The German Law Journal

GERMAN LAW JOURNAL 

Review of Developments in German, 

European and International Jurisprudence 

Editors–in-Chief: Russell Miller; Peer Zumbansen 

Editors: Miriam Aziz; Gregor Bachmann; Gralf-Peter Calliess; Matthias Casper; 

Morag Goodwin; Dominik Hanf; Florian Hoffmann; Alexandra Kemmerer; 

Malcolm Maclaren; Stefan Magen; Petra Minnerop; Hanri Mostert; Betsy Röben; 

Volker Röben; Christoph Safferling; Marlene Schmidt; Frank Schorkopf; 

Robert Schütze; Craig Smith; Cornelia Vismann. 

www.germanlawjournal.com 

© Copyright 2000 - 2004 by German Law Journal GbR. All rights reserved. 

Vol. 05 No. 01 Pages 1 - 122 01 January 2004 

TABLE OF CONTENTS 

PUBLIC LAW 

Hanri Mostert 

Lost Information and Competing Interests in 

Restoring Germany's Dispossessed Property – The 

Recent Decision of the German Federal 

Administrative Court 

Sabine Pittrof 

Compensation Claims for Human Rights Breaches 

Committed by German Armed Forces Abroad 

During the Second World War: Federal Supreme 

Court Hands Down Decision in the Distomo Case 

TABLE OF CONTENTS PAGE I 

1 - 13 

15 - 21


PRIVATE LAW 

Florian Mächtel 

The Defence of “Change of Position” in English 

and German Law of Unjust Enrichment 

EUROPEAN & INTERNATIONAL LAW 

Stefan Kirchner 

Relative Normativity and the Constitutional 

Dimension of International Law: A Place for 

Fundamental Rules and Values in the International 

Legal System 

Geo Quinot 

Substantive Legitimate Expectations in South 

African and European Administrative Law 

Vanessa Hernández Guerrero 

Defining the Balance between Free Competition 

and Tax Sovereignty in EC and WTO Law: The 

“due respect” to the General Tax System 

LEGAL CULTURE 

Andreas Abegg and Annemarie Thatcher 

Book Review – Freedom of Contract in the 19 th 

Century: Mythology and the Silence of the Sources 

– Sibylle Hofer’s Freiheit ohne Grenzen? 

Privatrechtstheoretische Diskussionen im 19. 

Jahrhundert 

TABLE OF CONTENTS PAGE II 

23 - 46 

47 - 64 

65 - 85 

87 - 100 

101 - 114


Friedemann Kiethe 

Book Review - Gunther Mävers’ Die 

Mitbestimmung der Arbeitnehmer in der 

Europäischen Aktiengesellschaft (Employee’s 

Participation in the European Stock Company) 

TABLE OF CONTENTS PAGE III 

115 - 122

PUBLIC LAW 

Lost Information and Competing Interests in Restoring 

Germany’s Dispossessed Property – The Recent Decision 

of the German Federal Administrative Court 

By Hanri Mostert * 

A. Introduction 

With the progressive "accession" of the German Democratic Republic to the Federal 

German Republic after the reunification in 1990, Germany had to deal with a number 

of impediments emanating from the attempt to reconcile different political, 

social and legal models that developed during the forty years of separation between 

East and West Germany. Among these was the issue of how the property 

order in Germany would be influenced by seeking to integrate two such different 

socio-political and legal systems. 1 As the discussion below indicates, the demands 

placed by this issue on the courts, legislature and administration of the newly reunified 

Federal German Republic still cause repercussions. 

* Associate Professor, Faculty of Law, Stellenbosch University, South Africa. hmos@sun.ac.za. I am grateful 

to Stefan Häußler, who clarified some of the finer detail in the German text of the Federal Administrative 

Court’s decision for me, and to the Max Planck Institute for International and Foreign Public Law 

in Heidelberg, for making available their library facilities to me. The financial assistance of the National 

Research Foundation and the University of Stellenbosch is hereby gratefully acknowledged. Opinions 

expressed in this case discussion should not be attributed to either of these institutions. 

1 See inter alia: O. Depenheuer Eigentum und Rechtsstaat NEUE JURISTISCHE WOCHENSCHRIFT 53 (2000) 6, 

p. 385–390; R. Meixner Entscheidung des Bundesverfassungsgerichts zum Entschädigungs- und Ausgleichsleistungsgesetz 

DIE ÖFFENTLICHE VERWALTUNG 55 (2002) 21, p. 900-908; K-A. Schwarz Wiedergutmachung und 

die "exceptio pecuniam non habendi" DIE ÖFFENTLICHE VERWALTUNG 53 (2000) 17, p. 721-729; A. Jaekel Zur 

Rechtsprechung des Bundesverwaltungsgerichts zu den Überschuldungsfällen ZEITSCHRIFT FÜR VERMÖGENS- 

UND INVESTITIONSRECHT 6 (1996) 3, p. 113-117; T. Schweisfurth Von der Völkerrechtswidrigkeit der SBZ- 

Konfiskationen 1945-1949 zur Verfassungswidrigkeit des Restitutionsausschlusses 1990, ZEITSCHRIFT FÜR 

VERMÖGENS- UND INVESTITIONSRECHT 10 (2000) 9, p. 505-521; and generally also T. Schweisfurth SBZ- 

KONFISKATIONEN PRIVATEN EIGENTUMS 1945 BIS 1949, Baden-Baden, Nomos (2000). P.E. Quint THE 

IMPERFECT UNION - CONSTITUTIONAL STRUCTURES OF GERMAN UNIFICATION, Princeton, Princeton Univ. 

Press, (1997) deals with the intricacies of the Re-unification in particular.

2 G ERMAN L AW J OURNAL [Vol. 05 No. 01 

One such problem relates to the extent to which the reparation arrangements in 

West Germany influenced the measures undertaken in East Germany. Refugees 

who left Germany between 1933 and 1945 were forced to sell their immovable 

property and could only take a restricted amount of currency out of the country. 2 

The persecuted that did not flee only rarely survived the large-scale massacre of socalled 

"state enemies" during the National Socialist reign of terror that persisted 

through the end of World War II. 3 In both cases, the victims’ land often ended up in 

the hands of Nazi Party organizations or members, without any systematic alterations 

to the land register. 4 The Wiedergutmachung initiative in the German Federal 

Republic was aimed at providing some kind of reparation for these victims of National 

Socialism. 5 The Bundesgerichtshof (BGH – Federal Court of Justice) declared 

on one occasion that these reparation arrangements were compatible with article 

14 of the Basic Law. 6 

No comprehensive rehabilitation was ever envisaged in the German Democratic 

Republic for the victims of National Socialism, 7 and in particular no restitution of 

2 M. Southern Restitution or Compensation: The Land Question in East Germany 1993 INT. & COMP. L.Q 690 at 

691. 

3 Id. 

4 Id. 

5 The Wiedergutmachung initiative did not incorporated only a reparations program for dispossessed 

property. Instead, it constituted a full-blown attempt to induce social change in Germany, dealing with 

“denazification” and reform of the civil service over and above its attempts to restore property. It is 

outside the scope of this discussion to undertake an extensive discussion of this initiative, or even to list 

comprehensively the legislative and administrative measures applied to this initiative. For more detail, 

see esp. C. Goschler WIEDERGUTMACHUNG – WESTDEUTSCHLAND UND DIE VERFOLGTEN DES 

NATIONALSOZIALISMUS (1945-1954) Munich, R. Oldenbourg Verlag (1992); and the case study of National-Socialist 

induced dispossession of Jewish property in the Rhineland-Palatinate between 1938 and 

1953 as documented by W. Rummel & J. Rath “DEM REICH VERFALLEN – DEN BERECHTIGTEN 

ZURÜCKZUERSTATTEN” Koblenz, Verlag der Landesarchivverwaltung Rheinland-Pfalz (2001). A commentary 

on the most important laws behind the Wiedergutmachung initiative, e.g. the Bundesgesetz zur 

Entschädigung für Opfer der nationalsozialistischen Verfolgung (Federal Act for Compensation of Victims of 

National-Socialism); Gesetze zur Regelung der Wiedergutmachung nationalsozialistischen Unrechts für Angehörige 

des öffentlichen Dienstes im Inland und im Ausland (Acts for the Regulation of the Reparation of 

National-Socialist Injustice for Foreign and Inner Civil Servants), and Gesetze zur Wiedergutmachung 

nationalisozialistischen Unrechts in der Kriegsopferversorgung für Berechtigte im Inland und im Ausland (Acts 

for the Reparation of National-Socialist Injustice in the Care of Entitled Victims of War), see H-G. Ehrig 

& H. Wilden (eds) BUNDESENTSCHÄDIGUNGSGESETZE KOMMENTAR, Munich, C.H.Beck (1960) and the 

references provided there. 

6 BGHZ 52, 371 at 381. 

7 W. Tappert DIE WIEDERGUTMACHUNG VON STAATSUNRECHT DER SBZ / DDR DURCH DIE 

BUNDESREPUBLIK DEUTSCHLAND NACH DER WIEDERVEREINIGUNG, Berlin, Berlin-Verl. Spitz (1995) 19-71 

gives a detailed analysis of the attempts at Wiedergutmachung that were undertaken.

2004] Lost Information and Competing Interests 

3 

property, which had been lost as a consequence of persecution in the period between 

1933 and 1945, had been undertaken. 8 However, after reunification, it was 

not clear how the forcible dispossession or confiscation of property, situated in the 

former ‘East zone’, could be brought in line with the new legal order in a reunited 

Germany. 9 The victims 10 or their relatives demanded the necessary relief from the 

two uniting German governments. 11 

The framework within which certain property, expropriated or confiscated in the 

territory that would become the German Democratic Republic, was to be returned 

to its original owners, was first set out in the Joint Declaration in respect of the 

Regulation of Unresolved Property Questions. 12 The Joint Declaration formed the 

political and legal basis for the regulation of property in a new, reunified Germany. 

Its aim was to return expropriated property in the German Democratic Republic to 

its original owners or their heirs, 13 although several pragmatic considerations restricted 

the general intention of restitution. The Joint Declaration was incorporated 

14 into the Unification Treaty, 15 and thus obtained binding legal force. 16 It 

8 D. Visser & T. Roux Giving back the Country: South Africa's Restitution of Land Rights Act, 1994 in Context 

in R.W. Rwelamira & G. Werle (eds) CONFRONTING PAST INJUSTICES - APPROACHES TO AMNESTY, 

PUNISHMENT, REPARATION AND RESTITUTION IN SOUTH AFRICA AND GERMANY, Durban, Butterworths, 

(1996) at 99. 

9 O. Kimminich DIE EIGENTUMSGARANTIE IM PROZEß DER WIEDERVEREINIGUNG - ZUR BESTANDSKRAFT DER 

AGRARISCHEN BODENRECHTSORDNUNG DER DDR, Frankfurt am Main, Landwirtschaftl. Rentenbank, 

(1990) at 80. 

10 Who were mostly Jews who survived the holocaust, or their descendants, but also included relatives of 

the conspirators of 20 July (the day on which a failed assassination attempt on Hitler took place). 

11 G. Fieberg Legislation and Judicial Practice in Germany: Landmarks and Central Issues in the Property Question 

in M.R. Rwelamira & G. Werle (eds) CONFRONTING PAST INJUSTICES - APPROACHES TO AMNESTY, 


(1996) at 82. 

12 Gemeinsame Erklärung zur Regelung offener Vermögensfragen, 15 June 1990, BGBl. 1990 II at 1273. 

13 D.P. Kommers THE CONSTITUTIONAL JURISPRUDENCE OF THE FEDERAL REPUBLIC OF GERMANY 2 nd ed., 

Durham, Duke University Press, (1997) at 256. 

14 Incorporated into the Unification Treaty as Exhibit III, the agreement covered seized businesses and 

real estate-nearly all the industrial and landed property in the German Democratic Republic. 

15 Art. 41(1) of Vertrag zwischen der Bundesrepublik Deutschland und der Deutschen Demokratischen Republik 

über die Herstellung der Einheit Deutschlands-Einigungsvertrag - 31 August 1990, BGBl. 1990 II at 889. 


in M.R. Rwelamira & G. Werle (eds) CONFRONTING PAST INJUSTICES - APPROACHES TO AMNESTY,


forms part of the foundations of modern German law. 17 To clarify the general provisions 

of the Joint Declaration, the Unification Treaty provided for more detailed 

measures regulating property issues. For present purposes, mention must be made 

of the Gesetz zur Regelung offener Vermögensfragen (Law on the Regulation of Unsolved 

Property Questions or the "Property Act"), 18 which regulated the circumstances 

under which the principle of natural restitution 19 would apply. Other legislation, 

20 which provided additional conditions to regulate the principle of natural 

restitution, falls outside the scope of this discussion. 

Rückübertragungsansprüche (restitution claims) had to be registered at one of the 221 

local branches of the Amt zur Regulung offener Vermögensfragen (Open Property Office) 

21 in Germany. These local Property Offices are subject to one of six superior 

(provincial) Property Offices. 22 Once a restitution claim had been lodged, the per- 


(1996) at 83. 

17 B. Diekmann DAS SYSTEM DER RÜCKERSTATTUNGSTATBESTÄNDE NACH DEM GESETZ ZUR REGELUNG 

OFFENER VERMÖGENSFRAGEN, Frankfurt am Main, Lang, (1992) at 43-55. 

18 Gesetz zur Regelung von offener Vermögensfragen, BGBl. 1990 II at 1159. 

19 The principle of natural restitution (Rückgabe vor Entschädigung) refers to the policy actually to return 

property to the original owners. Where restitution is not possible, compensation may be advanced in 

stead. The policy of natural restitution is laid down and simultaneously limited in articles 41(1) and (2) 

of the Unification Treaty. The chief mechanism for giving this principle practical implication, was the 

Property Act. Section 1 is the key provision. Subsections (1) to (7) enumerate the various categories of 

property which could be subject of restitution claims, while subsection (8) excludes restitution in a further 

number of categories. Restitution before compensation did not mean that rehabilitation in the economic 

sphere would necessarily be guided by present market values. It merely established the precedence of 

rehabilitation in kind over rehabilitation in money. 

20 E.g. the Act on Special Investments in the German Democratic Republic (Gesetz über besondere Investitionen in 

der Deutschen Demokratischen Republik, BGBl. 1990 II at 1157) - the "Investment Act" and its successors, the 

"Investment Acceleration Act" (Gesetz zur Beseitigung von Hemnissen bei der Privatisierung von Unternehmen 

und zur Förderung von Investitionen, BGBl 1991 I at 766) and the "Investment Priority Act" (Gesetz 

Über den Vorrang für Investitionen bei Rückübertragungsansprüchen nach dem Bermögensgesetz- 

Investitionsvorranggesetz-BGBl 1992 I at 1268) provided additional conditions to regulate the principle of 

natural restitution. 

21 Restitution claims had to be registered in the local Property Office of the district where the claimant (or 

the deceased in the case of a claim by the descendants) last lived, but could also be directed to the office 

in the district where the property in question was situated. The victims of persecution under nationalsocialism 

and foreign residents had to register their claims at the Federal Ministry of Justice in Bonn. 

22 C.E. Scollo-Lavizzari RESTITUTION OF LAND RIGHTS IN AN ADMINISTRATIVE LAW ENVIRONMENT - THE 

GERMAN AND SOUTH AFRICAN PRODEDURES COMPAREDLL M Research Dissertation, University of Cape 

Town, (1996) at 45.


5 

son with the power of disposition over the property - usually the Treuhand or another 

state or local authority - could not dispose of the land, 23 except in very limited 

circumstances. 24 The deadline for lodging restitution claims was set at 31 December 

1992. 25 Property not claimed by that date would belong to the person with de facto 

power of disposal over it. 26 Over 1.2 million applications were lodged, the majority 

concerning landownership and affecting over one-third of the land area of the former 

German Democratic Republic. 27 

After a restitution claim had been lodged, the relevant property office had to analyze 

the substance and feasibility of the claim. In some areas, like the suburbs of 

Berlin and central areas of cities, multiple claims seeking recovery of the same 

pieces of land to different "prior" owners were sometimes encountered. 28 It was up 

to the federal, provincial and local property offices to trace the original owners of 

such property with proper title to it. Once a claim had been sufficiently clarified, 

the office would make a Vorbescheid (provisional decision), either to reject or uphold 

the claim, or find that the applicant is only entitled to compensation, and not restitution. 

29 Appeals against such a decision had to be directed to the superior Property 

Office in a specific area, where they would be decided upon by a committee established 

especially for this purpose. 30 If the claim for restitution was endorsed, an 

application could be brought to the local Land Registry for the entry of the correct 

23 Sec. 3(3)1 and 15(2) of the Property Act. 

24 E.g. where an investment priority decision or investment certificate had been granted. In such cases, 

the right to restitution was overridden. C.E. Scollo-Lavizzari RESTITUTION OF LAND RIGHTS IN AN 

ADMINISTRATIVE LAW ENVIRONMENT - THE GERMAN AND SOUTH AFRICAN PRODEDURES COMPARED, LL M 

Research Dissertation, University of Cape Town, (1996) at 45-50; M. Southern Restitution or Compensation: 

The Land Question in East Germany 1993 INT. & COMP. L.Q 690 at 695. 

25 § 30a of the Property Act. 

26 Gesetz zur Änderung des Vermögensgesetzes und anderer Vorschriften (2. Vermögensrechtsänderungsgesetz) 

14 July 1992; 1992 BGBl. at 1257 

27 M. Southern Restitution or Compensation: The Land Question in East Germany 1993 INT. & COMP. L.Q 690 

at 696, citing the FRANKFURTER ALLGEMEINE ZEITUNG of 24 Jan 1992; FINANCIAL TIMES of 25/26 Jan 1992. 


at 696. 

29 C.E. Scollo-Lavizzari RESTITUTION OF LAND RIGHTS IN AN ADMINISTRATIVE LAW ENVIRONMENT - THE 

GERMAN AND SOUTH AFRICAN PRODEDURES COMPARED,LL M Research Dissertation, University of Cape 

Town, (1996) at 50 ff. 

30 Ibid. 46 ff.


particulars of the proprietor. 31 If a claim was rejected by the property office in the 

provisional decision, an appeal could be lodged first at the provincial and subsequently 

at the federal property office. 32 After exhausting internal appeals, the applicant 

could appeal to the Administrative Court. 33 It was expected that only a few of 

the numerous restitution claims would result in court proceedings, since most 

could be resolved through the administrative pre-trial phase of the process. 34 Every 

now and again, however, the judiciary is called upon to decide matters relating to 

the restitution procedure. 35 In particular, it has to deal with the difficult position 

ensuing from multiple claims in respect of a single land unit. From such decisions, 

the difficulties with the multi-layered demands placed by the restitution program 

on the German administrative and property law system becomes clear. The recent 

decision of the German Federal Administrative Court’s Seventh Senate, 36 which 

forms the subject of this discussion, is illustrative thereof. 

B. Background and Facts 

The case involved an erf in Berlin, which originally belonged to a person of the 

Jewish faith prior to World War II. 37 It was sold in 1936 to one R.Z., whose heirs 

were the applicants in the present case. Parts of the land were converted into socalled 

"Volkseigentum" in 1958, whilst the rest was expropriated roundabout 1984. 




(1996) at 85. 

32 § 22-26 of the Property Act. 


at 695. 


at 696 provide interesting statistics as to the number of applications (said to have exceeded 1,1 million, of 

which 30 500 related to land and buildings, rather than businesses). In 1993, according to this source, 

only 8,5% of the land claims had been finalised, and it was speculated that the issue would take another 

30 years to resolve. 




(1996) at 88. 

36 Decision of 23 October 2003, BverwG 7 C 62.02; VG 31 A 371.99. 

37 A more detailed version of the background to the case is contained in par I of the decision (note 36 

above).


7 

In order to better understand the present case, it is necessary briefly to review those 

aspects of the confiscation and expropriation policy of the former German Democratic 

Republic which are relevant in the present discussion. Volkseigentum (People’s 

Property) refers to property, mostly of an industrial or agricultural nature and including 

land, buildings, installations, machinery, raw materials, industrial products, 

copyright and patents, which was expropriated for public purposes 38 after the 

establishment of the German Democratic Republic in 1949 and during its forty-year 

existence. 39 In most cases extremely low compensation, if any, was awarded. 40 The 

ownership entitlements of “Peoples’ Property” were exercised by the socially 

owned firms of the state. 41 Enactment of expropriation legislation after the Soviet 

occupation zone became the German Democratic Republic in 1949 had as its main 

purpose the establishment of a socialist conception of ownership, 42 and therewith 

the transformation of individual ownership to so-called Volkseigentum. 43 On this 

basis countless expropriations and other infringements of property rights, in particular 

with regard to land, apartment ownership and means of production, took 

place. 44 These confiscations and expropriations were undertaken in terms of regulations 

applying to all inhabitants of the German Democratic Republic, citizens as 

38 This included expropriation of land for the building of cities and development of belowstructure; for 

industrial settlements, energy management and for military purposes. D. Visser & T. Roux Giving back 

the Country: South Africa's Restitution of Land Rights Act, 1994 in Context in R.W. Rwelamira & G. Werle 

(eds) CONFRONTING PAST INJUSTICES - APPROACHES TO AMNESTY, PUNISHMENT, REPARATION AND 

RESTITUTION IN SOUTH AFRICA AND GERMANY, Durban, Butterworths, (1996) at 100. 

39 P.E. Quint THE IMPERFECT UNION - CONSTITUTIONAL STRUCTURES OF GERMAN UNIFICATION, Princeton, 

Princeton Univ. Press, (1997) at 124. 

40 Id. 

41 S. Pries DAS NEUBAUERNEIGENTUM IN DER EHEMALIGEN DDR, Frankfurt am Main, Lang, (1993) at 120- 

121. 




(1996) at 82. 

43 D. Visser & T. Roux Giving back the Country: South Africa's Restitution of Land Rights Act, 1994 in Context 

in R.W. Rwelamira & G. Werle (eds) CONFRONTING PAST INJUSTICES - APPROACHES TO AMNESTY, 


(1996) at 99. 

44 See in general M. Southern Restitution or Compensation: The Land Question in East Germany 1993 INT. & 

COMP. L.Q 690 at 696 and the statistics provided by this source, mentioned in note 34 above.


well as foreigners. 45 They were not necessarily arbitrary, and not necessarily aimed 

at putting a particular group or person at a disadvantage, even if the compensation 

amounts offered (if any) were very low. Instead, they could be regarded as part of 

the socialist system of the German Democratic Republic. As a result, expropriation 

for the purpose of conversion to Volkseigentum only rarely gave rise to valid restitution 

claims. In the present case, the restitution claim only related to that part of the 

property that was expropriated in 1984. 

After enactment of the Property Act in 1990, R.Z. lodged a claim for restitution of 

the original erf at the "Open Property Office," which was responsible for handling 

all restitution claims. In 1992, before the cut-off date for the lodging of restitution 

claims, the Conference on Jewish Material Claims against Germany Inc., which by 

law 46 was designated as the lawful heir of all Jewish patrimonial rights, likewise 

filed a general claim of restitution (or, alternatively compensation where the former 

was not possible) of all identifiable patrimonial rights envisaged by par 2 (1) and (2) 

of the Property Act. At this point the particular erf, which formed the subject matter 

of R.Z.’s claim, was not expressly affected by the Conference’s claim. It was only in 

1994, after thorough research, that information from the so-called Jewish Address 

Book came to light, indicating that the relevant erf was affected by the Conference’s 

general claim. 

The Open Property Office initially rejected the claim of the Conference, but later 

retracted its original decision, deciding in 1998 that the relevant land had to be 

transferred to the Conference. 47 As such, the Open Property Office dealt with the 

clashing proprietary interests to the land by arguing that R.Z. was only second in 

line as far as the claims for restitution were concerned. 48 

The applicant in the ensuing dispute was one of R.Z.’s heirs. His request that the 

land be retransferred to the heirs of R.Z. was granted by the Administrative Court 

in Berlin in 2002. This decision was based mainly on the argument that the so-called 

individualization of the Conference’s general claim constituted a new claim for 

restitution, which could not be entertained since it fell outside the legislative cut-off 

45 For an overview of the situation, see M. Southern Restitution or Compensation: The Land Question in East 

Germany 1993 INT. & COMP. L.Q 690ff. and P.E. Quint THE IMPERFECT UNION - CONSTITUTIONAL 

STRUCTURES OF GERMAN UNIFICATION, Princeton, Princeton Univ. Press, (1997) at 124ff. 

46 § 2 (1) of the Property Act. 

47 See the consideration of this aspect in par I of the Federal Administrative Court’s decision (note 36 

above). 

48 Id.


9 

date for lodging of restitution claims, which was 31 December 1992. 49 The Administrative 

Court in Berlin regarded the individualization of the claim to the relevant 

land in 1994 as a new and separate act, not related to the original general claim of 

the Jewish Conference. 50 Against this result, the Jewish Conference brought an appeal, 

the process that gave rise to the consideration of the case by the Federal Administrative 

Court. 

C. Decision of the Federal Administrative Court 

The Federal Administrative Court eventually found in favor of the Jewish Conference. 

51 It was found that, although the Administrative Court in Berlin correctly 

assumed that the restitution claim had at least to be individualized, it did not acknowledge 

that such individualization could be effected through reference to deeds 

and documents mentioned in the lodged claim. Since the Administrative Court in 

Berlin did not regard reference to such documents as sufficient to determine the 

subject of the claim, 52 it did not establish facts necessary to the decision in the present 

instance, relating to the requirements for the payment o compensation in § 1(6) 

of the Property Act. Accordingly, the Federal Administrative Court decided to refer 

the case to the Administrative court for renewed consideration. 

The Federal Administrative Court’s reasoning was based on the relevance of the 

1992 cut-off date in the context of the general claim that was lodged by the Jewish 

Conference. 53 The cut-off date, according to the Court, has the purpose of ensuring 

the speedy establishment of legal certainty, limiting the debilitating effects of the 

restitution program on dealings with property and promoting investment. 54 These 

purposes are in the interest of the Federal Republic as a whole. 55 It was indicated 

that, although the minimum requirements concerning the content of a particular 

claim are not specified by the Property Act, the Federal Administrative Court has in 

49 The details of the decision of the Berlin Administrative Court of 27 September 2002, in as far as they 

are relevant to the present case, are contained in par I of the Federal Administrative Court’s decision. 

50 Id. 

51 See par II of the Federal Administrative Court’s decision (note 36 above). 

52 Id. 

53 See par II (1) of the decision (note 36 above). 

54 These objectives are articulated by the Court in par II (1) (a) of the decision (note 36 above). 

55 The court quotes the decisions of 24 June 1999 – BVerwG 7 C 20.98 and BVerwGE 109, 169 at 172 as 

authority.

10 G ERMAN L AW J OURNAL 

[Vol. 05 No. 01 

previous decisions established some norm in this regard. Accordingly, the affected 

patrimonial interests need at least to be individually specifiable. 56 

The Court then tested the present case against this requirement, focusing on the 

legal status of the Jewish Conference as successor organization, and found that the 

purpose for which it was instituted will not be served if a strict interpretation of 

§ 30 (1) Sent. 1 and § 30a (1) Sent. 1 read with § 2 (1) Sent. 3 of the Property Act is 

preferred. 57 In particular, the Jewish Conference was acknowledged as the legal 

successor of numerous unknown Jewish right holders. 58 This quality had to be 

heeded when the requirement of specification of the restitution object was to be 

considered. 59 The Court particularly remarked that the situation of the Jewish Conference 

cannot be compared to that of other claimants, who, as a rule, could more 

readily determine the identities of their predecessors-in-title and the nature of the 

patrimonial interests affected. 60 

The Court acknowledged that the requirement of specification of a particular claim 

is purposeful and in line with the requirements of § 30 (1) Sent. 1 of the Property 

Act. 61 However, it was also mindful of the particular position of the Jewish Conference 

and its difficulty with strictly complying with the cut-off date whilst having to 

deal with difficulties of proving the dispossessions that occurred in respect of Jewish 

Property. 62 The Court considered the fact that the legislature was cognizant of 

these difficulties in respect of movable property, but not in respect of immovables. 63 

56 See par II (1) (a) of the decision (note 36 above), and the authority quoted: Decision of 5 Oct. 2000 – 

BVerwG 7 C 8.00 – Buchholz 428 § 30 VermG No. 21. 

57 In essence, a joint reading of these provisions of the Property Act indicates the prerequisites for restitution 

in terms of the Act, providing for the type of claims to be considered and the cut-off date for lodging 

of such claims. 

58 See par II (1) (a) of the decision (note 36 above). 

59 Id. 

60 See par II (2) (c) of the decision. 

61 See the court's reliance on BVerfGE 78, 20 at 24; BVerwG decision of 18 May 1995 – BVerwG 7 C 19.94 

– Buchholz 428 § 1 VermG No. 44 p. 117. 

62 See par II (2) (c) of the decision. 

63 See par II (1) (a) of the decision.


11 

Mindful of the requirement that the object of restitution needs to be determinable in 

terms of the law, 64 the Court nevertheless specified that the restitution claim itself 

need not conclusively prove the exact content and situation of the restitution object. 

65 Instead, in order to stay in line with the cut-off date, the claim needs simply 

to contain specifications that would indicate particular patrimonial interests. 66 The 

replacement of a particular interest by another at random must however be excluded. 

67 In other words, the restitution object needs to be specified in the lodged 

claim, but not individualized. Individualization can take place at a later point in 

time, thereby giving effect to the claim whilst simultaneously remaining within the 

boundaries set by the cut-off date. 68 

On the basis of this reasoning, the Court considered several aspects of the Jewish 

Conference’s claim. One part of the Conference’s general claim 69 indicated that it 

was particularly aimed at proprietary interests of Jews dispossessed or confiscated 

on the basis of discriminating regulations of the National-Socialist regime or related 

organizations. 70 It also specified the sources on the basis of which individualization 

of Jewish property could be established (e.g. state archives, documents kept in the 

respective municipal offices etc.). 71 The Federal Administrative Court found this 

description to be sufficiently detailed to warrant effectiveness of the timely general 

claim, when viewed in conjunction with the individualization that occurred in 1994 

after the Jewish address book with the relevant details of the property was consulted. 

72 It was apparent from the documents consulted by the Jewish Conference 

and presented during the course of the proceedings that the initial disposal of the 

64 § 2 (1) (3) of the Property Act. 

65 Par II (1) (b) of the decision (note 36 above). 

66 Id. 

67 See the court's reliance on the decision of 28 March 1996 – BVerwG 7 C 28.95 – BVerwGE 101, 39 at 43. 

68 Here the court relies on its previous decision of 24 June 1999 – BVerwG 7 C 20.98 – BVerwGE 109, 169 

at 172. 

69 The so-called "Anmeldung 3". The Conference's claim was structured in three parts, the first two of 

which did not pass the scrutiny of the court, the first because of the very general nature in which it was 

phrased, and the second because of the element of chance in respect of its assumption of Jewish property 

which was built into the claim. See par I and II (2) (a) and (b) of the decision (note 36 above). 

70 See par II (2) (c) of the decision (note 36 above). 

71 Id. 

72 Id.


[Vol. 05 No. 01 

property by its Jewish owner to R.Z. amounted to a forced sale. 73 This information 

was not displayed in the general address book of registered immovable property, 

since it was not usual at the time of the original disposal to publicize Jewish land 

relations. 74 As a result, this particular piece of land never became the subject of an 

award under the Wiedergutmachung policy of the former West Germany and the 

Allied forces. 

D. Referral for Reconsideration 

On the basis of the arguments set out above, the Federal Administrative Court decided 

to refer the case back to the Berlin Administrative Court for reconsideration, 

ordering the latter specifically to take into account the evidence emanating from 

deeds and documents that can be advanced by the Jewish Conference. 75 In this context 

specifically, the Court provides a broad basis upon which evidence may be 

lead, when indicating that not only the Jewish address book of Berlin, but also any 

other documents or deeds which are mentioned in the general claim, must be considered 

in determining the ownership of the property in dispute. 76 

The Federal Administrative Court acknowledged that the referral for reconsideration 

of this case to the Administrative Court in Berlin will presuppose an additional 

effort to be made on the part of the latter. 77 It would have to clarify the ownership 

issue that was previously not considered on account of the Berlin court’s stance as 

to the application of the cut-off date requirement. The Federal Administrative 

Court then placed responsibility for leading of evidence on the Jewish Conference, 

indicating that the process needs to be facilitated by the co-operation of the applicant. 

78 The Jewish Conference was accordingly obliged to provide all relevant and 

available information that would aid the Berlin court’s decision. 79 The Federal Administrative 

Court added that this task should not be too difficult, in view of the 

73 Id. 

74 Id. 

75 Par II (3) of the decision (note 36 above). 

76 Id. 

77 Id. 

78 Id. 

79 Id.


13 

evidence already lead by the Jewish Conference as to the ownership of the disputed 

property. 80 

E. Concluding Remarks 

The decision of the Federal Administrative Court indicates some of the difficulties 

still experienced when dealing with the reparation arrangements negotiated in the 

wake of the German reunification endeavor. On the one hand, the courts and administrative 

structures created for this purpose have to grapple with balancing 

interests of a variety of stakeholders, some of whom have no direct relation to the 

original dispossessory actions. On the other hand, the case makes it clear that at 

least a part of the present German property system is still based on actions which 

took place prior to or during World War II, and which involved confiscation or 

dispossession of property as a result of the discriminatory policies of the time. 

Added hereto is the problem of the disparate systems of property that developed in 

the divided Germany after the war. Although the present case did not deal explicitly 

with the latter, it certainly indicates the scope of the repercussions, had a fullscale 

integration of these systems been incorporated in the reparation initiative 

after 1990. 

