Reparation in Kind

From Max-EuP 2012

by Hannes Unberath

1. Subject matter

§ 249(1) Bürgerliches Gesetzbuch (BGB) provides that whoever is obliged to compensate for damage must ‘re-establish’ the situation that would have existed if the event giving rise to the duty to compensate had not occurred (damages). The BGB thus regards the debtor’s re-establishment of the situation in natura as it would have been but for the damaging event as a form of compensation for damage, and indeed as the type of compensation that is primarily owed. Compensation in money is only secondarily owed. This rule, peculiar from a comparative law viewpoint and connected to late scholastic thought, was hotly disputed at the time of its adoption. Particularly, it complicates the distinction between enforcing rights of performance and imposing sanctions for their violation, and it makes the distinction of various types of monetary damages more complicated.

2. Reparation in kind by the debtor

Violation of another’s right generally gives rise to a claim for discontinuation of the violation to the extent that it is ongoing, ie eliminating for the future an actual and present interference with the claimant’s right. Examples are the claim to specific performance of a contract, vindication under § 985 BGB and, in respect of other violations of property rights, the claim to discontinue the interference under § 1004 BGB. These claims have in common that they do not presuppose any fault on the part of the interfering party but only that the violator is in fact able to stop the violation, eg by performing the contract, handing over the property, or otherwise discontinuing the infringement.

By contrast, the claim for compensation for damage presupposes that the interfering party was responsible for the interference and aims at fully restoring the status quo ante. Friedrich Mommsen had already developed this distinction on the basis of the Roman legal sources and explained compensation for damage as a substitute for an ‘interest’ with monetary value.

Compensation in natura, or restitution in kind, cuts across this distinction because actual restoration of the situation that would have existed but for the violation, and elimination of an ongoing violation sometimes mean the same thing. As a result it becomes difficult to reconcile obligations at the primary and secondary levels. The anomalous nature of compensation in natura is particularly apparent since the reform of the law of obligations in 2001 in the newly drafted § 281 BGB: according to this provision, in cases of non-performance, the creditor must generally fix another deadline for performance (primary obligation) before he can claim compensation (secondary obligation). § 281(4) BGB explicitly provides that the claim for performance in natura is lost when, in cases of breach, compensation is required ‘instead of performance’. The claim for compensation for non-performance can thus hardly be aimed at performance in natura (which would resurrect the primary obligation). Thus, one must assume that reparation in kind is generally excluded for contractual claims.

In practice, reparation in kind is the rare exception even for non-contractual compensation claims. In cases of delict (law of torts/ delict), it seems farfetched to require the victim to seek restoration in natura from the tortfeasor. That such a requirement can be intolerable was recognized when the BGB was promulgated and, in cases of property damage or physical injury, the victim is therefore given the choice of claiming money damages instead, which in fact is generally done. The impression given by § 249 BGB that reparation in kind is the regular remedy for delictual claims is thus misleading.

There are only a few types of cases in which the debtor can make compensation in natura. If the damage consists in having burdened the victim with an obligation, § 249(1) BGB provides a claim to be released from that obligation (German Federal Supreme Court, BGH 20 June 1972, BGHZ 59, 148). Similarly, reparation in kind is used in cases of scarcity of goods or inflation. Of practical and primary importance, however, is the availability of reparation in kind in cases of culpa in contrahendo since the Bundesgerichtshof has allowed release from the contract for (mere) negligent misrepresentation, a remedy which the BGB does not explicitly provide for (BGH 26 September 1997, NJW 1998, 302 limits the avoidance of a contract by way of compensation to the case of an objectively disadvantageous contract). The Principles of European Contract Law (PECL) more convincingly look at the problem under the auspices of defective consent (Art 4:103 PECL, similarly Art II.-7:201 Draft Common Frame of Reference (DCFR)).

Reparation in kind as a form of compensation is generally the exception in Europe: in English law, which in any event has clear reservations against specific performance of contractual duties other than the payment of money, damages are always aimed at monetary compensation; in French law, it is within the discretion of the juge du fond to allow réparation en nature for delictual liability. For contractual claims the PECL only provide for compensation in money (Art 9:501); Art 9:502 PECL, in this respect, allows the creditor to claim the amount of money required to place him in the position in which he would have been had the contract been properly performed. Basically the same rule is found in Art 74 CISG. Secondary EU law, to the extent that it contains liability rules, recognizes only damages in money (eg the Product Liability Directive). For tort claims, the Principles of European Tort Law (PETL) provide in Art 10:101 for compensation in money as the general remedy, while Art 10:104 allows claims for reparation ‘in kind’ provided this remedy is not overly ‘burdensome’ for the tortfeasor. The DCFR draws a distinction: whereas Art III.-3:702 DCFR generally defines compensation for the non-performance of an obligation in terms of a claim for money, Art VI.-6:101 DCFR with respect to non-contractual liability provides that instead, or in addition, to money damages another type of ‘reparation’ can be owed if it is ‘reasonable.’

