Claus and Heike HERMA v Germany - 54193/07 [2009] ECHR 2171 (8 December 2009)

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The European Court of Human Rights (Fifth Section), sitting on 8 December 2009 as a Chamber composed of:

Peer Lorenzen, President,
Renate Jaeger,
Karel Jungwiert,
Rait Maruste,
Mark Villiger,
Isabelle Berro-Lefèvre,
Mirjana Lazarova Trajkovska, judges,
and Claudia Westerdiek, Section Registrar,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,

The applicants, Mr Claus Herma and Mrs Heike Herma, are German nationals who were born in 1963 and 1964 respectively and live in Flörsheim. They were represented before the Court by Mr H.-J. Kühnel,
a lawyer practising in Gründau. The German Government
(“the Government”) were represented by their Agent, Mrs A. Wittling Vogel, Ministerialdirigentin, of the German Ministry of Justice.

The facts of the case, as submitted by the parties, may be summarised as follows.

A sales representative contacted the first applicant at his workplace in autumn 1998 and offered the applicants an investment involving the purchase of property financed by a loan. During the subsequent consultations at their home they were offered, in addition to the property, complete financing to be provided by Kreissparkasse Groß-Gerau (“the bank”). The sales representative handled both the marketing of the property and the arrangement of finance. In the context of this marketing scheme the sales representative provided prospect information on the investment and used standard form contracts.

On 8 and 18 November 1999 the applicants purchased two apartments for DEM 556,070 German marks (DEM) (283,314.08 Euros (EUR)) plus additional charges (notary, real estate transfer costs, etc.) totalling DEM 115,930. The purchase agreements were signed before a notary, in accordance with the relevant German legislation. On the same dates charges were created on the properties.

Solely in order to finance the purchase, on 28 November 1999 the applicants took out a loan of DEM 672,000 (EUR 343,588.14) from the bank, secured by the charges on the properties which were created by the notarised deeds of 8 and 18 November 1999. The loan agreement contained no information regarding the right of cancellation within the meaning of the law on the cancellation of doorstep transactions or analogous transactions (Haustürwiderrufsgesetz, hereafter “Transactions Cancellation Act”).
The completed forms of the financing bank were provided to the applicants by the sales representative at their home, where they later signed them.

The bank paid the loan directly to the company selling the immovable property in accordance with the applicants’ instructions.

In 2004 the applicants realised that the immovable property had been worth only 60 % of its purchase price at the time of purchase.
On 5 August 2004 the applicants cancelled the loan agreement on the basis of Paragraph 1 of the Transactions Cancellation Act. They ceased to pay the monthly instalments under the loan agreement and offered to hand over their rights in respect of the purchased properties to the bank.

On 15 March 2005 the applicants applied for legal aid to pursue a claim to establish that they were not obliged to repay the amount of the loan to the bank and to order the bank to give them the notarised deeds. The applicants submitted that the purchase contracts and the loan agreement must be regarded as a single economic unit and that they were therefore merely required to retransfer ownership of the property pursuant to the fourth sentence of Paragraph 9 (2) of the law on consumer credit (Verbraucherkreditgesetz, hereafter “Consumer Credit Act”). They relied explicitly on the case-law of the 2^nd Chamber of the Federal Court of Justice and referred to the corresponding preliminary ruling proceedings then impending before the Court of Justice of the European Communities (“ECJ”). The proceedings before the ECJ concerned the question whether the requirement under German law to immediately repay the loan proceeds plus interest at the market rate thereon to the bank upon cancellation of the loan agreement was in accordance with Community Law, notwithstanding that the loan would not have been granted at all without the acquisition of the immovable property, served solely to finance it and was paid directly to the vendor.

On 5 May 2005 the Darmstadt Regional Court refused to grant the applicants legal aid. It found that their proposed claim lacked a reasonable prospect of success. It followed explicitly the case-law of the 11^th Chamber of the Federal Court of Justice and disagreed with the case-law of the 2^nd Chamber of the same court without giving any further reasons. It found that the applicants were obliged by law to repay the loan plus interest at the normal market rate upon the cancellation of the loan agreement. It observed that the impending proceedings before the ECJ were not relevant and, in any event, that the Advocate General’s opinion was not favourable to the applicants.

On 18 August 2005 the Frankfurt/Main Court of Appeal rejected the applicants’ appeal. It endorsed the arguments given by the lower court and observed that the case-law of the 2^nd Chamber of the Federal Court of Justice concerned the acquisition of a share in an investment fund financed by a loan.

