A Fresh Start for Restitution in Three-Party Situations under German Law

Abstract

With its ruling from June 6, 2015, the 11th Senate of the German Federal High Court of Justice (Bundesgerichtshof, BGH) has overturned its principles on restitution of unjust enrichment in cases of revoked payment orders in payment services law. The article argues that this significant departure from previous case law opens the door for a general revision and redesign of the German law of restitution in three-party situations. The article proceeds from an explanation of the classic instruction model (Anweisungsmodell) as the general German model of restitution in three-party situations. By means of the instruction (Anweisung), the debtor/instructor links two relationships, i.e. the cover relationship (Deckungsverhaltnis) between the debtor/instructor and the instructee/payer with the underlying debt relationship (Valutaverhaltnis) between the debtor/instructor and the recipient/payee. As a consequence, both relationships are simultaneously performed by a single transfer of benefit between instructee and recipient. In such three-party instruction situations, restitution of unjust enrichment is generally carried out around the corner (ubers Eck) under German Law if the instruction is valid. An exception of direct restitution between instructee and recipient only applies if the instruction is lacking and principles of estoppel do not apply in favor of the recipient. This rule has, however, been seriously challenged by the Federal High Court of Justice`s ruling from June 6, 2015. Contrary to the current practice to apply the principles of estoppel to revoked payment orders, the instructed bank from now on cannot demand restitution from the instructing payer even if the payee is in good faith. The payee is, in other words, no longer shielded from a direct restitution claim of the bank even if his good faith merits protection. Rather, in all cases of unauthorized payment, restitution now is carried out exclusively between the bank and the payee by way of a direct claim of non-performance restitution. The article evaluates the consequences of this novel ruling against the background of recent academic critique. It argues that the Court has hit the right spot by reversing the established relationship between the rule of restitution around the corner and the exception of direct restitution for unauthorized payment orders. However, there remains something unsatisfactory and preliminary in the Court`s reasoning which points to deeper problems within the general system of three-party restitution under German law. This is also reflected in the academic comments to the ruling. Their criticism is not so much directed at the outcome of direct restitution against the payee, but rather at the Court`s lacking willingness to coherently integrate this outcome into the traditional principles on restitution in three-party situations. In fact, this lack of willingness is so striking that it seems likely that the Court`s decision will provoke a general revision of the traditional principles on restitution in future. At a closer look, it is indeed impossible to reconcile the Court`s ruling with the traditional system of restitution. After all, the pivot of the instruction model is to give priority to restitution around the corner, i.e. to restitution involving the instructor and excluding direct recovery. Yet this very certainty is called into question by the recent decision. Indeed, the underlying constellation of a revoked payment order illustrates that excluding direct restitution does not distribute litigation and defense risks more equitably than by allowing direct restitution. On the one hand, the bank will mostly end up making a direct claim against the payee anyway. On the other hand, the questionable abstract protection of the bona fide payee via restitution around the corner comes at the cost of a considerable, unjustifiable gap in the protection of the supposed payer. If, on the other hand, there is direct restitution between the bank and the payee from the outset, the revoking payer is not affected by the restitution, but can always and with legal certainty make a claim against the bank to have the mistaken booking cancelled. There should be no doubt as to which of the two solutions can claim the charm of simplicity and legal clarity. The recent decision, therefore, gives reason to put to the test the entire regime of restitution in three-party situations - a regime that has hit a dead end of doctrinal construction that does not further but rather veil the adequacy of the underlying restitution mechanisms. Starting point of a new conception of third-party restitution under German law is a return to the general provisions on performance (Erfullung) in the law of obligations. In the case of third-party involvement, BGB §§ 267, 362 para 2 offer clear rules as to who is the performing party and who the recipient: In both cases, it is not the contractual partner, but rather the third party. An unbiased look at the BGB, therefore, yields an understanding of the concept of performance and of the distribution of the performance relationships between the parties that considerably departs from the prevailing view on restitution in three-party situations. Contrary to the doctrine of restitution around the corner, the central performance relationship, which also gives rise to the primary claim of restitution, should hence be situated in the third party relationship between the instructee and the recipient. Assuming that the function of the concept of performance is to identify both the object of performance and the parties of the restitution claim, it seems fundamentally wrong to separate the performance relationships in three-party situations from the actual object of performance by attributing performance around the corner on normative grounds. From a point of view of legal clarity and efficiency in adjudication, it would make much more sense to start litigation of restitution where the lost object actually ended up: That is - obviously - with the recipient. On this basis, the present a rticle concludes that the time is ripe for a fundamental rethinking of three-party situations in German restitution law. In particular, courts and scholars should consider to drop the doctrine of restitution around the corner modeled on the instruction situation and to reverse rule and exception between restitution around the corner and direct restitution in favor of the latter.