1. Leasing provider liable for behavior of car dealership employees in court case relating to vehicle purchase option after end of leasing agreement

When a customer decides to lease a vehicle offline, the first point of contact is often a car dealership. In a recent case decided by the Higher Regional Court of Stuttgart (Oberlandesgericht Stuttgart), a written purchase offer made to a lessee by dealership employees ended up costing the leasing provider the majority of the lease payments.

In this case, a corporate lessee entered into a four-year leasing agreement with a total kilometer allowance of 80,000 kilometers, a down payment of EUR 10,000 and monthly payments of EUR 999. He made it clear to the dealership employees that he would not lease the vehicle unless he received a binding offer prior to the commencement of the lease agreement to purchase the vehicle at the end of the contract. In response, the dealership employees provided him with a written statement in which they undertook to offer the customer the vehicle at the end of the lease for a purchase price of EUR 50,505.72.

After the leasing agreement was signed, the dealership sold the leased vehicle to the leasing provider, who in turn provided it to the customer, who then used it for four years. During that time, the lessee drove around 10,000 kilometers. At the end of the lease term, the lessor asked the customer to return the vehicle. After the customer asked to buy the car as agreed with the dealership employees, the leasing provider insisted that they return the vehicle because the purchase right had been agreed between the dealership and the customer without the involvement of the leasing provider. According to the lessor, the dealer could not sell the car to the customer because the dealer did not own the car – the lessor did and apparently had other plans for the car.

In response, the customer stated that the lease had to be cancelled because the right to purchase had been critical to his decision to lease the car. As a result, the customer agreed to return the car in exchange for a refund of all his payments under the leasing agreement in the amount of EUR 64,796.32, less a compensation for use.

In its judgment of 5 March 2024, the court sided with the lessee. It found that when agreeing on the right to purchase with the lessee, the dealership employees had a duty to inform him that the purchase of the vehicle was uncertain and would only be possible if the leasing provider cooperated, as it would then be the owner of the vehicle. Since the lessee had expressly stated that he would not enter into the lease without such a purchase option, the court found that the dealership employees had a duty to inform him of this without being asked. Failure to do so constituted a breach of a pre-contractual obligation.

While it was true that the leasing provider was not directly involved in the negotiations and claimed to have no knowledge of the written purchase option granted to the lessee by the dealership, the court ruled that the leasing provider was responsible for the conduct of the dealership employees as if the leasing provider itself had breached the pre-contractual duty. While offering a purchase option is usually considered to be in the sole interest of the dealer (because it allows the dealer to sell the vehicle to the lessee), in this case the court found that it was also in the interest of the leasing provider because the lessee would not have entered into the lease agreement otherwise.

As a result, the lessee was only required to return the vehicle to the lessor in exchange for a payment of EUR 59,036.72 – the full amount of the lessee’s lease payments less a compensation for use which the court calculated to be EUR 5,759.60.

While it remains to be seen whether other courts will side with the Higher Regional Court of Stuttgart in similar cases, the case illustrates that the practice of many leasing providers to use dealership employees as intermediaries when concluding into leasing agreements can lead to liability risks for the lessor.

Relevant for: Leasing providers, car dealerships.

Further details here (available in German only)

2. EU parliament adopts European AI Act

On 13 March 2024, a majority of the European Parliament passed the groundbreaking European AI Act. According to the Parliament, it is the world’s first regulation of artificial intelligence.

The AI Act applies to anyone who develops, offers or uses artificial intelligence within the EU. The details will be implemented by member states in their respective jurisdictions. This includes sanctions for violations of the AI Act, as local oversight authorities will complement a central „AI Office“ and „AI Board“ at the EU level. The fines for violations are steep – up to 7 % of global annual turnover or EUR 35 million for prohibited AI violations, up to 3 % for other breaches and up to 1.5 % or EUR 7.5 million for providing false information. There are different liability caps for SMEs and start-ups. It is envisaged that all aspects of the law will be implemented within two years.

The intention behind the AI Act is to strike a balance between user safety, ethical concerns and innovation. It uses a risk-based approach with the intention of nuanced regulation of AI.

As the scope of the AI Act is very broad, it is expected to have a significant impact on automakers in many aspects, including autonomous driving.