On 23 October 2005 the Frankfurt/Main Court of Appeal rejected the applicants’ allegation that they had not been heard properly.

On 15 May 2007 the Federal Constitutional Court (1 BvR 2347/05) refused to admit the applicant’s complaint. It found that the alleged violation of the applicants’ rights under the Basic Law was not sufficiently serious. The applicants would in any event not suffer a significant disadvantage by the refusal to admit their constitutional complaint. It observed that the impugned decisions were problematic in the light of its case-law regarding legal aid in proceedings concerning a difficult legal question which had not yet been decided by authoritative case-law. In this connection it referred to the deferring case-law of the Chambers of the Federal Court of Justice and the impending preliminary ruling proceedings before the ECJ. Nevertheless, it found that the applicants could file a new request for legal aid to achieve their goal. In light of the case-law of the Federal Court of Justice which, in the meantime had been enhanced, it was not excluded that the applicants would receive legal aid upon a new request.

On 30 November 2005 the applicants again requested legal aid with respect to the decision of the ECJ of 25 October 2005 in the case C-350/03 (see “Relevant domestic law and practice” below).

On 2 January 2006 the Darmstadt Regional Court refused to grant the applicants legal aid. It referred to the reasons set out in the decisions rendered in the first set of proceedings and observed that the decision of the ECJ was merely directed at the Contracting State calling for further legislative measures.

On 23 February 2006 the Frankfurt/Main Court of Appeal rejected the applicants’ appeal. It found that the decision of the ECJ of 25 October 2005 in the case C-350/03 was not relevant. That case merely concerned a situation where, if the bank had complied with its obligation to inform the consumer of his right of cancellation, the consumer would have been able to avoid exposure to the risks inherent in investments. It observed that the applicants had concluded the purchase contract 10 days earlier than the loan agreement. Thus the bank’s failure to inform them of their right of cancellation had no causal link with the investment.

On 13 July 2006 the Frankfurt/Main Court of Appeal rejected the applicants’ allegation that they had not been heard properly.

On 15 May 2007 the Federal Constitutional Court (1 BvR 2166/06), referring to its decision of the same day in the complaint concerning the applicants’ first set of proceedings, refused to admit the applicants’ complaint, in which they had also raised the issue of an alleged obligation of the Frankfurt Court of Appeal to suspend the proceedings and refer the question to the ECJ.

On 28 August 2007 the applicants applied for legal aid again with regard to the Federal Constitutional Court’s decision of 15 May 2007 and observed that in their opinion the enhanced case-law of the Federal Court of Justice was not in accordance with the decisions of the ECJ of 25 October 2005.

On 10 October 2007 the Darmstadt Regional Court refused to grant the applicants legal aid. It referred to the reasons set out in the decisions in the previous proceedings for legal aid.

On 11 April 2008 the Frankfurt/Main Court of Appeal rejected the applicants’ appeal. It found that the Federal Court of Justice’s case-law according to which the purchase contracts and the loan agreement cannot be regarded as a single economic unit pursuant to Paragraph 9 (2) Consumer Credit Act was consistent with the decision of the ECJ of 25 October 2005 (see “Relevant domestic law and practice” below). The Court of Appeal further found that taking account of the Federal Court of Justice’s case-law and the new criteria set up by it to establish liability of the financing bank for the purchase of the property, the applicants’ claim lacked a reasonable prospect of success. It again observed in this context that the applicants had concluded the purchase contract ten days before the loan agreement; the bank’s failure to inform them of their right of cancellation had thus no causal link with the investment. Furthermore, there was nothing to suggest that the purchased property had had a blatant deficiency as the applicants themselves had simply realised five years after the purchase that its market value had been significantly lower than the purchase price.

On 21 May 2008 the applicants lodged a constitutional complaint with the Federal Constitutional Court.

On 12 June 2008 the applicants applied again for legal aid. They referred to the decision of the 2^nd Chamber of the Federal Court of Justice of 5 May 2008 to seek a preliminary ruling of the ECJ as to whether the legal effects of the cancellation of a declaration of accession to a property fund under German law complied with Community law.

On 24 June 2008 the Darmstadt Regional Court rejected the applicants’ new request for legal aid for lacking a reasonable prospect of success. It found that the new request for a preliminary ruling from the ECJ concerned a different issue and that the applicants had failed to make any submissions which would satisfy the requirements of the Federal Court of Justice’s enhanced case-law. The applicants filed an appeal.
The proceedings are apparently still pending.

