The HOAI is dead – long live the HOAI!

A new Fee Scale for Architects and Engineers (HOAI)!: Last year, the European Court of Justice declared the maximum and minimum fee rates set out in the German Ordinance on Architects' and Engineers' Fees (HOAI) to be contrary to EU law – our article provides an overview on the current legal situation in Germany

A first step towards a new German Ordinance on Architects' and Engineers' Fees (HOAI)

Last year, the ECJ declared the maximum and minimum fee rates regulated in the German Ordinance on Architects' and Engineers' Fees (HOAI) to be contrary to EU law.

In reaction to the German regulations being in violation of Union law, the Federal Ministry of Economics (BMWi), in cooperation with the Federal Ministry of Construction and Transport, has now presented a draft bill to amend the Law on the Regulation of Engineering and Architectural Services (ArchLG) after numerous coordination discussions. A law that amends another law (ArchLG), finally amending the German Ordinance on Architects' and Engineers' Fees (HOAI).

This procedure is necessary because the current HOAI is based on the authorization bases specified in the ArchLG. These explicitly authorize the determination of minimum and maximum fee rates. And, as is well known, this is where the problem lies.

The first step towards the adoption of a new HOAI, which complies with the decision of the European Court of Justice (ECJ), has therefore been taken with the draft bill now presented.

The judgment of the ECJ - A clear verdict

On 4 July 2019, the ECJ ruled that the mandatory minimum and maximum rates set out in the HOAI were incompatible with EU law. The regulations hindered free price competition and violated the Services Directive (2006/123/EC). Minimum or maximum prices may be imposed only as long as they are necessary to achieve an overriding reason in the general interest and are non-discriminatory.

A short summary of the key facts of the decision:

Minimum and maximum rates - what for? The purpose of minimum rates is to ensure the quality of planning services, the preservation of the building culture and ecological construction. The maximum rates, on the other hand, serve to protect consumers. This was the main argument on the side of the Federal Republic of Germany for minimum and maximum rates.

In its ruling, the European Court of Justice initially stated that the minimum and maximum rates set out in the HOAI were in principle suitable for contributing to the achievement of the above-mentioned objectives put forward by the Federal Republic of Germany. However, it was contradictory if, above all, the minimum rates were intended to serve the purpose of quality assurance of planning services on the one hand, while on the other hand the corresponding planning services could be provided by any service provider without proof of professional qualification.

The ECJ thus confirmed that the existing regulatory system was incoherent with regard to the objective pursued by the minimum rates - the instrument of minimum rates would thus be meaningless.

German rules incoherent and...

But even the maximum rates were not spared. Admittedly, these were suitable to prevent service providers from demanding excessive fees. However, the regulation would be disproportionate, as the provision of a simple price orientation aid for customers would already be sufficient.

In the opinion of the ECJ, the regulations contained in the HOAI on minimum and maximum rates therefore violate European law; the remaining regulations of the HOAI were not criticised by the ECJ or found to be contrary to Union law.

The Federal Republic of Germany must create new regulations in conformity with Union law

Upon delivery of the judgment, the Federal Republic of Germany is obliged to comply with the decision and to adapt its national legal system to the requirements of the judgment.

But how, in particular, are the existing legal relationships, contracts to be concluded and ongoing legal disputes between private individuals to be dealt with until then?

What applies in the interim?

This is where the minds part and the BGH pulls out of the affair.
On May 14, 2020, the BGH negotiated a fee claim decided by the OLG Hamm on the consequences of the ECJ ruling on HOAI. Many people hoped to obtain clear statements on the issues at stake regarding the applicable law in the event of the current regulations being contrary to Union law, while at the same time lacking new regulations that conform to Union law. This was particularly the case against the background of the fact that in a second decision, namely in response to the submission order of the Regional Court of Dresden in 2018 (Dresden Regional Court, Order of 8 February 2018 - 6 O 1751/15) on the question of whether the HOAI regulations are contrary to Union law, the ECJ left unanswered the question addressed there and concerning the applicability and application of price law between private market participants. According to the ECJ, this question had not been the subject of the reference for a preliminary ruling (ECJ judgment of 6 February 2020 - Case C-137/18).

The joyful expectation was then clearly dampened. The Federal Court of Justice was also unable to shed any light on the matter. Instead of taking a decision, the BGH suspended the proceedings (ruling of 14 May 2020; VII ZR 174/19) and referred the question of the effects of the illegality of the minimum rates for ongoing proceedings to the ECJ for a preliminary ruling. The BGH tends to apply the binding minimum rates until a new regulation is adopted, despite the ECJ ruling.

