage others’ assets (lawyers, tax advisers and auditors) means that a breach of an obligation does not—as with a defective product—automatically lead to a reduction of the purchase price; rather, it additionally requires that the prerequisites of fault are fulfilled. The ‘fall-back’ of a damages claim for partial performance, in the form of rescission or reduction of the price, is thus absent. Recourse to the legal institute of positive contractual breach, on the other hand, leads to the realization that freelancers—by contrast to ‘normal businessmen’—are subject to all-or-nothing damages claims. The situation with respect to tort liability for doctors is similar: here, also, breaches of obligations lead to unlimited damages claims. This is contrasted with the legal situation vis-à-vis contracts for work and labour, to which architectural services strangely also belong, in spite of their ‘freelance’ character. The basic form of damages in terms of a breach of an obligation, without reference to fault, is regulated in §§ 634(3), 636, 323, 326(5), 638 BGB, which foresee reduction of the price and rescission, that is a claim which is limited to the equivalent payment. Any further damages claims require fault (eg §§ 634(4), 636, 280, 281, 283 BGB), but they play a far smaller role because of the possibility of claiming ‘minor damages’. The liability of notaries public inhabits a middle position since it is based on tort liability: pursuant to § 19 BNotO, breaching an obligation leads to an unlimited damages claim, though the law stipulates the possibility of a reduction of fees pursuant to § 16 KostO, which is a less incisive legal consequence and similar to a reduction of the price.
A second substantive difference in terms of legal consequences results from the nature of the impacted legal good since German tort law in §§ 823 ff BGB does not contain a tort law general clause. While asset managing professions such as the notary have a direct liability for all pecuniary damages, in terms of tort law doctors’ liability there is only a responsibility for the absolutely protected rights to body and health. This leads to an expansion—in terms of quantity—of those liable, since not only the contractual partner (pursuant to § 278, 831 BGB) but also the direct actor (pursuant to § 823(1) BGB) is liable. Finally, the elevated position of the absolute rights is clear vis-à-vis the granting of consent to a medical treatment or to a certain activity. In effect, the aforementioned causes a reversal of the burden of proof since this consent must be proven by the doctor.
c) Obligations towards third persons
Strangely, there is a commonality of the case material with respect to the field of liability towards third persons. Neither the legal nature of the contract (service or performance) nor even the contractual character of the activity in question (as with the notary) has a substantive impact on the liability of an agent towards individuals other than his contractual partner. The central means of differentiation between liability arising from a special relationship (as with the notary relationship, which is public-legal) and, on the other hand, liability towards third persons appears to be the extent of the breach of obligation: the liability towards third persons is only relevant in the case of serious breaches, without however simultaneously reaching the (high) threshold of general tort law.
There are, however, major differences as a result of the system of tort law in respect of the extent to which goods can be subject to damages claims. The period of (contractual) liability towards third persons in asset managing professions—insofar as it applies—foresees a direct claim for all damage to one’s assets, which is far more strict compared with the liability of doctors and craftsmen. If only absolute rights of third persons are violated, liability only follows from the regulations in §§ 823, 826, 253(2) BGB, which do not distinguish between liability towards third persons and liability towards the contractual partner; this is stricter than for the asset managing professions. In §§ 844, 845 BGB there is, however, a regulation relating to bodily injury and death which also extends protection against damages to assets that impact third parties. Finally, the general differences in the burden of proof between contract and tort law have effect, with regard to vicarious liability (§§ 278, 831 BGB).
The courts apply § 276 BGB relatively uniformly as a duty of care that is directly related to the affected profession. On the basis of the available case law, it is not surprising that, as far as the court system is concerned, ‘fault’ no longer plays the role of a subjective liability corrective which (perhaps) the historical legislature intended it to play.
e) Waiver of liability
Insofar as waivers of liability are concerned, the situation in the professions is treated quite differently; the results are, nevertheless, very similar. Thus, it is clear that doctors are not able to contractually waive their tort liability; discussions leading in this direction are practically nonexistent. Concerning tort liability for notaries, the picture is markedly similar. Even with regard to contractually agreed-upon liability for auditors, the laws—even the most recent laws—forbid any waiver of this liability, though they do foresee a liability ceiling of €500,000.