Another issue appearing from the present case is the question of missing information 

in the process of awarding restitution of property. As has been indicated by the 

Federal Administrative Court, the task of the Jewish Conference depends upon the 

degree to which information about confiscated, expropriated or abandoned property 

of those that suffered under the regime of National Socialism still exist and is 

accessible. The success with which this organization can fulfill its representative 

function will, further, be related to the judiciary and administration’s willingness to 

acknowledge the peculiar situation of the Conference, and to accommodate it in 

interpreting the requirements for restitution set by the Property Act. 

80 Id.

PUBLIC LAW 

Compensation Claims for Human Rights Breaches Committed 

by German Armed Forces Abroad During the Second 

World War: Federal Court of Justice Hands Down 

Decision in the Distomo Case 

By Sabine Pittrof * 


In recent times, an increased awareness in public international law of the significance 

of human rights has given rise to the idea of direct access to compensation 

claims by individuals in the case of severe human rights breaches. 1 This development 

has led to a number of actions for compensation in various jurisdictions. 2 The 

Bundesgerichtshof (BGH – Federal Court of Justice) recently joined the series of decisions 

from higher courts addressing compensation claims for human rights 

breaches, handing down its landmark decision on compensation claims by Greek 

citizens whose parents were killed in a massacre in Distomo during the Second 

World War. 3 

* Dr. Sabine Pittrof LL.B. (Univ. N.S.W.), Haarmann Hemmelrath & Partner, Rechtsanwälte, 

Wirtschaftsprüfer, Steuerberater; Neue Mainzer Str. 75, 60311 Frankfurt am Main, Sabine.Pittrof@haarmannhemmelrath.com 

1 See e.g. Steffen Wirth, Staatenimmunität für internationale Verbrechen – das zweite Pinochet-Urteil des House 

of Lords, Jura 2000, 70. 

2 See e.g. ECHR, Al-Adsani v. United Kingdom, Application no. 35763/97, Judgment of 21 November 2001, 

available at http://hudoc.echr.coe.int; Areopag, Prefecture of Voiotia v. Federal Republic of Germany, Case 

No 11/2000, Judgment of 4 May 2000; cf. also Markus Rau’s review of the Al-Adsani - decision: After 

Pinochet: Foreign Sovereign Immunity in Respect of Serious Human Rights Violations – The Decision of the 

European Court of Human Rights in the Al-Adsani Case in 3 GERMAN L. J .6 (June 1, 2002) 

www.germanlawjournal.com. Another important example of this trend is the ever-increasing amount of 

litigation under the American Alien Tort Claims Act. The case involving Unocal Corporation and allegations 

of human rights violations in Myanmar has drawn world-wide attention. See, John Doe I v. Unocal 

Corp., 2002 WL 31063976 (9th Cir. 2002); John Doe I v. Unocal Corp., 2002 WL 31063976 (9th Cir. 2003) 

(rehearing en banc). 

3 BGH, decision of 26 June 2003, III ZR 245/98, published in NJW 2003, 3488 et seq.


[Vol. 05 No. 01 

B. The Court’s Decision 

I. Facts 

The appellants – Greek nationals – brought an action against the Federal Republic 

of Germany for damages resulting from a massacre committed by the German 

army in the Greek village of Distomo during the German occupation of Greece in 

1944. 4 On 10 June 1944, the appellants’ parents were shot by an SS-unit integrated 

into the German armed forces. 5 The shooting, termed a “retribution measure,” 6 

followed an armed conflict with partisans and involved 300 innocent inhabitants of 

the village. 7 The village itself was razed. 8 

The appellants claimed damages on behalf of their parents, whose claims had transferred 

to them by way of succession, with respect to the destruction of the parental 

home and business and in their own right with respect to damages to their health 

and disadvantages in their professional training and prospects. 9 The case was 

brought on appeal from the Oberlandesgericht (Higher Regional Court) of Cologne, 

which had dismissed the action. 10 

In 1997, the District Court of Livadeia in Greece had already awarded damages for 

the Distomo-massacre to, inter alia, the appellants. 11 This decision was upheld by 

the Greek Areopag in a judgment of 4 May 2000. 12 However, execution of the decision 

against assets of the Federal Republic of Germany located in Greece could not 

take place for lack of the necessary permission by the Greek government required 

4 BGH NJW 2003, 3488. 

5 Id. 

6 Id. 

7 Id. 

8 Id. 

9 Id. 

10Id. 

11 District Court of Livadeia, Prefecture of Voiotia v. Federal Republic of Germany, Case No 137/1997, Judgment 

of 30 October 1997. 

12 Cf. supra note 1.

2004] FCC hands down decision in the Distomo Case 

17 

under local law. 13 

II. Findings 

The Federal Court of Justice concluded that the claim for damages was without 

merit and the decision of the Cologne Higher Regional Court was upheld. Understanding 

the basis for the Court’s judgment requires a detailed analysis of several 

issues on which the decision was based. 

1. Res Judicata, the Recognition of Foreign Judgments and State Immunity 

The first issue presented to the Court was the question whether a German court 

was able to deal with the claim in light of the fact that the same factual situation 

had already been assessed by a Greek court. 14 The Court resolved that it could because 

the principle of res judicata only prevented a German court from reviewing 

the decision (révision au fond) if the German courts were obligated to recognise the 

foreign decision. 15 However, neither the German-Greek Treaty on Mutual Recognition 

and Execution of Court Judgments, Settlements and Public Documents in Civil 

and Commercial Matters of 4 November 1961, 16 nor § 328 Zivilprozeßordnung 

(ZPO – German Civil Procedure Code) dealing with the recognition of foreign 

judgments, imposed an obligation on the German courts to recognise the Greek 

decision. 17 Both required the Greek court to have had jurisdiction. 18 But this prerequisite 

was not met because the principle of state immunity had been breached. 19 

According to the principle of sovereign immunity recognised in public international 

law, a sovereign state can claim immunity from another state’s jurisdiction as 

13 For a more detailed account of the procedural history in the Greek courts see Elisabeth Handl, Introductory 

Note to the German Federal Court of Justice’s Judgment in the Distomo Massacre Case, 42 ILM 

1027. 

14 BGH NJW 2003, pp. 3488-3489. 

15 Id. 

16 BGBl. II 1963, 109. 

17 BGH NJW 2003, pp.3488-3489; cf. §§ 328 I Nos. 1 and 4 ZPO and Art. 3 Nos. 1 and 3 German-Greek 

Treaty. 

18 The court initially also looked at the Brussels Convention on Jurisdiction and the Enforcement of Judgments 

in Civil and Commercial Matters of September 27, 1968, but decided that it was not applicable as compensation 

claims against a sovereign state for acts committed while exercising sovereign powers did not 

come under the definition of “civil and commercial matters” stipulated in the treaty. 

19 BGH NJW 2003, 3488.


[Vol. 05 No. 01 

long as acta jure imperii are concerned. 20 Being an act of the German armed forces, 

albeit illegal in all respects, this was to be classified as an act of sovereign power to 

which the principle of sovereign immunity applied. 21 While there had been a 

movement to restrict the application of this principle and exclude its applicability 

whenever mandatory rules (ius cogens) of public international law, such as human 

rights, are breached, 22 according to the prevailing opinion, this had not become a 

rule of current public international law. 23 Therefore the Greek court did not have 

jurisdiction to hear the case and, accordingly, the Greek decision was not to be recognised 

by the German courts. 24 This opened the door for the German courts to 

adjudicate the situation de nouveau. 25 

2. Role of the Federal Republic of Germany as the Respondent 

The Federal Court of Justice went on to discuss, briefly, whether the compensation 

claim was an independent post-war liability of the Federal Republic of Germany or 

whether this was a claim for which the Federal Republic was liable under the principles 

of state succession. 26 It concluded that the lower courts were correct in deciding 

that specific post-war compensation legislation passed by the Federal Republic 

of Germany did not apply to this case. 27 Therefore it treated the claim as a liability 

of the German Empire rather than an original claim against the Federal Republic of 

Germany. 28 

3. Effects of the London Debt Agreement 

Having established that the claims were originally claims against the German Empire, 

the Court considered the influence of the London Debt Agreement of 

20 See e.g., Malcolm N. Shaw, International Law 494 (4th ed. 1997). 

21 BGH NJW 2003, 3488 at 3489. 

22 See e.g. Steffen Wirth’s article referred to in Footnote 1. 

23 BGH NJW 2003, 3488 at 3489; for further reading, a selection of scholarly commentary on this topic can 

be found in the Court’s decision at p. 3489. 

24 BGH NJW 2003, 3488. 

25 BGH, NJW 2003, 3488-3489. 

26 Ibid. pp. 3489-3490. 

27 Id. The controlling post-war compensation statute was the Bundesentschädigungsgesetz of September 

1953, BGBl. I 1387. 

28 BGH NJW 2003, 3488 at pp. 3489-3490.


19 

27 February 1953 on the case. 29 The Agreement served as a moratorium on reparation 

claims against Germany until a final peace agreement dealing with reparation 

claims was signed. 30 Therefore, claims resulting from the Second World War could 

not be finally adjudicated, whether they sought to award damages or dismiss the 

claim. 31 However, the Court went on to state that the so-called “Two-Plus- 

Four”Treaty (Zwei-plus-Vier-Vertrag) of 12 September 1990, paving the way for the 

unification of Germany, although not a conventional peace agreement, was to be 

seen as a final agreement with respect to Germany which had rendered the London 

Debt Agreement obsolete. 32 

4. Legal Basis for the Claims in the Law of 1944 

In order to evaluate whether claims for damages existed against the German Empire 

for which the Federal Republic of Germany was liable, the Court then looked 

at whether the law as it was in 1944 provided a basis for the appellants’ suit. 33 In 

doing so, the Court examined the issue of compensation for tort claims under public 

international law as well as the issue of state liability under domestic law, eventually 

holding that neither of them supported the appellants’ case. 34 

Regarding the first question, the Court emphasised that while public international 

law may be changing gradually, certainly in 1944, the principle that public international 

law did not award direct protection to individuals as opposed to states still 

29 BGH NJW 2003, 3488 at 3490. The treaty was published at BGBl. II 1953, 336. 

30 For more information on the Agreement see, for instance, Edda Henrike Dolzer, International Treaties 

After World War II, in NS-FORCED LABOR: REMEMBRANCE AND RESPONSIBILITY 157 (Peer Zumbansen ed., 

Nomos 2002); Libby Adler and Peer Zumbansen, The Forgetfulness of Noblesse: A Critique of the German 

Foundation Law Compensating Slave and Forced Laborers of the Third Reich, in: 39 Harv. J. Leg. 1 

(2002), (reprinted also in: NS-Forced Labor: Remembrance and Responsibility 333 (Peer Zumbansen ed., 

Nomos 2002). 

31 Art. 5 II London Debt Agreement; cf. also BGH NJW 1955, 631; NJW 1955, 1437; NJW 1973, 1549 at 

1552. 

32 BGH NJW 2003, 3488 at 3490. The Two-Plus-Four Treaty can be found at BGBl. II 1990, 1318. For further 

reading, a selection of scholarly commentary on this topic can be found in the Court’s decision at 

3490; see also, Dozer, supra note 30; Adler and Zumbansen, supra note 30. 

33 According to the Court, the legal basis for this is to be found in Art. 135a I No 1 Grundgesetz (GG- 

German Basic Law); cf. Bundesverfassungsgericht (Federal Constitutional Court) BVerfGE 15,126 at 145. 

Evidently, traces of Nazi - ideology to be found in the law of the time were not to be taken into account. 

BGH NJW 2003, 3488 at 3491. 

34 BGH NJW 2003, 3488 at 3491.


[Vol. 05 No. 01 

held true, even in the case of a severe human rights infringement. 35 Therefore only 

states or parties to a war could claim compensation. 36 The Convention Respecting 

the Laws and Customs of War on Land (Hague IV) of 18 October 1907 also sustained 

this interpretation in its Articles 2 and 3. 37 

With respect to the second issue, liability pursuant to domestic state liability provisions 

was also ruled out. 38 While the requirements under the respective provisions 

would have been met literally, it was the general understanding at the time of the 

massacre that acts of war committed on foreign soil were excluded from domestic 

state liability. 39 

C. Conclusion 

The decision is of interest for several reasons. Most obviously, it will likely act as a 

deterrent to other potential plaintiffs lodging further actions. While it would be 

desirable for the individuals who suffered directly or indirectly from this or other 

atrocities committed by German armed forces during the Second World War to be 

awarded damages, the effect of the Court’s approach may, in fact, guarantee more 

legal certainty by ensuring that issues of this kind are resolved in a public international 

law forum. 

Furthermore, the decision also deals with important issues of public international 

law, especially the principle of state immunity. While its reasoning is of course not 

binding in public international law, 40 it confirms the line taken by courts of other 

jurisdictions that the principle of state immunity has not been amended to exclude 

immunity from compensation claims for human rights abuses and crimes against 

humanity. Thus, it adds certainty as to the German position with respect to this 

issue. 41 

35 BGH NJW 2003, 3488 at 3491. 

36 Id. 

37 The Hague IV Convention can found at RGBl. 1910, 107 or Martens, NRG (troisième série), Vol.3, 461. 

38 BGH NJW 2003, 3488 at pp. 3491-3493. 

39 Id. 

40 Though it certainly can serve as evidence of customary international law. 

41 Reinhold Geimer, Völkerrrechtliche Staatenimmunität gegenüber Amtshaftungsansprüchen ausländischer 

Opfer von Kriegsexzessen, LMK 2003, 215 concludes that state immunity also serves as a guarantee for 

peace between the states (p. 216).


21 

The decision also makes a clear statement with respect to the prerequisites for recognition 

of foreign judgments. It emphasises that recognition is only possible if 

jurisdictional requirements have been met. Especially when advising foreign clients, 

recognition and enforcement of foreign decisions in Germany is very topical 

as Bettina Friedrich eloquently pointed out in her article “Federal Constitutional 

Court Grants Interim Legal Protection Against Service of a Writ of Punitive Damages 

Suit”. 42 Therefore, practitioners will also welcome this decision. 

Finally, its elaboration on German state liability law also sheds more light on issues 

arising in this area, although the Court specifically left unanswered the question of 

whether its analysis is transferable to state liability law as it stands today. Admittedly, 

this was not an issue in this case, and it must be hoped that the Federal Republic 

of Germany will not commit crimes against humanity. Nevertheless, the 

general question of whether and how far current domestic law must take into account 

new developments in public international law which have not yet been recognised 

as a general rule will be an interesting one to deal with in future cases. 

42 Bettina Friedrich, Federal Constitutional Court Grants Interim Legal Protection Against Service of a Writ of 

Punitive Damages Suit, 4 GERMAN L. J. 12, § 5 (December 1, 2003) www.germanlawjournal.com

PRIVATE LAW 

The Defence of “Change of Position” in English and 

German Law of Unjust Enrichment 

By Florian Mächtel * 


In its § 142(1) the American Restatement of the Law of Restitution 1 provides that “[t]he 

right of a person to restitution from another because of a benefit received is terminated 

or diminished if, after the receipt of the benefit, circumstances have so changed 

that it would be inequitable to require the other to make full restitution.” The 

notion that the recipient of an unjustified benefit must in principle return not more 

than the enrichment that has actually “survived” in his hands, is not only fundamental 

to the American law of restitution, but can also be found in English and 

German law. 

In the seminal, 18 th Century case of Moses v. Macferlan, decided by the House of 

Lords, the highest Court in the United Kingdom, Lord Mansfield held, that the 

defendant to a restitutionary claim “may defend himself by every thing which 

[shows] that the plaintiff, ex aequo et bono 2, is not entitled to the whole of his demand, 

or to any part of it.” 3 This can be interpreted as an early hint at the so-called 

defence of “change of position.” 4 In Germany, a similar principle, the Wegfall der 

Bereicherung (literally “cessation of the enrichment” but used to indicate the 

“change of position” defence), is enshrined in § 818 III of the Bürgerliches Gesetzbuch 

* LL.M. (University of Birmingham, United Kingdom); Student Assistant, Chair of Civil Law and Legal 

History (Prof. Dr. Diethelm Klippel), Faculty of Law and Economics, University of Bayreuth, 95440 

Bayreuth, Germany. 

1 Scott, A.W. and Seavy, W.A., Restatement of the Law of Restitution, Quasi Contracts and Constructive 

Trusts (St. Paul: American Law Institute 1937). 

2 “According to what is right and good.” 

3 2 Burr. 1005, 1010 (1760). 

4 In the American terminology, “change of circumstances.”


[Vol. 05 No. 01 

(BGB – Civil Code), 5 which provides, in short, that the obligation to make restitution 

is excluded to the extent that the recipient of the benefit is no longer enriched. 

This essay will make a comparison of the application of the defence in Germany 

and England. As the first part of the paper (B.), a brief outline of the restitutionary 

concepts in both countries, will show, this is especially interesting given the fact 

that the young English law of restitution is still “under construction” whereas 

German courts have applied their law for more than 100 years. The following chapter 

(C.) will try to locate the “loss of enrichment defence” and assess its importance 

for enrichment law. In the subsequent parts flesh will be put on the defence’s bones 

by examining its general requirements (D.), the role of fault and knowledge (E.), the 

problems of anticipatory reliance (F.) and counter-restitution (G.). 

As a conclusion (H.) it will be submitted that German and English law make use of 

the defence of change of position in a relatively similar way. The longer experience 

of the German system can serve as a useful guide, in a positive and a negative 

sense. The article is intended to give an introductory overview on an important, if 

not the most important, issue in enrichment law in two of Europe’s major jurisdictions. 

It deals with basic questions only, but the reader familiar with the law of 

restitution and its development will not be surprised by such an approach for an 

introduction, since it is a branch of the law which has aptly been described as a 

“minefield;” 6 there is hardly a position which is not disputed. 

B. Outline of the Law of Restitution 

“[A]ny civilized system of law is bound to provide remedies for cases of what has 

been called unjust enrichment,” Lord Wright correctly observed in the Fibrosa case, 

decided in 1943 by the House of Lords. 7 The task of this preliminary chapter is to 

provide a short comparison of this essential branch of the law in England and Germany 

in order to illustrate how both legal systems approach the law of unjust enrichment. 

5 Most relevant statutory provisions can be found in English translation at 

http://www.iuscomp.org/gla/index.html (German Law Archive). Translations in this article are based 

on that source. All references in this paper are made to the BGB if not otherwise indicated. Roman numerals 

represent a paragraph, Arabic numerals a sentence. ‘s.’ means sentence if a section is not divided 

into paragraphs. 

6 Meier, Mistaken Payments in Three-Party Situations: A German View of English Law, 58 C.L.J. 567 (1999). 

7 Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd., A.C. 32, 61 (1943).

2004] The Defence of “Change of Position” 

25 

I. England 

In England questions of unjust enrichment form part of the law of restitution, 

which encompasses all remedies depriving the defendant of a gain, instead of 

awarding compensation for the claimant’s loss. 8 For centuries the English courts 

granted relief in cases concerned with the skimming off of the defendant’s gains on 

the basis of quasi-contractual remedies and implied contractual obligations (money 

had and received, money paid, quantum valebat 9 , quantum meruit 10 ). 11 Although this 

view was doubted in the 1940s, 12 questions of unjust enrichment remained “a peripheral 

matter in contract or tort;” 13 the latter, restitution in the context of a tort, 

became acknowledged with the doctrine of “waiving the tort.” 14 Gradually, however, 

the law of restitution emancipated itself. This process culminated in its recognition 

as a discrete body apart from contract and tort at the beginning of the 1990s 

with the groundbreaking judgements of the House of Lords in Lipkin Gorman v. 

Karpnale Ltd. 15 and Woolwich Equitable Building Society v. IRC. 16 

In order to succeed with a claim in unjust enrichment one must prove that the defendant 

obtained a benefit at the plaintiff’s expense, a benefit that is unjust for him 

to retain because of special circumstances 17 commonly referred to as “unjust fac- 

8 VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 3 (Clarendon Press 1999). See also, Zimmermann, 

Unjustified Enrichment: The Modern Civilian Approach, 15 O.J.L.S. 413 (1995). 

9 “As much as it was worth.” When there is a sale of goods without a specified price, the law implies a 

promise from the buyer to the seller that the former will pay the latter as much as the goods were worth. 

10 “As much as he has deserved.” When a person renders a service without a specified price, there is an 

implied promise from the employer to the worker that he will pay him for his services, as much as he 

may deserve or merit. 

11 ZWEIGERT & KÖTZ, AN INTRODUCTION TO COMPARATIVE LAW 551 (T. Weir trans., Oxford University 

Press 3rd ed. 1998); Gallo, Unjust Enrichment: A Comparative Analysis, 40 A.J.C.L. 431 (1992). 

12 United Australia Ltd. v. Barclays Bank Ltd., A.C. 1, 26 (1941). (Lord Atkin); Fibrosa Spolka Akcyjna v. 

Fairbairn Lawson Combe Barbour Ltd., A.C. 32, 63 (1943). (Lord Wright). 

13 Dickson, The Law of Restitution in the Federal Republic of Germany: A Comparison with English Law, 36 

I.C.L.Q. 752 (1987). 

14 See, Hambley v. Trott, 98 E.R. 1136 (1776). (Lord Mansfield); Martinek, Der Weg des Common Law zur 

allgemeinen Bereicherungsklage. Ein später Sieg des Pomponius?, 47 RabelsZ 289 (1983). 

15 2 A.C. 548 (1991). 

16 A.C. 70 (1993). 

17 GOFF & JONES, THE LAW OF RESTITUTION para. 1-016 (Sweet & Maxwell 6th ed. 2002); VIRGO, THE PRIN- 

CIPLES OF THE LAW OF RESTITUTION 9 (Clarendon Press 1999); Chen-Wishart, Unjust Factors and the Resti-


[Vol. 05 No. 01 

tors.” As with all claims there are also specific defences available for the enriched 

party, such as change of position. It is a matter of dispute whether the unjust enrichment 

principle and the law of restitution simply quadrate each other 18 or not. 19 

The proponents of the latter theory argue that proprietary claims and restitution for 

wrongs stand separately beside claims in unjust enrichment. Yet this paper is not 

the right place to elaborate on this point, since the question is of no particular relevance 

for the topic. 20 At this instant we can therefore record the following: The English 

law of restitution as such is a relatively young branch of the law. It is characterized 

by the notion that every enrichment can be retained, as long as there is no recognised 

ground which renders it unjust. 

II. Germany 

The concept of “restitution” as it is understood in England does not at all exist in 

Germany. 21 After further scrutiny, however, one will find several provisions dealing 

with the restoration of an unjust enrichment. The two most striking legal institutions 

in this context are §§ 346 et seq. (termination of contract) and §§ 812 et seq. 

(unjustified enrichment) in the BGB. No German jurist ever had the idea to combine 

all these claims into one “law of restitution,” because of the fixed structure of German 

law. That is why restitutionary remedies can be located in a contractual context, 

in the law of obligations imposed by virtue of the law (gesetzliche Schuldverhältnisse), 

the law of property, family and succession law and even in social security 

and insurance legislation as well as public law. Thus, the comparative lawyer 

sees himself confronted with problems in structuring his analysis; indeed, as Professor 

Birks observes, it “is not a subject in which it is easy to draw comparisons.” 22 

Restitutionary Response 20 O.J.L.S. 557 (2000); Dickson, Unjust Enrichment Claims: A Comparative Overview 

54 C.L.J. 105 (1995). 

18 Lipkin Gorman (A Firm) v. Karpnale Ltd., 2 A.C. 548, 578 (1991). (Lord Goff); GOFF & JONES, THE LAW 

OF RESTITUTION para. 1-001 (Sweet & Maxwell 6th ed. 2002); BIRKS, AN INTRODUCTION TO THE LAW OF 

RESTITUTION 17 (Clarendon Press 1985) (but see my next fn.); HEDLEY, A CRITICAL INTRODUCTION TO 

RESTITUTION 11 (Butterworths 2001). 

19 VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 6-17 (Clarendon Press 1999); BIRKS, “Misnomer” in 

Cornish et al. (eds.), RESTITUTION: PAST, PRESENT AND FUTURE – ESSAYS IN HONOUR OF GARETH JONES 1 

(Hart 1998); The idea of "quadration" stems from Birks in An Introduction to the Law of Restitution. BIRKS, 

AN INTRODUCTION TO THE LAW OF RESTITUTION 17 (Clarendon Press 1985). 

20 Nevertheless, for the sake of simplicity "restitution" and "unjust enrichment" will be used synonymously 

in this paper. 

21 Cf., Dickson, The Law of Restitution in the Federal Republic of Germany: A Comparison with English Law, 36 

I.C.L.Q. 760 (esp. fn. 42) (1987). 

22 Birks, At the Expense of the Claimant: Direct and Indirect Enrichment in English Law, OXFORD U. COM- 

PARATIVE LAW FORUM 1 http://ouclf.iuscomp.org, after n. 4 (2000).


27 

Sections 812-822 BGB form the core of the fragmented German “law of restitution.” 

These provisions are part of the law of obligations, but belong neither to the law of 

contract, since obligations created by them do not arise out of contract but by virtue 

of law, nor to the law of delict, which deals with questions of compensation for 

wrongs. Nevertheless, the systematic position of these norms between the codified 

law of contract (§§ 433 et seq.) and the law of delict and property (§§ 823 et seq.) 

indicates that there are connections to these branches of the law. 23 The most important 

basis for a claim in unjustified enrichment is § 812 I 1, which mirrors the Roman 

condictiones indebiti and sine causa, 24 and it is worth stating it in full: “A person 

who obtains something by performance by another person or in another way at the 

expense of this person without legal cause is bound to give it up to him.” This seems 

to mirror the English principle of unjust enrichment outlined above. German scholars, 

however, have built an intellectual edifice of considerable height around that 

norm since its enactment in 1900. According to the predominant view restitution 

rests on two pillars: a Leistungskondiktion (performance-based) pillar and a Nichtleistungskondiktion 

(non-performance-based) pillar. 25 This distinction is not completely 

alien to English law, since restitutionary claims are often divided into claims 

founded on the act of the plaintiff and those founded on the act of the defendant. 26 

The formulation of § 812 I 1 leads us to the fundamental distinction between English 

and German law, which is also reflected in the semantic difference between 

“unjust” and “unjustified” enrichment: 27 In Germany, whenever a shift of wealth 

occurs without a juristic reason, it can be recovered. That means that every enrichment 

is prima facie unjustified under German law, unless a legal ground existed for 

it. The position in English law is, at least in theory, diametrically opposed. As described 

above, as long as there is no “unjust factor” no shift of wealth can be restored, 

i.e. every enrichment is prima facie just. The consequence of this perception is 

23 MARKESINIS ET AL., THE GERMAN LAW OF OBLIGATIONS. VOLUME 1. THE LAW OF CONTRACTS AND 

RESTITUTION 711 (Clarendon Press 1997). 

24 Zimmermann and du Plessis, Basic Features of the German Law of Unjustified Enrichment, RESTITUTION 

LAW REVIEW 18 (1994). 

25 Id. at 24; LARENZ AND CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. BESONDERER TEIL. 2. 

HALBBAND 129 (C.H. Beck 13th ed. 1994). 

26 E.g., GOFF & JONES, THE LAW OF RESTITUTION (Sweet & Maxwell 6th ed. 2002); VIRGO, THE PRINCIPLES 

OF THE LAW OF RESTITUTION (Clarendon Press 1999); Cf., ZWEIGERT AND KÖTZ, AN INTRODUCTION TO 

COMPARATIVE LAW 555 (T. Weir trans., Oxford University Press 3rd ed. 1998). 

27 Cf., Krebs, In Defence of Unjust Factors, OXFORD U. COMPARATIVE LAW FORUM 3 

http://ouclf.iuscomp.org 3, after n. 12 (2000).


[Vol. 05 No. 01 

that the English law of restitution has to deal with the reasons why there is no basis 

for the enrichment, whereas this question is generally irrelevant in Germany. 28 

C. Background Information on “Change of Position” 

I. Germany 

The attempt to locate the defence of “change of position” in German law leads to 

the discovery of several places speaking to the issue. This is due to the fact that no 

law of restitution as such exists and questions of unjust enrichment arise in various 

fields, which are covered by different statutory provisions. The most prominent 

examples of “erasable enrichment,” as it is sometimes called by academic commentators, 

29 can be found in §§ 346 III (termination of contract), 818 III (unjustified enrichment), 

988 et seq. BGB (owner-possessor-relationship) and § 48 II of the Verwaltungsverfahrensgesetz 

(VwVfG – Federal Administrative Procedures Act) . For reasons 

of space and simplicity this examination will only focus on the provisions of 

§§ 812-822, which constitute the central part of the German unjust enrichment law. 

There, § 818 deals with the extent of the enrichment claim. Whereas the first two 

paragraphs of this provision expand it to certain substitutes or even the value of the 

originally obtained object, § 818 III drastically restricts it by stating that “[t]he 

obligation to provide return or compensation for the value is excluded to the extent 

that the recipient is no longer enriched.” In this sentence the change of position 

defence (Wegfall der Bereicherung) is enshrined, which the German Bundesgerichtshof 

(BGH – Federal Court of Justice) regards as “the highest principle of enrichment 

law,” since “the duty of the [defendant] to make restitution must not lead to a reduction 

of his estate which is greater than the amount of the actual enrichment.” 30 It 

is for that notion that German jurists see the change of position defence as central to 

enrichment law, even as characteristic, 31 which has led to the common expression of 

the “mildness” or “weakness” of claims in unjust enrichment. 32 

28 Cf., ZWEIGERT AND KÖTZ, AN INTRODUCTION TO COMPARATIVE LAW 557 (T. Weir trans., Oxford University 

Press 3rd ed. 1998); Riesenhuber, Englisches Restitutionenrecht “in einer Nussschale”, JURISTISCHE 

AUSBILDUNG (JURA) 659 (2002). But, see also §§ 817, 819 II. 

29 Zimmermann & du Plessis, Basic Features of the German Law of Unjustified Enrichment, RESTITUTION LAW 

REVIEW 38 (1994); Dawson, Erasable Enrichment in German Law, 61 Boston U.L.R. 271 (1981). 

30 BGHZ (Decisions of the Federal Court of Justice in civil matters, with volume and starting page) 1, 75 

(81); see also BGHZ 55, 128 (131). 

31 Cf., ZWEIGERT & KÖTZ, AN INTRODUCTION TO COMPARATIVE LAW 583 (T. Weir trans., Oxford University 

Press 3rd ed. 1998); Dickson, The Law of Restitution in the Federal Republic of Germany: A Comparison with 

English Law, 36 I.C.L.Q. 785 (1987). 

32 LARENZ & CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. BESONDERER TEIL. 2. HALBBAND 

295 (C.H. Beck 13th ed. 1994); Hellwege, The Scope of Application of Change of Position in the Law of Unjust


29 

II. England 

It might come as a surprise, but change of position has been acknowledged by statute 

in England for more than 50 years, albeit only in the context of frustrated contracts. 

33 In the common law the recognition took much longer. From the generous 

starting point of the “heresy” 34 in Moses v. Macferlan 35 the courts took a rather hostile 

view towards the defence of change of position. 36 Yet in certain cases of “ministerial 

receipt” 37 and forged bills of exchange 38 as well as estoppel, 39 a defence was 

operative which took account of the changed circumstances of the recipient of a 

benefit. There was, however, no general defence of change of position, which could 

be applied pro tanto to enrichment claims. It took until 1991 when in the seminal 

case of Lipkin Gorman v. Karpnale 40 the defence of change of position was introduced. 

In the words of Lord Goff: “[T]he defence is available to a person whose 

position has so changed that it would be inequitable in all the circumstances to 

require him to make restitution, or alternatively to make restitution in full.” 41 It 

seems to be no exaggeration to state that change of position will in fact constitute 

the “heart” of the English law of restitution, as it does in Germany. Among other 

considerations, this conclusion might be derived from the fact, that in Lipkin Gorman 

not only the defence was recognised, but the whole law of restitution found its 

recognition as a discrete body of the law. Yet their Lordships stressed, that “it 

would be unwise to attempt to define [the defence’s] scope in abstract terms, but 

Enrichment: A Comparative Study, RESTITUTION LAW REVIEW 93 (1999); Zimmermann & du Plessis, Basic 

Features of the German Law of Unjustified Enrichment, RESTITUTION LAW REVIEW 39 (fn. 202) (1994). 

33 See s. 1(2), (3) of the Law Reform (Frustrated Contracts) Act 1943. A more general defence has been 

available in New Zealand by virtue of s. 94B of the Judicature Act 1908, cf., Watts, Restitution and Change 

of Position, 115 L.Q.R. 199 (1999). 

34 GOFF & JONES, THE LAW OF RESTITUTION para. 40-001 (Sweet & Maxwell 6th ed. 2002). 

35 2 Burr 1005 (1760). 

36 Baylis v. Bishop of London, 1 Ch. 127 (1913); Durrant v. The Ecclesiastical Commissioners for England 

and Wales, LR 6 Q.B.D. 234 (1880-81). 

37 I.e., An agent passes on the benefit he received to his principal. Cf., British American Continental Bank 

v. British Bank for Foreign Trade, 1 K.B. 328 (1926); BURROWS, THE LAW OF RESTITUTION 480 (Butterworths 

1993). 

38 The London and River Plate Bank Ltd. v. The Bank of Liverpool Ltd., 1 Q.B. 7 (1896). 

39 Avon County Council v. Howlett, 1 All E.R. 1073 (1983). 

40 2 AC 548 (1991). 

