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11 May 2017
The Supreme Court recently ruled on a case where the cost to repair a defective product far exceeded the value of the goods in question. In its decision, the Supreme Court determined that existing Austrian law on warranty claims can (and must) be construed in line with European Court of Justice (ECJ) case law on the EU Consumer Sales Directive.(1) The court listed a number of criteria based on which the seller of a defective product can argue that the cost of repair is disproportionate, thus limiting the consumer's rights to a price reduction or cancellation of the contract. While ending an academic debate, the decision is bound to spark disputes between sellers of defective products and their counterparts.
The plaintiff had ordered marble tiles for areas outside his house, including a sauna area and a terrace, from the defendant. Due to a measurement error, the defendant miscalculated the number of tiles and delivered only 85% of the required amount. When the plaintiff realised this and demanded delivery of the remaining 15%, the defendant delivered these from a different stone quarry. These additional tiles had a different colour and structure than the first batch. As it was impossible to obtain additional tiles from the same stone quarry as the first batch, all of the tiles had to be removed and replaced by new tiles.
The plaintiff requested payment for the cost of removing and laying the new tiles, totalling approximately €130,000. The defendant refused payment on the grounds that the cost was disproportionate, as the claimant had paid €10,000 for delivery of the tiles.
According to the ECJ, the repair or replacement of non-conforming goods must be completed not only free of charge, but also within a reasonable time and without significant inconvenience to the consumer (Margin Note 52). If the seller fails to remove and replace the non-conforming goods, this can be a significant inconvenience to the consumer (Margin Note 53). The term 'replacement' is not restricted to the mere delivery of replacement goods; on the contrary, it may indicate that there is an obligation to substitute those goods for the non-conforming goods (Margin Note 54).
However, the seller may refuse to replace the goods where to do so would be disproportionate in that it would impose unreasonable costs on the seller (Margin Note 58). The directive defines the term 'disproportionate' exclusively in relation to another remedy, thus limiting it to cases of relative lack of proportionality. A remedy is disproportionate if it imposes unreasonable costs compared to another remedy. In order to determine whether the costs are unreasonable, the cost of one remedy should be significantly higher than that of another remedy (Margin Note 68 and following).
In this situation, the directive permits the limiting of a consumer's right to reimbursement for the cost of removing the defective goods and installing the replacement goods, where necessary, to an amount proportionate to:
However, such limit cannot result in the consumer's right to reimbursement of those costs effectively being rendered devoid of substance in the event that he or she installed the defective goods in good faith and in a manner consistent with their nature and purpose before the defect became apparent (Margin Note 75).
Application of ECJ case law to Austrian law
Austrian law provides that if the goods delivered by the seller are defective, the buyer can request that they be replaced or repaired by the seller. However, if this is impossible or would entail a disproportionate effort on the seller's part, the consumer is limited to requesting a price reduction or rescission of the contract.
The Supreme Court held that the Austrian laws on warranty claims can and must be construed in accordance with the aforementioned ECJ judgment, provided that the claim arises out of a consumer contract.
Thus, in the Supreme Court's view, if the cost of removal of the defective goods and instalment of the replacement good is disproportionate, the seller must offer to pay a proportionate part of these costs. If the buyer refuses to shoulder the remaining costs, the seller may refuse to replace the items. In this case, the buyer is limited to requesting a price reduction or rescission of the contract.
The question of whether an effort is disproportionate has to be answered by reviewing the value of the delivered goods and the significance and magnitude of the defect. Functional defects which hinder use of the delivered goods are more significant than optical or aesthetic defects.
Supreme Court ruling
The court held that in the present case it was clear that the defect was not functional, only aesthetic. Further, the cost of replacing and installing new tiles was substantial in relation to the value of the tiles. Nevertheless, the court set aside the lower courts' judgments and instructed them to establish additional facts concerning possible other remedies, such as installing new tiles only in part of the total area or using an entirely different tile in order to create "an interesting contrast", as the court put it.
By this judgment, the Supreme Court ended the debate as to whether Austrian law can be construed in line with the EU Consumer Sales Directive or must be amended. This is clearly welcomed from an academic perspective.
However, in practice, it will be almost impossible to apply this ruling. According to the court, consumers can rebut a seller's argument that the replacement cost are disproportionate only by offering to pay a portion of the costs which subsequently renders the remainder proportionate. But how should consumers determine their share? This is a question of law which cannot be answered by out-of-court experts. Further, this question is directly linked to the individual facts of a case, with no or only little relevance to other cases. So it is unlikely that bellwether cases will develop, because the Supreme Court will refuse to hear many of these cases on the grounds that there is no overriding question of law involved.
Effectively, consumers will either have to be prepared to take their sellers to trial in order to determine the exact share that they have to offer or accept that they are limited to asserting claims for price reduction or cancellation of the sales contract.
For further information on this topic please contact Martin Foerster at Graf & Pitkowitz by telephone (+43 1 401 17 0) or email (firstname.lastname@example.org). The Graf & Pitkowitz website can be accessed at www.gpp.at.
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