GER: BGH - General Terms and Conditions and Smart Contracts

Dec 9, 2022 Benn-Ibler Rechtsanwälte

In its decision XII ZR 89/21 from 26 October 2022, the German Federal Supreme Court (Bundesgerichtshof, hereinafter BGH) dealt with civil law aspects of smart contracts. This ruling, which also bears relevance for Austria, deals with several fundamental aspects of digital self-executing contracts (so-called ‘smart contracts’), pointing out necessary limits.

The cased at hand was a consumer protection case in which the general terms and conditions for rental contracts for electric-vehicle batteries were put to the test. The rental contracts were concluded for an indefinite period of time and terminated for a special cause in addition to ordinary termination. As a result of the termination, lessors should be able to cease their obligation to perform and stop recharging the battery. The lease had been concluded as a smart contract.

The BGH ruled that remote access to a leased battery constituted an (unlawful) interference with the right of possession, rendering the clause invalid pursuant to Section 307 of the German Civil Code (Bürgerliches Gesetzbuch, BGB). The BGH explicitly stated that digital interference with leased property is no different from physical interference. Unlike the discontinuation of a utility service, using a physical object is thereby prevented.

The BGH left unanswered the question of whether blocking the recharging option constitutes a prohibited wilful interference within the meaning of Section 858 (1) BGB (as was held by the lower court).

The BGH explicitly stated that, on the one hand, the risk of a lawsuit and thus the pre-financing of costs is passed on to customers and, on the other hand, the present contract clause does not grant the lessee the possibility to raise objections against termination and the blocking of the battery. In the present case, the BGH considers both to be manifestly unlawful.

Even if the subject of the conclusion of the contract via smart contract is not the focus of the decision in this case (but rather the unlawful design of the general terms and conditions clause), a number of things can be gained from it with regard to setting up of contracts as smart contracts. On the one hand, smart contracts (especially within the area of consumer protection) may not reverse common and customary legal standards and on the other hand, in general, providers must adhere to the legal regulations when setting up smart contracts.

Conclusion: The ruling confirms what common legal sense would suggest in the first place: Smart contracts will have to be adapted to the framework conditions of a given legal system. The call for an adaptation of a legal system to smart contracts has thus and justifiably been rejected for the first time. Of course there are aspects related to smart contracts that will require adaptations in one area of the legal system or another, but in most areas there is no need for any adaptation or addition, especially not as far as fundamental rights are concerned.

BGH XII ZR 89/21 (26.10.2022)