41 Lipkin Gorman v. Karpnale, 2 AC 548, 580 (1991).


[Vol. 05 No. 01 

better to allow the law … to develop on a case by case basis,” 42 in order not “to 

inhibit the development of the defence.” 43 

This leads to problems for the comparative lawyer, because English law so far only 

provides but a sparse guidance with regard to subsequent decisions, while we are 

faced with a German case law of more than 100 years of application of this defence 

by German courts. Consequently, the analysis of English law will, to a certain degree, 

rest on academic opinions, which makes it rather speculative. 44 

D. Basic Principles of the Defence 

I. Loss of Enrichment Related to the Enrichment Object 

One can imagine two main categories, in which an acquired benefit has been subsequently 

“erased.” The first one is related to the object of enrichment itself. If the 

latter is lost, stolen, destroyed, transferred or otherwise depleted without having 

received something in return the defendant will be no longer enriched and can therefore 

in principle plead change of position. The decisive factor in this regard in both 

Germany and England is the question whether the object that was received in the 

first place has indeed been erased from the estate of the defendant or whether there 

is some kind of (partial) substitute for it. This is easily illustrated by a simple case: If 

the defendant has used money he obtained from the plaintiff to buy a car, which is 

equal in value, then there is no loss of enrichment; if the value is less than the 

money received, he is no longer enriched to this extent. 45 There are numerous examples 

in German cases, where change of position has been applied in such a context, 

e.g. an unprofitable sale 46 or bad investments. 47 Even if the agent stole the obtained 

money, the defendant principal can rely on the erasure defence, because 

there is no question of risk allocation or the like. 48 However, if the defendant uses 

42 Id. at 558. (Lord Bridge). 

43 Id. at 580. (Lord Goff). 

44 Cf., Nolan, Change of Position, in LAUNDERING AND TRACING 135 (Birks ed., Clarendon Press 1995); 

GOFF & JONES, THE LAW OF RESTITUTION para. 40-003 (Sweet & Maxwell 6th ed. 2002). 

45 Cf., the example of Lord Templeman in Lipkin Gorman 2 A.C. 548, 560 (1991). 

46 R.G.Z. (Decisions of the former Imperial Court in civil matters) 75, 361. 

47 B.G.H., Monatsschrift für Deutsches Recht (M.D.R.) 1957, 598. Further examples can be found in 

ZWEIGERT & KÖTZ, AN INTRODUCTION TO COMPARATIVE LAW 583 (T. Weir trans., Oxford University Press 

3rd ed. 1998). 

48 R.G.Z. 65, 292. Criticised in Dawson, Erasable Enrichment in German Law, 61 BOSTON UNIVERSITY LAW 

REVIEW 279 (1981).


31 

the money to repay a loan, this results in an equally large economic advantage by 

releasing him from the debt, consequently his enrichment has not “disappeared,” 49 

or in the words of an English judge: “In general it is not a detriment to pay off a 

debt which will have to be paid off sooner or later.” 50 The problems arise when the 

defendant makes use of the enrichment and by doing so saved expenditures he 

would necessarily have incurred, e.g. if he spends the money on his ordinary living 

costs or if he would have bought the aforementioned car in any event, with or without 

the actual enrichment. In these cases the “loss” of the enrichment is not related 

to the actual receipt of the enrichment and therefore no change of position took 

place. 51 

The English view on these aspects is quite similar. Yet there has been some discussion 

on the actual test of causation. One could argue, that change of position can 

only “bite” if the defendant detrimentally relied on the validity of receipt. 52 This 

would have the consequence that theft or destruction by fire and the like would not 

lead to loss of enrichment! 53 However, given that Lord Goff spoke only of “a person 

whose position has … changed” with the aim in mind to “enable a more generous 

approach to … restitution,” 54 one can only come to the conclusion that he was inclined 

to the wider view, 55 namely that change of position must simply be “causally 

linked to the mistaken receipt,” 56 which exactly mirrors the approach of the German 

courts. 57 The similarities between the German and the English solutions be- 

49 B.G.H., Neue Juristische Wochenschrift (N.J.W.) 1985, 2700. 

50 National Westminster Bank Plc. v. Somer International (UK) Ltd., E.W.C.A. Civ. 970, para. 26 (2001). 

(Potter L.J.); Cf., RBC Dominion Securities Inc. v. Dawson, 111 D.L.R. (4th) 230, para. 43 (1994) (Cameron 

J.A.). 

51 See LARENZ & CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. BESONDERER TEIL. 2. HALBBAND 

301 (C.H. Beck 13th ed. 1994); Zimmermann & du Plessis, Basic Features of the German Law of Unjustified 

Enrichment, RESTITUTION LAW REVIEW 39 (1994). 

52 That is the Australian point of view: ‘[The] central element is that the defendant has acted to his or her 

detriment on the faith of the receipt.’ David Securities Pty. Ltd. v. Commonwealth Bank of Australia, 175 

C.L.R. 353, 385 (1992). 

53 Cf., BURROWS, THE LAW OF RESTITUTION 427 (Butterworths 1993). 

54 Lipkin Gorman v. Karpnale, 2 A.C. 548, 580 (1991). 

55 GOFF & JONES, THE LAW OF RESTITUTION para. 40-003 (Sweet & Maxwell 6th ed. 2002); BURROWS, THE 

LAW OF RESTITUTION 427 (Butterworths 1993); Nolan, Change of Position, in LAUNDERING AND TRACING 

146 (Birks ed., Clarendon Press 1995); Key, Change of Position, 58 M.L.R. 506, 511 (1995). 

56 Scottish Equitable Plc. v. Derby, E.W.C.A. Civ. 369, para. 30 (2001). (Walker J.). See also, South Tyneside 

MBC v. Svenska International Plc., 1 All E.R. 545, 563 (1995). (Clarke J.). 

57 B.G.H.Z. 118, 383, 386.


[Vol. 05 No. 01 

come even more obvious if one takes into account one further remark of Lord Goff: 

“[T]he mere fact, that the defendant has spent the money … does not of itself render 

it inequitable that he should be called upon to repay, because the expenditure 

might in any event have been incurred by him in the ordinary course of things.” 58 

As we have seen, this requirement of an “extraordinary” 59 use of the enrichment 

object is also recognized in German law. It is interesting to note that there seems to 

be a relaxation of that principle in both legal systems as far as erroneous overpayments 

of wages and the like are concerned. In Germany, courts have established a 

rebuttable presumption “that such extra sums would be promptly spent to maintain 

[the recipients’] families at a level which they could not otherwise afford.” 60 In 

England, it was held in Skyring v. Greenwood in 1856 that “[i]t is of great importance 

to any man that he should not be led to suppose that his annual income is greater 

than it really is. Every prudent man accommodates his mode of living to what he 

supposes to be his income. It therefore works a great prejudice to any man, if [he 

has to repay].” 61 Thus, in both countries “social considerations” 62 seem to influence 

the standard of proof, which is applied to the defendant. 63 The more the enrichment 

is linked to the earned income and, allegedly, spent on living costs correspondingly, 

the easier Wegfall der Bereicherung can be invoked. 

Moreover, the problem of claims against third parties is addressed in a comparable 

way. If the “erasure” of the original enrichment object leads to a claim against a 

third party (e.g. thief, debtor) one could argue that the original recipient has received 

something for the loss of the benefit and no loss of enrichment took place. 

Yet there is always the risk that the claim is not valuable. It is therefore possible for 

58 Lipkin Gorman v. Karpnale, 2 A.C. 548, 580 (1991). 

59 VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 714 (Clarendon Press 1999); BURROWS, THE LAW OF 

RESTITUTION 428 (Butterworths 1993). 

60 Dawson, Erasable Enrichment in German Law, 61 B.U. L. REV. 286 (1981); Cf., MARKESINIS ET AL., THE 

GERMAN LAW OF OBLIGATIONS. VOLUME 1. THE LAW OF CONTRACTS AND RESTITUTION 763 (Clarendon 

Press 1997). For the courts: R.G.Z. 83, 159 (161); BVerwGE (Decisions of the Federal Administrative 

Court) 8, 261 (270). 

61 107 ENG. REP. 1064, 1067 (1825). Cf., County Council v. Howlett, 1 All E.R. 1073 (1983). Both cases 

concerned ‘estoppel,’ but are likely to be relevant in a change of position context now. 

62 ZWEIGERT & KÖTZ, AN INTRODUCTION TO COMPARATIVE LAW 589 (T. Weir trans., Oxford University 

Press 3rd ed. 1998). 

63 See also, Philip Collins Ltd. v. Davis and Another, 3 All E.R. 808, 827 (2000). (Parker J.).


33 

the defendant to rely on change of position, but the plaintiff can demand the assignment 

of the claim against the third party to him. 64 

Before we turn our attention to the second scenario in which enrichment can be 

erased, one difference between the English and the German system shall be pointed 

out. If the recipient passes on the obtained benefit by way of a gift to a third person, 

it is clear from the aforesaid that he has suffered a loss of enrichment by this. However, 

§ 822 provides that in such a case the plaintiff is allowed to make a Durchgriff 

(“reach-through”) to the donee and can claim back the benefit directly from him. 

The reason for that lies in the fact that the donee is seen as less worthy of protection, 

since he gained something without consideration. 65 The English law, on the 

contrary, does not have a similar “claim extension;” yet there might be proprietary 

claims available, which are more flexible than in German law. 66 In addition to that, 

the donor should be able to bring a restitutionary claim against the donee on the 

ground of a causal mistake, as was recognised in Barclays Bank v. Sims, 67 with the 

consequence that this claim has to be vested in the plaintiff as described above. 68 

II. Loss of Enrichment Related to the Recipient’s Estate 

So far, we have only dealt with change of position related to the enrichment object 

itself. We will now take a broader perspective with regard to the overall estate of 

the party being enriched. 69 What if the benefit as such is still in the hands of the 

defendant, but he has used other means of his assets to do certain things he would 

not have done, had it not been for the enrichment? He could have incurred expenses 

for the improvement or maintenance of the enrichment object, or he might 

have quit his job because of the unjust enrichment. Given the broad “but for”-test of 

causation both legal systems apply for the erasure of an enrichment, it should be no 

problem to regard these situations as a change of position. 70 

64 Nolan, Change of Position, in LAUNDERING AND TRACING 172 (Birks ed., Clarendon Press 1995); VIRGO, 

THE PRINCIPLES OF THE LAW OF RESTITUTION 725 (Clarendon Press 1999); LARENZ & CANARIS, LEHRBUCH 

DES SCHULDRECHTS. ZWEITER BAND. BESONDERER TEIL. 2. HALBBAND 301 (C.H. Beck 13th ed. 1994). 

65 LARENZ & CANARIS, id. at 195. 

66 Just compare the stringent scheme of §§ 985 and the English institutions of trusts and tracing. 

67 Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd., Q.B. 677, 695 (1980). (Goff J.). 

68 Cf., Nolan, Change of Position, in LAUNDERING AND TRACING 171 (Birks ed., Clarendon Press 1995). 

69 This term stems from Birks, OXFORD U. COMPARATIVE L. FORUM 1 at http://ouclf.iuscomp.org, after n. 

1 (2000). 

70 For Germany: MARKESINIS ET AL., THE GERMAN LAW OF OBLIGATIONS. VOLUME 1. THE LAW OF 

CONTRACTS AND RESTITUTION 764 (Clarendon Press 1997); Lieb, in MÜNCHENER KOMMENTAR ZUM


[Vol. 05 No. 01 

Yet there are some German scholars who argue for a limitation of the deductibility 

of expenses to those that have been incurred by the defendant in reliance of the validity 

of the receipt. 71 This would mean that damages caused by the enrichment 

object have to be borne by the recipient (textbook examples include the dog destroying 

the carpet 72). This makes sense, as there is no inner connection to the invalidity 

of the transfer as such. So far, however, German courts have declined to 

adopt this view. In a decision of the BGH in 1991, 73 the judges spoke vaguely of the 

Entreicherungsrisiko (“risk of loss of enrichment”), which shall determine the extent 

to which a change of position took place. While this is clearly a restriction compared 

to the simple test, whether the reduction of the defendant’s estate was causally 

linked to the enrichment, the new formula lacks clarity and has consequently 

been heavily criticised by the academic literature. 74 

Finally, in German law there is one important exception to the rule that causally 

linked expenses can be seen as a change of position. Let us assume that a person 

buys something from a thief in good faith and then resells it to a third person 

equally bona fide. Although the thief cannot pass the title to the first recipient, it is 

possible that the final recipient acquires good title, if the legitimate owner authorises 

the latter transaction or if the first recipient has made considerable alterations 

to the object (e.g. a butcher making sausages out of the obtained pigs). The question 

now is whether the defendant first recipient can deduct the purchase price paid to 

the thief from the claim of the original owner. 75 It is generally accepted that he cannot, 

because this would undermine the law of property. If the original owner had 

instituted a vindicatory claim pursuant to § 985 as long as the first recipient was 

BÜRGERLICHEN GESETZBUCH. BAND 5. SCHULDRECHT. BESONDERER TEIL III §§ 705-853, § 818, para. 56 

(Rebmann et al. eds., C.H.Beck 3rd ed. 1997). For England: Birks, Restitution – The Future 135; Key, 

Change of Position, 58 M.L.R. 509 (1995); Hellwege, The Scope of Application of Change of Position in the Law 

of Unjust Enrichment: A Comparative Study, RESTITUTION LAW REVIEW 114 (1999). 

71 LARENZ & CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. BESONDERER TEIL. 2. HALBBAND 

296, 300 (C.H. Beck 13th ed. 1994); Lieb, id. at para. 56 a (but see also 68). It should be noted that this 

approach differs from the aforementioned narrow concept discussed in English law insofar as it only 

affects expenses, not the object itself. 

72 Lieb, in MÜNCHENER KOMMENTAR ZUM BÜRGERLICHEN GESETZBUCH. BAND 5. SCHULDRECHT. 

BESONDERER TEIL III §§ 705-853, § 818, para. 68 (Rebmann et al. eds., C.H.Beck 3rd ed. 1997). 

73 B.G.H.Z. 116, 251. 

74 Cf., Lieb, in MÜNCHENER KOMMENTAR ZUM BÜRGERLICHEN GESETZBUCH. BAND 5. SCHULDRECHT. 

BESONDERER TEIL III §§ 705-853, § 818, para. 59 a with further references (Rebmann et al. eds., C.H.Beck 

3rd ed. 1997). 

75 The claim is based on § 816 I 1 or § 812 I 1 2nd alt. respectively, so called Eingriffskondiktion, because 

of the first recipient’s encroachment into the owner’s property right.


35 

still in possession of the enrichment object, there would be no such defence; the 

mere fact that he passed it on is not sufficient to change his position in this regard. 76 

It seems that English law would not have to address this problem in a comparable 

manner, since there might be more flexible proprietary solutions for the owner and 

the (controversial) application of the erasure defence to such claims, which is discussed 

next. In fact, the situation could be vice versa, the first recipient claiming 

back an enrichment, which the owner might have received in form of improvements. 

77 

III. Applicability of the Defence to Different Types of Claims 

In England, the application of change of position to different types of claims “is, 

perhaps, the most difficult task to be undertaken by anyone considering the defence.” 

78 Whilst it is accepted that change of position applies to all claims based on 

unjust enrichment in the narrow sense, 79 it is a matter of controversy whether restitution 

for wrongs and proprietary claims are also covered. To begin with, the 

statements of their Lordships in Lipkin Gorman were relatively broad, speaking of 

unjust enrichment claims in general, i.e. restitutionary claims. 80 The remark of Lord 

Goff, that “it is commonly accepted that the defence should not be open to a 

wrongdoer,” 81 should not be interpreted in the direction that all claims related to 

wrongs are outside the scope of change of position, 82 but rather in the sense that the 

defence is not open to defendants acting in bad faith. 83 As far as proprietary claims 

and especially remedies are concerned, the majority of academics tend to favour an 

76 Cf., B.G.H.Z. 55, 176, 179; LARENZ & CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. 

BESONDERER TEIL. 2. HALBBAND 302 (C.H. Beck 13th ed. 1994); Zimmermann & du Plessis, Basic Features 

of the German Law of Unjustified Enrichment, RESTITUTION LAW REVIEW 40 (1994). 

77 See Greenwood v. Bennett, Q.B. 195 (1973). This also raises questions of subjective devaluation, which 

are outside the scope of this paper. 

78 Nolan, Change of Position, in LAUNDERING AND TRACING 175 (Birks ed., Clarendon Press 1995) (concerning 

proprietary claims). 

79 See, VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 725 (Clarendon Press 1999). 

80 2 A.C. 548, 558 (Lord Bridge), 568 (Lord Ackner), 579 (Lord Goff, explicitly referring to tracing at 581); 

GOFF & JONES, THE LAW OF RESTITUTION para. 40-001 (Sweet & Maxwell 6th ed. 2002). 

81 Id. at 580. 

82 Yet this is what Burrows does in The Law of Restitution. BURROWS, THE LAW OF RESTITUTION 431 (Butterworths 

1993). 

83 VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 727 (Clarendon Press 1999); Hellwege, The Scope of 

Application of Change of Position in the Law of Unjust Enrichment: A Comparative Study, RESTITUTION LAW 

REVIEW 99 (1999) (arguing, inter alia, with Boardman v. Phipps, 2 A.C. 46 (1967)). See further below E.


[Vol. 05 No. 01 

application of the defence, 84 yet one must bear in mind that it is a difficult decision, 

whether to emphasize the title or the security of receipt. 85 

German law indicates that it might be complicated to develop a change of position 

defence that applies equally to all kinds of restitutionary claims. As shown in section 

C.I above., the fragmented German law of restitution uses different kinds of 

loss of enrichment defences. Most notably in the law of property, the vindicatio 

(§ 985) is flanked by a defence 86 which allows the defendant possessor to deduct 

only necessary and useful expenditures on the object itself (§§ 994, 996); the German 

legislator has thereby valued a proprietary claim higher than one in “ordinary” 

unjust enrichment. Seen in this light the general application of the defence in England 

to different types of claims should be considered very carefully. 

At the end of this section, one can conclude that the differences behind the basic 

principles of the loss of enrichment defence in German and English law are by and 

large marginal, since the same test of causation is operative. Normally the outcome 

will be the same, which becomes especially apparent in the case of overpaid wages, 

bearing in mind, however, that the comparison focused only on § 818 III. This 

clearly means that the plaintiff bears all the risks, which can diminish the enrichment 

received by the defendant. 87 This statement, however, is subject to the following 

considerations. 

E. Fault and Knowledge 

The question of which role should be accorded to fault in relation to change of position 

is of great importance. But before addressing this problem in more detail, it is 

necessary to clarify its greater context. Firstly, fault can be attributed to the plaintiff 

as well as the defendant. It is quite clear that the fault of the latter deserves greater 

attention in the context of a defence, but it might be necessary to consider the fault of 

the former under certain circumstances. Secondly, the fault of the defendant can be 

84 GOFF & JONES, THE LAW OF RESTITUTION para. 40-002 (Sweet & Maxwell 6th ed. 2002); BURROWS, THE 

LAW OF RESTITUTION 431 (Butterworths 1993); Nolan, Change of Position, in LAUNDERING AND TRACING 

176, 178 (Birks ed., Clarendon Press 1995). See also, Westdeutsche Landesbank Girozentrale v. Islington 

London Borough Council, A.C. 669, 716 (1996). (Lord Browne-Wilkinson). 

85 Cf., VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 728 (Clarendon Press 1999). 

86 Precisely it is a counter-claim; but the effect is the same as a loss of enrichment defence. Cf., in this 

context Greenwood v. Bennett, Q.B. 195 (1973). 

87 Cf., ZWEIGERT & KÖTZ, AN INTRODUCTION TO COMPARATIVE LAW 583 (T. Weir trans., Oxford University 

Press 3rd ed. 1998) ); GOFF & JONES, THE LAW OF RESTITUTION para. 40-006 (Sweet & Maxwell 6th ed. 

2002).


37 

related to the reason why restitution is granted, and thirdly, it can be linked with 

the defendant’s erasure of the enrichment. Fourthly, if fault is under scrutiny, one 

must always discuss which degree of it is relevant to trigger certain consequences. 

I. Fault Related to the Reason for Restitution 

In German law, §§ 818 IV, 819 I deal with fault within the change of position defence. 

Broadly speaking, these norms provide for the defendant’s liability under the 

general clauses of the German law of obligations in §§ 241-432 if he is at fault. This 

means that he must compensate the plaintiff for any loss in relation to the enrichment 

object (§§ 292 I, 990 I, 989), though he might not be to blame for it (§ 287 s. 2), 

and he even has to account for profits made by disposing of the enrichment object 

(e.g. a profitable sale, § 285). 88 The drafters of the BGB therefore did not merely 

exclude the loss of enrichment defence in case of the defendant’s fault, but “sharpened” 

his liability, to use a common phrase in German law. But what does fault 

mean in this context? We are not referring here to any connotations of guilt and 

culpable states of mind; instead, we are concerned with a question of knowledge. 

Section 818 IV provides that after the plaintiff has started proceedings in order to be 

compensated for the unjust enrichment of the defendant, the latter incurs an increased 

liability, since he knows from this moment that he might have to give back 

the enrichment object. This case, however, is relatively clear-cut. Section 819 I is 

more problematic: It effectively bars the plaintiff from pleading change of position 

if he “knows of the lack of a legal cause [i.e. ground for restitution] at the time of 

the receipt, or if he later learns of this lack.” Until recently, the predominant view 

among German courts and academics was that a defendant must have positive 

knowledge of all the facts giving rise to restitution and of the legal consequence, i.e. 

an obligation to make restitution. 89 This led to the questionable result that an enrichee, 

knowing that the enricher had laboured under a mistake, but nevertheless 

believed that he was entitled to the transferred benefit, could plead change of position. 

Consequently, this notion led to a complete twisting of the old rule error iuris 

nocet. 90 In a recent decision, however, the BGH revised its former case law and held 

that a defendant who has positive knowledge of all the facts, but deliberately ignores 

the legal consequences (bewusstes Sichverschließen), will get caught by § 819 I. 91 

88 B.G.H.Z. 75, 203, 205; 83, 293, 298; LARENZ & CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. 

BESONDERER TEIL. 2. HALBBAND 314 (C.H. Beck 13th ed. 1994). 

89 B.G.H., N.J.W. 1992, 2415, 2417; Lieb, in MÜNCHENER KOMMENTAR ZUM BÜRGERLICHEN GESETZBUCH. 

BAND 5. SCHULDRECHT. BESONDERER TEIL III §§ 705-853, § 819, para. 2 (Rebmann et al. eds., C.H.Beck 3rd 

ed. 1997). 

90 Equivalent to ‘No one must be ignorant of the law.’ Cf., Jewell, The Boundaries of Change of Position – A 

Comparative Study, RESTITUTION LAW REVIEW 25 (2000). 

91B.G.H., N.J.W. 1996, 2652, 2653.


[Vol. 05 No. 01 

To sum up, a mixture of actual knowledge (of the factual circumstances) and a kind 

of constructive knowledge (willful ignorance of the law) will exclude the application 

of change of position. Yet it has to be stressed that even conscious doubt on the 

validity of the receipt is not in itself sufficient to trigger that result. 92 

Let us turn now to England. In Lipkin Gorman, several remarks of their Lordships 

(“changed position in good faith,” 93 “innocent defendant,” “bona fide change of 

position” 94) made clear that fault will prevent the application of the loss of enrichment 

defence by the defendant. The reason for this, clearly, is an outflow of the 

principle that it must be “inequitable” 95 for the defendant to render restitution if he 

changed his position, which is not the case, when he acted mala fide. 96 While it goes 

without saying that a recipient with positive knowledge that he is not entitled to 

the obtained benefit, cannot plead change of position, the question of where to 

draw the line is still a matter of (academic) controversy. One camp displays great 

reluctance to grant the position whereby the honest, but careless defendant is entitled 

to apply the loss of enrichment defence. 97 Other commentators would like to 

extend the exclusion of the defence to enrichees who knew or ought to have known 

that their receipt was invalid. 98 

Yet the latter ones also tend to approve of a “mutual fault assessment” approach, 

which is applied, for example, in New Zealand 99 (“contributory negligence”) and to 

92 With the exception of § 818 IV, however. This is overlooked by Goff and Jones in The Law of Restitution. 

GOFF & JONES, THE LAW OF RESTITUTION para. 40-007 (esp. fn. 93) (Sweet & Maxwell 6th ed. 2002). See 

also, Jewell, The Boundaries of Change of Position – A Comparative Study, RESTITUTION LAW REVIEW 19 

(2000). 

93 2 A.C. 548, 558 (1991). (Lord Bridge) 

94 Id. at 579 (Lord Goff). 

95 Id. at 580 (Lord Goff). 

96 VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 720 (Clarendon Press 1999). 

97 GOFF & JONES, THE LAW OF RESTITUTION para. 40-007 (Sweet & Maxwell 6th ed. 2002); See also, Jewell, 

The Boundaries of Change of Position – A Comparative Study, RESTITUTION LAW REVIEW 43 (2000), in which 

Jewell wants to include recklessness in the knowledge requirement. There is some judicial support from 

New Zealand for this proposition: National Bank of New Zealand v. Waitaki International Processing 

(NI) Ltd., 2 N.Z.L.R. 211 (1999). But, see below. 

98 VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 721 (Clarendon Press 1999); Nolan, Change of Position, 

in LAUNDERING AND TRACING 158 (Birks ed., Clarendon Press 1995). 

99 Thomas v. Houston Corbett and Co., N.Z.L.R. 151 (1969); Watts, Restitution and Change of Position, 115 

L.Q.R. 199 (1999).


39 

a certain extent in the United States 100 (“relative fault”). The first concept would 

mean that the defendant would be barred from using the defence of loss of enrichment 

insofar as he negligently contributed to the reason for restitution, 101 the second 

concept would mean that he is excluded from the defence if he is more at fault. 102 

Both methods therefore would entail the assessment of the defendant’s and the 

plaintiff’s responsibility for the reasons leading to restitution. It is submitted that 

especially the former approach seems to be most appropriate to balancing the contrary 

interests of enricher (seeking restitution) and enrichee (trusting the security of 

receipt). The all-or-nothing method in Germany appears to be too rigid, since it 

nearly completely disregards the fact that every deduction from the defendant’s 

enrichment leads to a corresponding loss of the plaintiff and should only be preserved 

for situations in which the recipient has a completely clean slate. It would 

therefore be desirable if English law followed the flexible “contributory fault” 

scheme as developed in New Zealand. In a recent advice of the Privy Council, 103 

however, Lord Bingham and Lord Goff held that they are “most reluctant to recognise 

the propriety of introducing the concept of relative fault into this branch of the 

common law, and indeed decline to do so” describing it as an “alien concept.” 104 

This is regrettable as it seems that a valuable chance has been missed for the 

development of the change of position defence in a way that would make it 

comparable to the long established and well-working institution of ‘contributory 

negligence’ which we know from the law of tort. 105 

II. Fault Related to the Erasure of the Enrichment 

This section is concerned with the question whether the defendant’s conduct in 

using the enrichment object is relevant to the application of the loss of enrichment 

100 See § 142(2) and Comments (c) and (e) in Scott, A.W. & Seavy W.A., RESTATEMENT OF THE LAW OF 

RESTITUTION, QUASI CONTRACTS AND CONSTRUCTIVE TRUSTS (American Law Institute 1937); Blue Cross 

and Blue Shield of Alabama v. Weitz, 913 F.2d 1544, 1549 (esp. fn. 9) (1990); ZWEIGERT & KÖTZ, AN 

INTRODUCTION TO COMPARATIVE LAW 591 (T. Weir trans., Oxford University Press 3rd ed. 1998); critical 

Dawson, Erasable Enrichment in German Law, 61 B.U. L. REV. 304 (1981). 

101 VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 722 (CLARENDON PRESS 1999) ); Nolan, Change of 

Position, in LAUNDERING AND TRACING 156 (Birks ed., Clarendon Press 1995). 

102 BURROWS, THE LAW OF RESTITUTION 429 (London: Butterworths 1993); Nolan, id.; Key, Change of Position, 

58 M.L.R. 515 (1995); See also, the recommendation of the Law Commission for England and Wales, 

Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments para. 2.22 (Law 

Com. No. 227, London: HMSO 1994). 

103 The final Court of Appeal for a number of Commonwealth countries. 

104 Dextra Bank & Trust Co. Ltd. v. Bank of Jamaica, 1 All E.R. (Commercial Cases) 193, para. 45 (2002). 

105 See the Law Reform (Contributory Negligence) Act 1945.


[Vol. 05 No. 01 

defence. Does it matter whether the received benefit was destroyed by accident, by 

the enrichee’s negligence or even willful act? In Germany as well as in England the 

predominant view is that the defendant is not required to act reasonably, since the 

honest recipient can rely on the validity of the receipt and therefore he can deploy 

his resources as he thinks fit. 106 Yet one has mixed feelings about granting the 

change of position to a defendant who washes the unjustly obtained money in the 

washing machine or even burns it. 107 One is inclined to follow Burrows, who does 

indeed want to introduce an exception, even if only for such extreme situations. 108 

In the context of the termination of contracts the German legislator has taken account 

of those situations by stating that loss of enrichment can only be pleaded if 

the recipient “has taken the care which he usually takes in his own affairs” (§ 346 III 

1 No. 3). 109 This seems to be a good solution, since the defence is only excluded if 

the defendant has acted unreasonably as measured by his own standards (so-called 

diligentia quam in suis 110 ). It should be adopted for the general change of position 

defence. 

F. Loss of Enrichment in Anticipation of Receipt 

The question whether an innocent enrichee can deduct expenses from the enrichment, 

which were made before the actual receipt, is debated at length in England. 

As a starting point, reference is often made to § 142(1) of the American Restatement of 

Restitution, which provides that the change of circumstances can be taken into account 

“after the receipt of the benefit.” 111 This view has found support in two first 

instance decisions. In the case of Westdeutsche Landesbank Girozentrale v. Islington 

LBC it was held that it must be evaluated whether the defendant’s position has 

106 For Germany: Lieb, in MÜNCHENER KOMMENTAR ZUM BÜRGERLICHEN GESETZBUCH. BAND 5. 

SCHULDRECHT. BESONDERER TEIL III §§ 705-853, § 818, para. 70 (Rebmann et al. eds., C.H.Beck 3rd ed. 

1997); Jewell, The Boundaries of Change of Position – A Comparative Study, RESTITUTION LAW REVIEW 44 

(2000). For England: BIRKS, AN INTRODUCTION TO THE LAW OF RESTITUTION 62 (Clarendon Press 1985); 

GOFF & JONES, THE LAW OF RESTITUTION para. 40-006 (Sweet & Maxwell 6th ed. 2002); Key, Change of 

Position, 58 M.L.R. 517 (1995); Law Commission for England and Wales, Restitution: Mistakes of Law 

and Ultra Vires Public Authority Receipts and Payments para. 2.23 (Law Com. No. 227, London: HMSO 

1994). 

107 This seems to be of no problem for Key. ); Key, Change of Position, 58 M.L.R. 516 (1995). 

108 BURROWS, THE LAW OF RESTITUTION 431 (Butterworths 1993). 

109 Critical of this approach: Zimmermann, Restitution after Termination for Breach of Contract in German 

Law, RESTITUION LAW REVIEW 24 (1997). 

110 ‘The same care that he exercises for his own affairs.’ 

111 Emphasis added.


41 

changed “since he received [the benefit].” 112 This notion is expressed more clearly in 

South Tyneside MBC v. Svenska, where Mr. Justice Clarke held that “save perhaps in 

exceptional circumstances, the defence of change of position is confined to changes 

which take place after receipt.” 113 The judge feared that otherwise the defendant 

would rely upon the supposed validity of a void contract, whereas Prof. Burrows 

argued that the acknowledgement of “anticipatory reliance” as a valid change of 

position leads to the protection of a mere expectation, which is generally alien to 

the law. 114 

This string of arguments is highly contestable. To begin with, it seems merely arbitrary 

to distinguish between anticipatory and actual reliance. If the defendant has 

been informed that he will receive a certain amount of money and gives a different 

sum to charity in reliance of the receipt, can it matter whether the money was actually 

in the defendant’s account at the time he made the donation? Maybe the transfer 

of the money has simply been delayed in the banking system. 115 Secondly, we 

must bear in mind that “anticipatory reliance” is not a cause of action, but part of a 

defence. 116 Therefore, it is not just an issue of the protection of an expectation, but 

the protection of a fulfilled expectation, since questions of loss of enrichment can 

only arise when the benefit was actually received. This leads us to a third point. 

One can clearly show that it is justified that the plaintiff takes the risk of the defendant’s 

loss of enrichment before receipt. By incurring expenses prior to the actual 

enrichment the defendant bears the risk that his expectation of an enrichment 

might not be fulfilled, but not more; once the benefit has been transferred, his situation 

is in no way different from a defendant who changes his position after receipt. 

117 Finally, given the “but for”-test of causation, one can truly come to the conclusion 

that it would be inequitable for the defendant to be required to make restitution 

if he has disbursements causally linked to the enrichment, but made before the 

actual receipt. 

112 Westdeutsche Landesbank Girozentrale v. Islington LBC, 4 All E.R. 890, 948 (1994). (Hobhouse J.). 

Emphasis added. 

113 1 All E.R. 545, 565 (1995). 


115 Example from Key, Change of Position, 58 M.L.R. 514 (1995); Nolan, Change of Position, in LAUNDERING 

AND TRACING 165 (Birks ed., Clarendon Press 1995). 

116 Cf., VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 719 (CLARENDON PRESS 1999); Jewell, Change of 

Position, in LESSONS OF THE SWAPS LITIGATION 275 (Birks et al. eds., Mansfield Press 2000). 

117 Nolan, Change of Position, in LAUNDERING AND TRACING 166 (Birks ed., Clarendon Press 1995); Jewell, 

id. at 279; Key, Change of Position, 58 M.L.R. 513 (1995).


[Vol. 05 No. 01 

These overwhelming reasons seem to have influenced the judiciary, too. The advice 

of the Privy Council in Dextra Bank & Trust Co. Ltd. v. Bank of Jamaica has made it 

clear, that “anticipatory reliance” must be regarded as a change of position. 118 

Therefore, one need be no prophet to say that English law will adopt that conclusion. 

In Germany, the problem of “anticipatory reliance” has attracted far less attention. 