Patience is therefore still required. Preliminary ruling proceedings take 16 months on average. Given the average duration of proceedings, a decision would therefore be expected in August 2021 at the earliest.

Considerable legal uncertainty remains

So the argument continues. Essentially, two opposing opinion camps are facing each other. In fact, the fragmentation is even greater. The Higher Regional Court of Hamm and the Higher Regional Court of Celle were the first to deal with the ECJ judgement. Camp A and Camp B were established.

Camp A - The HOAI applies!

According to the OLG Hamm (judgement of 23.07.2019 - 21 U 24/18) the ECJ judgement is only addressed to the legislator. It has no effect on legal disputes between private individuals. An interpretation in conformity with the Directive to the effect that the HOAI is a non-binding price framework is not possible. This means that the HOAI in its current version, including the minimum and maximum rates considered by the ECJ to be in violation of Union law, must continue to be applied between private individuals until the legislator finally takes action.

The situation is different, hence the court, in the relationship between a public client and a private contractor. Here, the illegality of the HOAI under Union law could be held against the public authorities on the grounds of the primacy of Union law (so-called vertical effect) (Meurer in IBR 2019, 1143; Pfeiffer in IBR 2019, 1145; KG, Order of 19 December 2009, p. 3). 8.2019 - 21 U 20/19; OLG Munich, decision of 8.10.2019 - 20 U 94/19; OLG Dresden, decision of 30.1.2020 - 10 U 1402/17; before the ECJ judgment: KG, decision of 1.12.2017 - 21 U 19/12; OLG Naumburg, decision of 13.4.2017 - 1 U 48/11).

Camp B - What has been agreed applies, but the minimum and maximum rates of the HOAI do not!

On the other hand, the Higher Regional Court of Celle (OLG Celle, judgment of 17.7.2019 - 14 U 188/18, of 23.7.2019 - 14 U 182/18, of 14.8.2019 - 14 U 198/18 and of 8.1.2020 - 14 U 96/19) considers courts called upon to make a decision to be obliged, because of the primacy of application of European law, to no longer apply the regulations that have been determined as being contrary to Union Law, even in ongoing proceedings between private legal entities. This obligation applies to all organs of the convicted member state and thus also to the courts that have jurisdiction.

Fee agreements are not invalid because they were agreed outside the price framework of the HOAI. There was no adjustment according to HOAI. What has been agreed upon applies to both formal and informal (lack of written form) contractual relationships.

In principle, a contract which is ineffective in form according to § 7 para. 5 HOAI is treated as if the parties had effectively agreed a minimum fee. However, a possible subsequent claim based on this provision is not possible. § Section 7 HOAI, which also regulates the minimum and maximum rates, is covered in its entirety by the ECJ ruling and therefore also not applicable. This back door now remains closed.

The way via § 632, Subsection 2, Var. 2, BGB, to demand the minimum rates of the HOAI as "customary remuneration", in the mere assumption that the minimum rate also represents the customary remuneration, is also blocked, at least in the opinion of the OLG Celle. The court (ruling of 8.1.2020 - 14 U 96/19) considers it necessary that a corresponding claim is at least based on viable factual findings. Incidentally, the court did not pursue a corresponding request for evidence to obtain an expert opinion, but argued that the corresponding request for evidence amounted to an inadmissible investigation.

The 5th Chamber of the Munich District Court (decision of 24.09.2019 - 5 O 13187/19) also shares the opinion that the minimum rates of the HOAI are not to be regarded as "customary remuneration".

(KG, order of 13.9.2019 - 7 U 87/18; OLG Düsseldorf, order of 17.9.2019 - 23 U 155/18; OLG Schleswig, order of 25.10.2019- 1 U 74/18; on the other hand, § 7 (5) HOAI are applicable: Fuchs/van der Hout/Opitz, NZBau 2019, 483 ff.; Steeger, IBR 2019, 1144).

Two lawyers three opinions

As already mentioned, opinions diverge even further. To give a picture of the extent of the legal uncertainty - here is a brief summary:

Domestic issues as a yardstick

Even before the ECJ ruling, the Higher Regional Court of Munich (ruling of 22.8.2017 - 27 U 34/17) regarded European law as not affected by the minimum rate regulation, at least in the case of domestic constellations (domicile of the parties, conclusion of contract and construction project in Germany). Under these conditions, the ECJ ruling would therefore have no effect by analogy.

Suspend the proceedings?

Already with the question of whether the HOAI is contrary to European Union law, courts in the last few years before the ECJ decision decided to suspend the proceedings potentially affected by this question (OLG Dresden, judgment of 4 July 2019 - 10 U 1402/17; LG Dresden, order of 8 February 2018 - 6 O 1751/15; LG Baden-Baden, order of 7 May 2019 - 3 O 221/18).

