Right of withdrawal for teak tree investments | IT-Medienrecht

Right of Withdrawal for German Consumers: Teak Tree Investments as Distance Contracts

The VIII. Civil Senate of the Federal Supreme Court recently ruled that a German consumer is entitled to a right of withdrawal for "purchase and service contracts" concerning teak trees in Costa Rica. These contracts, concluded via distance communication with a Swiss company, lacked proper withdrawal instructions. Consequently, the right of withdrawal is not time-limited in such cases.

Facts of the Case

A Swiss company advertised the purchase of teak trees on Costa Rican plantations via its website. The objective was to generate returns from the future sale of wood. This offer was marketed as a "Teak investment – The natural powerhouse for your portfolio." Beyond mere purchase, the defendant also offered comprehensive services.

These services included the management, administration, felling, thinning, harvesting, and sale of the acquired trees throughout the contract term.

In 2010 and 2013, the plaintiff, a German resident, entered into two "purchase and service contracts" with the defendant. These agreements, made through distance communication, involved 800 and 600 teak trees, totaling investments of €37,200 and €44,000, respectively. The contract terms were 17 and 14 years.

The defendant’s General Terms and Conditions (GTC) stipulated that Swiss law would apply. They also specified that disputes would fall under the exclusive jurisdiction of courts at the defendant's registered office in Switzerland. The GTC explicitly excluded the application of the Vienna Sales Convention (CISG).

Crucially, the plaintiff received no information regarding any rights of withdrawal. The plaintiff ultimately revoked his declarations of intent to conclude both contracts with a statement of claim in August 2020.

Previous Proceedings

The plaintiff's action primarily sought repayment of the invested fees, minus the timber proceeds already received (€1,604.86 and €2,467.07). This amounted to claims of €35,595.14 and €41,532.93, contingent on the assignment of all the plaintiff's contractual rights.

The lower courts largely ruled in favor of the plaintiff. The defendant subsequently filed an appeal, seeking dismissal of the claims.

Federal Court of Justice Decision

The Federal Court of Justice (BGH) rejected the defendant's appeal. The BGH affirmed the plaintiff’s entitlement to a refund of the paid fees, less received proceeds, in exchange for the retransfer of rights from the contracts. This decision was based on §§ 312b para. 1 sentence 1, 312d para. 1 sentence 1, 355 para. 1, 357 para. 1 sentence 1 BGB (old version until June 12, 2014) in conjunction with §§ 346 para. 1, 348 sentence 1 BGB.

International Jurisdiction Confirmed

The BGH established the international jurisdiction of German courts for this dispute. This was based on Art. 15 para. 1 lit. c, Art. 16 para. 1 Alt. 2 of the Lugano Convention II (Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, October 30, 2007).

The court found that the plaintiff acted as a consumer, and the defendant, based on the Court of Appeal's findings, focused its commercial activity on Germany. Therefore, the provision in the defendant's GTC, which established exclusive jurisdiction of Swiss courts, was invalid under Art. 17 Lugano Convention II.

Applicable Law: German Consumer Protection

The contracts are subject to substantive German law according to Art. 6 para. 1(b) Rome I Regulation. Art. 6 para. 4 letters a and c of the Rome I Regulation were deemed irrelevant.

The parties' choice of Swiss law in clause 27 of the GTC, pursuant to Art. 6 para. 2 sentence 1 Rome I Regulation, does not preclude the applicability of German law. The BGH stated that it is irrelevant whether this choice of law clause is effective at all. The applicability of German law for all relevant legal issues already stems from the legal principle outlined in Art. 6 para. 2 sentence 2 Rome I Regulation.

The Right of Withdrawal for Financial Services

The plaintiff was entitled to a right of withdrawal under §§ 312b para. 1 sentence 1, 312d para. 1 sentence 1, 355 para. 1 BGB a.F. This right was not excluded by § 312d para. 4 No. 6 BGB a.F.

The decisive factor for excluding withdrawal under this provision is when the speculative nature forms the core of the transaction. However, the BGH classified this as a long-term investment, only indirectly speculative. The duration of the withdrawal period, typically 14 days for proper instructions, underlies this exclusion.

The BGH clarified that these contracts constitute financial services contracts within the meaning of § 312b para. 1 sentence 2 BGB a.F. Consequently, the plaintiff’s right of withdrawal was not time-barred under Art. 229 § 32 para. 2 (in conjunction with para. 4) EGBGB.

The term "financial service" is not to be restrictively interpreted to only include financial instruments. The German legislator adopted the definition from Art. 2 letter b of Directive 2002/65/EC (Directive on distance marketing of financial services).

Therefore, the term must be interpreted in line with EU law. While an original directive proposal excluded direct investments in tangible assets, the European legislative process broadened the concept of financial services to include services related to financial investments.

The court did not need to decide whether the mere sale of tangible assets for investment purposes constitutes a financial service. Instead, the BGH highlighted the defendant's obligations and the parties' interests, which significantly differentiate these "purchase and service contracts" from a pure sale of tangible assets. This justified qualifying the overall contract as a financial service due to several factors:

• The primary service, from the consumer's perspective, was not merely ownership of trees. It encompassed the defendant's services required to realize a return, particularly the utilization of trees at the contract term's end.
• The defendant's "teak investment" concept extended beyond a simple sale of tangible assets. It featured parallels to tangible asset funds, with bundled investor capital and a long contract term.

Exercise of the Right of Withdrawal

The plaintiff effectively exercised the right of withdrawal. Critically, the withdrawal period had not yet expired at the time of withdrawal. This was due to the defendant's failure to properly instruct the plaintiff about his right of withdrawal.

Conclusion

This landmark ruling by the Federal Court of Justice reinforces consumer protection in cross-border distance contracts, particularly for complex investment products. It clarifies that such "purchase and service contracts" can be classified as financial services, extending crucial withdrawal rights to consumers even when proper instructions are absent. Companies engaging in similar business models must ensure meticulous adherence to consumer information requirements to avoid unlimited withdrawal periods.