In the version applicable at the material time, paragraph 1 (1) of the Transactions Cancellation Act provided:

“Where the customer was induced to make a declaration of intention to conclude a contract for a service for valuable consideration:

that declaration of intention takes effect only if the customer does not give written notice revoking it within a period of one week.”

“In the event of cancellation, each contracting party shall return to the other whatever it has received. Damage to or loss of the object or any other matter preventing the return of the object shall not preclude cancellation.”

2. Paragraphs 4(1)(3)(1)(b), 7, 9 and 11 to 13 apply to credit agreements in which credit is subject to the giving of security by way of a charge on immovable property and is granted on the usual terms for credits secured by a charge on immovable property and the intermediate financing of the same ...”

“1. A purchase agreement constitutes a transaction linked with the credit agreement if the credit serves to finance the purchase price and both agreements are to be regarded as a single economic unit. In particular, a single economic unit shall be presumed where the lender relies on the seller’s cooperation in the preparation or conclusion of the credit agreement.

2. The consumer’s declaration of intention to conclude the linked purchase agreement shall be valid only if the consumer does not revoke ... his declaration of intention to conclude the credit agreement.

The notice concerning the right of cancellation ... must state that, in the event of cancellation, the purchase agreement linked with the credit agreement will not be valid either ... If the net amount of the credit has already been paid to the seller, the lender shall, in relation to the consumer and with regard to the legal effects of cancellation, be subrogated to the seller’s rights and obligations arising from the purchase agreement [...]”

On 14 June 2004 the 2^nd Chamber of the Federal Court of Justice (II ZR 392/01 and II ZR 374/02) decided that a declaration to accede to a closed property fund was a transaction linked with a credit agreement within the meaning of paragraph 9 of the Consumer Credit Act, if the fund and the bank used a common marketing organisation. If the consumer had been deceived with respect to the profitability of the fund, he would not be obliged to repay the loan but merely to transfer to the bank his share of the funds and his compensation claims.

On 05 May 2008 the 2^nd Chamber of the Federal Court of Justice (II ZR 292/06) decided to refer the question whether the legal effects of the cancellation of a declaration of accession to a property fund according to German corporate law was in accordance with Community law for a preliminary ruling to the ECJ. The application of the corporate law rules resulted in the consumer being bound to participate in the fund’s business developments for the period from his accession to giving notice of its cancellation according to the HWiG. The 2^nd Chamber observed that the mere ex nunc effect of the cancellation according to corporate law was justified in its opinion as it safeguarded not merely the interests of the debtees of the fund but also of the other members of the fund who were typically also consumers.

According to the established case-law of the 11^th Chamber of the Federal Court of Justice a secured credit agreement and a property purchase contract could, pursuant to paragraph 3 (2) of the VerbrKrG, not be regarded as linked transactions within the meaning of Paragraph 9 of the Consumer Credit Act. In case of the cancellation of a secured credit agreement according to the HWiG the consumer was obliged to repay the loan immediately in full, plus interest at the market rate. The cancellation of the secured credit agreement did not affect the validity of the purchase contract for immovable property financed by that credit agreement.

In its judgment in Case C-481/99 Heininger [2001] ECR I-9945, the ECJ held that the Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (the Directive) applied to secured credit agreements, that is to say, credit agreements for financing the purchase of immovable property.

In its judgments of 25 October 2005 in Cases C-350/03 Elisabeth Schulte and Wolfgang Schulte v. Deutsche Bausparkasse Badenia AG and C-229/04 Crailsheimer Volksbank eG v. Klaus Konrads and Others the ECJ held:

2. Directive 85/577 does not preclude national rules which limit the effect of cancellation of the loan agreement to the avoidance of that agreement, even in the case of investment schemes in which the loan would not have been granted at all without the acquisition of the immovable property.

– a requirement that a consumer who has exercised his right to cancel under the Directive must pay back the loan proceeds to the lender, even though according to the scheme drawn up for the investment the loan serves solely to finance the purchase of the immovable property and is paid directly to the vendor thereof;

– national legislation which provides for an obligation on the consumer, in the event of cancellation of a secured credit agreement, not only to repay the amounts received under the agreement but also to pay to the lender interest at the market rate.

However, in a situation where, if the Bank had complied with it obligation to inform the consumer of his right of cancellation, the consumer would have been able to avoid exposure to the risks inherent in investments such as those at issue in the main proceedings, Article 4 of Directive 85/577 requires Member States to ensure that their legislation protects consumers who have been unable to avoid exposure to such risks, by adopting suitable measures to allow them to avoid bearing the consequences of the materialisation of those risks.”