The situation is completely different in the other asset managing professions. Here, limitations on liability have been discussed for some time and in part, at least with respect to the otherwise wide-ranging risks, have been considered acceptable. Previous opinions have held that limitations of liability should not affect the core of the owed activity; furthermore, they may not—in combination with standard terms and conditions—exclude liability for gross negligence. Whether, in the reverse, it is permissible to exclude liability for slight negligence, given that the no-longer-existent element of subjective guilt (see c) above) has lost its effect, is doubtful. Insofar as a limitation of liability is considered necessary, the question of insurability plays a major role for all professions. This is the reason not only for the requirement of a liability ceiling, but also for the non-waiverability of liability for the scope of the damages covered by insurance.
Major differences between the individually investigated professions also became apparent with respect to the limitation of damages claims. They were a decisive driving force for many discussions surrounding qualification questions; the new German regulation of the law of limitations, in connection with the reform of obligations law, has largely resolved these problems.
g) Burden of proof
Insofar as breaches of obligations are concerned, case law treats the burden of proof relatively uniformly, which is not least due to the absence of normative requirements. At least explicitly, the basic principle is maintained that a claimant must prove the positive and negative facts which would underlie a breach of obligation. However, so many exceptions are made for all professions that even the presence of a basic principle seems questionable.
In all professions, the breach of certain ‘goal-oriented partial obligations’ will lead to the assumption of a breach of obligation on the agent’s part. This means that the agent must demonstrate that a breach of obligation did not take place. In the asset managing professions, the scope of applicability of § 287 ZPO has been decidedly shifted forward with the goal of easing the damaged party’s burden of proof. In terms of doctor’s liability, this easing has not been implemented; nevertheless, the courts have achieved similar results for defective documentation, and if subjective fault is not involved, the burden of proof regarding the above rests uniformly upon the agent.
4. Uniform law
On 9 November 1990, the European Commission proposed a Council Directive on Liability for Services (COM(90) 482 final). The proposal received substantial criticism, in particular because it did not distinguish between goal-oriented and activity-oriented obligations, but rather established general liability of fault with a reversal of the burden of proof for all services. This led to the formal withdrawal of the Council Directive (COM (94) 260 final). The withdrawal of the original proposal did not imply an about-face regarding the development of a Common Market for services, as part of its plan to achieve a common home market (Commission Completing the Common Market, White Paper from the Commission to the European Council, COM(85) 310 final, 25 f), and if only for this reason it must be expected that work will proceed, even with respect to material law.
Thus, relatively quickly, segment-specific ideas were floated (such as ‘segment-specific exceptions’, as well, as a kind of photo negative). Moreover, the complex of ‘legal implementation’ emerged as an alternative to corrections in the field of material law; this involves arbitration courts or the use of ombudsmen, as in (COM(94) 260 final, 3 ff). For this reason, the ‘general’ Directive 2006/123 of the European Parliament and the Council, dated 12 December 2006 on Services in the Internal Market consciously refrains from regulating liability law, since its Art 44(1) foresees that it should be implemented into national law. Indeed, the directive only addresses liability questions ‘indirectly’, for example in Art 21(1), where information obligations are stipulated vis-à-vis service recipients, especially with respect to (a) ‘general information on the requirements applicable in other Member States relating to access to, and exercise of, service activities, in particular those relating to consumer protection’ and (b) ‘general information on the means of redress available in the case of dispute between a provider and a recipient’. This is expanded upon by Art 22, which—in the context of ‘Chapter V. Quality of Services’—stipulates an obligation going beyond merely providing information on the specific service provider and the services provided. Furthermore, Art 23 permits Member States to insist that service providers ‘whose services present a direct and particular risk to the health or safety of the recipient or a third person, or to the financial security of the recipient, subscribe to professional liability insurance appropriate to the nature and extent of the risk, or provide a guarantee or similar arrangement which is equivalent or essentially comparable as regards its purpose’.
The PEL SC discusses the difference between goal- and activity-oriented obligations, while limiting itself to addressing liability in goal-oriented obligations, which stops short of an in-depth exposition of the problem. However, an answer to this peculiarity of services contracts is the mutual obligation to share information pre-contractually (see Art 1:103 PEL SC).
With respect to the auditor’s liability, in regard to his function as a certified public accountant, we may turn our attention to Europe-wide harmonization efforts. With respect to third persons, as well, a Europe-wide standardization of liability would lead to an increase in the credibility of annual reports under stock corporation law.
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