One reason might be that the courts have always regarded it as a case of loss of 

enrichment. 119 This can be exemplified by a well-known case in which the defendant 

was notified by his employer that he would receive a considerable amount of 

money as a grant to cover medical costs. In expectation of this benefit he bought his 

wife an expensive muskrat fur coat. After receiving the payment, it turned out that 

the defendant was not entitled to the allowance. The subsequent claim in unjust 

enrichment was dismissed because of loss of enrichment. The Oberverwaltungsgericht 

(Higher Administrative Court) of Hamburg held, that “[i]t is sufficient, if the 

[incurred] loss antedates the actual receipt … as long as the loss is causally linked to 

the receipt.” 120 In public law the parliament has expressed this more clearly than in 

the succinct § 818 III. Section 48 II 1 of the Federal Administrative Procedures Act 

speaks broadly of Vertrauensschutz (the protection of reliance) as the concept behind 

change of position. 

We can therefore conclude that better reasons exist for the acknowledgement of 

“anticipatory reliance” as part of the loss of enrichment defence. This concept has 

been applied without problems for a long time in Germany and it seems as if English 

law will take the same course. 

G. Counter-Restitution and Saldotheorie 

In Lipkin Gorman Lord Goff stated, that the defence of change of position “is likely 

to be available on comparatively rare occasions.” 121 As far as the German law is 

concerned, we find a high degree of compatibility with the view expressed by Lord 

Goff. 122 The reason for that lies in the fact that restitution is often granted in the 

118 Dextra Bank & Trust Co. Ltd. v. Bank of Jamaica, 1 All E.R. (Commercial Cases) 193, para. 35 (2002); 

See also Thomas v. Houston Corbett and Co., N.Z.L.R. 151, 164 (1969). (North P.). 

119 R.G.Z. 137, 324, 336; B.G.H.Z. 1, 75, 81. 

120 Oberverwaltungsgericht Hamburg, Neue Zeitschrift für Verwaltungsrecht (NVwZ) 73, 74 (1988). 

121 2 A.C. 548, 580 (1991). 

122 If one believes Chen-Wishart, Unjust Factors and the Restitutionary Response, 20 O.J.L.S. 561 (2000), this 

might be true for England, too.


43 

context of contracts, which involve the mutual exchange of performances between 

the parties. Contracts in this respect are called synallagmatic contracts. An example 

might illustrate the problem in relation to loss of enrichment: P buys a car worth 

£9,000 from D for £10,000 and destroys it in an accident two weeks later due to his 

own negligence. It subsequently turns out that the sales contract was void. Under 

§ 812 I 1, P can now claim back the purchase price since it was paid “without legal 

cause,” and D can demand the car accordingly. Yet the car is completely worthless 

and therefore P can plead loss of enrichment. At the end of the day, P receives 

£10,000 and D nothing. This result is referred to in Germany as the Zweikondiktionentheorie 

or the theory of the two separate enrichment claims. 

Shortly after the enactment of the BGB the courts were dissatisfied with that outcome 

and “invented” the so-called Saldotheorie or net-gain theory. 123 It is based on 

the consideration that the defendant, relying on the security of his receipt (which is 

the basis of the change of position defence), must also remain aware of the fact that 

he only received the enrichment because he gave something in return. In other 

words: There are two parties trusting in the security of receipt, both are likewise 

worthy of protection, which effectively means that security of receipt is “neutralised” 

124 as a factor. This means that each of them has to bear his own loss: Casum 

sentit dominus. 125 Consequently, the application of the change of position defence is 

excluded in cases of synallagmatic contracts; the risk of loss of enrichment is shifted 

back from the plaintiff to the defendant. Finally, the Saldotheorie leads to an automatic 

set-off of both claims in unjust enrichment expressed in monetary terms. In 

this light, we would apply the law in the above example in the following way: In 

principle, D can claim £9,000 (the value of the car) from P, who cannot plead the 

loss of enrichment defence, P can claim £10,000 from D; yet both claims are balanced 

out against each other with the consequence that P can demand £1,000 from 

D, the Saldo or net-gain. 

The Saldotheorie has remained a matter of controversy among academics, 126 but it is 

still the preferred solution by judges dealing with restitution in relation to synallagmatic 

contracts. Yet it is clear that it can only be applied if both parties deserve 

123 R.G.Z. 54, 137, 141; B.G.H., N.J.W. 1988, 3011; Lieb, in MÜNCHENER KOMMENTAR ZUM BÜRGERLICHEN 

GESETZBUCH. BAND 5. SCHULDRECHT. BESONDERER TEIL III §§ 705-853, § 818, para. 85 (Rebmann et al. 

eds., C.H.Beck 3rd ed. 1997). 

124 To the point: Jewell, The Boundaries of Change of Position – A Comparative Study, RESTITUTION LAW 

REVIEW 35 (2000). 

125 Equivalent to ‘The loss lies where it falls.’ 

126 See most notably LARENZ & CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. BESONDERER 

TEIL. 2. HALBBAND 321 (C.H. Beck 13th ed. 1994) with further references.


[Vol. 05 No. 01 

the same level of protection. In cases of minors, fraud, and duress the courts have 

resorted to the Zweikondiktionentheorie, so that the innocent party is only liable to 

return the surviving enrichment. 127 

In England the problem of mutual restitution has been addressed from a different 

angle, namely as the defence of “counter-restitution impossible.” 128 Originally a 

claim in restitution could only succeed if the plaintiff was able to give back to the 

defendant, what he had originally received from him (restitutio in integrum), since 

otherwise the plaintiff would have been unjustly enriched. 129 The courts were reluctant 

to make a valuation of the benefit received by the plaintiff, when he did not 

retain it in its original form and therefore denied restitution if (precise) counterrestitution 

was impossible. 130 This has rightly been described by Prof. Birks as 

“overkill,” 131 because “assuming solvency, it is always possible for the plaintiff to 

pay the defendant a sum of money for the value of the benefit received.” 132 Whilst 

there are some cases that indicate that the judiciary is willing, at least in equity, to 

depart from the strict rule 133 and the uniform academic demand for its abolishment, 

134 there is so far no authority, which clearly favours the general valuation of 

the counter-restitution in monetary terms. 135 If English law made such a desirable 

127 Cf., B.G.H.Z. 57, 137, 150; LARENZ & CANARIS, LEHRBUCH DES SCHULDRECHTS. ZWEITER BAND. 

BESONDERER TEIL. 2. HALBBAND 329 (C.H. Beck 13th ed. 1994); MARKESINIS ET AL., THE GERMAN LAW OF 

OBLIGATIONS. VOLUME 1. THE LAW OF CONTRACTS AND RESTITUTION 765 (Clarendon Press 1997). 

128 It seems to be controversial whether it is a defence or bar, and whether there is a separate cause of 

action for the defendant for counter-restitution based on total failure of consideration. But these considerations 

are of little relevance for the purpose of this paper. 

129 Spence v. Crawford, 3 All E.R. 271, esp. 288 (1939). (Lord Wright); Adam v. Newbigging, 13 APP. CAS. 

308 (1888). 

130 This resembles the approach in relation to total failure of consideration, cf., McKendrick, Total Failure 

of Consideration and Counter-Restitution: Two Issues or One?, in LAUNDERING AND TRACING 217(Birks ed., 

Clarendon Press 1995). 

131 In RESTITUTION – THE FUTURE 129 (The Federation Press 1992). 


133 Erlanger v. New Sombrero Phosphate Co., 3 APP. CAS. 1218 (1878); O’Sullivan v. Management Agency 

and Music Ltd., Q.B. 428 (1985). 

134 McKendrick, Total Failure of Consideration and Counter-Restitution: Two Issues or One?, in LAUNDERING 

AND TRACING 233 (Birks ed., Clarendon Press 1995); VIRGO, THE PRINCIPLES OF THE LAW OF RESTITUTION 

691 (Clarendon Press 1999); Birks, RESTITUTION – THE FUTURE 129 (The Federation Press 1992); BURROWS, 

THE LAW OF RESTITUTION 134 (Butterworths 1993). 

135 On the contrary, see Smith New Court Securities Ltd. v. Scrimgeour Vickers, 1 W.L.R. 1271, esp. 1280 

(1994). (Nourse L.J.).


45 

step, there would hardly be a difference to the German Saldotheorie, at least with 

respect to the outcome. Turning back to our example, P would be able to claim 

£10,000, but would be obliged to return the value of the car (£9,000). Surely, D 

would opt for a set-off, which would leave P with £1,000. 

Correctly, Nolan has asked whether or not the question of counter-restitution is 

merely a specific instance of loss of enrichment 136 (and indeed Prof. Birks subsumed 

it under that heading 137), since the same results might be achieved more coherently, 

if one simply allows the defendant to deduct from his enrichment the value of what 

he has given to the plaintiff before. 138 

While the development in English law is still at an early stage, some critical remarks 

on the German Saldotheorie seem appropriate. This theory is in fact nothing 

more than a rough “rule of thumb.” It does not sufficiently take into account the 

degree of fault attributable to plaintiff and defendant, it is inconsistent with the 

rules on the termination of contracts (§ 346 III 1 No. 3), fails to address the problem 

of random loss of enrichment adequately and ignores the difficulties in cases of 

advance performance. An approach similar to the one developed in Section E. 

above, namely a concept of “mutual fault assessment” as a basis for allocating the 

risks, seems more appropriate to the author. English law should therefore carefully 

consider not to adopt the German solution, even if it is just in the outcome. 

H. Conclusion 

The examination of the application of the change of position defence in Germany 

and England reveals considerable concordances between both legal orders. Most 

notably in the context of causation, anticipatory reliance and to some extent fault, 

there is hardly a difference, either in the concept, or in the outcome. It is apparently 

no coincidence since German enrichment law has been discussed in several English 

articles, which have even influenced the leading work on restitution, Goff and 

Jones, 139 let alone the fact that on reading the works of some English academics the 

reader who is familiar with German enrichment law will detect some interesting 

parallels. Yet it has to be noted that the tendency among English scholars to develop 

a loss of enrichment defence encompassing all restitutionary claims does not 

136 Nolan, Change of Position, in LAUNDERING AND TRACING 187 (Birks ed., Clarendon Press 1995). 

137 Birks, RESTITUTION – THE FUTURE 128 (The Federation Press 1992). 

138 This solution has never gained significant acceptance in Germany, since it would undermine the basic 

rule of restitution in kind; anyway, the Saldotheorie has clearly overridden such a straightforward approach. 

139 See the references to the German approach at para. 40-005.


[Vol. 05 No. 01 

fit into that pattern, since German law has made use of different change of position 

defences for good reasons. 

As has been pointed out on several occasions in the text, the German solution to 

change of position is not free of flaws. The sacrosanct principle whereby a bona fide 

defendant must under no circumstances be required to return more than the surviving 

enrichment has been “enforced with an unrelieved rigor and disregard of 

consequences that would be hard to find elsewhere in modern German law.” 140 It is 

the author’s firm belief that a flexible approach would be more appropriate, balancing 

the responsibilities of defendant and plaintiff in a more equitable way. This 

should be done by adopting a “mutual fault assessment.” 

English law, therefore, should not follow the current German law in this regard, but 

rather develop its own way, hopefully based on a relative fault approach combined 

with the unrestricted valuation of claims and counter-claims. Since the defence of 

change of position is still in its youth in England, such a hope does not seem to be 

illusory. 

140 Dawson, Erasable Enrichment in German Law, 61 B.U. L. REV. 272 (1981).


Relative Normativity and the Constitutional Dimension 

of International Law: A Place for Values in the International 

Legal System? 

By Stefan Kirchner * 


While International Law becomes more and more specialized, a tendency towards 

Fragmentation becomes visible: more and more sub-regimes of International Law 

emerge, leading to an increased number of rules. With the creation of more subregimes, 

cases are becoming more likely in which more than one sub-regime is involved 

and the question arises, which sub-regime’s rules take precedence. Recent 

examples for such collisions of regimes include the relation between Free Trade and 

the Protection of the Environment in the Yellowfin-Tuna Case between the United 

States and Mexico which was settled only in January 2002, the Tadic-Nicaragua Debate 

1 and the Swordfish Case between the European Community and Chile, 2 including 

the need for some form of internal order or hierarchy within International Law. 

Twenty Years after Weil’s pioneering - yet critical - article, 3 based on an earlier 

French text, 4 the idea of Relative Normativity in International Law remains a con- 

* Diploma in International Law (with distinction) (University of Helsinki); Diploma in International 

Humanitarian Law (ICRC Geneva / IFHV Bochum / DRK Bonn); student aide (studentische Hilfskraft) to 

Prof. Dr. Thilo Marauhn, M.Phil. (Wales) at the Chair for Public, International and European Law at the 

Faculty of Law of Justus Liebig - University in Giessen, Germany. Email: kirchner@justice.com. This 

article is based on research undertaken for a Diploma Thesis entitled “Hierarchy and Relative Normativity 

in Today’s and Tomorrow’s International Law - A Public Law Approach to Reconciling Constitutionalization and 

Fragmentation with the Aim of Providing Legal Certainty and Guidance on Today’s Hard Choices in International 

Law based on Common Values of the International Community”, which has been submitted by the Author to 

the Eric Castrén Institute of International Law and Human Rights at the Faculty of Law of Helsinki 

University in August 2003. 

1 cf. note. 46. 

2 cf. Christian Walter, Constitutionalizing (Inter)national Governance - Possibilities for and Limits to the Development 

of an International Constitutional Law, in: 44 GERMAN YEARBOOK OF INTERNATIONAL LAW 170-90 

(2001). 

3 Prosper Weil, Towards Relative Normativity in International Law?, in 77 AMERICAN JOURNAL OF 

INTERNATIONAL LAW 413 (1983).


[Vol. 05 No. 01 

troversial one. 5 Yet three recent developments indicate that Relative Normativity 

has found its place in the international legal system. Shelton 6 identifies the following 

factors as the main causes for the growing interest in the issue: (1) the reduced 

importance of state consent for the creation of International Law; 7 (2) the expansion 

of International Law as such, 8 which in turn makes the international legal system 

more complex 9 than ever before; and (3) the emergence of International Criminal 

Law and the subsequent need to define the relationship between rules of International 

Criminal Law on the one hand and jus cogens as well as obligations erga omnes 

on the other hand. 10 

In this article we will examine the role of both jus cogens and Relative Normativity 

in contemporary International Law and the potential for a Constitutional Dimension 

of International Law to give a place to the (few) common values the international 

community can agree on and finally ask if and how International Constitutional 

Law can be utilized in order to answer some of today’s most pressing questions 

in International Law. 

B. The Role of jus cogens in Contemporary International Law 

I. The controversy surrounding the jus cogens concept 

Yet it is the concept, or as it is also referred to, the "theory" 11 of jus cogens which 

itself is not as uncontested as it may seem at first sight. To begin with, it remains 

unclear what the idea of jus cogens includes and although Art. 53 of the Vienna 

Convention on the Law of Treaties (VCLT) refers to the concept of peremptory 

norms expressis verbis, 12 neither the Convention itself nor the travaux préparatoires of 

4 Prosper Weil, Vers une normativité relative en droit international?, in 86 Revue général de droit international 

public 5 (1982). 

5 cf. Dinah Shelton, International Law and Relative Normativity, in: MALCOM D. EVANS (ED.), 

INTERNATIONAL LAW 145,46 (2003). 

6 Id. at 148. 

7 Id. at 148 

8 Id. at 148. 

9 Id. at 148. 

10 Id. at 149. 

11 Id. at 150. 

12 Art. 53 of the Vienna Convention on the Law of Treaties, United Nations Treaty Series, Vol. 1155, pp. 

331 et seq., provides that " A treaty is void if, at the time of its conclusion, it conflicts with a peremptory

2004] Relative Normativity 

49 

the Vienna Convention on the Law of Treaties offer a clear definition of the material 

content of the rules which are considered to be of a peremptory nature. And although 

it is recognized that there is a need for fundamental norms in order to ensure 

that the international legal system itself can operate, 13 the 1986 Vienna Conference 

on the Law of Treaties between States and International Organizations or between 

International Organizations failed to come up with a more precise definition 

of jus cogens but recognized that the divergence of views on this issue continued. 14 

Furthermore, both states 15 and international courts are reluctant to refer to the peremptory 

norms of International Law. 16 Yet the concept is being referred to both by 

domestic courts 17 as well as in dissenting opinions issued by judges of the International 

Court of Justice. 18 Although the Court recognized the International Law 

Commission’s (ILC) understanding of the prohibition of the use of force as jus cogens 

19 in the case concerning Military and Paramilitary Activities in and against Nicaragua, 

20 the decision in the Arrest Warrant Case 21 indicates the limits of the concept, 

norm of general International Law. For the purposes of the present Convention, a peremptory norm of 

general International Law is a norm accepted and recognized by the international community of States 

as a whole as a norm from which no derogation is permitted and which can be modified only by a subsequent 

norm of general International Law having the same character.". 

13 According to Kelsen, the source of international obligation is not the consent of states to be bound, but 

must be found in a more fundamental norm which imposes a duty to be bound by obligations freely 

accepted, cf. Hans Kelsen, The Pure Theory of Law, in 51 Law Quarterly Review 517 (1935). Then-ILC 

rapporteur Sir Humphrey Waldock suggested that international treaties ought to be void if they run 

contrary to fundamental principles of International Law, cf. Shelton, op. cit., at p. 153. 

14 United Nations Conference on the Law of Treaties between States and International Organizations or 

between International Organizations, Vienna, 18 February - 21 March 1986, A/Conf.129/16 (Vol. I), 17. 

15 The ICJ noted in Hungary v. Slovakia, Gabčikovo-Nagymaros Project, ICJ Reports 1997, pp. 7 et seq., at 

para. 112, that both parties had not invoked any jus cogens norms relating to International Environmental 

Law. But see also the Nicaraguan memorial as well as the U.S. Counter-memorial in Military and Paramilitary 

Activities in and against Nicaragua, quoted by the ICJ in its Judgment, ICJ Reports 1986, 14. 

16 In its North Sea Continental Shelf Judgment, ICJ Reports 1969, pp. 3 et seq., at para. 72, the ICJ refused to 

adress the issue of jus cogens, cf. Shelton, op. cit., at 154, there fn. 29. 

17 cf. Shelton, op. cit., at 154, 56 on the role of jus cogens before U.S. Courts. 

18 cf. the dissenting opinion by Judge ad hoc Renandes in Right of Passage over Indian Territory, ICJ Reports 

1960, 6 at 135, 39, 40 and the dissenting opinion of Judge Tanaka in South West Africa, Second Phase, ICJ 

Reports 1966, 6 at 298. 

19 ILC, Commentary to Article 50 of the ILC Draft Articles on the Law of Treaties, in ILC Yearbook 1966-II, 247. 

20 Nicaragua v. United States of America, Military and Paramilitary Activities in and against Nicaragua, ICJ 

Reports 1986, 14. 

21Democratic Republic of Congo v. Belgium, Arrest Warrant of 11 April 2000, ICJ Reports 2002, 3.


[Vol. 05 No. 01 

since the Court did not even refer to the issue of jus cogens, except for one dissenting 

opinion. 22 On the other hand, Judge Lauterpacht suggested in his separate opinion 

to the order of 13 September 1993 (Further request for the indication of provisional 

measures) in the case of the Application of the Convention on the Prevention and 

Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro) 

that even Art. 103 of the Charter of the United Nations, 23 as well as actions taken by 

the Security Council, are inferior to jus cogens rules. 24 

Furthermore, it appears that Courts specifically dealing with issues more closely 

related to Human Rights and International Humanitarian Law will refer to jus cogens 

more openly. While the European Court of Human Rights (ECtHR) refused to 

override state immunity due to a violation of jus cogens, it nevertheless accepts the 

concept, 25 as do the Inter-American Commission on Human Rights 26 and the International 

Criminal Tribunal for the Former Yugoslavia 27 in a number of decisions. 

An other boost for the acceptance of jus cogens came with the recent completion of 

the ILC Draft Articles on State Responsibility, 28 Article 40 of which acknowledges 

22 Arrest Warrant of 11 April 2000, ICJ Reports 2002 3, Dissenting opinion by Judge Al-Khasawneh, para. 

7. 

23 Art. 103 of the UN Charter of 26 June 1945, Yearbook of the United Nations 1969, 953, reads as follows: 

“In the event of a conflict between the obligations of the Members of the United Nations under the present 

Charter and their obligations under any other international agreement, their obligations under the 

present Charter shall prevail.” 

24 Judge Lauterpacht, Separate Opinion, in APPLICATION OF THE CONVENTION ON THE PREVENTION AND 

PUNISHMENT OF THE CRIME OF GENOCIDE (BOSNIA AND HERZEGOVINA V. SERBIA AND MONTENEGRO), 

Order of 13 September 1993 - Further request for the indication of provisional measures, ICJ Reports 

1993, 325, 408 at 440. 

25 ECtHR, Al-Adsani v. United Kingdom, Judgment, 21 November 2001, (2002) 34 EHRR 11. 

26 OAS, Inter-American Commission on Human Rights, 81 st session, Annual Report of the Inter- 

American Commission on Human Rights, Victims of the Tugboat ‘13 de Marzo’ v. Cuba, Rep. No. 47 / 96, 

OR OEA/Ser.L/V/II.95/Doc.7, rev (1997), at pp. 146 et seq. 

27 ICTY, Prosecutor v. Furundzija, Judgment, Case No. IT-95-17/1-T, para. 153. 

28 The ILC Draft Articles on State Responsibility were included in General Assembly Resolution 56 / 83 

(Responsibility of States for internationally wrongful acts) of 12 December 2001 as an annex, cf. UN Doc. 

A/RES/56/83.


51 

the existence of jus cogens 29 and Article 41 of which states the consequences of a 

breach thereof. 30 

Since no international Court will outright deny that jus cogens obligations exist, it is 

most likely that it is not the concept as such but rather the uncertainty of its contents 

that forms a barrier for a wider acceptance of the idea of peremptory norms 

by both states and international courts. Jus cogens certainly is "a concept in evolution," 

31 but not necessarily in regard to the concept as such but, as we will see, with 

regard to its contents. At the time being, it is the Courts and Tribunals dealing with 

Human Rights and International Humanitarian Law as well as the ILC that are at 

the cutting edge shaping the content of jus cogens. 

II. The need for jus cogens in modern International Law 

Even if massive breaches of the most fundamental rules of International Law, such 

as the prohibition of the use of force or of genocide, indicate that the global community 

as a whole is not always willing to accept a set of fundamental and supreme 

norms, the need for some form of supreme norms aimed at safeguarding the international 

community as a whole cannot be denied: "The international community 

cannot afford a consensual regime to address many modern problems. [...]." 32 To 

the contrary, "the modern independence of States demands an international ordre 

public containing rules that require strict compliance." 33 In the words of Dinah Shelton, 

"The urgent need to act [...] fundamentally challenges the consensual framework 

of the international system by seeking to impose on dissenting States obliga- 

29 Art. 40 (Application of this chapter) states: "1. This chapter applies to the international responsibility 

which is entailed by a serious breach by a State of an obligation arising under a peremptory norm of 

general International Law. 2. A breach of such an obligation is serious if it involves a gross or systematic 

failure by the responsible State to fulfil the obligation." 

30 Art. 41 (Particular consequences of a serious breach of an obligation under this chapter) reads as follows: " 1. 

States shall cooperate to bring to an end through lawful means any serious breach within the meaning of 

article 40. 2. No State shall recognize as lawful a situation created by a serious breach within the meaning 

of article 40, nor render aid or assistance in maintaining that situation. 3. This article is without 

prejudice to the other consequences referred to in this part and to such further consequences that a 

breach to which this chapter applies may entail under International Law." 

31 So the representative of Brazil at the United Nations Conference on the Law of Treaties between States 

and International Organizations or between International Organizations, Vienna, 18 February - 21 March 

1986, A/Conf.129/16 (Vol. I), 188. 

32 Shelton, op. cit., at p. 159. 

33 Id.


[Vol. 05 No. 01 

tions, that the ‘international community’ deems fundamental. State practice has yet 

to catch up with this plea of necessity." 34 

Since there is a need for restructuring International Law, we will now examine the 

role Relative Normativity plays in International Law today and how the concept of 

Relative Normativity can be employed to reshape the international legal system in 

order to give an appropriate place to the fundamental values which aim at promoting 

the common good of humankind. 

C. Relative Normativity in Today’s International Legal System 

I. Relative Normativity within the International Legal System 

The concepts of Relative Normativity and hierarchy therefore have become a fact in 

present day International Law, both being inherent in any legal system 35 and in the 

case of Public International Law reflected in the general acceptance of the concept 

of jus cogens 36 as well as obligations erga omnes 37 and Art. 103 UN Charter. 38 Yet the 

controversy surrounding jus cogens 39 already indicates that this "hierarchy" falls 

well short of the hierarchical structures found in national legal systems. Consequently 

Weiler and Paulus speak of “super-norms” 40 rather than of supreme norms. 

34 Id. 

35 cf. Martti Koskenniemi, Hierarchy in International Law: A Sketch, in: 8 EUROPEAN JOURNAL OF 

INTERNATIONAL LAW 1997, 566 at 571. 

36 Art. 53 of the Vienna Convention on the Law of Treaties (1969) 1155 United Nations Treaty Series 331 

states that „a treaty is void if, at the time of its conclusion, it conflicts with a peremptory norm of general 

International Law. For the purposes of the present Convention, a peremptory norm of general International 

Law is a norm accepted and recognized by the international community of states as a whole as a 

norm from which no derogation is permitted and which can be modified only by a subsequent norm of 

general International Law having the same character.“ The text of Art. 53 of the Vienna Convention on 

the Law of Treaties Between States and International Organizations or Between International Organizations, 

(1986) UN Doc. A/Conf. 129/15 (1986) is identical. Later the idea of jus cogens was accepted by the 

ICJ as well: ICJ, Nicaragua v. United States, Military and Paramilitary activities in and against Nicaragua, ICJ 

Reports 1986, pp. 14 et seq., at p. 100. On the acceptance of jus cogens in International Law cf. Gennady M. 

Danilenko, International Jus Cogens: Issues of Law-making, in: 2 European Journal of International Law 

(1991) 42. 

37 Belgium v. Spain, Case concerning the Barcelona Light and Traction Power Company, Limited (Second Phase), 

ICJ Reports 1970, 3 at para. 33. 

38 cf. note. 23. 

39 Cf. supra B. I. 

40 J. H. H. Weiler / Andreas L. Paulus, The Structure of Change in International Law or Is There a Hierarchy of 

Norms in International Law ?, in 8 European Journal of International Law (1997), 545 at 562.


53 

Yet, as we will see, the case can be made for development towards a more classically 

hierarchical model in the field of International Law as well. After all, the differences 

between international and national society are not necessarily so large as to 

automatically exclude a more hierarchical structure in International Law. 41 Besides, 

as the international legal system is growing both in terms of issues covered by International 

Law as well as with regard to the deep impact International Law has on 

domestic legal systems, 42 hierarchical aspects can help greatly in structuring an ever 

more complex 43 maze of rules. 

II. Consequences of Relative Normativity in International Law 

What do Relative Normativity and hierarchy mean for the practice of International 

Law? Are they a nuisance in the event that the rule that would “save” your case 

happens to be in the “wrong” treaty or are they simply attempts to give values 44 a 

place in a legal system traditionally based on the consent of its subjects? It is argued 

here that Relative Normativity and hierarchy can be much more than that and 

that they hold a potential for the development of a more value-based international 

legal system that can be more inclusive in so far as the constructs both: (1) recognize 

the impact of non-state actors on International Law as well as the need for good 

governance on a global scale through International Law; and (2) while at the same 

time reconciling tendencies of Constitutionalization and Fragmentation and in the long 

run provide a method with which to find answers to the hard choices International 

Law faces today. 

41 cf. Juan Antonio Carrillo Salcedo, Reflections on the Existence of a Hierarchy of Norms in International Law, 

in: 8 European Journal of International Law 1997, 583 at 583. 

42 cf. UN SC Res. 1373 of 28 September 2001, UN Doc. S/RES/1373 (2001). 

43 Shelton, op. cit., at p. 171. 

44 The proliferation of values through International Law still meets resistance: The president of the ICJ, 

Shi, only recently likened any attempt of value-proliferation through International Law to imperialism, 

cf. the Concluding Speech by the President of the International Court of Justice, Shi Jiuyong, at a Joint 

ASIL / NVIR Conference in The Hague on 5 July 2003, to be published in January 2004 by T.M.C. Asser 

Press in the conference proceedings entitled „From Government to Governance ? The Growing Impact 

of Non-State Actors on the International and European Legal System", cf. also Stefan Kirchner, Conference 

Report – "From Government to Governance? The Growing Impact of Non-State Actors on the International 

and European Legal System" - 6 th ASIL / NVIR / T.M.C. Asser Institute Joint Conference in The Hague, 3 - 5 

July 2003, 4 GERMAN LAW JOURNAL 827, 849 (August 2003). On the problem in general see Serge Sur, The 

State between Fragmentation and Globalization, 8 European Journal of International Law 421 at 428 (1997).


[Vol. 05 No. 01 

III. Approaches to Relative Normativity 

Two main approaches to Relative Normativity in Public International Law seem to 

emerge: An interpretative 45 or conflict-of-laws-approach, which will lead to the necessity 

of choosing the rules applicable to the case in question, 46 and a public law 

approach, 47 attempting to translate public law ideas known from national legal 

systems to the arena of public International Law. 48 While the Vienna Convention on 

the Law of Treaties in essence follows the first approach, 49 it is the aim of the public 

law-approach to bring more coherence into the process of Constitutionalization 50 in 

order to create an international legal order based on the rule of law 51 and common 

values. 52 In this article the latter approach will be explored and we will examine 

where Relative Normativity has its sources in today’s public International Law and 

how the situation de lege lata can be developed with the aim of reconciling the contradictory 

tendencies of Fragmentation and Constitutionalization. Continuing from 

there, we will have a look at how a potential future system of International Law 

aimed at reconciling these tendencies through an overall public law approach can provide 

answers to the hard choices put before International Lawyers today as well as 

in the future. Recent examples of such hard choices, to name only a few, have been 

45 cf. Michael Akehurst, The Hierarchy of the Sources of International Law, 47 British Yearbook of International 

Law 273 (1975). 

46 The question for example comes up in the Tadic/Nicaragua - debate, in which a general court, the ICJ, 

and a court attached to a self-contained regime, the ICTY came to different conclusions on the question 

of third party involvement, specifically third party control of paramilitary forces, in armed conflicts, cf. 

Nicaragua v. United States of America, Military and Paramilitary activities in and against Nicaragua, ICJ Reports 

1986, 14. and ICTY, Prosecutor v. Tadic, Case No. IT-94-1. 

47 On the need to strengthen the Public Law Approach in International Law cf. Jochen Abraham Frowein, 

Konstitutionalisierung des Völkerrechts, in JOST DELBRÜCK ET AL. (EDS.), VÖLKERRECHT UND 

INTERNATIONALES PRIVATRECHT IN EINEM SICH GLOBALISIERENDEN INTERNATIONALEM SYSTEM 427 at. 427 

(2000). 

48 A good overview (in English) on the interaction between national and international/european constitutional 

conceptions is given by Thomas Giegerich, Europäische Verfassung und deutsche Verfassung im 

transnationalen Kosntitutionalisierungsprozess: Wechselseitige Rezeption, konstitutionelle Evolution und föderale 

Verpflichtung, in: 157 Beiträge zum ausländischen öffentlichen Recht und Völkerrecht 1445 at 1447 (2003). 

49 cf. Shelton, op. cit., at 163. 

50 On the lack of coherence cf. Andrea Bianchi, Ad-hocism and the Rule of Law, 13 European Journal of 

International Law 263 at 269 (2002). 

51 Peter J. Spiro, Treaties, International Law, and Constitutional Rights, in: 55 Stanford Law Review 1999 at 

2021 (2003). 

52 Bianchi, op. cit., at 272.


55 

between International Peace and Security on the one hand 53 and Human Rights on 

the other, or more precisely between Art. 2 (4) UN Charter 54 and International Human 

Rights norms 55 or between free trade and the protection of wildlife. 56 Especially 

the Human Rights v. International Peace and Security debate, which at times 

seems to have left the “radar screens” of International Lawyers after the September 

11, 2001, terrorist attacks, 57 continues to be of great importance since one of the 

reasons brought forward by the U.S. and the U.K. in the 2003 war against Iraq were 

the massive Human Rights violations perpetrated by the regime of Saddam Hussein. 

58 Moreover, the Kosovo Cases 59 are still pending before the ICJ, which appears 

likely to rule against the NATO member states that took action against Serbia, since 

Art. 103 UN Charter “protects” Art. 2 (4) UN Charter in so far as it would take an 

obligation of a jus cogens nature to fight genocide to overrule the concomitant jus 

cogens obligation of Art. 2 (4) UN Charter. Despite there being a jus cogens prohibition 

of genocide, the jus cogens nature of the prohibition of the use of force makes it 

53 The literature on the debate ensuing in the wake of the 1999 Kosovo War is extensive, see for example 

Dino Kritsiotis, The Kosovo Crisis and NATO’s Application of Armed Force against the Federal Republic of 

Yugoslavia, 49 International and Comparative Law Quarterly 330 (2000); Richard A. Falk, Kosovo, World 

Order, and the Future of International Law, 93 American Journal of International Law 847 (1999); Bruno 

Simma, NATO, the UN and the Use of Force: Legal Aspects, 10 European Journal of International Law 1 

(1999); and Antonio Cassese, Ex inuiria ius oritur: Are We Moving towards International Legitimation of 

Forcible Humanitarian Countermeasures in the World Community ? - Comment on Bruno Simma, NATO, the 

UN and the Use of Force: Legal Aspects, 10 European Journal of International Law 23 (1999). 

54 Art. 2 (4) UN Charter requires that "All Members [...] refrain in their international relations from the 

threat or use of force against the territorial integrity or political independence of any state, or in any 

other manner inconsistent with the Purposes of the United Nations." 

55 In this case, Art. 103 UN Charter provides a rather clear, yet at times unsatisfactory solution in favor of 

Art. 2 (4) UN Charter, cf. fn. 23. 