3. Reparation in kind and cost of re-establishing the status quo ante

The problem of reparation in kind as a compensatory remedy must be distinguished from the practically and doctrinally central question of how money damages are to be calculated. In Germany, these two problems are conflated. One does not understand ‘reparation in kind’ only as the actual restoration of the status quo ante by the debtor but also as the payment of the sum of money that is necessary to restore the status quo ante. ‘Reparation in kind’ is then no longer a concept contrasted to damages in money; rather, it is a counterpart to the special form of indemnification within the meaning of § 251 BGB and is thus compensation for the loss in value. Historically, this may result from the fact that Mommsen’s influential study seemed to reduce the concept of ‘interest’ for delictual liability concerning property to merely the value of the property.

From the purpose of compensating for the violation of a right, it may be derived that the costs of re-establishing the situation that would have existed if the violation had not taken place must be borne by the debtor (cost of cure, reinstatement). This is widely recognized throughout Europe. The question of the amount of money damages, however, has little to do with compensation through performance in natura by the debtor. Extending the concept of ‘reparation in kind’ to payment of damages in money not only tends to raise unnecessary questions of delimitation (such as whether restoration is also owed when the position does not ‘exactly’ correspond to the position before the damage occurred, which is always the case because the hypothetical position never actually occurred) but is also confusing because the victim does not necessarily have to use the amount of money received to restore the status quo ante (so-called ‘fictional liquidation’).

In case of a violation of the integrity interest, such as damage to a thing, the costs of repair represent a pecuniary loss because the loss follows from the physical damage and thus is not compensation for a mere non-pecuniary interest in having the thing (this distinction is debated). In principle, nothing else applies when the expectation interest is owed and the innocent party claims the costs of receiving performance by a third party (substitute transaction). The amount can be calculated abstractly, based on the market price, or concretely, based on the creditor’s possibilities (see Art 9:506 and Art 9:507 PECL).

Difficulties arise particularly regarding the limitation of this substitute performance, which is generally favoured in Europe. For common goods, such as a car, the question can be asked whether replacement by a similar good is not just as appropriate as ‘re-establishing’ the status quo ante (the BGH, 15 October 1991, BGHZ 115, 364 is of the contrary opinion but does limit compensation for repair to 130 per cent of the cost of replacement). Compensation for the cost of repair raises a problem if it is out of proportion to the value of the asset being repaired. English law provides an example: in Tito v Wadell (no 2) [1977] Ch 106 the residents of Banaba Island were denied compensation for the exorbitant costs of re-cultivating areas that had been destroyed through phosphate exploitation because these costs were disproportionate to the increase in value that would have resulted from the re-cultivation and because the victims did not intend actually to use the money for such re-cultivation. In Ruxley Electronics and Construction Ltd v Forsyth [1996] A.C. 344, the House of Lords considered unreasonable the costs of deepening a swimming pool that had not been dug as deeply as agreed upon even though that defect did not affect the pool’s usefulness, or the value of the real property. In contrast, in Radford v De Froberville [1977] 1 WLR 1262 compensation for the cost of repair of a dividing wall was considered to be reasonable in light of the benefits derived from it, although erecting the wall did not increase the value of the property appreciably. § 251(2) BGB permits a similar balancing; in part the limits for damage to bodily integrity are taken from the principle of good faith (BGH 27 November 1974, BGHZ 63, 259, eg, held that the costs of an operation to remove a minor scar were not compensable). Article 10:203 Principles of European Tort Law (PETL) provides for the cost of repair for damage to property only if such repair is actually undertaken and is reasonable.

Literature

Friedrich Mommsen, Zur Lehre vom Interesse (1855); Hans Stoll, ‘Consequences of Liability: Remedies’ in IECL XI/1 (1972) ch 8, paras 64 ff; Udo Wolter, Das Prinzip der Naturalrestitution in § 249 BGB: Herkunft, historische Entwicklung und Bedeutung (1985); Ulrich Magnus (ed), Unification of Tort Law: Damages (2001); Sir Basil Markesinis and Hannes Unberath, The German Law of Torts (4th edn, 2002) 901 ff; Hermann Lange and Gottfried Schiemann, Schadensersatz (3rd edn, 2003) 215 ff; Andrew Burrows, Remedies for Torts and Breach of Contract (3rd edn, 2004) ch 2; François Terré, Philippe Simler and Yves Lequette, Les obligations (9th edn, 2005) 877; Nils Jansen, ‘§§ 249-253, 255. Schadensrecht’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/1 (2007) nn 33 ff, 85 ff; Dieter Medicus and Stephan Lorenz, Schuldrecht I Allgemeiner Teil (18th edn, 2008) paras 108, 625 ff.

Retrieved from Reparation in Kind – Max-EuP 2012 on 06 December 2022.

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