(C-350/03, Elisabeth Schulte and Wolfgang Schulte v. Deutsche Bausparkasse Badenia AG, § 104; C-229/04 Crailsheimer Volksbank eG v. Klaus Konrads and Others, § 50)

With respect to the judgments of the ECJ of 25 October 2005 the 11^th Chamber of the Federal Court of Justice developed its case-law. In its judgment of 16 May 2006 (XI ZR 6/04) it reiterated that a secured credit agreement and the property purchase contract did not constitute a linked transaction within the meaning of Paragraph 9 of the VerbrKrG. It found that the consumer did not have a compensation claim on account of the bank’s failure to inform him of his right of cancellation, if the property purchase contract had been concluded before the loan agreement. In this case informing the consumer of his right of cancellation would not have enabled the consumer to avoid exposure to the risks inherent in investments. Therefore, there was no causal link which would allow the consumer to claim damages. However, it found that in the case of institutionalised cooperation between the seller and the financing bank, when the seller or intermediary salesperson also arranged the finances for the investment, and the information provided by the seller or intermediary salesperson would have been obviously incorrect, the financing bank’s knowledge of the seller’s malicious deceit would be presumed. Under these circumstances the bank would have a duty of disclosure with regard to the profitability of the investment. Non-compliance with this duty would give rise to financial liability on the part of the bank.

Pursuant to section 78 § 1 of the Code of Civil Procedure representation by counsel is compulsory for the parties in civil proceedings before the Regional Court, the Court of Appeal and the Federal Court of Justice.

The conditions for legal aid are laid down in section 114 of the Code of Civil Procedure. According to that section, a party who in view of his or her personal and economic situation cannot afford the costs for conducting the proceedings is granted legal aid upon application if the intended legal action offers sufficient prospects of success and does not appear wanton (mutwillig). A party who has been granted legal aid is officially appointed a lawyer of his or her choice who is ready to represent him or her if representation by counsel is compulsory (section 121 § 1 of the Code of Civil Procedure). It is the court having jurisdiction to deal with the intended action itself which is called to decide on motions for legal aid (section 127 § 1 of the Code of Civil Procedure). An appeal lies against a decision refusing legal aid (section 127 § 2 of the Code of Civil Procedure).

The applicants complained about the domestic courts’ failure to grant them legal aid concerning a claim raising adverse legal issues and to await the outcome of impending proceedings before or refer the case to the Court of Justice of the European Communities. They submitted that their rights under the Convention to a fair trial and to an effective remedy were violated.

The applicants complained under Article 6 § 1 of the Convention that the domestic courts’ refusal to grant them legal aid violated their right to effective access to a court, and that the domestic courts’ refusal to seek a preliminary ruling by the ECJ violated their right to a fair trail. Article 6, as far as relevant, provides:

“In the determination of his civil rights and obligations ..., everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. ...”

The applicants submitted that according to the Federal Constitutional Court’s case-law and in view of the controversial legal question at issue in their case the domestic courts should have granted legal aid.

The Court recalls that, whilst Article 6 § 1 guarantees to litigants an effective right of access to the courts for the determination of their “civil rights and obligations”, it leaves to the State a free choice of the means to be used towards this end (see Airey v. Ireland, 9 October 1979, § 26, Series A no. 32; Gnahoré v. France, no. 40031/98, § 38, ECHR 2000-IX; Steel and Morris v. the United Kingdom, no. 68416/01, § 60, ECHR 2005-II). There is no obligation under the Convention to make legal aid available for all disputes in civil proceedings, as there is a clear distinction between the wording of Article 6 § 3 (c), which guarantees the right to free legal assistance on certain conditions in criminal proceedings, and of Article 6 § 1, which makes no reference to legal assistance (see Del Sol v. France, no. 46800/99, § 20, ECHR 2002-II; Santambrogio v. Italy, no. 61945/00, § 49, 21 September 2004; Essaadi v. France, no. 49384/99, § 30, 26 February 2002). Thus, the right of access to court is not absolute and may be subject to restrictions, provided that these pursue a legitimate aim and are proportionate. It may notably be acceptable to impose conditions on the grant of legal aid based, inter alia, on the financial situation of the litigant or his or her prospects of success in the proceedings (see Del Sol, cited above, § 23; Steel and Morris, cited above, § 62), provided that the legal aid system offers individuals substantial guarantees to protect them from arbitrariness (see Gnahoré, cited above, § 41; Del Sol, cited above, §§ 25-26).