56 After three decades, the Yellowfin Tuna dispute between the U.S. and Mexico was solved only in early 

2003. See also the WTO Appellate Body Report, United States - Import Prohibition of Certain Shrimp and 

Shrimp Products, in: 37 ILM (1998), pp. 832 et seq. and WTO Appellate Body Report, United States - Import 

Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/RW Doc. 01-5166, 22 October 2001, also 

available online at http://www.wto.org/english/news_e/news01_e/dsb_21nov01_e.htm. 

57 On Humanitarian Intervention after 9/11 see Tom J. Farer, Humanitarian Intervention before and after 

9/11: legality and legitimacy, in: J. L. Holzgrefe / Robert Keohane (eds.), Humanitarian Intervention (2003), 

pp. 53 et seq. 

58 Speech by Prime Minister Tony Blair on 18 March 2003, available online at 

http://politics.guardian.co.uk/iraq/story/0,12956,916790,00.html; Speech by U.S. President George W. 

Bush at the General Assembly of the United Nations on 12 September 2002, available online at 

http://www.whitehouse.gov/news/releases/2002/09/20020912-1.html. 

59 On the cases cf. Christine Gray, Legality of the Use of Force, 49 International and Comparative Law 

Quarterly 730 (2000).


[Vol. 05 No. 01 

unlikely that the case can successfully be made for humanitarian intervention de 

lege lata. 60 

IV. Values turning into Rules? 

At the time being, only a few values can be considered to be truly shared by the 

international community as a whole or at least its overwhelming majority. The long 

Universalism-Relativism-Debate on Human Rights and the debate on the legality of 

the use of force outside the limitations of the United Nations Charter on the occasion 

of the 2003 Iraq War, the War against Terrorism and the 1999 NATO war 

against Serbia give a glimpse on the fundamental differences which exist already 

on core issues of International Law. 

Yet regarding the, albeit small, common ground between states, at least an international 

legal system in which the values the international community wants to promote 

are given a constitutional, hence supreme, status and in which the relation 

between such values is clearly defined offers the possibility give answers to such 

questions in the future. The inclusion of non-state actors in the decision-making 

process of the international community, while viewed by some as a danger to national 

sovereignty, 61 reflects the changing role of the state in modern International 

Law: states will no doubt continue to play a key role on the international stage in 

the future, 62 yet they will no longer, and already do no longer, act alone. International 

Law, in other words, is no longer the states’ family business which it used to 

be and most approaches to the constitutional dimension of International Law are 

based on this assumption. 63 

V. A Constitutional Dimension rather than a Constitution 

Although assuming that the notions of jus cogens and obligations erga omnes are 

insufficient to assume the existence of a hierarchy in International Law, 64 Walter 

rightly argues that the decline of the role of the state as well as the "decentraliza- 

60 cf. Stefan Kirchner, The Human Rights Dimensions of International Peace and Security and Humanitarian 

Intervention after 9/11 (2003), available online at http://ssrn.com/abstract=445124. 

61 cf. John R. Bolton, Should we Take Global Governance Seriously?, in: 1 Chicago Journal of International 

Law 205 at 221 (2000). 

62 cf. Walter, op. cit., at 171. 

63 Id. at 172. 

64 Id at 201.


57 

tion" of International Law 65 require that the idea of "a constitution" is abandoned 66 

since the idea of a single constitutional document is based on the assumption that it 

applies to a limited territory and - in principle - "unlimited subjects of regulation" 67 

This in turn requires us to perceive International Constitutional Law - which in 

function is not all too different from domestic law - as a body of law which requires 

coherence without constituting a single document. Rather than that we can 

speak of a Constitutional Dimension of International Law: there are constitutional 

norms, many of which are codified, yet there is not, and is not likely to be in the 

foreseeable future, any single document one could refer to as a "World Constitution". 

In the case of International Constitutional Law, it is all about function, not 

about form. The limitations of International Constitutional Law arise not out of a 

lack of hierarchy within International Law, but rather from the complexity of the 

international community as the pouvoir constituant and in the case of values from a 

continuing reluctance on the part of states to give values a place in International 

Law. Yet it is argued here, that a constitutional dimension of International Law has 

the capability of giving values a certain place in the international legal order: 

D. From Relative Normativity to a Constitutional Dimension of International 

Law 

I. The material content of International Constitutional Law today 

Nevertheless there needs to be more in such a system of International Constitutional 

Law than values. 68 Specifically, values need to be accompanied by organizational 

rules, and vice versa. 69 Such organizational rules, which are already linked to values 

by, e.g., the principle of sovereign equality of states 70 (which could be considered a 

hybrid between a value and an organizational aspect), have to deal with the sources 

of International Law and the actors in the field of International Law, lawmaking, 71 

65 Id. at 188. 

66 Id. at 173 (emphasis as in the original text). 

67 Id. at 191. 

68 cf. above E. IV. 

69 Therefore it would go too far to consider the UN Charter to be a constitution of humankind, since the 

UN Charter only includes a general reference to Human Rights, without defining them explicitly. 

70 Art. 2 (1) UN Charter: " The Organization is based on the principle of the sovereign equality of all its 

Members." 

71 Currently these issues are covered mainly by Art. 38 ICJ Statute and the Vienna Convention on the 

Law of Treaties, yet, apart from the 1986 Vienna Convention on the Law of Treaties between States and 

International Organizations or between International Organizations neither is so far taking into account 

the role of non-state actors.


[Vol. 05 No. 01 

dispute settlement, 72 state responsibility, law relating to treaties, law enforcement, 

etc. But which values can be said to be of a constitutional quality or importance? 

While the case can be made rather easily for the jus cogens prohibitions of war, slavery 

and genocide, things become more difficult when it comes to values related to 

good governance, such as democracy and Human Rights. While the Haiti intervention 

generally is not considered to have created a precedence for a duty of states to 

be organized in a democratic manner, the above mentioned jus cogens obligations 

indicate a role for Human Rights as values in a constitutional aspect of Public International 

Law. 73 While the European Court of Human Rights, but also the European 

Court of Justice, have played a vital role in making Europe the forerunner in 

the process of international Human Rights protection, no similar option is available 

on the global level 74 due to the lack of a single global Human Rights Court or a 

global equivalent to the ECtHR. This in turn is due to disagreement on the universality 

of Human Rights but also due to the manifold Human Rights instruments 

and a corresponding Fragmentation through Proliferation. What is desirable in the 

long run is a unifying and streamlining of the international systems of Human 

Rights protection. 75 Until then the current general consensus of the international 

community on inviolable Human Rights will have to suffice. At this time, an optimistically 

wide view in this respect appears to be somewhat unrealistic, and also 

the Universal Declaration of Human Rights cannot be said to take precedence over 

other rules of International Law. Although Human Rights are mentioned in the UN 

Charter’s preamble 76 as well as in Art. 1 (3) 77 thereof, the obligations of UN member 

72 cf. Art. 33 UN Charter, which provides "1. The parties to any dispute, the continuance of which is 

likely to endanger the maintenance of international peace and security, shall, first of all, seek a solution 

by negotiation, enquiry, mediation, conciliation, arbitration, judicial settlement, resort to regional agencies 

or arrangements, or other peaceful means of their own choice. 2. The Security Council shall, when it 

deems necessary, call upon the parties to settle their dispute by such means." 

73 On the question where to locate Human Rights guarantees appropriately, on a national or on an international 

level, cf. Spiro, op. cit., at 2001, 2021. 

74 Albeit decisions by the ECtHR are increasingly cited outside Europe, the most spectacular case, which 

yet went almost unnoticed in Europe, was the U.S. Supreme Court’s recent decision in Lawrence and 

Garner v. Texas of 26 June 2003, Case No. 02-102, (the text of the decision is available online at 

http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&navby=case&vol=000&invol=02- 

102#opinion1), in which for the first time ever the U.S. Supreme Court cited the ECtHR in a majority 

opinion. 

75 Preferably with a single „all-inclusive“ Human Rights Convention and an ECtHR-style International 

Human Rights Court. 

76 The preamble of the Charter of the United Nations reads as follows: "We the Peoples of the United 

Nations determined to save succeeding generations from the scourge of war, which twice in our lifetime 

has brought untold sorrow to mankind, and to reaffirm faith in fundamental human rights, in the dignity 

and worth of the human person, in the equal rights of men and women and of nations large and 

small, and to establish conditions under which justice and respect for the obligations arising from trea-


59 

states are included, expressis verbis, only in Art. 2 et seq. of the UN Charter, preventing 

any construction to the effect that Art. 103 UN 78 Charter requires supremacy of 

respect for Human Rights over other obligations. But Human Rights treaties already 

are different from “ordinary treaties” in so far as, e.g., the reservationsregime 

of the Vienna Convention on the Law of Treaties is inappropriate with respect 

to them 79 and succession into Human Rights Treaties is considered to be 

automatic. 80 The special nature of Human Rights treaties, which make individuals 

true holders of rights and not only mere beneficiaries, is also reflected in Art. 60 (5) 

VCLT. 81 Yet, as of today, only jus cogens rules as well as obligations erga omnes can 

be considered to be to be of a constitutional nature, as well as obligations arising 

out of the UN Charter 82 and general principles. 83 Human Rights treaties have arguably 

reached a status which elevates them over other treaties, so that it could be 

argued that they form a third, middle level of norms, from which they can in the 

future become constitutional norms. The creation of a “middle level” between constitutional 

and non-constitutional norms does not serve the idea of legal certainty 

ties and other sources of International Law can be maintained, and to promote social progress and better 

standards of life in larger freedom, and for these ends to practice tolerance and live together in peace 

with one another as good neighbours, and to unite our strength to maintain international peace and 

security, and to ensure, by the acceptance of principles and the institution of methods, that armed force 

shall not be used, save in the common interest, and to employ international machinery for the promotion 

of the economic and social advancement of all peoples, have resolved to combine our efforts to accomplish 

these aims. Accordingly, our respective Governments, through representatives assembled in the 

city of San Francisco, who have exhibited their full powers found to be in good and due form, have 

agreed to the present Charter of the United Nations and do hereby establish an international organization 

to be known as the United Nations." 

77 According to Art. 1 (3) of the Charter of the United Nations, one of the purposes of the UN is to "[...] 

achieve international co-operation in solving international problems of an economic, social, cultural, or 

humanitarian character, and in promoting and encouraging respect for human rights and for fundamental 

freedoms for all without distinction as to race, sex, language, or religion [...]". 

78 cf. fn. 23. 

79 Human Rights Committee General Comment No. 24 (52), UN Doc. CCPR/C/21/Rev.1/Add.6., para. 

17. 

80 Bosnia and Herzegovina v. Yugoslavia (now Bosnia and Herzegovina v. Serbia and Montenegro, 

Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Preliminary 

Objections), Judgment of 11 July 1996, ICJ Reports 1996, pp. 595 et seq., sep. op. Weeramantry, at 645. 

81 According to Art. 60 (5) VCLT "Paragraphs 1 to 3 do not apply to provisions relating to the protection 

of the human person contained in treaties of a humanitarian character, in particular to provisions prohibiting 

any form of reprisals against persons protected by such treaties." 

82 Art. 103 UN Charter, cf. fn. 23. 

83 Art. 38 (1) (c) ICJ Statute: "1. The Court, whose function is to decide in accordance with International 

Law such disputes as are submitted to it, shall apply: [...] c. the general principles of law recognized by 

civilized nations [...]."


[Vol. 05 No. 01 

since the question would have to arise which is the relation between ordinary 

norms 84 and “middle level” Human Rights norms, which are not supreme since 

they are not (yet) constitutional norms. Consequently Human Rights norms which 

have not yet reached constitutional status remain “normal” non-constitutional 

norms, albeit they are more likely to become constitutional norms in the future and 

should therefore be taken into account when other non-constitutional norms are 

being applied, although they of course do not yet enjoy the supremacy which jus 

cogens norms enjoy. 85 In either case, due to the lack of state interests 86 in Human 

Rights treaties, it is the consensus of the world community as a whole 87 - including 

also networks 88 that extend beyond the community of states 89 - which creates the 

constitutional rules no less than is done on a national level, 90 be it that obligations 

are generally accepted as general principles or as jus cogens or exist with respect to 

everyone (erga omnes) or that (almost) all states are members of the UN and hence 

bound by the Charter. 91 It is therefore the international community 92 which is the 

84 E.g. of International Trade Law. 

85 On the relation between Human Rights treaties and other rules of International Law, albeit focussing 

on the question of reciprocity cf. Craven, Legal Differentiation and the concept of the Human Rights Treaty in 

International Law, European Journal of International Law 2000, 489. 

86 This lack of state interests (which doesn’t mean that the states don’t have an interest in compliance 

with the treaty in question, cf. Craven, op. cit., at p. 510.) is reflected in the lack of reciprocity in most 

Human Rights treaties, cf. e.g. Inter-American Court of Human Rights, The Effects of Reservations on the 

Entry into Force of the American Convention on Human Rights (Arts 74 and 75) (Advisory Opinion), Advisory 

Opinion OC-2/82, 24 September 1982. Instead we can speak of a common interest, cf. ICJ, Reservations 

to the Convention on the Convention on the Prevention and Punishment of the Crime of Genocide (Advisory 

Opinion), ICJ Reports 1951,13. 

87 Frowein, op. cit., at p. 443; Spiro, op. cit., at p. 2024, speaks of a „new global human rights community“. 

On the impact of the world community’s opinion on judicial decisions cf. Atkins v. Virginia, 536 U.S. 304, 

316 n. 21 (2002), a ruling preventing the execution of a mentally retarded offender. 

88 Spiro, op. cit., at p. 2024; cf. also Anne-Marie Slaughter, Governing the Global Economy Through Government 

Networks, in MICHAEL BYERS (ED.), THE ROLE OF LAW IN INTERNATIONAL POLITICS 177 (2000). 

89 Spiro, op. cit., at p. 2024; PHILIP ALLOTT, EUNOMIA 254 (1990, reprinted with new a foreword in 2003); 

Brun-Otto Bryde, Konstitutionalisierung des Völkerrechts und Internationalisierung des Verfassungsrechts, 42 

Der Staat 61 at 64 (2003). 

90 Bryde, op. cit., at 61. 

91 Although states are no longer the only actor in the field of International Law, only states can become 

members of the UN, cf. Art. 4 (1) UN Charter: "Membership in the United Nations is open to all other 

peace-loving states which accept the obligations contained in the present Charter and, in the judgment of 

the Organization, are able and willing to carry out these obligations." 

92 On the creation of legal regimes independent of states cf. Craven, op. cit., at 519.


61 

pouvoir constituant, or constitution-making power, in the field of International Law. 

In an increasingly Post-Westphalian International Legal System, non-state actors 

have become part of this growing international community and consequently are 

involved in the decision-making process, although often in more informal ways. 

Supra- and International Organisations, NGOs, Networks and other non-state actors 

enrich today’s decision-making processes and already have a significant impact 

on the material content of International Law. 93 

II. Characteristics of the Constitutional Dimension of International Law 

Being the closest yet to a collection 94 of quasi-constitutional norms, the UN Charter 

with Art. 103 UN Charter 95 provides a precedence for a supremacy clause in International 

Law. Yet supremacy is inherent in every legal order, as is indicated, by the 

existence of jus cogens, which was not foreseen by the UN Charter. While constitutional 

rules are supreme with regard to “ordinary rules,” or International "Administrative" 

and International Criminal Law, 96 the latter necessarily have to be lex specialis 

and therefore enjoy priority of application, albeit of course not supremacy over 

more general rules of a constitutional nature. 97 

III. The Limits of International Constitutional Law: Drawing the line between constitutional 

and non-constitutional rules 

While the lex lata is clear (albeit unsatisfactorily so), on the question which (few) 

rules can be considered to be of a constitutional nature, the question will become 

more difficult - not only in the field of Human Rights - when the international 

community will have to decide which other values are important enough amount 

to rules of a constitutional nature: It has been suggested that free trade be considered 

such a constitutional principle. 98 Yet merely accepting the constitutional or jus 

93 One of the most impressive examples of recent years certainly being the Campaign for a ban on 

Landmines. 

94 Albeit an incomplete and outdated one, since neither Human Rights nor lawmaking are included 

sufficiently, and outdated, since it only recognizes states as full subjects of International Law. 

95 cf. fn. 23. 

96 Criminal Law is here understood as a part of public law in a wider sense and consequently international 

criminal law generally is considered part of public International Law. 

97 cf. in this context also Koskenniemi, op. cit., at. 577. 

98 Daniel-Erasmus Khan / Andreas L. Paulus, Gemeinsame Werte in der Völkerrechtsgemeinschaft, in: I. 

Erberich / A. Hörster et al. (eds.), Frieden und Recht, 38. Assistententagung Öffentliches Recht, Münster, 

1998, 217 at 253, 56.


[Vol. 05 No. 01 

cogens nature of a rule is not enough: the hierarchical order of rules 99 has to remain 

strict and it has to be made clear that the protection of international peace and security 

is paramount to state sovereignty, that Human Rights and the prohibition of 

the use of force take precedence over free trade etc. Otherwise states could e.g. attempt 

to balance the right to free trade against the prohibition of the use of force 

and use force to gain access to markets. 100 Maintaining an inherent order of International 

Law will help to achieve a higher degree of legal certainty and in the long 

run maintain law and order on a global scale. 

E. Utilizing a Constitutional Dimension of International Law 

I. Hard choices and the role for International Constitutional Law 

Developing the idea of an International Constitutional Law further, especially if the 

hierarchy inherent to it is based on the importance the international community 

attaches to certain values rather than on the question asked by Art. 103 of the UN 

Charter 101 whether an obligation stems from the UN Charter or from another treaty, 

would allow the international community to make value-based decisions when it 

comes to the hard choices to be made by current International Law, such as between 

peace and Human Rights, free trade and the protection of the environment, etc. 

Only a minimum consensus on values 102 will be possible in the foreseeable future, 

but it would provide a great deal of legal certainty if actions by actors in the field of 

International Law are being measured against certain generally accepted constitutional 

rules. The same is true for organizational questions, for example regarding 

the not uncontroversial lawmaking by the UN Security Council, most recently with 

Resolution 1373 103 which arguably has the greatest impact on a global scale of all 

resolutions adopted by the Council under Art. 41 UN Charter. 104 Constitutional 

standards could lead to a degree of control that could come at least somewhat 

closer to the scrutiny under which national governments and lawmakers are or 

99 cf. C. III. (at the end). 

100 Robert Uerpmann, Internationales Verfassungsrecht, 56 Juristen Zeitung 565 at 571 (2001). 

101 cf. fn. 23. 

102 If such a consensus is possible at all, cf. fn. 44. 

103 UN Security Council Res. 1373 of 28 September 2001, UN Doc. S/RES/1373 (2001). 

104 Art. 41 UN Charter reads as follows: "The Security Council may decide what measures not involving 

the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members 

of the United Nations to apply such measures. These may include complete or partial interruption 

of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, 

and the severance of diplomatic relations."


63 

should be. In either case, a choice has to be made as to which rules, besides those 

already enjoying the status of jus cogens or included in the UN Charter and hence 

“protected” by Art. 103 UN Charter, 105 should be given supremacy over other rules, 

based on the common values of the international community. 

II. Safeguarding Legal Certainty 

Legal certainty can be achieved with regard to the relation between general rules 

and rules included in self-contained legal regimes. While a public law approach 

allows for a further development on the level of international “administrative” (e.g. 

international environmental or trade law) and criminal law, 106 rules of a constitutional 

nature can ensure legal certainty in cases like the Tadic-Nicaragua-debate. 107 In 

this sense, a further Fragmentation of International Law does not necessarily need 

to be a matter of concern. 108 To the contrary, Constitutionalization and Fragmentation, 

seen together and guided by public law notions can actually help to provide 

answers to some of today’s pressing issues as well as legal certainty. Starting points 

for this development can already be recognized in today’s International Law, especially 

in jus cogens norms and Art. 103 UN Charter. 109 It can be said that some 

norms 110 are already “more equal”, i.e. take precedence over, others in the same 

way national constitutional law is superior to other national legal rules. International 

Constitutional Law and therefore Relative Normativity are already facts of 

modern International Law. 

F. Conclusion 

The question therefore is not whether there is indeed Relative Normativity in International 

Law, but rather how existing hierarchies can be used for the common good 

105 cf. fn. 23. 

106 While the inclusion of criminal law aspects in public International Law has made a great step forward 

during the 1990s, it remains to be seen whether indeed private International Law is going to be absorbed 

by public International Law as well, as is argued by Joel R. Paul, The Isolation of Private International Law, 

in: 7 Wisconsin International Law Journal 149 at 152 (1988) and by Joel P. Trachtman, The International 

Economic Law Revolution, in: 17 University of Pennsylvania Journal of International Economic Law 33 at 

37 (1996). 

107 cf. fn. 46. 

108 As an example for early concerns see the discussion on the name of the ILC Working Group designated 

to deal with the matter in Report of the International Law Commission on the work of its fifty-fourth 

session, 29 April - 7 June and 22 July - 16 August 2002, UN Doc. A/57/10, para. 500. 

109 cf. fn. 23. 

110 Not necessarily treaties, albeit many have been codified by now.


[Vol. 05 No. 01 

as well as for reconciling tendencies of Constitutionalization and Fragmentation. 111 

Guiding this development towards the practical and sustainable solution of a constitutional 

part of international legal norms, resembling the situation in national 

legal systems, requires that Public International Law is no longer understood exclusively 

as being, in its essence, of a contractual nature involving public entities, but 

rather as a system of public law on an international level which also accepts nonpublic 

actors. The necessary supremacy of International Law can become normatively 

sustainable as the global community develops a common set of values 112 - 

even if, for the time being, based only on a minimum consensus. For this end, concepts 

of public, especially constitutional law, can to be employed on a global 

scale. 113 

Although "state practice has yet to catch up with this plea of necessity", 114 the process 

of Constitutionalization of the international legal order offers an opportunity to 

give values a certain place in the international legal order. Which values beyond 

those already recognized as jus cogens or fundamental principles of International 

Law can be understood as playing a constitutional role in the international legal 

order is for the international community to decide. At the time being the Constitutional 

Dimension of International Law is still far from being either as effective or as 

wide in terms of regulation as are Constitutions on a national level. 115 Yet as this 

community moves more and more beyond the Westphalian System of International 

Law and is opening up for non-state actors, the chances are increasing that - although 

all too often fundamental differences remain between states - in time more 

emphasis can be given on those fundamental values which transcend state interests. 

111 In so far, the assertion by Ulrich Fastenrath, Relative Normativity in International Law, in: 4 European 

Journal of International Law (1993), pp. 305 et seq., at p. 323, that the problem of hierarchy of norms is of 

little practical importance is less true today than it was in 1993. Yet he assumed correctly that the increasing 

complexity of the international legal system would make the formulation of common values 

necessary, which in turn leads to a higher degree of Relative Normativity, Id. at 339. 

112 cf. Spiro, op. cit., at 2027. 

113 cf. Bryde, op. cit., at p. 62 as well as Walter, op. cit., at 173. 

114 Shelton, op. cit., at 159. 

115 cf. Walter, op. cit., at 194.


Substantive Legitimate Expectations in South African and 

European Administrative Law 

By Geo Quinot * 


The doctrine of legitimate expectation was authoritatively accepted as part of South 

African administrative law in the landmark case of Administrator, Transvaal v Traub 1 

in 1989. 2 In that case Chief Justice Corbett extended the scope of application of the 

rules of natural justice, specifically the audi principle, 3 beyond the traditional “liberty, 

property and existing rights” formula to cases where something less than an 

existing right, a legitimate expectation, required a fair procedure to be followed. 4 

This acceptance followed the trend in other Commonwealth jurisdictions to extend 

the application of the rules of natural justice and hence afford greater procedural 

protection to individuals affected by administrative decisions. 5 Although Chief 

Justice Corbett expressly stated that the content of the expectation may be substantive 

or procedural in nature, 6 the protection of that expectation, if found to be legitimate, 

was exclusively procedural. 7 Since the Traub decision, the doctrine of 

* BA LLB (Stellenbosch) LLM (Virginia), lecturer University of Stellenbosch, gquinot@sun.ac.za. 

1 Administrator, Transvaal v Traub 1989 (4) SA 731 (A). 

2 For a discussion of this development see CORA HOEXTER, THE NEW CONSTITUTIONAL ADMINISTRATIVE 

LAW VOLUME 2, 209 (2002); G E DEVENISH ET AL., ADMINISTRATIVE LAW AND JUSTICE IN SOUTH AFRICA, 

307 (2001); John Hlophe, Legitimate Expectation and Natural Justice: English, Australian, and South African 

Law, 104 SALJ 165 (1987). 

3 The audi alteram partem principle, which in its most basic form requires the administrator to afford 

affected parties the right to be heard before taking a decision which would adversely affect them. 

4 Traub, supra note 1, at 761 D-G. 

5 Id. 754G – 761D where Corbett CJ examines the development of the doctrine in English law and also 

refers to the acceptance of the doctrine in Australia and New Zealand. 

6 Id. 758D: The expectation may be that the individual will acquire some substantive benefit, such as a 

license, that is a substantive expectation, or simply that the individual will be heard before a decision is 

taken, that is a procedural expectation. Corbett CJ also notes that the two forms of expectation may even 

merge, Id. 758E. 

7 Id. 761E, 764A.


[Vol. 05 No. 01 

legitimate expectation has been deeply entrenched in South African administrative 

law to extend the scope of procedural rights afforded individuals affected by administrative 

action. 8 It is now an established principle of South African administrative 

law that a person, who has a legitimate expectation, flowing from an express 

promise by an administrator or a regular administrative practice, has a right to be 

heard before administrative action affecting that expectation is taken. 9 The doctrine, 

has however, by and large, remained one that provides procedural protection 

in South Africa. In a number of recent decisions by South African courts, ranging 

from the High Court to the Supreme Court of Appeal and the Constitutional Court, 

there have been increasing calls for the application of legitimate expectations beyond 

procedural claims. 10 

In other Commonwealth jurisdictions the doctrine of legitimate expectation has 

been developing beyond the procedural context for a number of years. The question 

that has been asked in these jurisdictions is whether the existence of a legitimate 

expectation can give rise to a substantive remedy. In other words, can a court 

compel an administrator to grant a substantive benefit to an individual based on 

that individual’s legitimate expectation of receiving such benefit? This application 

of the legitimate expectation doctrine is referred to as substantive legitimate expectation, 

as opposed to the traditional procedural legitimate expectation. 11 The doctrine 

of substantive legitimate expectation has, however, not been universally accepted 

in Commonwealth jurisdictions. 12 In England, where it has received the 

most attention and acceptance, the position seems to be unclear in the absence of an 

authoritative opinion from the House of Lords. 13 

8 See Daniel Malan Pretorius, Ten Years After Traub: The Doctrine of Legitimate Expectation in South African 

Administrative Law, 117 SALJ 520 (2000); HOEXTER, supra note 2, at 209. 

9 HOEXTER, supra note 2, at 210. 

10 See paragraphs 0 to 0 below. 

11 P.P. CRAIG, ADMINISTRATIVE LAW, 611 (1999). The labels substantive and procedural in this context 

refers to the relief that the legitimate expectation entitles the individual to as opposed to the content of 

the expectation, which, at least in procedural legitimate expectation instances may be either substantive 

or procedural in nature, see note 6. 

12 In Mount Sinai Hospital Center v Quebec (Minister of Health and Social Services) (2001) 2 SCR 281 at 

paragraph 35 the minority judgement rejected substantive protection of legitimate expectations in Canadian 

law. The majority decided the case on different grounds. See also Reference re Canada Assistance 

Plan (BC) (1991) 83 DLR (4th) 297 (SCC). In Attorney General, New South Wales v Quin (1990) 93 ALR 1 

(HC) the doctrine was rejected in Australian law, see also Cameron Stewart, Substantive Unfairness: A New 

Species of Abuse of Power?, 28 FED. L. REV. 617 (2000) at 634. 

13 In 1997 the Court of Appeal described the doctrine as “heresy” in R v Secretary of State for the Home 

Department, Ex parte Hargreaves and Others (1997) 1 WLR 906 (CA) at 921. However, in R v North and

2004] Substantive Legitimate Expectations 

67 

In as well the administrative law of the European Union (“EU”) and many of its 

member states, the protection of legitimate expectations is widely accepted. 14 The 

scope of such protection extends significantly beyond that afforded in Commonwealth 

jurisdictions and includes substantive protection. The European Court of 

Justice has at least since the Civil Service Salaries case 15 of 1973 applied the principle 

that administrators should be held to their representations. The jurisprudence of 

the European Union in this context is therefore much more developed than its 

Commonwealth counterparts. 

This note examines the recent developments in South African administrative law 

regarding the doctrine of substantive legitimate expectation against the backdrop of 

the well developed doctrine in European administrative law. The analysis of South 

African law shows that substantive legitimate expectation is still in an early stage of 

development. The note continues to argue that the more developed jurisprudence 

of the European Union holds some important lessons for South African courts in 

developing this doctrine. A number of considerations are set out in comparison 

and contrast to the European position, which must be kept in mind in the future 

development of the doctrine of substantive legitimate expectation in South African 

administrative law. In closing, the important point is made that South African 

courts will be well-served in not restricting comparative analyses when evaluating 

substantive legitimate expectation claims to English law or the Commonwealth in 

general, from which South African administrative law developed, but to heed the 

lessons from the EU. 

B. European Administrative Law 

Legitimate expectations has long been judicially protected by means of review in 

the European Union. The development of the doctrine in EU law was strongly 

influenced by German law, where expectations created by administrators are given 

strong judicial protection. 16 In German law the concept of Vertrauensschutz has long 

East Devon Health Authority, ex parte Coughlan (1999) LGR 703 the Court of Appeal seems to accept 

the doctrine as part of English law. 

14 See paragraphs 0 to 0 below. 

15 Case 81/72, Re Civil Service Salaries: E.C. Commission v E.C. Council, 1973 E.C.R. 575. 

16 SØREN SCHØNBERG, LEGITIMATE EXPECTATIONS IN ADMINISTRATIVE LAW 118 (2003); C.f. Forsyth, 

The Provenance and Protection of Legitimate Expectations, 47 CAMB. L. J. 238, 242-244 (1988). The protection 

of legitimate expectations are in fact still stronger in German law today than is the case in EU law, see, 

ADMINISTRATIVE LAW OF THE EUROPEAN UNION, ITS MEMBER STATES AND THE UNITED STATES 285 (Rene 

Seerden & Frits Stroink eds., 2002).


[Vol. 05 No. 01 

been recognized as requiring administrators to honor their representations. 17 The 

scope of the principle in German law also extends far beyond similar protection in 

Commonwealth jurisdictions to also apply to informal representations and mere 

expectations as opposed to only vested rights. 18 As early as 1956 the Oberverwaltungsgericht 

in Berlin applied this principle to hold an administrator to a representation 

regarding the payment of a welfare grant. 19 As Forsyth 20 indicates this decision 

is remarkable in the sense that the court acknowledged that the administrator’s 

representation was clearly unlawful, but still upheld the applicant’s expectation on 

the grounds of her legitimate reliance on the representation. 

In EU law the protection of legitimate expectations is, however, not restricted to 

procedural relief, but extend to substantive relief as well. The general principle is 

that EU institutions will be held to their representations irrespective of whether 

those are procedural or substantive in nature, 21 provided that the requirements for 

applying the doctrine are met. This principle is so well established in EU law that 

legitimate expectations are not classified as either procedural or substantive. 22 If an 

expectation is created and that expectation is found to be legitimate the European 

Court of Justice (“ECJ”) will protect that expectation by holding the relevant administrator 

to the representation that gave rise to the expectation. 

The type of representations creating expectations that has come to be protected by 

the doctrine of legitimate expectation in South African law 23 has been protected as 

such in EU law at least since the Châtillon case of 1966. 24 

17 Forsyth, supra note 16, at 242, Seerden & Stroink, supra note 16, at 119, SCHØNBERG, supra note 16, at 

71-72, see also Joined Cases 7/56 and 3-7/57, Algera v Common Assembly, 1957 E.C.R. 39 and Cases 205 

to 215/82, Deutsche Milchkontor GmbH et al. v Germany, 1983 E.C.R. 2633. 

18 Forsyth, supra note 16, at 242. 

19 Quoted and discussed by Forsyth, supra note 16, at 243. 

20 Id. 

21 SCHØNBERG, supra note 16, at 117. 

22 P.P. Craig, Substantive Legitimate Expectations in Domestic and Community Law, 55 CAMB. L. J. 289 (1996) 

at 306. 

23 That is informal representations made by administrators such as promises or long-standing practices, 

for example based on an existing policy. 

24 Case 54/65, Châtillon v High Authority, 1966 E.C.R. 185. It is interesting to note that this case predates 

the English law case of Schmidt v Secretary of State for the Home Affairs [1969] 2 Ch. 149, which is 

generally viewed as the case in which Lord Denning created the English law concept of legitimate expectations.


69 

The locus classicus in EU law regarding legitimate expectations is, however, the 1973 

case of Re Civil Service Salaries: E.C. Commission v E.C. Council. 25 In that case the 

Council departed from an existing published guideline regarding Community staff 

salaries. Upon review the ECJ ruled that the Council could not depart from its earlier 

statements without “circumstances sufficient to justify the abandonment.” 26 

The court stated the reason for its decision as “the rule of protection of the legitimate 

confidence which citizens may have in the respect by the authorities of undertakings 

of this sort.” 27 Consequently the court held the Council to its representation, 

that is afforded substantive relief. 

In adjudicating legitimate expectation claims the ECJ follows a two step approach. 

Firstly it asks whether the administrator’s actions created a reasonable expectation 

in the mind of the aggrieved party. If the answer to this question is affirmative, the 

second question is whether that expectation is legitimate. If the answer to the second 

question is equally affirmative, then the court will hold the administrator to the 

representation, that is enforce the legitimate expectation. 

The first step in the analysis has both an objective and a subjective dimension. It is 

firstly asked whether a reasonable expectation of a certain outcome was created. 