Admittedly, these courts did not consider the HOAI to be applicable if the ECJ were to find the regulations to be contrary to Union law. However, this approach at least suggests that further suspensions might be possible due to the now new submission for a preliminary ruling by the BGH (BGH, order of 14.05.2020 - VII ZR 174/19).

Other courts, on the other hand, did not see a reason for suspension already in the infringement proceedings (Landesberufsgericht für Architekten NRW, order of 1.8.2018 - 6s E 46/18; LG Stuttgart, order of 16.11.2018 - 28 O 375/17) or considered an application for suspension to be obsolete in view of the current decision of the ECJ of 4.7.2019 (LG Augsburg, order of 9.7.2019 - 64 O 4632/18).

The presumption of a minimum rate lives

In another view, although the minimum and maximum rates are invalid, the presumption of minimum rates in Section 7(5) of the German Ordinance on Architects' and Engineers' Fees (HOAI) continues to apply in the absence of a written agreement when the contract is awarded (for example Fuchs, IBR 2019, 436; Scharfenberg, IBR 2019, 437; Orlowski in NJW 2019, 2505, 2507; Fuchs/van der Hout/Opitz, NZBau 2019; 487).

Clear the way for the usual remuneration?

As already mentioned, the OLG Celle (judgement of 8.1.2020 - 14 U 96/19) as well as the LG München (judgement of 24.09.2019 - 5 O 13187/19) were of the opinion that the minimum rates of the HOAI could not be generally applied as customary remuneration according to § 632 (2) BGB. The LG Hamburg (ruling of 23.05.2019 - 321 O 288/17) is different. The 32nd Chamber evaluates the HOAI minimum rate fee as "usual remuneration" - this also applies if the HOAI minimum rate regulation is contrary to Union law. Here, too, there is disagreement. Decisions of the higher courts remain to be awaited on this legal issue as well.

Where there is shadow, there is light

Legal practitioners need clarity in the short term, and the BMWi's draft bill is a start towards achieving this. At least the dispute between private individuals about the effects of the ECJ ruling would be a thing of the past with a HOAI that conforms to Union Law. Even if the regulations mentioned in the draft of a new HOAI, which is currently circulating in parallel, still need to be improved, they should prevent further disputes but also strengthen rights.

For example, according to this draft, fee tables are to serve as a non-binding guide in the future for services for which the binding minimum and maximum fee rates were previously applicable, in line with the ECJ decision. In contrast, the binding minimum or maximum rates that were previously provided for and found to be contrary to EU law will be abolished.

Rules for the calculation of fees, as provided for in the currently valid version of the HOAI, will nevertheless remain in place under the current draft. Furthermore, the draft introduces a free negotiability of fees. In this context, the Federal Chamber of Architects (BAK), the Federal Chamber of Engineers (BIngK) and also the Committee of the Associations and Chambers of Engineers and Architects for the Fee Structure (AHO) demand the introduction of a general appropriateness regulation for the new HOAI.

Performance and price should be in a reasonable relationship to each other in order to counteract "price dumping" and excessive overrun of the fees. Despite demanded improvements, the BAK, BIngK and AHO are ultimately satisfied with many of the regulations mentioned in the draft.

Summary and recommendations for action

In view of the current legal situation, the parties cannot avoid a detailed case-by-case examination in the event of differences of opinion with regard to old contracts to which HOAI applies. In order not to have to get involved in legal proceedings, the outcome of which is open, there is a strong case for pursuing negotiations aimed at an out-of-court settlement with particular emphasis. If an out-of-court settlement does not seem possible, it must be examined whether there are possibilities to establish the jurisdiction of a court which is "advantageous" from the point of view of the respective party to the proceedings, i.e. the jurisdiction of a court which represents an interpretation which is advantageous for the respective party to the proceedings. In view of the threat of suspension, parties should prepare themselves for an extended duration of proceedings.

Until new provisions are enacted, particular importance must be attached to the drafting of contracts and it must be ensured that the contractual provisions are enforceable notwithstanding the fact that individual provisions of the HOAI in its currently valid version are in breach of Union law and remain enforceable even if new provisions are enacted.

For the future, in the interest of all market participants, it is to be hoped that the necessary legal clarity will be achieved in a timely manner. In our opinion, the draft bill of the BMWi to amend the law governing engineering and architectural services (ArchLG) is not only a first step towards the new HOAI, but in any case also a first step in the right direction. A step that is suitable to finally create the legal clarity that is absolutely necessary for architects, engineers and their principals.

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