The Court observes that the civil action which the applicants intended to bring raised controversial legal issues and involved inconsistent case-law of the Federal Court of Justice as well as questions which were, during the first set of legal aid proceedings, still pending before the ECJ. Moreover, pursuant to section 78 § 1 of the Code of Civil Procedure (see “Relevant domestic law and practice”, above) legal representation was compulsory for the applicants’ intended proceedings in the Darmstadt Regional Court. However, both the Regional Court and the Court of Appeal dismissed the applicants’ motion to be granted legal aid on the ground that their intended action lacked sufficient prospects of success. Theses decisions were carefully reasoned. In its decision of 11 April 2008 the Court of Appeal

argued its point of view in detail and, in particular, elaborated on the case law of the ECJ, explaining why its decisions was in line with that court’s decisions of 25 October 2005.

The Court further observes that the German legal aid system offers individuals substantial guarantees to protect them from arbitrariness. It is the court having jurisdiction to deal with the planned action itself which decides on motions for legal aid, and pursuant to section 127 of the Code of Civil Procedure (see “Relevant domestic law and practice”, above) an appeal lies against its decision refusing legal aid (see also Eckardt, cited above). There is no indication in the present case that the German courts did not duly examine the applicants’ arguments. The domestic courts’ interpretation of the applicable legal provisions cannot therefore be considered as arbitrary. The Court also notes in this context that decisions regarding legal aid do not become res judicata, i.e. the applicants are free to apply for legal aid again with fresh arguments as to why their case does not lack sufficient prospects of success.

In view of the above circumstances, it cannot be said that the refusal of legal aid restricted the applicants’ right of access to court in a disproportionate manner contrary to Article 6 § 1 of the Convention.

It follows that this part of the application is manifestly ill-founded pursuant to Article 35 § 3 of the Convention and must be rejected in accordance with Article 35 § 4.

The Court notes that while the applicants did in fact raise the issue of an alleged obligation of the Court of Appeal to seek a preliminary ruling in their second constitutional complaint of 24 August 2006, which was dismissed on 15 May 2007, they never motioned for a referral to the ECJ before the Federal Constitutional Court. Nevertheless and assuming admissibility in this respect the Court will examine the complaint in the light of its case-law.

The Court reiterates that the Convention does not guarantee, as such, any right to have a case referred to the ECJ for a preliminary ruling under Article 234 (former Article 177) of the EC Treaty (which has become Article 267 of the Treaty on the Functioning of the EU since 1 December 2009). Nevertheless, refusal of a request for such a referral may infringe the fairness of proceedings if it appears to be arbitrary (Schweighofer and Others v. Austria (dec.), nos. 35673/97, 35674/97, 36082/97 and 37579/97, 24 August 1999; Canela v. Spain (dec.), no. 60350/00, 4 October 2001; Bakker v. Austria (dec.), no. 43454/98, 13 June 2002; John v. Germany (dec.), no. 15073/03, 13 February 2007). For the purposes of its examination of this question, the Court further reiterates that it is primarily for the national authorities, notably the courts, to interpret and apply domestic law even when that law refers to international law or agreements (Bosphorus Hava Yolları Turizm ve Ticaret Anonim Şirketi v. Ireland [GC], no. 45036/98, § 143, ECHR 2005 VI). The Court’s role is confined to ascertaining whether the effects of such adjudication are compatible with the Convention (see, mutatis mutandis, Waite and Kennedy v. Germany [GC], no. 26083/94, § 54, ECHR 1999 I and Streletz, Kessler and Krenz v. Germany [GC], nos. 34044/96, 35532/97 and 44801/98, § 49, ECHR 2001-II).

Irrespective of whether the character of legal aid proceedings in Germany lend themselves to a referral, the Court finds that in any event there is no arbitrariness in the present case. The Frankfurt/Main Court of Appeal examined the applicants’ arguments at length and gave detailed reasons for its finding that the present case, as far as it actually dealt with issues raised in the recent ECJ decisions, was consistent with these decisions. There is, thus, no appearance of a violation of Article 6 of the Convention.

It follows that this part of the application is also manifestly ill-founded and should be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.

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You are here: BAILII >> Databases >> European Court of Human Rights >> Claus and Heike HERMA v Germany - 54193/07 [2009] ECHR 2171 (8 December 2009) URL: http://www.bailii.org/eu/cases/ECHR/2009/2171.html Cite as: [2009] ECHR 2171