The test to determine this reasonableness is what the bonus paterfamilias would expect. 

28 The representation itself must be precise and specific 29 and importantly, 

lawful. 30 The reasonable person would not form a specific expectation on a vague 

representation or rely on unlawful representations. One important aspect of the 

objective dimension of this inquiry in EU law, is the foreseeability of potential retractions 

of the representation. 31 EU law is quite strict in requiring individuals to 

demonstrate a high degree of diligence in foreseeing that specific representations 

may be retracted or may be subject to constant change and should therefore not be 

25 Case 81/72, 1973 E.C.R. 575. Forsyth, supra note 16, at 242; SCHØNBERG, supra note 16, at 118. 

26 Case 81/72 at 584-5. 

27 Id. at 584. 

28 Case 78/77, Lührs v Hauptzollamt Hamburg-Jonas, 1978 E.C.R. 169; Case 265/85, Van den Bergh en 

Jurgens v Commission, 1987 E.C.R. 1155; SCHØNBERG, supra note 16, at 119; E. Sharpston, Legitimate 

Expectations and Economic Reality, 1990 ELR 103 at 156. 

29 Case T-123/89, Chomel v Commission, 1990 E.C.R. II-131. 

30 Case 112/77, Töpfer v Commission, 1978 E.C.R. 1019; Case 188/82, Thyssen v Commission, 1983 

E.C.R. 3721, Case 15/85, Consorzio Doopertaive d’Abruzzo v Commission, 1987 E.C.R. 1005, SEERDEN & 

STROINK, supra note 16, at 284. 

31 Case 265/85, Van den Bergh en Jurgens BV and Van Dijk Food Products (Lopik) BV v Commission, 

1987 E.C.R. 1155, Case 52/81, OHG Firma Werner Faust v Commission, 1982 E.C.R. 3745.


[Vol. 05 No. 01 

relied upon. 32 This requirement also implies that individuals are required to know 

what the law is and consequently when a representation is lawful or not and hence 

can be relied upon or not. 33 The subjective dimension in determining whether a 

reasonable expectation was created is the requirement that the individual must 

subjectively, that is in actual fact, hold the expectation. 34 The representations on 

which expectations can be based may take many forms. 35 It may be in the form of 

an express statement, 36 including general policy statements. 37 The expectation may 

also be generated by long-standing practice. 38 

Once a reasonable expectation exists the administrator is required to act in accordance 

with that expectation, except if there are public interest considerations which 

outweighs the individual’s expectation. 39 Should the individual’s interests outweigh 

the public interest underlying the administrator’s purported action, the reasonable 

expectation will also be legitimate. 40 In such a case there will be a legitimate 

expectation, which must be respected by the administrator. 41 It is the administrator 

in the fist instance who strikes the balance between the private and public 

interests and determines whether the expectation should be upheld or disregarded. 

42 The decision of the administrator is however subject to judicial review. 

An individual whose expectation has been disappointed may approach the court to 

review the administrator’s actions and the court will then weigh up the relevant 

32 Case T-243/94, British Steel v Commission, 1997 E.C.R. I-1887; Case 78/77, Lührs v Hauptzollamt 

Hamburg-Jonas, 1978 E.C.R. 169; Case 265/85, Van den Bergh en Jurgens v Commission, 1987 E.C.R. 

1155; Joined Cases 424-425/85, Frico v VIV, 1987 E.C.R. 2755; SCHØNBERG, supra note 16, at 127-8; 

SEERDEN & STROINK, supra note 16, at 284. 

33 Case C-80/89, Behn v Hauptzollamt Itzehoe, 1990 E.C.R. I-2659. 



36 Joined Cases 424-425/85, Frico v VIV, 1987 E.C.R. 2755. 

37 Case 74/74, CNTA v Commission, 1975 E.C.R. 533, Case C-400/92, Germany v Commission, 1994 

E.C.R. I-4701. 

38 Case 344/85, Ferriere San Carlo v Commission, 1987 E.C.R. 4435. 

39 Case 120/86, Mulder v Minister van Landbouw en Visserij, 1988 E.C.R. 2321; Case 74/74, CNTA v 

Commission, 1975 E.C.R. 533; Case 96/77, SA Ancienne Maison Marcel Bauche et SARL Francois 

Delquignies v Administration francaise des daouanes, 1978 E.C.R. 383. 

40 Id.; SCHØNBERG, supra note 16, at 128. 


42 Id.


71 

public and private interests to determine which trumps which. 43 If the court finds 

that the private interest in relying on the representation outweighs the public interest 

underlying the administrator’s actions, it will declare the expectation to be legitimate 

and order such expectation to be upheld. 44 

A good example of this jurisprudence is the Mulder cases. 45 In those cases Mulder 

participated in a regulatory measure to curb excess milk production in the EU by 

entering into a five-year-non-marketing period in exchange for a non-marketing 

premium. At the end of the five year period he applied for a reference quantity to 

resume production under a new levy system, which was introduced since he entered 

into the non-marketing arrangement. The application was rejected on the 

grounds that Mulder did not prove his milk production in the preceding reference 

year, which was a requirement for a successful application. Mulder subsequently 

launched review proceedings claiming that he had a legitimate expectation to resume 

production after the five year non-marketing period. The ECJ concluded that 

Mulder had a legitimate expectation to re-enter the market without being specifically 

prejudiced due to his participation in the non-marketing arrangement. The 

court consequently declared the new levy system invalid to the extent that it resulted 

in no allocation to those producers who participated in the non-marketing 

arrangement. As a result of the first Mulder case, the Council adopted a regulation 

which allocated a special quota to producers in Mulder’s position in the amount of 

60% of their production in the year preceding the year in which they entered into 

the non-marketing arrangement. Mulder again brought review proceedings, which 

the court upheld ruling that the 60% quota was too low. Mulder as a result claimed 

damages. The ECJ upheld Mulder’s claim to the extent that he was originally denied 

any quota, but rejected his claim to the extent that he was awarded a 60% 

quota, despite the fact that the latter regulation was also struck down by the court. 

The reason for this difference was due to the fact that in the first instance there were 

no compelling public interests which outweighed Mulder’s expectation, so that his 

legitimate expectation had to be protection. However, in the latter instance, there 

were important public interests involved in awarding the limited 60% quota, which 

outweighed Mulder’s expectations so that he could not claim damages for loss suffered 

due to those administrative actions. 46 

43 Case 120/86, Mulder (I) v Minister van Landbouw, 1988 E.C.R. 2321. 

44 Id. 

45 Case 120/86, Mulder (I) v Minister van Landbouw, 1988 E.C.R. 2321; Joined Cases C-104/89 & 37/90, 

Mulder v Council and Commission, 1992 E.C.R. I-3061. 

46 Joined Cases C-104/89 & 37/90, Mulder v Council and Commission, 1992 E.C.R. I-3061; Sharpston, 

supra note 28; Craig, supra note 22, at 308-309.


[Vol. 05 No. 01 

It is important in the current analysis to note the standard of review which the ECJ 

employs in legitimate expectation cases. The ECJ will enforce a legitimate expectation 

and invalidate administrative action disappointing such expectation where it 

finds a significant imbalance between the private and public interests. 47 Although 

it is generally accepted that this standard is more intensive than the traditional 

Wednesbury reasonableness review in English law, applied in similar circumstances, 

48 Schonberg’s analysis of ECJ case law applying the significant imbalance test 

seems to suggest that the ECJ is generally just as deferential to administrative discretion, 

especially in matters regarding policy, as its English counterparts. 49 However, 

Schønberg illustrates that the significant imbalance test is much more “precise, 

structured and coherent” than the traditional approach in English law and should 

therefore be favoured above the English approach. 50 

Finally, a word needs to be said about the principles underlying the legitimate expectation 

doctrine in EU law. The basic premise underlying the protection of legitimate 

expectations seems to be the promotion of legal certainty. 51 Individuals 

should be able to rely on government actions and policies and shape their lives and 

planning on such representations. The trust engendered by such reliance is said to 

be central to the concept of the rule of law. 52 Forsyth describes the impact of such 

trust and the role the protection of legitimate expectations play in this regard aptly 

as follows: 

Good government depends in large measure on officials being believed by the governed. 

Little could be more corrosive of the public’s fragile trust in government if it 

were clear that public authorities could freely renege on their past undertakings or 

long-established practices. 53 

47 Case 120/86, Mulder (I) v Minister van Landbouw, 1988 E.C.R. 2321; Joined Cases C-104/89 & 37/90, 

Mulder v Council and Commission, 1992 E.C.R. I-3061, Case C-152/88, Sofrimport SARL v Commission, 

1990 E.C.R. I-2477, Case C-189/89, Spagl v Hauptzollamt Rosenheim, 1990 E.C.R. I-4539; SCHØNBERG, 

supra note 16, at 149-150. 

48 Christopher Forsyth, Wednesbury Protection of Substantive Legitimate Expectations, 1997 PUB. L 375 at 381, 

Paul Craig & Søren Schønberg, Substantive Legitimate Expectations after Coughlan, 2000 PUB. L 684 at 697, 

SCHØNBERG, supra note 16, at 150. 

49 SCHØNBERG, supra note 16, at 150. His analysis is supported by that of Sharpston, supra note 28. 

50 Id., at 155. 

51 Joined Cases 424-425/85, Frico v VIV, 1987 E.C.R. 2755, SCHØNBERG, supra note 16, at 12; Sharpston, 

supra note 28, at 106; CRAIG, supra note 11, at 611; Forsyth, supra note 48, at 375; CRAIG, supra note 22, at 

299, 304, 311. 

52 SCHØNBERG, supra note 16, at 12-23, Craig & Schønberg, supra note 48, at 685. 

53 Forsyth, supra note 48, at 384.


73 

Legal certainty is not, however the only principle at play in legitimate expectation 

doctrine. The counter value of legality is especially important in the context of the 

substantive protection of legitimate expectations. 54 The fear in protecting legitimate 

expectations substantively is that administrators may be forced to act ultra vires. 

That would be the case where an administrator has created an expectation of some 

conduct which is beyond his authority or has become beyond his authority due to a 

change of law or policy. If the administrator were consequently held to that representation 

he would be forced to act contra legem. It is clear that such representations 

will not be upheld by the ECJ. 55 The value of legality in EU law has led to the 

requirement that the expectation must be one of lawful administrative action before 

it can be either reasonable or legitimate. 56 Legality therefore seems to take precedence 

over legal certainty in EU law. The ECJ will not weigh up the individual’s 

trust in administrative representations against policy considerations to depart from 

that representation if the representation is contra legem. As stated above, there can 

be no reasonable expectation where the representation is of unlawful conduct and 

hence the question of legitimacy does not arise. 57 

It is against the background of this well developed doctrine of substantive protection 

of legitimate expectations in EU law that the recent South African developments 

must be viewed in order to highlight the important lessons that South African 

law can take from the European position. The South African position is explored 

in the following paragraphst. 

C. South African Case Law 

As was stated in the introductory paragraph, the doctrine of legitimate expectation 

was imported from English law to South African law in the 1989 case of Administrator 

Transvaal v Traub . 58 In line with English law, at least at that time, the ambit of 

54 Joined Cases 205-215/82, Deutsche Milchkontor GmbH et al. V Germany, 1983 E.C.R. 2633. 

55 SEERDEN & STROINK, supra note 16, at 284, SCHØNBERG, supra note 16, at 147-148.. 

56 See note 30 supra. 

57 Some member states of the EU, notably Germany and the Netherlands, however, afford greater protection 

to the individual in such cases and in fact weigh up the legal certainty interests against legality 

interests when adjudicating substantive legitimate expectation claims. See Forsyth, supra note 16, at 243 

where he discusses a German case of 1956 in which it was stated that both legal certainty and legality are 

elements of the Rechtstaatprinzip (rule of law) and should consequently be weighed up against each 

other in substantive legitimate expectation claims. See also Gio ten Berge and Rob Widdershoven, The 

Principle of Legitimate Expectations in Dutch Constitutional and Administrative Law, in NETHERLANDS 

REPORTS TO THE FIFTEENTH INTERNATIONAL CONGRESS OF COMPARATIVE LAW 422 (E.H. 

Hondius ed., 1998) and SEERDEN & STROINK, supra note 16, at 170 for a discussion of the Dutch position. 

58 Supra note 1.


[Vol. 05 No. 01 

the doctrine was restricted to procedural protection. It was incorporated into South 

African law as an extension of the rules of natural justice, that is the procedural 

requirements for fair administrative action. 59 Only most recently, has there been 

mention of substantive protection of legitimate expectations in South African law. 

The determination of whether a legitimate expectation exists that merits judicial 

protection in South African law is very similar to EU law. The requirements for the 

existence of such an expectation in South African law were recently restated in National 

Director of Public Prosecutions v Philips. 60 These include: (i) that there must be a 

representation which is “clear, unambiguous and devoid of relevant qualification”, 

61 (ii) that the expectation must be reasonable in the sense that a reasonable 

person would act upon it, 62 (iii) that the expectation must have been induced by the 

decision-maker and (iv) that it must have been lawful for the decision-maker to 

make such representation. 63 If such an expectation exists it will be incumbent on 

the administrator to respect it and afford the individual holding that expectation 

due procedure before the expectation is disappointed. 64 Failing such procedure, the 

individual may approach a court to review the administrator’s actions on the 

ground of procedural unfairness. 65 If the court finds that a legitimate expectation 

did in fact exist, it will ordinarily invalidate the administrative action and refer the 

matter back to the decision-maker to deal with it in a procedurally fair manner. 66 

A number of recent South African court decisions, however, have referred to the 

possibility of extending the protection of legitimate expectations to substantive 

relief, that is the doctrine of substantive legitimate expectation. Against the backdrop 

of conflicting opinions in the lower courts, 67 this question has recently sur- 

59 HOEXTER, supra note 2, at 209-211. 

60 2002 (4) SA 60 (W) at paragraph 28, quoted with approval by the Supreme Court of Appeal in South 

African Veterinary Council and another v Szymanski 2003 (4) BCLR 378 (SCA) at paragraph 19 and in 

Minister of Environmental Affairs and Tourism and others v Phambili Fisheries (Pty) Ltd and another 

[2003] 2 All SA 616 (SCA) at paragraph 65. 

61 Phillips case, supra note 60, at paragraph 28. 

62 President of the Republic of South Africa and others v South African Rugby Football Union and others 

2000 (1) SA 1 (CC) at paragraph 216, Szymanski case, supra note 60, at paragraph 21. 

63 Phillips case, supra note 60, at paragraph 28. 

64 Traub case, supra note 1, at 761. 

65 Id. 

66 Pretorius, supra note 8, at 524 to 529. 

67 Compare the High Court judgements in Putco Limited v The Minister of Transport for the RSA and 

others 2003 JDR 0484 (W) (assuming for purposes of the judgement that the doctrine of legitimate expec-


75 

faced in two judgements by the Supreme Court of Appeal 68 and two Constitutional 

Court opinions. 69 

In both the Supreme Court of Appeal cases the court rejected the claim based on 

substantive legitimate expectation. It is important to note, however, that although 

the court expressed considerable reluctance in embracing the doctrine, it did not 

reject it and expressly left the door open to an acceptance of the doctrine in South 

African law in future. 70 In both cases the court rejected the claim on the grounds 

that no legitimate expectation in fact existed. 71 

In Meyer v Iscor Pension Fund 72 the appellant appealed against an order of the High 

Court setting aside a determination of an adjudicator appointed in terms of the 

Pension Funds Act. Meyer retired before reaching the normal retirement age and 

as a result received reduced pension benefits in terms of the rules of his employer’s, 

Iscor, pension fund. 73 These rules stated that pension benefits will be reduced in 

case of early retirement, calculated with reference to the number of months by 

which actual retirement precedes the normal retirement age. 74 Less than two 

months after Meyer’s retirement the rules of the fund was amended as a special 

measure to encourage early retirement, which formed part of rationalisation 

scheme agreed to between Iscor and the trade unions. 75 The amended rules removed 

the penalty imposed on pension benefits in case of early retirement for a 

tation forms part of South African law), University of the Western Cape v Member of Executive Committee 

for Health and Social Services 1998 (3) SA 124 (C) (stating that it is in the interest of good governance 

that administrators should be held to their promises as long as those are intra vires) and Durban Add- 

Ventures Ltd v Premier, KwaZulu-Natal, and Others (No 2) 2001 (1) SA 389 (N) (stating the legitimate 

expectations can only be protected procedurally and not substantively). 

68 Meyer v Iscor Pension Fund 2003 (2) SA 715 (SCA), South African Veterinary Council and another v 

Szymanski 2003 (4) SA 42 (SCA). 

69 Premier, Province of Mpumalanga and another v Executive Committee of the Association of Governing 

Bodies of State-Aided Schools: Eastern Transvaal 1999 (2) BCLR 151 (CC), Bel Porto School Governing 

Body and others v Premier of the Province, Western Cape and another 2002 (9) BCLR (CC). 

70 Meyer’s case, supra note 68, at paragraph 27. 

71 Meyer’s case, supra note 68, at paragraph 28; Szymanski’s case, supra note 68, at paragraph 16. 

72 Note 68 supra. 

73 Meyer’s case, supra note 68, at paragraph1. 

74 Id. 

75 Id. at paragraph 2 and 9.


[Vol. 05 No. 01 

certain group of employees. 76 Had Meyer retired two months later, he would have 

received more than twice the benefits he did. 77 Meyer subsequently laid a complaint 

against the fund in terms of the Pension Funds Act and the adjudicator appointed 

under the Act determined the dispute in Meyer’s favour. 78 The adjudicator 

ordered the fund to pay Meyer increased pension benefits under the amended 

rules. 79 The fund succeeded in the High Court to set the adjudicator’s order aside 

upon appeal, but the court allowed Meyer to appeal the judgment. 80 

One of Meyer’s arguments in the Supreme Court of Appeal was that he had a legitimate 

expectation that any amendment to the rules, which resulted in increased 

pension benefits as part of the rationalisation scheme, would be implemented with 

retrospective effect. Had this been done, he would be entitled to increased pension 

benefits. Meyer based his legitimate expectation on promises made by Iscor in the 

course of the rationalisation program that improved retrenchment benefits would 

be implemented with retrospective effect. 81 He did not, however, claim that his 

legitimate expectation entitled him to procedural relief, but that the substantive 

benefit should be afforded to him. 82 

The court assumed for purposes of the judgment that trustees’ decisions in terms of 

the rules of pension funds can be reviewed on a basis analogous to the review of 

administrative decisions. 83 It noted the recent developments in English law accepting 

substantive legitimate expectations, but also noted the rejection of this doctrine 

in other Commonwealth jurisdictions such as Australia and Canada. 84 The court 

expressly refused to either accept or reject the doctrine of substantive legitimate 

expectation in South African law. 85 It held that whether to adopt this doctrine or 

not is a “difficult and complex” question and cautioned against simply grafting 

76 Id. 

77 Id. at paragraph 3. 


79 Id. 

80 Id. 




84 Id. at paragraphs 27 and 28. 

85 Id. at paragraph 27.


77 

foreign doctrines onto local law. 86 The court emphasized the importance of understanding 

the underlying needs that prompted the development of the doctrine in its 

country of origin. 87 In this respect the court suggested that the doctrine of substantive 

legitimate expectation may have developed in English law in response to the 

requirement that valuable consideration be given before an undertaking can be 

legally binding, which requirement is foreign to South African law. 88 Despite these 

remarks the court continued to analyze Meyer’s alleged legitimate expectation and 

found that even if the doctrine of substantive legitimate expectation were accepted 

as part of South African law, he would still not be entitled to the relief claimed. 89 

This conclusion seemed inevitable on the basis that the facts did not support a legitimate 

expectation. 90 

The second Supreme Court of Appeal case, South African Veterinary Council v 

Szymanski, 91 involved a substantive claim to be registered as a veterinary surgeon. 

As part of a special arrangement in terms of which South African citizens holding 

foreign veterinary degrees could be registered to practice in South Africa, the 

Council conducted a special admissions examination. 92 Szymanski wrote this examination 

and was awarded a combined mark of 45.25%. The Council regarded 

this as a failure, taking 50% to be the pass mark and refused to register him. 93 

Szymanski subsequently applied to the High Court for an order setting aside the 

Council’s decision that the pass mark was 50% and an order requiring the Council 

to register him as a veterinary surgeon in South Africa. 94 He based his claim on a 

legitimate expectation that the pass mark was 40% and not 50%, which expectation 

followed from numerous statements by the Council and its officials. 95 The High 

Court ruled in favour of Szymanski setting aside the Council’s decision and order- 

86 Id. 

87 Id. 

88 Id. 


90 Id. at paragraphs 29 to 30. 

91 Supra note 68. 


93 Id. 

94 Id. 



[Vol. 05 No. 01 

ing the Council to register him as a veterinary surgeon, that is, the High Court 

granted Szymanski substantive relief based on his legitimate expectation. 96 

Upon appeal Cameron JA, for a unanimous Supreme Court of Appeal, dealt with 

the doctrine of substantive legitimate expectation in a single paragraph. 97 He noted 

that the court 98 recently cautioned against “an over-hasty” adoption of the doctrine 

in South African law. 99 According to the judge, it was, however, not necessary in 

the present case to decide the matter, because “Dr. Szymanski’s case was deficient 

in its most basic essentials.” 100 The court continued to show that the applicant did 

not have a legitimate expectation on the facts of the case. 101 Resultantly the appeal 

was upheld. 

The doctrine of substantive legitimate expectation has also been mooted in the Constitutional 

Court. Two judgments are noteworthy in this respect. 102 In the first of 

these, the Premier, Province of Mpumalanga case, 103 the member of the provincial 

executive council responsible for education 104 terminated bursaries paid to certain 

state schools for needy students. 105 These bursaries were paid to schools educating 

mainly white students as part of the apartheid education system. 106 The MEC’s 

decision to terminate these bursaries formed part of the general transformation of 

the education system. 107 About 100 of the schools that previously received such 

bursaries subsequently challenged the MEC’s decision on the grounds that it was 



98 Meyer’s case, supra note 68. 

99 Szymanski’s case, supra note 68, at paragraph 15. 

100 Id. 

101 Id. at paragraphs 16-21. 

102 Premier, Province of Mpumalanga and another v Executive Committee of the Association of Governing 

Bodies of State-Aided Schools: Eastern Transvaal 1999 (2) BCLR 151 (CC) and Bel Porto School Governing 

Body and others v Premier of the Province, Western Cape and another 2002 (9) BCLR (CC). 


104 The MEC for education. 

105 Premier, Province of Mpumalanga case, supra note 102, at paragraph 2. 




79 

procedurally unfair and unjustifiable. 108 The schools applied for an order setting 

aside the decision and an order compelling the MEC to continue to pay the bursaries 

until the end of that school year, that is 1995. 109 They based their case on the 

legitimate expectations that bursaries would be paid for 1995 and that they would 

be afforded a fair procedure before the administration terminated the payments. 110 

These expectations entitled them to a fair procedure in terms of section 24(b) of the 

Interim Constitution, 111 a failure of which would result in the administrative action 

being invalid, so the argument went. 112 At paragraph 36 of the judgement, O’Regan 

J stated that it was not necessary in the present instance to decide whether a legitimate 

expectation may entitle an applicant to substantive relief. The reason for this 

conclusion is that section 24(b) of the Interim Constitution expressly stated that an 

individual shall have the right to procedurally fair administrative action where his 

or her legitimate expectation is affected. A claim based on legitimate expectation in 

terms of section 24(b) of the Interim Constitution is therefore clearly restricted to a 

procedural remedy. In the present case, the court found that the legitimate expectations 

of the schools entitled them to a fair procedure before the bursaries were terminated 

and that no such procedure was followed. 113 Consequently, the decision 

was set aside. 114 The court, however, refused to sanction the substantive relief ordered 

by the High Court, that is that the bursaries must be paid until the end of the 

school year in line with the applicants’ legitimate expectation. 115 O’Regan J concluded 

that this was not a case in which a court could substitute its own decision 

for that of the administrator. 116 However, it was not possible to refer the decision 

back to the MEC to be taken in a procedurally fair manner, seeing that the judgement 

date was 1998 while the bursaries terminated naturally at the end of 1995. 117 


109 Id. 


111 Constitution of the Republic of South Africa, act 200 of 1993. 

112Premier, Province of Mpumalanga case, supra note 102, at paragraph 30. 




116 Id. In common law a court could only substitute its own decision on the merits for that of the administrator 

in very narrow circumstances. These included cases where the end result is a foregone conclusion 

and referring the matter back to the administrator would only be a waste of resources and cases 

where the administrator exhibited such degree of bias that referring the matter back to him or her would 

result in an injustice, Id. at paragraph 50. 



[Vol. 05 No. 01 

The end result of the Constitutional Court’s judgement was therefore that the bursaries 

had to be paid until the end of 1995, that is a result similar to the substantive 

relief granted by the High Court. 

The second case in which the Constitutional Court referred to the doctrine of substantive 

legitimate expectation is that of Bel Porto Governing Body v Premier of the 

Province, Western Cape. 118 In that case the governing bodies of a number of schools 

challenged certain decisions taken by the provincial education department as part 

of a rationalisation scheme. In order to eradicate inequalities between former 

“whites-only” and “non-white” schools, the provincial department embarked on an 

extensive rationalisation program. At the same time, the applicants, which were all 

former whites-only schools catering for disabled children, started making requests 

to the department to employ special assistants who were currently employed by the 

schools themselves. 119 Upon the department’s refusal to take over these employees 

prior to implementing the rationalisation program, the schools instituted review 

proceedings. The schools averred that a number of their constitutional rights have 

been infringed by the department’s actions and applied for substantive relief in the 

form of an order enforcing the department to employ the special assistants currently 

on the schools’ own pay-roll. 

The High Court rejected the application and the schools appealed to the Constitutional 

Court. The Constitutional Court dismissed the appeal, but only narrowly on 

a 6-4 split. Chief Justice Chaskalson wrote the opinion for the majority, 120 with 

three dissenting opinions being filed. 121 The majority rejected the claim based on 

administrative justice on the ground that a fair procedure was followed vis-à-vis 

the schools and specifically declined to express an opinion on substantive legitimate 

expectation. 122 


119 These schools argued that while they employed their special assistants themselves, the former nonwhites 

state schools did not have to do so. The assistants at the latter schools were employed by the 

respective education departments. The former whites-only schools were finding it increasingly difficult 

to afford their special assistants and therefore appealed to the education department to employ the 

special assistants working at these schools, Id. at paragraphs 11 to 19. 

120 Justices Goldstone, Kriegler, Madlanga, Somyalo and Yacoob concurring. 

121 Justices Mokgora and Sachs filed a joint opinion and justices Madala and Ngcobo each filed their own 

opinions. 

122 Bel Porto School case, supra note 102, at paragraph 96.


81 

It is, however, Madala J’s dissenting opinion in the Bel Porto School case, 123 which is 

the most relevant for present purposes. He bases his opinion on a general duty of 

fairness, which rests on the administration. 124 From there he continues to discuss 

the doctrine of legitimate expectation and its development in English law and reception 

in South African law. 125 He notes that the doctrine has developed in English 

law to include substantive protection. 126 There is, however, a flaw in his argument 

where he jumps from the statement that the doctrine of legitimate expectation, 

as it exists in South African law, protects both procedural and substantive 

expectations to the statement that legitimate expectations will be protected substantively 

in certain instances. 127 While the former statement is undoubtedly correct, 128 

his second statement does not follow from the first. As indicated above, the legitimate 

expectation doctrine was originally restricted to procedural protection. 129 

That is, although the content of the expectation could be procedural or substantive 

in nature, the relief afforded was restricted to procedure and specifically the extension 

of the audi principle. 130 Although the extracts from the Traub case 131 quoted by 

Madala J 132 support the contention that substantive expectations are protected by 

the doctrine of legitimate expectation, they are no authority for the proposition that 

substantive legitimate expectations will be protected substantively. 133 The only 

further authority that Madala J offers for his conclusion that substantive expecta- 

123 Bel Porto School case, supra note 102, at paragraphs 191 to 218. 


125 Id. at paragraphs 208 to211. 


127 Id. at paragraphs 211 to 213. 

128 As Madala J clearly indicates Corbet CJ already made this clear in the Traub case, supra note 1, which 

originally adopted the legitimate expectation doctrine in South African law. 

129 See paragraphs 0 and 17 above. 

130 See paragraph 1 note 1 above. 


132 Bel Porto School case, supra note 102, at paragraphs 210 to 212. 

133 In the Traub case, supra note 1, at 758D-E Corbett CJ concludes with reference to the relevant English 

law: “As these cases and the quoted extracts from the judgments indicate, the legitimate expectation 

doctrine is sometimes expressed in terms of some substantive benefit or advantage or privilege which 

the person concerned could reasonably expect to acquire or retain and which it would be unfair to deny 

such person without prior consultation or a prior hearing; and at other times in terms of a legitimate 

expectation to be accorded a hearing before some decision adverse to the interests of the person concerned 

is taken.” It is clear from this extract that although the content of the expectation may be substantive 

or procedural in nature, the protection afforded remains procedural.


[Vol. 05 No. 01 

tions will be “given substance to” is an article by Professor Robert E Riggs 134 in 

which he examines the development of the doctrine of legitimate expectation in 

English law. 135 It would therefore seem that Madala J’s casual acceptance of the 

doctrine of substantive legitimate expectation is rather lacking in authority as far as 

South African law is concerned. This is not to suggest that the doctrine cannot be 

imported into South African law as was originally done with legitimate expectation 

in the Traub case 136 and as recently suggested by Brand JA in the case of Meyer v 

Iscor Pension Fund. 137 However, any such reception must be done on a careful 

analysis of the relevant foreign developments and an evaluation of the need that 

prompted that development in the foreign jurisdiction(s) and the corresponding 

need in South African law. 138 

It seems evident from the discussion above that the development of substantive 

legitimate expectation in South African law is still in a very early stage and it is not 

clear whether the doctrine will be accepted at all. At least Brand JA seemed very 

reluctant in his opinion for the court in Meyer v Iscor Pension Fund 139 to accept the 

doctrine. With the exception of Madala J in the Bel Porto School case, 140 all the statements 

in the higher courts suggest that a much more careful analysis of the relevant 

issues regarding the doctrine must be put before the court before it will be prepared 

to endorse the doctrine. In such an analysis it will be important to take note of the 

development of legitimate expectation in other jurisdictions. Since that doctrine 

has always included substantive protection in EU law, the development in that 

jurisdiction is of particular importance. The next section focuses on some of the 

lessons to be learnt in South African law from EU law. 

134 Robert E Riggs, Legitimate Expectation and Procedural Fairness in English Law, 37 AM. J. OF COMPARATIVE 

L. 395 (1988). 

135 Bel Porto School case, supra note 102, at paragraph 213. 

136 Note 1 supra. 

137 Note 68 supra. See the discussion of that case in paragraphs 0 to 0 above. 

138 As was suggested by Brand JA in Meyer v Iscor Pension fund, Id., and as illustrated by Corbet JA in 

the Traub case, note 1 supra, when he accepted the doctrine of legitimate expectation as part of South 

African law. 

139 Supra note 68. See the discussion of that case in paragraphs 0 to 0 above. 

140 Supra note 102. See the discussion in paragraph 0 above.


83 

D. Comparing EU and South African law 

The first important lesson for South African law is the structure of legitimate expectation 

analysis in EU law. In EU law there is an added policy analysis, which is 

absent from South African law. After it has established that there is a reasonable 

expectation, the ECJ weighs the public interest in disappointing that expectation 

against the individual’s interests in relying on the expectation before arriving at the 

conclusion that the expectation is legitimate and should be protected. 141 This brings 

the analysis closer to reasonableness review in South African law than the application 

of traditional legitimate expectation doctrine in procedural fairness review. 

Since in procedural fairness cases the matter will ordinarily be referred back to the 

administrator who will revisit the decision in a procedurally fair manner, it has not 

been necessary for the court to investigate the opposing public and private interests 

in the substance of the matter. That was left to the administrator. In substantive 

legitimate expectation cases, however, it is the court that will decide on the substantive 

outcome of the particular administrative action. It is therefore important for 

the court to keep in mind the relevant substantive interests involved. When South 

African courts consider substantive legitimate expectation claims, they should thus 

be aware that they are involved in reasonableness review rather than review in 

terms of traditional legitimate expectation doctrine. 

The second important point to note, which flows from the first, is the standard of 

review employed by the ECJ. As noted above, it is only when there is a significant 

imbalance between the public and private interests that the ECJ will interfere and 

afford substantive protection of the legitimate expectation. 142 As the EU case law 

suggests, this is a very deferential approach, which allows a large measure of freedom 

to the administration in exercising its discretionary powers. This is important 

in the current South African context where there is a particular need in allowing the 

government to effect the transformation efforts needed to eradicate the remaining 

injustices of apartheid South Africa. The discussion of the developing substantive 

legitimate expectation doctrine in South Africa above suggests that such claims 

typically arise in instances where existing policies are changed and replaced by 

various transformation programs. It is submitted that South African courts should 

be slow in holding back that process by imposing substantive obligations on the 

administration. At the same time, the value of legal certainty and the accompanying 

trust in government that infuse the protection of substantive legitimate expectations 

is also very important in the current South African climate. The majority of 

the population has been oppressed by the government for decades and has conse- 

141 See paragraph 0 above. 

142 See paragraph 0 above.


[Vol. 05 No. 01 

quently lost faith in such structures. It is therefore important that citizens regain a 

sense of trust in government. The courts can play a vital role in re-establishing 

such trust by protecting expectations created by organs of state. Between respecting 

the transformation process and fostering trust in the legal system, the courts 

must find an appropriate standard of review. The significant imbalance test of EU 

law, may just be such a standard or at least provide an important starting point in 

developing a South African standard of review in substantive legitimate expectation 

cases. The strict foreseeability requirement in EU law may also be quite helpful 

in this regard. South African courts may incorporate this requirement to rule 

out claims in transformation type cases on the ground that individuals must foresee 

that old policies and practices, pre-dating democratization, will be changed and 

therefore cannot form any expectation on such policies and practices. 