Relevant for: OEMs.

Further details here and here

3. EU member states reach agreement on CSDDD after significant amendments

After considerable controversy among EU member states, on 15 March 2024 they agreed on a revised version of the Corporate Sustainability Reporting Directive (“CSDDD”). In the updated version – which must still be approved by the European Parliament before it comes into force – the number of companies falling within the scope of the new law is significantly lower than in previous drafts.

The law now applies to companies with more than 1,000 employees (up from 500) and a net turnover of more than EUR 450 million (up from EUR 150 million). It makes EU companies responsible for environmental harm and human rights abuses in their supply chains.

On 19 March 2024, the Committee on Legal Affairs of the European Parliament approved the bill. The vote in the European Parliament will take place on 24 April 2024.

After the CSDDD becomes effective on EU level, it will have to be implemented on a national level.

Relevant for: All companies.

Further details here

4. Ruling by European Court of Justice on free access to EU Harmonized Standards

A court ruling by the European Court of Justice (“ECJ”) on 5 March 2024 regarding access to EU Harmonized Standards has received widespread attention.

The EU Harmonized Standards are technical standards developed by the European Standardization Organisations (“ESOs”) for numerous product categories in order to implement European risk regulation requirements. The European Commission reviews and publishes these standards. Once published, compliance with the essential requirements of risk regulation is presumed when the technical standards are used. Compliance with the standards therefore allows companies to comply with the regulations without having to review and implement them themselves – a great advantage, especially for SMEs.

The work of the ESOs is financed by the fees that are charged to companies for access to the harmonized standards. In the case decided by the ECJ, two NGOs had sued to make the EU Harmonized Standards for children’s toys available for free, arguing that they were part of EU law and therefore EU citizens had a right to access them free of charge.

The ECJ agreed with the plaintiffs and considered the EU Harmonized Standards to be part of EU law due to their mandatory legal effect. The court argued that there was an overriding public interest in free access to the standards. Legal experts are now concerned about the financing of the standards’ development.

Relevant for: OEMs.

Further details here

5. German Federal Court of Justice to hear case on warranty claim for 40 year old car

Germany’s highest civil court, the Federal Court of Justice (Bundesgerichtshof) will hear a case concerning warranty claims in connection with the sale of a vintage car on 10 April 2024.

In this case, the plaintiff had purchased a Mercedes SL 380 first registered in 1981 with a mileage of approximately 150,000 kilometers. In the listing of the car, the seller, the defendant in the case, excluded their statutory liability for material defects of the vehicle, as is possible under German law for the sale of used goods between consumers. The defendant also stated that the air conditioning “works perfectly”. Two months after the purchase, the plaintiff informed the defendant that the air conditioner was not working and needed to be repaired at a cost of approximately EUR 1,750. The plaintiff is now seeking reimbursement from the seller for the repair costs.

According to the long-standing practice of the German Federal Court of Justice, a complete exclusion of warranty does not apply to aspects of purchased goods that have been expressly agreed upon by the parties. In this case, however, the lower courts rejected the plaintiff’s claim based on the argument that in case of the purchase of a 40-year-old car, the buyer must always expect that maintenance will be required even if a certain condition of the car is expressly upon by the parties. According to the courts, the purchaser could therefore not have expected the air conditioner would continue to work after the purchase.

Relevant for: Parties involved in vehicle sales.

Further details here (available in German only)

6. New UN cybersecurity regulations to start applying to all new vehicles in EU in July

On 1 July 2024, the UNECE R155 cybersecurity regulation will become mandatory for all new vehicles in the EU. The regulation was introduced by the United Nations Economic Commission for Europe, a regulatory forum that harmonizes vehicle regulations. Its goal is to improve cybersecurity in vehicles. Given the increasing importance of software in vehicles, the regulation responds to the vulnerability to hackers.

Under the regulation, OEMs must not only adapt their vehicles’ technology to comply with the cybersecurity requirements, but more importantly, ensure that management processes and internal procedures comply with the regulation. This can be challenging as the vast majority of software is typically developed by suppliers rather than by OEMs themselves. As a result, several automakers have decided to phase out older models.

Relevant for: OEMs.

Further details here