As I have indicated, the principle of legality counters legal certainty in EU law as 

the principles underlying substantive protection of legitimate expectations. 143 

South African courts should be likewise mindful of legality as an important value 

in this context. While legitimate expectations are protected only procedurally, legality 

is of less concern seeing that the court will only require the administrator to 

observe enhanced procedure when revisiting the invalidated administrative action. 

The court will not order substantive action by the administrator and hence there is 

no fear of the administrator being forced to act ultra vires. However, this changes 

as soon as legitimate expectations are enforced substantively. In such a case the 

doctrine may result in administrators being forced to act contra legem. South African 

courts should therefore consider the effect of any substantive order very carefully 

against the background of legality. 

E. Conclusion 

The doctrine of substantive legitimate expectation is only starting to find its way 

into South African law at present. The courts have suggested that a careful analysis 

of the development of the doctrine in English law is required before it can be accepted 

in South African law. 144 While this is certainly important seeing that the 

doctrine of legitimate expectation was originally taken from English law into South 

African law, the comparative analysis should not be restricted to English law. In 

English law the substantive legitimate expectation doctrine is all but settled and 

while the development of the doctrine in that jurisdiction has preceded South African 

law for a considerable period of time, many uncertainties regarding the doctrine 

still remain in English law. 145 In contrast, substantive protection of legitimate 

expectations is well established in EU law. It will therefore be foolish not to pay 

143 See paragraph 0 above.


85 

close attention to EU law in this regard. Any comparative analysis clearly shows 

that EU law holds some very important lessons for the development of substantive 

legitimate expectations in South African law. 

144 Brand JA in Meyer v Iscor Pension Fund, supra note 68, at paragraph 27. 

145 Craig & Schønberg, supra note 48, at 701.


Defining the Balance between Free Competition and Tax 

Sovereignty in EC and WTO Law: The “due respect” to 

the General Tax System 

By Vanessa Hernández Guerrero * 

“While direct funding of private enterprises has proven to be an efficient but rather crude 

and obvious device of public aid, States turn their attention to the elegant and indirect ‘tax 

incentives.’” 1 

A. The Necessity of a Different Analytical Tool 

Certain rulings of the World Trade Organization Appellate Body 2 and recent EC 

Commission decisions on State aids 3 have brought new attention on an old issue: 

States can use their tax systems to provide subsidies. The basic assumption against 

subsidies is that markets should not be distorted by government’s intervention. 

However, a system of taxation without government is unthinkable. A different 

criterion must lead to the distinction of measures necessary to the effectiveness and 

fairness of the tax regime from tax measures that distort competition. 

This paper departs from the concepts of State aid and subsidy adopted under EC 

and WTO Law respectively. Both legal regimes, although separated in many aspects, 

converge in their main goal and more interesting, have reached similar conclusions 

as to which is the right analysis that serves to identify tax regimes that 

* Ph.D. Researcher at the European University Institute, Law Department. I would like to thank specially 

professor. Martín Jiménez for his constant support and always helpful comments 

1 Schön, Taxation and State Aid Law, EU Common market law review 1999, 911-936. 

2 See WTO cases. US- Treatment of Foreign Sales Corporations (WT/DS108/R, WT/DS108/AB/R, 

WTO/DS108/RW and WT/DS108/AB/RW). 

3 See Commission Press Release on the 11 July 2001 announcing a “large scale State aid investigation into 

business taxation schemes” obtained from http://www.europa.eu.int/rapid . This initiative has resulted 

in 15 decisions that declared incompatible 15 tax schemes on 14 Member States.(see below)


threaten free competition without impinging on the tax sovereignty of their Member 

States. 4 

B. The Approach Adopted Under the EC Rules on State Aids 

The leading provision in arriving to a concept of fiscal State aid is Article 87.1 TEC: 

“Any aid granted by a Member State of through State resources in any form whatsoever 

which distorts competition or threatens to distort competition by favouring certain undertakings 

or the production or certain good, insofar as it affects trade between Member 

States”. In accordance with this definition, there is consensus among scholars that a 

measure, to be a state aid, must fulfil the following requirements: 

Be granted through State resources 

Confer a benefit or an advantage 

Be specific or selective 

Distort competition or affect intra-community trade 5 

The Court has consistently held that, in order to assess whether a measure provides 

for a benefit, the effects of the measure, and not its form, aim or causes, must be 

considered. 6 Consequently, tax measures may also fall under the concept of State 

aid. In fact, the first judgment in which a tax measure was considered as an aid 

4 Ehlermann, former Director General of Commission D.G. Competition, best expresses how the rules on 

State aids may interfere with national sovereignty: “State aid rules limit the freedom of governments, even of 

parliaments, to grant financial advantages to certain sectors of their economy, irrespective of the technique that 

may be used including tax and social security rebates. State aid is therefore a serious and highly sensitive interference 

in national sovereignty”. Ehlermann, State Aid Control in the EU : Success or Failure, Fordham International 

Law Journal 18/1995, 1212, 1218. 

5 In the Philip Morris case (C-730/79, Philips Morris Holland BV v. Commission [1980], ECR 2671, para. 

11), the Court adopted a test for determining the existence of distortions to competition: “When financial 

aid strengthens the position of an undertaking as compared with other undertaking competing in intra-Community 

trade the latter must be regarded as affected by that aid”. Van der Esch, Ayudas de Estado y Anti-Dumping, 

Noticias CEE 1987, 85 n. 33., supports this approach on the fact that State aids interfere with a system of 

competition among undertakings on the basis of their own efforts. Arpio Sanacruz does not consider the 

distortion to competition an element of the concept of aid but a condition of incompatibility with the 

common market. Arpio Santcruz, State Aids in EC law EUI Ph.D. Thesis 1996. 

6 Case 30/59 Steenkolenmijnen [1961] ECR 1 at 19; C-173/73 Italian Republic v Commission (First Italian 

textiles) [1974] at paragraph 13; C-387/92, Banco Exterior de España [1994] ECR I-877 at 12; C-200/97 Ecotrade 

[1998] ECR I-907; C-295/97 Piaggio v Ifitalia and Ministero della difesa [1999] and Case C-143/99 Adria 

Wien Pipeline and Wietersdorfer & Peggauer [2001] ECR I-8365. In C-56/93 Belgium v Commission [1996] the 

Court found that a measure justified on commercial grounds is not a State aid even if it also pursues a 

political aim. In Case T-504/93, Tiercé Ladbroke SA v. Commission [1997] ECR II-923, the Court of First 

Instance stated that the causes or aims of the State measures fell to be appraised only in the context of 

determining whether such measures were compatible with the common market.

2004] The “due respect” to the General Tax System 

89 

incompatible with the common market was issued in 1961. 7 More recently, the 

process against harmful tax competition 8 has fostered the application of Article 87.1 

to tax measures 9 and through it, the Commission has had the opportunity of testing 

the concept of State aid in many different fields of tax law. 

It has been revealed that tax State aids may adopt varied forms: reductions in the 

tax base, 10 tax-free reserves to cover the risks connected to an activity, 11 special depreciation 

facilities, 12 derogations from general limits, 13 objective forms of quantify- 

7 Case 30/59 Steenkolenmijnen [1961] ECR 1. 

8 Instigated by the so-called “Monti Memorandum” of 1996, the EU process against harmful tax competition 

commenced when in 1997 the ECOFIN Council adopted unanimously a package of measures on 

direct taxation aimed at tackling tax evasion and the erosion of tax bases within the Union. Among 

them, a Code of Conduct for business taxation that sets forth the criteria to identify harmful tax measures. 

On 29 November 1999 a Group of Experts appointed to identify such measures within the existing 

tax regimes of the Member States presented a list of 66 tax schemes that were considered as having 

harmful effect. However, along 2000, States accorded to limit the movement against harmful tax competition 

to three main areas -finance branches, holding companies and headquarter companies- and 

adopted a special set of guidelines to assess tax schemes in those three areas. Finally, on the ECOFIN 

Council on 3 June 2003, the so-called tax package was adopted, though the effects of the Code of Conduct 

are still non-binding. (Conclusions of ECOFIN Council). See PINTO (2003) “Tax Competition and EU 

Law”, Kluwer Law International. 

9 Paragraph J of the Code of Conduct acknowledged that some of the measures covered by the Code 

might fall within the scope of the provisions on State aids in Articles 92 to 94 TEC (now 87 to 89). The 

Commission was asked to publish guidelines on the application of State aid rules to measures relating to 

direct business taxation. The Commission did so on December 1998 [Commission Notice on the application 

of State aid rules to measures relating to direct business taxation (O.J. C 384, 10.12.1998)]. It expressly stated 

that State aid provisions would also contribute through their own mechanism to the objective of tackling 

harmful tax competition and gave the criteria that would prevail in the application of State aids to tax 

incentives. In practice, the Commission gathered together criteria that already existed within the caselaw 

of the Court of Justice or the practice of the Commission. 

10 See judgement of the Court of First Instance in Ramondín [Joined cases T-92/00 and T-103/00 Diputación 

Foral de Málaga y Ramondín Cápsulas v Commission –hereinafter Ramondín-[2002] ECR II-1385, 

para. 10 et sub and Commission Decision in Spain – Newly established firms in Alava (OJ L 314/1, 

18.11.2002)]. 

11 The Dutch regime for international finance activities, also included within the Commission’s investigation, 

provides for the possibility of creating a tax-free reserve to cover the risks connected to the financial 

activities up to a certain percentage of the total benefits [see C-51/2001 Netherlands – International 

Financing Activities (OJ L 180/52, 18/07/03) and MEUSSEN “National Report on Netherlands” for the 

EATLP Conference on Tax Competition in Europe (2003.01.25) http://www.eatlp.org, Lausanne 2002]. 

12 Commission Decision 96/369/EC of 13 March 1996 concerning fiscal aid given to German airlines in 

the form of a depreciation facility (OJ L 146, 20.06.1996).Though the final advantage was deemed to be a 

deferral of the tax payment, the immediate effect of the measure was a reduction in the tax base. It is 

interesting to note that the Commission in this decision considered that the beneficiaries had reduced 

their taxable income with respect to the amount that would normally be due absent the special provision..


ing the taxable base, exemption from paying taxes, or certain taxes, 14 and reduced 

tax rates. 15 

At the same time, it has evidenced that the application of the concept of State aids 

to fiscal measures demands a different analysis than the one used under positive 

benefits. 16 

For example, it had been stated that “a loss of tax revenues is equivalent to consumption 

of State resources in the form of fiscal expenditure”. However, some States, to defend 

their tax regimes, alleged that these had contributed to the raise of more revenue, 17 

since absent the special tax regime, the investment would not have taken place, the 

13 C-46/2001 France – centrales de tresoreries adopted 12/12/02 C/2002/4827/3. 

14 Foreign commercial and industrial firms were exempted from corporation tax in Greece [E-4/2000 

Greece – taxation of foreign commercial and industrial firms (Act no 89/97) (OJ C 108 on 4/5/2002).] 

Gibraltar exempt companies are not subject to corporate tax either [E-7/2000 Ex C-53/2001 United 

Kingdom – Gibraltar Exempt Companies]. In some cases, the beneficiaries were exempted from some 

indirect taxes. For example, Belgian coordination centres, apart from applying a different regime of 

calculation of the tax base are exempted from the “droit d’apport”, the “précompe inmobilier” and the 

“précompte mobilier” [C-15/2002 Belgium – Coordination Centres. (OJ L 282/25, 30/10/2003)]. C- 

15/2002 Belgium – Coordination Centers). Gibraltar Exempt Companies and Qualifying Companies are 

exempted from stamp duties [C-52/2001 United Kingdom – Gibraltar Qualifying companies and decision 

quoted] and companies established in Madeira do not pay local taxes, property tax and contribution 

fees [N-222/A/2002 – Portugal Zona Franca of Madeira for the period 2003-2006 approved on 

11.12.2002]. 

15 E-1/98 Ireland – International Financial Centre and Shannon customs-free airport zone. Proposal for 

appropriate measures (OJ C 395/14, 18.12.98). C-55/2001 Finland – tax regime of captive insurance in 

Aland Islands (OJ L 329 of 5/12/02). C-52/2001 United Kingdom – Gibraltar Qualifying companies. 

16 For the assessment of the advantage in cases involving positive benefits, the Commission practice and 

the Court case have developed a criterion: using the market as a benchmark. If it is understood that the 

recipient would have obtained the same conditions in the market, the measure is not considered a State 

aid (C-56/93 Belgium v Commission [1996] ECR I-723). On the contrary, if the undertaking has received a 

better treatment from the State than it would have achieved in the market, the measure is deemed to be 

an aid (C-142/87 Belgium v Commission-Tubemeuse [1990] and Spain v Commission [1994] and Air France 

[1996]). This “private investor principle” becomes more difficult to evaluate in cases where the State 

“hides” behind a semi-public institution (XXIX Commission Report on Competition Policy). On the 

impossibility of using the market as benchmark in tax cases, see SCHÖN (1999), p.923. 

17See Belgium allegations in C-30/2002 Belgium – Tax ruling System for US FSC (adopted 24/06/03, not 

yet published) and C-15/2002 Belgium – Coordination Centres (quoted above at footnote 14). In similar 

terms, Netherlands argued that its regime intended the repatriation of benefits to the country (C- 

51/2001 Netherlands – International Financing Activities) and Ireland sustained that its scheme for 

foreign income was to bring back dividends to Ireland so as to help Irish unemployment considering 

that had the dividends not been repatriated, no tax liability would have arisen (C-54/2001 Ireland – 

foreign income [L 204/51, 13.08.2003]).


91 

State is thereby not reducing but increasing its collection of revenue. 18 The Commission 

has expressly rejected that argument, alleging that under a State aid analysis 

reference is done “to the fiscal revenues that would have accrued if taxed under common 

[Belgian] law”. 19 

Therefore, the yardstick to measure the advantage awarded by tax State aids is the 

general tax system established by the Member State in question. This determines 

that in the field of taxation, the evaluation of the provision of an advantage appears 

inextricably tied to the test to assess the fulfilment of the selectivity requirement. 20 

Consequently, the “general-specific” test constitutes the key to solve most of the 

cases on tax State aids. 

This does not mean that the two requirements, advantage and selective character, 

cannot be differentiated in tax cases. On the contrary, tax rules may give a less favourable 

treatment to specific groups of taxpayers. And more important, some 

favourable tax provisions may be applicable to all taxpayers (the classical example 

in this case is the 12.5% Irish corporate tax rate). In none of the cases, a State aid can 

be appreciated. 

The Commission’s Notice tries to refine the general-specific test. It asserts that general 

tax measures are those “effectively open to all firms on an equal access basis.” This 

means that “tax measures of a purely technical nature (for example, setting the rate of 

taxation, depreciation rules, rules on loss carry-overs, provisions to prevent double taxation 

or tax avoidance)” do not constitute State aid. 21 It is recognised that the interdiction 

18Martìn Jimenéz, El concepto de ayudas de Estado y las normas tributarias: problemas de delimitación del ámbito 

de aplicación del art. 87.1 TCE, Noticias de la Unión Europea n 196/2001. The problem with this argument 

to validate tax incentives to attract new investment is that it implies a recognition that the operations are 

purely tax-driven, a result which is in principle contrary to the spirit of fair competition and common 

market. See CFI on Ramondin (quoted above at footnote 10) at para.67, and Decision on aid granted by 

the city of Hamburg (Commission decision 91/389/EEC of 18 July 1990 on aid granted by the city of 

Hamburg (O.J. L 2.8.91), where the Commission interpreted that “the institution of a system of ensuring that 

competition is not distorted means that undertakings should determine their location on the basis of autonomous 

decisions, i.e., not influenced or swayed by aid”(para. IV.2). 

19 Paragraph 55 on C-30/2002 Belgium – Tax ruling System for US FSC adopted on 24/06/03, not yet 

published C-30/2002. 

20 The close link among the two conditions, provision of a benefit and existence of selectivity, has led 

some authors to analyze these two requirements together (See Martìn Jimenéz, Shön and Pinto, EU and 

OECD to Fight harmful Tax Competition: Has the Right Path Been undertaken?, Intertax 2/1998, 386-411). In 

this study I have chosen to analyze them separately to follow the criterion of the ECJ (See Case 143/99 

Adria-Wien Pipeline). 

21 Commission’s Notice, para. 13 and 14.


of selective measures does no intend to “restrict the power of the Member States to 

decide on the economic policy.” 22 

The Court has admitted that special measures justified under the nature and general 

scheme of a tax would not constitute State aid, even if they confer a differentiated 

treatment. 23 This exception or justification has been given content through the principles 

of “ability to pay” and “equality”. 24 The Commission understands that this 

exception excludes from the concept of State aids the measures “necessary to the 

functioning and effectiveness of the tax system”. 25 The application of this criterion allows 

the singling out of certain groups of taxpayers and enacts for them special tax 

provisions that respond to their specific problems at the time of implementing their 

tax obligations without rendering them State aids. The principle of proportionality 

is proposed to avoid abuses in the employ of these special rules. 26 

The general system has been especially difficult to recognise in cases dealing with 

transfer pricing schemes 27 and measures to avoid double taxation. 28 Transfer pricing 

methods intend to assess the tax in transactions between associated enterprises. 

22 Id. 

23 The exception based on the nature and general scheme of the tax system was first recognized by the 

ECJ in C-173/73, Italy v. Commission. 

24 Shön refers to the “ability to pay” principle as a general principle recognized in all European tax systems. 

He assures that “One should admit that only tax rules which try to describe the parameters of the tax basis 

according to the ‘ability to pay’ principle belong to its ‘nature and scheme’”( Shön, Op. Cit, p.927). Prof. Martín 

Jiménez considers that the principle of equality and non-discrimination in tax matters constitutes a 

better expression of this theory (Martìn Jimenéz, Op. Cit, p.17). In a recent decision the Commission has 

referred to the principles of equality and progressiveness as expressed in Article 31 of the Spanish Constitution 

when assessing the compatibility of some Basque Country incentives [Commission Decision on 

11 July 2001, 2002/806/EC(OJ L 279/35, 17.10.2002)]. 

25 Commission’s Notice, para. 23 et seq. 

26 Bacon, State Aids and general measures, Yearbook of European Law 1997, 306-309. This author introduces 

the concept of proportionality within the concept of aid itself and not only as a means of measuring 

the exceptions of Article 87.2 and 87.3 TEC. 

27 E-3/2000 Sweden – tax regime of foreign insurance companies appropriate measures on Commission 

Recommendation SG (2001) D/289718, 12.07.2001; C-45/2001 France – headquarters and logistic centres. 

Press release on 16/05/2003; C-47/2001 Germany – foreign companies coordination centres (OJ L 

177/17 16/07/2003); C-48/2001 Spain - Vizcaya coordination centres (OJ L 31/26 6/02/2003); C-49/2001 

Luxembourg - Coordination centres (OJ L 170/20, 9/7/2003); C-50/2001 Luxembourg - Finance Companies 

adopted on 19/10/2002; C-51/2001 Netherlands – International Financing Activities (OJ L 180/82, 

18/07/03); C-15/2002 Belgium – Coordination Centres.(OJ L 282/25 30/10/2003) and C-30/2002 Belgium 

– Tax ruling System for US FSC adopted 24/06/03, not yet published 

28 C-54/2001 Ireland – foreign income (OJ L 204/51, 13.08.2003).


93 

They fulfil a double function: to estimate the fair market value (arm’s length price) 

of the transaction in order to determine the tax base of the taxpayer and to allocate 

the income generated by cross-border operations between the jurisdictions involve. 

29 Measures to avoid double taxation are designed to alleviate the negative 

effect that the taxation by two or more jurisdictions might have in cross-border 

transactions. 

To appraise the advantage in cases involving transfer pricing methods, the Commission 

has taken as reference the OECD Guidelines on transfer pricing for multinational 

enterprises and tax administrations. 30 It has expressly stated that “in the 

area of transfer pricing the internationally agreed standard is the arm’s length principle as 

set out in Article 9 OECD Model.” 31 However, the EC Commission cannot become the 

“guardian” of the OECD Recommendations. The Guidelines represent agreed principles 

as to the manner in which arm’s length transfer prices should be established 

but they are not binding for the Member States. In order to use the OECD guidelines 

as a yardstick, these should have been adopted by the State in question, either 

through an express provision in their national legislation or by alleging them in 

their defence of the contested measure. 

To arrive at a proper arm’s length price, the OECD Guidelines recommend comparing 

the transaction between associated companies with similar transactions between 

non-related companies. For cases where this is not possible, the Guidelines 

foresee two alternative methods: the so-called cost-plus and resale-minus methods. 

The Commission considers that the “alternative methods of profit determination should 

normally aim at taxing at a level comparable to the balance sheet method” 32 and studies 

each of the features of the special methods of transfer-price determination at the 

light of the OECD Report, to check whether the concrete application adopted by the 

Member State in question leads to lower taxation than under the traditional 

method. This task becomes very complex and the comparison with the general tax 

system of the Member State in question is somehow lost in the analysis. 

29 See CALDERON CARRERO, José Manuel (2003) “Análisis de la Normativa Española sobre Precios de 

Transferencia desde una PerspectivaInternacional,, Comunitaria y Constitucional” (publication forthcoming), 

at p.37. 

30 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, OECD, 

1995. 

31 C-47/01 Germany – foreign companies coordination centres (OJ L 177/17, 16.07.2003). 

32 C-15/2002 First Belgium Coordination Centre, C-49/2001 Luxembourg Coordination Centres and C- 

50/2001 Luxembourg Finance companies, C-48/2001 Vizcaya Coordination Centres. This affirmation is 

also important in relation to other objective methods of profit determination such as the used for fisheries 

(?).


The selective character of transfer pricing methods is also difficult to assess. Transfer 

pricing rules are selective per se since they only apply where the companies are 

related companies, that is, one belongs to the other at least to a certain extent. 

Where two companies are independent, the price charged for the services rendered 

by one to the other is presumed to be the price payable under perfect competition 

conditions. Still, the regimes examined by the Commission were found selective as 

far as they applied only to international groups fulfilling certain strict conditions, 33 

which were allowed to perform only determined activities. 

The case dealing with the Irish exemption scheme as a measure to avoid double taxation 

has revealed that a given tax scheme might provide an advantage, not with 

respect to the general system, but with reference to other States’ legal systems. 34 

From a practical point of view, it is accurate to conclude that an exemption system 

as designed by Irish authorities confers an advantage only when the effective taxation 

in the source country is lower than the taxation in the residence country (in this 

case, Ireland). On the contrary, where the effective taxation in the source country is 

higher, the system does not provide an advantage, at the most, it is neutral. In fact, 

once the tax rate in Ireland falls down to 12.5%, Ireland will be maintaining the 

lowest tax rate in Europe and therefore, its exemption scheme will no longer constitute 

an advantage. 35 

However, from the State aid point of view, it does not constitute an appropriate 

analysis. As has been emphasised, the appraisal of the advantage is to be done with 

respect to the general system of the State in question. 36 Therefore, the existence of 

advantage under the Irish foreign income scheme should be based on different 

33 Imposition of certain objective thresholds relative to the capital of the parent company, to the existence 

of a minimum amount of investment in the country or the creation of certain number of jobs. See the 

conditions to apply the Belgian scheme for coordination centres, the Luxembourg schemes for coordination 

centres and financial companies, the Dutch scheme for financing activities and the Spanish scheme 

for coordination centres. 

34 “Where the domestic tax liability is greater than the tax paid in the foreign source jurisdiction, under 

an exemption system, no further tax is due. Therefore, where a specific tax exemption for foreign income is granted 

under a system where the general rule provides for a credit, this exemption constitutes a tax advantage and reduces 

the beneficiary company’s tax burden” para. 33 of C-54/2001 Ireland – foreign income (OJ L 204/51, 

13.08.2003). 

35 The Commission conclusion for the Irish tax scheme is that “ from the current financial year, corporation 

tax is 12.5% and that in principle, such rate is lower than those applied in those jurisdictions where the branched 

are established. Therefore, the Commission accepts that branch no longer confers an advantage on those companies” 

para. 39 of C-54/2001 Ireland – foreign income (OJ L 204/51, 13.08.2003). 

36 Para.81 on C-51/2001 Netherlands Intenational Financing Activities (OJ L 180/52, 18.07.2003): “Dans le 

cadre de l’analyse des aides d’État, l’avantage doit etre évalué uniquement au niveau national »


95 

considerations. For example, that the conditions to obtain the exemption are related 

to the investment of the income and hence, it is impossible to claim that the 

objective of the measure is to grant relief from double taxation. If the Commission 

refers to other States’ regimes to appraise an advantage, commonly accepted measures 

to avoid double taxation such as participation-exemption schemes applicable 

only to groups of companies, could be considered as State aids. 

These cases reveal that to pursue a proper State aid analysis of tax regimes dealing 

with international transactions presents more difficulties than the appraisal of the 

advantage in purely domestic cases. The identification of the benchmark system 

and the consequent appraisal of the incompatible degree of selectivity has been 

done with reference to either international soft rules or third States’ tax regimes. 

This approach should be criticised as far as it goes beyond the purpose of the rules 

on State aid and encompasses a certain harmonization. 

C. The Interpretation of the WTO Concept of Subsidy in the FSC/ETI Case 

The experience of the GATT/WTO dealing with direct tax subsidies does not comprise 

a broad range of measures but it departs from 1979, when a GATT Panel considered 

a US tax scheme and three European regimes as subsidies. 37 However, it 

was not until 1994 that the Agreement on Subsidies and Countervailing Measures 

[ASCM] contained for the first time a definition of subsidy. 

A subsidy, as defined in the ASCM, 38 has two elements; there must be a “financial 

contribution by a government or any public body within a territory of a Member” 39 and “a 

37 The so-called “taxation cases” declared the incompatibility with GATT rules of the USA DISC regime 

and the territoriality principle of some European countries (GATT Doc. L/4422, L/4423, L/4424 and L/ 

4425, 2 November 1976. Also published in INTERTAX 1977/1). Under the WTO, the fist time that a 

WTO panel assessed the existence of a tax subsidy was in Indonesia-Certain Measures Affecting the 

Automobile Industry (WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R) where the panel studied 

the effect of the Indonesian National Car Programme, a package of measures in favour of certain car 

producers that included exemption of tariffs and indirect taxes. However, a specific reference to the 

possibility of granting subsidies through taxes was first included under the Tokyo Round in the Illustrative 

List of Export Subsidies, due to the problems of interpretation that the so-called “tax legislation 

cases” had posed to Panels in 1976. Nevertheless, some authors defend that the inclusion of tax benefits 

within the discipline of subsidies had always been present in the negotiators’ intention, since a Working 

Party Report adopted in 1960 dealing expressly with the “Provisions of Article XVI:4” already included a 

reference to taxes. See Hufbauer and Erb, Subsidies in International Trade, Institute for International Economics, 

Washington 1984 and JOHN J. JACKSON, THE WORLD TRADING SYSTEM (Cambridge, Massachusetts 

1989). 

38 Article 1.1 of the ASCM. See also TREBILOCKI AND HOWSE, THE REGULATION OF INTERNATIONAL 

TRADE :POLITICAL ECONOMY AND LEGAL ORDER (1995).


benefit.” 40 In Brazil-Aircraft, 41 the Appellate Body understood “the issues – and the 

respective definitions – of “financial contribution” and “benefit” as two separate legal elements 

in Article 1.1 of the SCM Agreement, which together determine whether a subsidy 

exists.” The ASCM explicitly states that a State can contribute to the support of its 

enterprises through the foregoing of government revenue. 42 

This statement has been interpreted in the Foreign Sales Corporation Cases 

(FSC). 43 In the FSC case, the US measure examined by the WTO Dispute Settlement 

Body was a tax scheme that allowed certain foreign companies wholly owned by 

US Corporations to highly reduced their US-source income arising from certain 

transactions; in practice it exempted them from paying corporation tax on export 

income. After the condemnation by the WTO, the FSC scheme was substituted by 

the so-called Extraterritorial Act [ETI]. This time the regime introduced a specific 

measure to avoid double taxation that exempted only export income received by 

certain resident corporations from paying taxes in the US. 

In the first FSC ruling, the Appellate Body read that “the foregoing of revenue otherwise 

due implies that less revenue has been raised by the government that would have been 

raised in a different situation.(…) There must, therefore, be some defined normative bench- 

39 This disposition implies the recognition of sub-national entities with the power to enact measures that 

could come under the category of subsidies. In our case, it implies the existence of sub-national entities 

empowered to raise direct taxes, or at least, to grant certain kinds of incentives within the general 

scheme created by the central government. 

40 The notion of benefit was firstly proposed to limit the use of countervailing duties imposed by some 

States. Goetz, Granet and Schwartz, The Meaning of “Subsidy” and “Injury” in Countervailing Duty Law 

International Review of Law and Economics 1986, 17., were the precursors of the use of the notion of 

benefit to limit the scope of USA countervailing duty laws. It was held that subsidies do not distort 

competition if they do not provide with a special benefit to the recipients, placing them in a better situation 

than their foreign competitors. If competition was not distorted, there was no reason to impose 

countervailing duties. Also Diamond, Economic Foundations of Countervailing Duty Law, Virginia Journal 

of International Law 1989, 759,783. 

As interpreted nowadays, however, the prerequisite of benefit means that the “financial contribution” 

should make the recipient “better off” than it would otherwise have been, absent that contribution. This 

understanding implied some kind of comparison with the appropriate marketplace. (Canada- Measures 

Affecting the Export of Civilian Aircraft, WT/DS70/AB/R adopted on 2 August 1999, paragraphs 153 

and 157 and United States-Imposition of Countervailing Duties on Certain Hot-rolled Lead and Bismuth 

Carbon Steel Products Originating in the United Kingdom WT/DS138/AB/R, adopted on 10 May 2000, 

paragraph 68). 

41 Brazil- Export Financing Programme for Aircraft WT/DS46/AB/R adopted on 2 August 1999, paragraph 

157 (emphasis in original). 

42 Article 1.1(a)(1)(ii) ASCM. 

43 See documents quoted in footnote 2.


97 

mark against which a comparison can be made between the revenue actually raised and the 

revenue that would have been raised ‘otherwise’.” 44 The basis of such a comparison was 

identified as “the tax rules applied by the Member in question” with emphasis on the 

fact that WTO obligations do not “compel Members to choose a particular kind of tax 

system”. 

Therefore the general tax regime of the system becomes once more the necessary 

benchmark of comparison for tax subsidies. This general-specific test was proposed 

by the EC in its argumentation against the US measure. This test should distinguish 

“neutral or objective” measures that have an independent tax policy purpose from 

“special or programmatic” measures that intend to create advantages for certain producer 

interests. However, the Panel rejected the test on the ground of textual difficulties, 

due to the fact that specificity is an independent requirement under Article 

2 of ASCM. 

In fact, specificity 45 is interpreted in a particular way under the ASCM. Apart from 

Article 2 ASCM- that foresees two different ways of rendering a measure specific: 

either explicitly 46 or de facto 47 , there is also a presumption of specificity if subsidies 

are contingent upon export performance or promote the use of domestic over imported 

goods, that is to say, when they qualify as prohibited subsidies. 48 Surely, the 

specificity requirement is an independent condition for certain kinds of subsidies 

(direct expenditures programs), but in cases dealing with tax matters, it constitutes 

the key factor to be appraised together with the existence of an advantage. 

To put it differently, the Panel adopted the so-called “but for” test, which considers 

that a subsidy exists whenever the taxpayer would have been taxed more heavily 

BUT FOR the rules considered. The Appellate Body expressed “abiding reservations” 

about the Panel “but for” test for assessing when revenue was otherwise due on the 

grounds that “it would be not be difficult to circumvent such a test by designing a tax 

regime under which there would be no general rule that applied formally to the revenues in 

question”. 49 

44 FSC AB Report, para. 90. 

45 Apart from a financial contribution and a benefit, Article 1.2 ASCM requires a measure to be specific to 

be considered as a subsidy. 

46 Article 2.1(a) of the ASCM. 

47 Article 2.1(c) of the ASCM. 

48 Article 2.3 of the ASCM. 

49 FSC AB Report, para.91.


It is difficult to describe a situation where no general rule exists at all. It is certainly 

possible to encounter a tax system where the general rule is not embodied in a single 

provision, but spread in several ones along the legislation (as on the FSC case). 

However, this should not prevent the judge from identifying the applicable rule. 

Where only “special” rules exist in a given area, one should then think that those 

rules must be fulfilling tax purposes (each of then constitute a different taxable 

event as in the luxury taxes or the country has opted for a schedular system of taxation). 

In the Extraterritorial Act case, the AB analysis avoided the choice between the 

“but for” test or the “general-specific” test. It resorted to a new concept, the comparable 

income. At least one commentator has, in my opinion, rightly understood 50 that 

“the AB’s “comparability” test is asking the same question that the “but for” test and the 

search for general rules, but doing so indirectly”. Actually, the wording of the AB report 

somehow evidenced this equivalence when stating “absent the [ETI] measure, the 

US would tax the income under the otherwise applicable rules of taxation we have used as 

our benchmark” (emphasis added). 51 

As said by the commentator, the AB seems intuitively correct, given the general perception 

of the ETI statute as a narrow exception to the general principles of US tax law. By the 

same token, however, the explanation of the result is neither clear nor satisfying. I would 

go further and say that the problem of the FSC and more intensively of the ETI 

measure is not that much based on the characterization of the exception but on the 

identification of the benchmark. 

That is, again, as shown for the EC law, while the benchmark of taxation of purely 

domestic transactions is rather clear and well defined, the benchmark for the taxation 

of international transactions is rather more imprecise. Still, through different 

formulations, the Appellate Body has made an effort to find the right yardstick to 

measure the advantage granted by a subsidy: the general system. 

D. Conclusion: The “due respect” to the General Tax System 

It is obvious that States can finance their enterprises through the tax system. It is 

clear that to identify these tax subsidies without unduly interfering with the fiscal 

sovereignty of those States, the general tax systems must be the benchmark of com- 

50 Hudec, Industrial Subsidies: Tax treatment of Foreign Sales Corporations, Draft for conference on transnational 

relations held in the European University Institute, Florence, in 13-14 September 2002 (book forthcoming). 

51 AB Report paragraph 103.


99 

parison. It is then true, that only special tax measures can be considered as subsidies, 

while at the same time, it is recognized that those special tax measures might 

sometimes serve valid tax purposes. 

The domestic rules embodied in the general system of taxation of States that try to 

assess the “fair” tax on international transactions seem to be more difficult to identify. 

52 These rules answer two main questions: 53 

Rules designing a method to avoid double taxation (relief rules) seek to alleviate 

the double taxation that residents taxpayers bear when investing abroad (outbound 

investment). 

Rules defining the fiscal jurisdiction of the State (source rules) determine how to tax 

non-resident taxpayers when they invest or do business in the State in question 

(inbound investment). 

In principle, States remain completely free at the time of drafting their relief rules 

and their source rules. However, the requirements of an ever-more interdependent 

world have determined that States need to respect certain international obligations 

assumed under free trade treaties. These cannot attempt to create a normative international 

tax to which all countries should conform but just impose certain constraints 

on their Member States at the time of designing the tax regimes, mainly an 

obligation of coherence. Once a State has enacted its general tax rules in a given 

way, the creation of an exceptional source rule that does not follow the general 

classification (as the source rule for export earnings under US law) or the adoption 

of a different method for the elimination of double taxation for certain kinds of 

entities (special schemes for only certain companies) is perceived as disruptive. 

However, not necessarily all “different” rules are banned subsidies under international 

trade law. First of all, some of the specific rules might not be conferring any 

benefit. Second, not all kinds of “specificities” are forbidden. Under WTO law, for 

example, only schemes that promote exports or favour the use of domestic over 

imported goods are prohibited, while under EC law, incompatible State aids are 

usually subject-specific. 

52 “A tax treaty neither generates a tax claim that does not exist under domestic law nor expands the scope or alters 

the type of an existing claim. The extent to which a State levies taxes within the boundaries drawn by DTCs is 

determined exclusively by its own domestic law.(…) In contrast, DTCs may grant benefits.” VOGEL KLAUS 

VOGEL ON DOUBLE TAX CONVENTIONS 3 rd Edition 46 (Kluwer Law International 1997). 

53 Roy ROHATGI “Basic International Taxation”, 2002 (p.3).


[Vol. 05 No. 01 

The due respect to the general tax system of the States is the only way of reconciling 

two areas of international law, trade and taxation, which seem to employ very different 

languages while sharing common goals: the promotion of trade and investment. 

54 Both systems stand parallel and try not to interfere with each other (taxes 

should not be an obstacle to trade while trade disciplines should not impinge on the 

tax sovereignty of States). Perhaps a better integration between the two systems 

might be desirable, but if the dichotomy is to be sustained, the rules on State 

aids/subsidies must be used to tackle only SPECIFIC measures. 

54 Green, Antilegalistic Approaches to Resolving Disputes between Governments: A Comparison of the International 

Tax and Trade Regimes 23 Yale J.Int’l L. 79 (1998).

LEGAL CULTURE 

Review Essay – Freedom of Contract in the 19th Century: 

Mythology and the Silence of the Sources – Sibylle 

Hofer’s Freiheit ohne Grenzen? Privatrechtstheoretische 

Diskussionen im 19. Jahrhundert 

Sibylle Hofer, Freiheit ohne Grenzen? privatrechtstheoretische Diskussionen im 19. 

Jahrhundert, Mohr (Siebeck): Tübingen 2001, 313 pp., Jus Publicum Vol. 53, ISBN 3- 

16-147576-3 

By Andreas Abegg and Annemarie Thatcher * 

“Qui dit contractuel, dit juste”. 1 This oft-cited quote by Fouillée in 1880 tempts 

people today to understand the early economic liberalism of the 19 th Century as a 

system of unlimited liberal freedom, which claimed that fairness would automatically 

result from a formal law of obligations based especially on formal equality. 2 In 

her legal history postdoctoral Habilitation-study Freiheit ohne Grenzen? (Unlimited 

Freedom?), Sibylle Hofer is prompted to examine the private law theory discussions 

of the 19 th Century by the currently widely held view 3 that in the 19 th Century 

a theory of private law premised on unlimited individual freedom dominated. 

After studying a broad range of sources she comes to the conclusion that despite a 

large absence of discourse on contractual freedom this perception of “unlimited 

freedom” cannot be confirmed, instead this is more of a myth. In the 19 th Century, 

the concept of private law under a paradigm of unlimited contractual freedom was 

* Annemarie Thatcher, LL.M. (University of Frankfurt), LL.B. (University of Kent at Canterbury), e-mail: 

annemarie_thatcher@yahoo.co.uk. Andreas Abegg, LL.M. (University of Frankfurt), LL.B. (University of 

Freiburg/Switzerland). Mr. Abegg has written his doctoral thesis on “Die zwingenden Inhaltsnormen 

des Schuldvertragsrechts” (compulsory contract law) at the University of Freiburg/Switzerland (to be 

published in January 2004). E-mail: aabegg@dplanet.ch. 

1 Fouillée, La science sociale contemporaine (1880), p. 410. 

2 Cf. the particularly concise discussion in English legal development in Atiyah, The Rise and Fall of 

Freedom of Contract (1979), p. 765 ff. 

3 Hofer here explicitly criticises for example Kübler, Wieacker, E. Schmidt and Spellenberg, see Hofer, 

Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert (2001), p. 1.

102 German Law Journal 

[Vol. 05 No. 01 

hardly ever supported. Rather, the myth of unlimited contractual freedom was 

constructed to be better able to attack the liberal conception in the course of the 

German Civil Code codification. 4 To confirm this basic hypothesis, in the first part 

of her dissertation Hofer examines the 19 th Century debate on the principles of private 

law, while in the second part she traces private autonomy in the individual 

building-blocks of property and obligations law such as will, trust or reliance and 

autonomy. 5 In total she wants to uncover the discourse on the principle of “freedom” 

and the limits that already existed in early economic liberalism. 6 This would 

prove that “the private law conception at that time – apart from an insignificantly 

small number of exceptions – was in no way dominated by the idea of generally 

unlimited freedom.” 7 

During her examinations of the 19 th Century discourse on principles, Hofer first 

comes to the conclusion that the conception of a general freedom was hardly ever 

the topic of a legal discourse in the 1830s and 1840s. The old German law was still 

firmly caught up in structures based on class status, rendering it hardly possible to 

characterize it as free. Even when, in rare cases like Beseler, 8 a notion of individual 

freedom could be discerned, the emphasis was placed on the limits to this freedom. 

9 

This finding can be confirmed by Bürge. He examined in detail the developments in 

private law in 19 th Century France with a view to the historical economic context. 

The paradigm of private autonomy and the individualistic conception of the economic 

constitution could only assert themselves relatively late in the Second Empire 

(1848-1870) and then only gradually; private autonomy was diametrically opposed 

to the previous economic constitution. The new paradigm was received from 

German individualism and the historical legal school first and foremost in economically 

interested circles, which saw their economic ideas supported by these 

legal theories. Economic goals as well as philosophical and legal-theoretical support 

4 Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert (2001), p. 2 ff. 

and p. 275 ff. 

5 Id. at p. 155 f. 

6 Id. at p. 12 f. 

7 Id. at p. 275. 

8 Georg Beseler, 1809-1888, a.o. one of the fathers of the Paulskirchen-Verfassung (St. Paul’s Church 

Constitution) of 1848: Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. 

Jahrhundert (2001), p. 32 n.149. 

9 Id. p. 15 ff., especially p. 47 f.

2004] Review Essay 

103 

were indistinguishable in this radically changing society. 10 Bürge proves, in relation 

to France, that not until the 1830s and 1840s were changes to the Code Civil demanded 

to realize a liberal economic model where it had previously been completely 

enveloped in the étatistic concept of economic constitution. 11 

In the 1850s jurists like Lenz, 12 Jhering, 13 C.A. Schmidt, 14 and Röder, 15 discussed the 

principles of Roman law and those of German law, and according to Hofer, in doing 

so they implicitly followed on from the work of Hegel, in so far as the Roman 

principles were confronted with the Christian principles. However, because these 

legal commentators considered themselves to be experiencing a phase of radical 

political change, Hegel’s negative notations on the Roman principles accordingly 

received little consideration. 16 In the models which Hofer discerns in the legal discourse 

of the 1850s she sees freedom – even if not expressly dealt with – as implicitly 

recognized as a principle by these legal commentators. Different views among 

the authors examined existed only in so far as whether, and above all on what 

grounds limits should be placed on this basic freedom. 17 For example, C.A. Schmidt 

provided for the limitation of freedom by moral precepts, which were based on 

10 A similar development can for example be shown for England: The eighteenth century could also be 

entitled “The Triumph of the Whiggery”. This century saw a debate of principles between the Whiggery 

on the one side, represented by such thinkers as Locke, who advocated the preservation of property as 

the reason for the existence of government and the consent of a majority, rather than “the people” as 

such. On the other side, enlightenment was sought by Voltaire and Montesquieu, who advocated constitutionalism, 

liberty and prosperity and spoke out against taxation exemptions by virtue of wealth: Arblaster, 

The rise and decline of western liberalism (1986), p. 160. 

11 Bürge, Das französische Privatrecht im 19. Jahrhundert zwischen Tradition und Pandektenwissenschaft, 

Liberalismus und Etatismus (1991), p. 89 ff., p. 131 und p. 494 f. with further references. 

12 Gustav Lenz, 1818-1888, a.o. scholar of Gans and later an “enthusiastic admirer of Bismarck”, see 

Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert (2001), p. 58 

n.78. 

13 Rudolf von Jhering, 1818-1892. After 1872 in Göttingen, where in the same year he held his presentation 

to the Wiener Juristischen Gesellschaft (Viennese Jurist’s Society) ‘Der Kampf ums Recht”. In detail 

on Jhering: Wieacker, Rudolf von Jhering: eine Erinnerung zu seinem 50. Todestage (1942). 

14 Carl Adolf Schmidt, author of Der prinzipielle Unterschied zwischen römischem und germanischem 

Recht (1964/1853). 

15 K.A. Röder, 1806-1879, focus in the area of criminal law theory, had to leave Giessen because of his 

“Grundzüge der Politik des Rechts” (1837), see Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische 

Diskussionen im 19. Jahrhundert (2001), p. 66 f. n.153. 

16 Id. at p. 49 ff. 

17 Id. at p. 72 f.


[Vol. 05 No. 01 

Germanic principles like the Fraternitätsverhältnis (fraternal relationship); so for 

this reason the employer was obliged to take care of the “moral and physical wellbeing 

of the employee.” 18 In contrast, in Jhering the limits to the principle of freedom 

can be found in the principle itself, in the freedom content of legal institutions. 

19 How far Jhering is allowing himself to be led by Kant’s moral freedom here 

and where he differs from it, remain unclear in Hofer. 20 

For the 1860s and 1870s too, although large “Pandekten” (pandect text books) 21 

appeared, Hofer has to admit that no debate on the principles of private autonomy 

took place among jurists. However, in this time period Hofer finds this debate on 

principles between economists, who also comment on contractual freedom. 

Strengthening socialism is fixed as the central point of reference in the debate, 

which according to Wagner 22 was causing the question of freedom and its rules to 

enter a new phase. 23 Accordingly Hofer categorizes the economists who commented 

on the structuring of the economic and legal order of the time as the “free 

trade school” on the one side and “Kathedersozialismus” (lectern socialism) on the 

other. The economic theories had positioned themselves in their distance to the idea 

of freedom in accordance with these poles. Based on this point of reference, for the 

first time in this debate on economic freedom the discursive use of the term “contractual 

freedom” can be found. 24 The important idea that individual freedom had 

to be determined according to the common interests at the time, held by national 

economists like Schmoller, 25 had been adopted by jurists like Jhering and Gierke, 26 

18 Id. at p. 50 ff. 

19 Id. at p. 61 ff. and p. 72 f. 

20 Compare Kant, Kritik der praktischen Vernunft (1993/1788), p. 60 ff., especially p. 60 f. and p. 64: The 

arbitrariness of one person is thereby limited solely by the arbitrariness of the other person and this as 

general law ‘thought of as objectively necessary because it is supposed to apply to everyone who has 

reason and will”. 

21 With the pandects the separation of civic society and the state was meant to be encouraged by the 

reception of Roman law, which was transferred into national law in a systematised way and was thereby 

at the same time meant to realise the values of the Enlightenment and overcome the old order, see Hattenhauer, 

Einführung zu: Thibaut und Savigny: ihre programmatischen Schriften (1973), p. 33 ff. 

22 Adolph Wagner, 1835-1917, initially professor for political economics and finance in Vienna, after 1870 

Professor for political science in Berlin, see Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische 

Diskussionen im 19. Jahrhundert (2001), p. 90 n.135. 

23 Id. at p. 74 ff., especially p. 98 f. 

24 Id. at p. 98. 

25 Gustav Schmoller, 1838-1917, professor of political economy and science, see Id. at p. 87 n.112.


105 

although according to Hofer, central points of these models remain unclear. 27 Hofer 

finds the reason for this is to be that jurists like Gierke and Jhering, though they 

adopt common interests in their conception of private law, nonetheless refuse to 

give up the basic idea of individual freedom, so that the priority of both principles 

will have to be determined in a case-by-case weighing-up process. 28 

Finally, prompted by the draft of the German Civil Code 1896, Hofer finds a few 

authors taking part in a principles debate worthy of the name. Authors like Gierke, 

Menger and Baron (according to Hofer) followed on the economic principle debate 

of the 1860s and 1870s. 29 While Menger in his critique of the German Civil Code 

conceded that there existed a principle of freedom, which was limited by common 

interests, specifically the interests of the propertyless classes, Gierke assumed an 

inherently limited freedom, meaning that the limits to freedom required no special 

justification. The common interest set the scope of freedom in the first place. 30 

Because in the first part of her work Hofer comes to the conclusion that an explicit 

principle debate on private autonomy and its limits was absent until the time of 

polarization prompted by the draft German Civil Code, in the second part of her 

dissertation she traces private autonomy in the individual building blocks of the 

law of obligations and property law. 31 She examines individual principles of the 

law of obligations and property law like intention, trust or reliance, and autonomy 

and comes to the same conclusion that she reached in the first part dealing with the 

principles discourse: although the legal commentators assume a, usually in principle 

and also limited, freedom, the underlying positions are not expressly stated. 32 

Hofer seeks at first to illustrate this hypothesis using the 19 th Century concept of 

“unintended declaration.” A pure conception of individual autonomy would have 

26 Otto von Gierke, 1841–1921, eminent German jurist and legal historian in Breslau, Heidelberg und 

Berlin. On Gierke see also Haack, Otto von Gierkes Kritik am ersten Entwurf des Bürgerlichen Gesetzbuches 

(Diss.) (1996) and Pfennig, Die Kritik Otto von Gierkes am ersten Entwurf eines bürgerlichen 

Gesetzbuches (1997). 

27 Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert (2001), p. 107 

ff., especially p. 130 f. 

28 Id. at p. 130 f. 

29 Id. at p. 132 ff. 

30 Id. at p. 132 ff., especially p. 153 f. 

31 Id. at p. 155 f. 

32 Id. at p. 155 ff.


[Vol. 05 No. 01 

to deny validity to every declaration of intention that was made without the appropriate 

intention. 33 However, the legal discourse around 1879-90 was dominated by 

conceptions, which although they were based on a principle of private autonomy, 

nevertheless assigned validity to an unintended declaration in case of fault, 34 or 

where it was in the interests of intercourse. 35 

In a similar way Hofer finds the (implicit) rejection of unlimited private autonomy 

in the discussion on the definition of subjective law and obligation. Again, jurists 

like Savigny and Jhering emphasize that the force of will is limited by the interests 

of intercourse, although Hofer does not examine in depth which legal and societal 

context these interests of intercourse are connected to exactly. 36 

Just as in Hofer’s exposition of the economic discussion of the 1860s, the chapter on 

the form of the limited property rights also touches on the societal context. 37 Hence 

Hofer fixes the question of whether freedom exists in the establishment of limited 

property rights in the context of emigration to the cities and the landowners’ credit 

crisis, in other words the context of the contemporary political and economic interests 

and events. The rejection of freedom in establishing property rights in the 1850s 

was mostly closely linked to legal-political demands for personal freedom (above 

all the liberation of the individual) and land freedom (above all the liberation of 

land) from enduring burdens. 38 For the 1870s, however, Hofer observes a change in 

opinion. In the context of increasing emigration to the cities, various politically 

33 Ernst Zitelmann, 1852-1923, see Id. p. 169 n.97. 

34 Bernhard Windscheid, 1817-1892, a.o. Member of the Commission for Preparation of the German Civil 

Code and an instrumental participant in these preparations. His major work is the Lehrbuch des 

Pandektenrechts (3 vol., 1862-1870), which had a great influence on the preparation of the German Civil 

Code. See in detail Falk, Ein Gelehrter wie Windscheid: Erkundungen auf den Feldern der sogenannten 

Begriffsjurisprudenz (1989). See also, Jhering, on autonomy and responsibility, Hofer, Freiheit ohne 

Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert (2001), p. 163 ff. and p. 184. 

35 Ferdinand Regelsberger, 1831-1911,the pandects can be characterised as his major work: Pandekten 

(1997/1893); Savigny, 1779-1861, founder of the “historischen Rechtsschule” and Prussian Minster; 

Rudolf Leonhard, 1851-1921, concerned himself mainly with the newly emerged BGB, and with reference 

to bona fide, Gustav Hartmann, 1835-1894, dealt with among other things the purpose idea in 

obligations law, see Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert 

(2001), p. 180 n.177, p. 181 n.193, p. 184 f., and p. 204. 


ff. 

37 Id. at p. 74 ff. and p. 250 ff. 

38 Id. at p. 260 and p. 274.


107 

interested jurists argued for a broadened contractual freedom in the sense that a 

wide-ranging contractual limitation on the disposal of land should be possible. 39 

With this Hofer ascertains the non-existence of a legal, basic principles discourse on 

(contractual) freedom for the individual principles of property law and obligations 

law, just as observed before in the discourse on principles. The silence of the 

sources applies with few exceptions as far as Menger’s and Gierke’s basic remarks/attacks 

in the setting of the draft German Civil Code. 40 Only under the precondition 

of this absent explicit discourse, however, which is Hofer’s central recognition, 

could an opposing position be created in the schematic categorization of 

freedom which, particularly in the course of drafting the German Civil Code, could 

be fought against with serious consequences. The missing freedom discourse made 

attacks by Gierke and Menger on private autonomy within the German Civil Code 

debate possible in the first place. Hence Gierke compared the free Romanistic 

model to his social Germanic model, and in the same manner Menger built his criticism 

of the exploitation of the working classes on this radicalized picture. 41 

It is Hofer’s particular achievement to categorize various small and large principles 

of private law in the respective conceptions of the 19 th Century jurists with reference 

to the emerging private autonomy. Hofer’s postdoctoral lecture qualification 

by means of her typification of private law conceptions forms a contribution to 

finding a way out of the often all-too schematic comparison of freedom and compulsion 

in private law. Her work takes its place in an important finding by a number 

of authors, who describe the mechanical opposition of freedom and social as a 

myth and obsolete, whereby as far as “social” private law is concerned the question 

of either/or shifts to a question of quality. 42 This is demonstrated with particular 

clarity where the societal context of the time examined is illuminated, as in the examinations 

of the form of property rights. In around 1850, for the purpose of free 

enterprise mobilization of land and labor, freedom was withdrawn so that land and 

labor could not be permanently withdrawn from the free market. Under the pressure 

of the societal crisis of emigration to the cities this mobilization was slowed 

39 Id. at p. 259 ff. 

40 Id. at p. 275. 

41 Id. at p. 2 and p. 275, additionally p. 50 ff. on C.A. Schmidt; cf. also Gierke, Die soziale Aufgabe des 

Privatrechts (1948/1889); Menger, Das Bürgerliche Recht und die besitzlosen Volksklassen (1997/1904). 

42 Rückert, Zur Legitimation der Vertragsfreiheit im 19. Jahrhundert, in: Klippel (Eds.), Naturrecht im 19. 

Jahrundert p. 135-183 (1997), p. 144; Amstutz, Evolutorisches Wirtschaftsrecht: Vorstudien zum Recht 

und seiner Methode in den Diskurskollisionen der Marktgesellschaft (2001), p. 14 ff.; cf., p. 178 ff. and p. 

323 ff.


[Vol. 05 No. 01 

down from the 1870s onwards in that under the name of contractual freedom 

stronger contractual commitments of property were again permitted. 43 Here, however, 

it is also demonstrated that the discourse on private autonomy with respect to 

its absence, cannot be understood without having regard to the social and above all 

the economic context. This context, which Hofer expressly closes off in her research 

starting point, 44 is worth thinking about further. However, it is necessary to focus 

on relating legal principles and legal dogma in the larger context of societal development 

45 as well as tracing them back to their philosophical and general historical 

idea foundations 46 . The following hints should show the examination process 

which would be followed to gain a more extensive understanding of the private 

law conceptions examined by Hofer and to understand the absence of discourse on 

contractual freedom. 

The central, defining characteristic of the economic system that was installed in the 

course of the 19 th Century, was, in a nutshell, the self-steering of the market 

through the mechanism of price. It was a significant innovation that the whole 

economy, including labor (and in part, land), was left to its own control and that 

the economy could thereby free itself from politics to this extent. Also, economics 

and the market were no longer “embedded” in society, but rather social relationships 

were decisively influenced by the market. 47 The primacy of politics, according 

to Luhmann, was changed to the economy, 48 already described by Weber as “uni- 

43 On emigration to the cities in Switzerland see Bergier, Wirtschaftsgeschichte der Schweiz von den 

Anfängen bis zur Gegenwart (1990), p. 258 f.; and Balthasar/Gruner, Soziale Spannungen - wirtschaftlicher 

Wandel: Dokumente zur Schweiz zwischen 1880 und 1914 (1989), p. 27 ff. On the importance of the 

great economic crisis, initiated by the Viennese stock market crash of 1873, for the private law conception 

see, e.g. Polanyi, The Great Transformation (1957), p. 267 ff.; Brüggemeier, Entwicklung des Rechts 

im organisierten Kapitalismus (2 vol.) (1977-79), vol. I, p. 56 ff.; Hart, Zur konzeptionellen Entwicklung 

des Vertragsrechts, Die Aktiengesellschaft (AG) p. 66-80 (1984), p. 71; cf. on all also Atiyah, The Rise and 

Fall of Freedom of Contract (1979), p. 571 ff. under the title "The Decline and Fall of Freedom of Contract: 

1870-1970". 


ff. 

45 Fundamentally Weber, Wirtschaft und Gesellschaft (1980/1921-25), p. 382 ff. (on good faith in business 

dealings) or p. 398 ff. (on subjective rights). 

46 So, for example, Rückert, Zur Legitimation der Vertragsfreiheit im 19. Jahrhundert, in: Klippel (Eds.), 

Naturrecht im 19. Jahrundert p. 135-183 (1997), p. 135 ff. 

47 Polanyi, The Great Transformation (1957), p. 77 ff.; similar already Weber, Wirtschaft und Gesellschaft 

(1980/1921-25), p. 398. 

48 Brüggemeier, Probleme einer Theorie des Wirtschaftsrechts, in: Assmann/Brüggemeier/Hart/Joerges 

(Eds.), Wirtschaftsrecht als Kritik des Privatrechts p. 9-81 (1980), p. 14 and p. 17 ff.; Luhmann, Ausdifferenzierung 

des Rechts: Beiträge zur Rechtssoziologie und Rechtstheorie (1999), p. 374 ff.


109 

versal free-marketization.” 49 In particular, out of the need to prospectively secure 

the means of production, including labor, arose the demand for the economic system 

according to the credo of the classical liberal model 50 that the economic system 

be left to its own devices; the prices of all goods would have to “find themselves” 

and imbalanced situations would repair themselves. 51 From this arose the demand 

for the state not to influence market direction, above all not through price-fixing, 

and also to protect market direction from other influences, namely especially not to 

permit any income which did not come through income generated in market transactions. 

52 In this sense the co-operation of the state was constitutive for the emergence 

of free enterprise. This was a state organization of private law rules in an 

economic and private-law centralized state, admittedly with the (in this sense paradoxical) 

aim of the free market as a distribution mechanism independent of the 

state. 53 Through the self-steering mechanism inserted by free enterprise the economy 

became an independent social field of modern society. Economic dealings 

were freed from moral, religious or familial references. 54 As soon as the economy, 

through distinguishing itself from the communication means of money especially 

and through a functioning labor market, was no longer inherently linked to and 

determined by events in society, contractual content could be released from law 

49 Weber, Wirtschaft und Gesellschaft (1980/1921-25), p. 198. Corresponding to this in the second half of 

the 19th century the subsystem understood today as “economy” was called “society”, which resulted in 

the misunderstood elements of the premise of “self-regulation of society” as a basic principle of private 

law, see Luhmann, Einführung in die Systemtheorie (2002), p. 35. 

50 The term “classic liberal” is used for the dominant liberal-economic school of thought during the short 

phase of a free market economy which found its end in the consequences of the great economic crisis 

from 1873 onwards. See on this in particular Brüggemeier, Probleme einer Theorie des Wirtschaftsrechts, 

in: Assmann/Brüggemeier/Hart/Joerges (Eds.), Wirtschaftsrecht als Kritik des Privatrechts p. 9-81 

(1980), p. 9 ff. 

51 On all of this: Weber, Wirtschaft und Gesellschaft (1980/1921-25), p. 398 ff.; Polanyi, The Great Transformation 

(1957), p. 62 ff. and 97 ff.; Atiyah, The Rise and Fall of Freedom of Contract (1979), p. 226 ff.; 

Brüggemeier, Probleme einer Theorie des Wirtschaftsrechts, in: Assmann/Brüggemeier/Hart/Joerges 

(Eds.), Wirtschaftsrecht als Kritik des Privatrechts p. 9-81 (1980), p. 14 ff. 

52 Polanyi, The Great Transformation (1957), p. 94 ff.; cf. the liberal demand to eradicate all old privileges, 

i.e. all income not resulting from market transactions. 

53 Weber, Wirtschaft und Gesellschaft (1980/1921-25), p. 383 ff. and 499 ff.; Polanyi, The Great Transformation 

(1957), p. 94 ff.; Brüggemeier, Probleme einer Theorie des Wirtschaftsrechts, in: Assmann/Brüggemeier/Hart/Joerges 

(Eds.), Wirtschaftsrecht als Kritik des Privatrechts p. 9-81 (1980), p. 14 

f. 

54 Amstutz, Evolutorisches Wirtschaftsrecht: Vorstudien zum Recht und seiner Methode in den Diskurskollisionen 

der Marktgesellschaft (2001), p. 16 ff.; Rückert, Das BGB und seine Prinzipien, in: Rückert/Schmoeckel/Zimmermann 

(Eds.), Historisch-kritischer Kommentar zum BGB (2003), N 14, 23, 29.


[Vol. 05 No. 01 

into the hands of the economy, since now there was another means of discipline 

that could take over the function of controlling content – the market. 55 

This overview of major directions in development can be confirmed with a glance 

at Switzerland’s economic history data. Through the new Swiss federal state of 1848 

the preconditions for a market economy for all of Switzerland were created, in particular 

the single domestic market and freedom of movement, i.e. the mobilization 

of labor, were politically disposed. The first federal constitution of 1848 created the 

single customs union and laid down a corresponding freedom of goods and of establishment. 

Due to new foreign competition after 1848 the economy was under 

heavy pressure to mechanize, and the lack of raw materials meant that Switzerland 

was dependent on good international relationships, accordingly it integrated itself 

early into free trade. Only in the second federal constitution of 1874, coinciding 

with the codification efforts for a Swiss law of obligations (in operation since 1883), 

was the uniform trade and commercial freedom fixed. 56 This emergence of the 

economy and the erection of the free market was comprehended in law by the 

emergence of private law and its extensive closing off from influences other than 

economic ones. Through this exclusive structural coupling 57 of law and economics 

by contract 58 , an express principle of private autonomy, in particular the freedom of 

obligations contracts, became superfluous. 59 

55 Luhmann, Das Recht der Gesellschaft (1993), p. 449 ff.; compare also Amstutz, Evolutorisches Wirtschaftsrecht: 

Vorstudien zum Recht und seiner Methode in den Diskurskollisionen der Marktgesellschaft 

(2001), p. 92 f. 

56 Balthasar/Gruner, Soziale Spannungen - wirtschaftlicher Wandel: Dokumente zur Schweiz zwischen 

1880 und 1914 (1989), p. 27 f.; Winzeler, Die Wirtschaftsfreiheit in der schweizerischen Verfassungsgeschichte 

des 19. und 20. Jahrhunderts, 113 I Zeitschrift für Schweizerisches Recht (ZSR), p. 409-432 

(1994), p. 416 ff.; cf. Huf, Die sozialstaatliche Einbettung der Marktökonomie, Nr. 45 Zeitschrift für Soziologie 

(ZfS) p. 221-241 (1999), p. 223 f. 

57 A structural coupling exists when a system permanently assumes characteristics in its environment 

and relies on their stability in such a way that its own structures are connected to them. Structural couplings 

simultaneously limit and facilitate the influence of the environment on the system, see Luhmann, 

Das Recht der Gesellschaft (1993), p. 443 ff. 

58 According to Atiyah, An Introduction to the Law of Contract (1995), p. 3 ff., from 1770-1870 the common 

law courts enforced the intention of the parties strictly and were there to enforce the contractual 

provisions agreed upon by the parties, in the firm belief that enforcing private contracts was in the 

public interest. 

59 Luhmann, Das Recht der Gesellschaft (1993), p. 458 ff.; Perels, Privatrechtssystem und Verfassungsstruktur 

in der Weimarer Republik (Diss.) (1973), p. 10.


111 

Savigny’s much-cited statement, to which Hofer also makes reference, can now be 

classified in this context: 60 

“… in financial circumstances the power of the law is asserted without regard to 

the moral or immoral exercise of a right. That is why the rich can let the poor perish 

by refusing support or exercising contract law harshly, and the assistance against 

this springs not from the soil of private law, but from that of public law; it lies in a 

poorhouse, which, however, the rich man can be compelled to contribute to, even if 

his contribution is perhaps not directly noticeable. It therefore remains nevertheless 

true, that no moral component can be attributed to “Vermögensrecht” (property 

law) as an institute of private law, and by this claim neither the absolute rule of 

moral laws is denied, nor the nature of private law placed in an ambiguous light 

…” 61 

In Savigny extensive economic self-regulation is initially, in exceptional cases, corrected 

by public law institutions. Within private law limits to self-regulation arise 

essentially only if participation in the free market is permanently denied; private 

law when adapting its structures in limiting contractual freedom also primarily 

almost exclusively takes into consideration the economy, in the form of “limits to 

freedom by freedom” or “limits to freedom by the requirements of commerce,” 

with reference to the newly-realized free domestic market in particular. 62 Through 

the exclusive referral of contract law to the economy, the law, according to 

Luhmann, achieves the modern form of structural coupling to the economy. 63 

Though only sketched in an overview the following context led to changes in the 

private law system. In the wake of the great economic crisis from 1873 onwards the 

liberal-economic presumption that the free market would balance out and keep the 

promises made, above all growth, full employment and stability, was increasingly 

called into question. 64 Following the economic crisis an increasing Vermachtung 

(emphasis on power relationships) of the economy was discerned, that called into 


ff. 

61 Savigny, System des heutigen Römischen Rechts, vol. 1-4 (1973/1840), vol. I, p. 371. 

62 cf. Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert (2001), p. 

206 ff. 

63 Luhmann, Das Recht der Gesellschaft (1993), p. 458 ff. 

64 Brüggemeier, Entwicklung des Rechts im organisierten Kapitalismus (2 vol.) (1977-79), vol. I, p. 56 ff.; 

Hart, Zur konzeptionellen Entwicklung des Vertragsrechts, Die Aktiengesellschaft (AG) p. 66-80 (1984), 

p. 71.


[Vol. 05 No. 01 

question the liberal-economic premise of self-regulation and self-repair of the free 

market and simultaneously attracted attention to the factual inequalities of market 

participants (mainly between companies and non-organized persons) as already 

raised for example by Lotmar and Gierke. 65 After all, through the constitution of the 

free domestic market new population groups were being integrated into the formally 

egalitarian free market, whereby the “practical universalization of market 

commerce” had received a difficult extension. Through the increasing existential 

emergencies and fears of laboring people during the economic crisis as well as the 

simultaneous development of a “class consciousness” the legal protection of the 

existential and at the same time economic independence of these population groups 

became the centre of political attention. 66 

Not until the influence of politics under the motif “social” entered alongside and in 

opposition to the almost exclusive ties of private law to the economy did (as 

Luhmann had already argued) contractual freedom find a continual entrance to 

private legal discourse. Only from this time on, in contrast to Savigny’s concept, 

was the question of the structural coupling of private law to the economy raised 

with force. This was done concretely, for example, in the question of which legal 

rules within contract law were dispositive and which compulsory. This explains 

after all the extensive silence of the sources in the 19 th Century found by Hofer. 67 

The unique adoption in the German-speaking codification process of an express 

freedom of contract in Art. 19 Abs. 1 of the Swiss contract law occurred only its 

revision in 1905-11 and not at the emergence of contract law in 1881. The adoption 

of contractual freedom in the codification is to be seen in this context of the new 

political intervention in contractual content and the new alternative coupling of 

65 Weber, Wirtschaft und Gesellschaft (1980/1921-25), p. 503 f.; Brüggemeier, Probleme einer Theorie des 

Wirtschaftsrechts, in: Assmann/Brüggemeier/Hart/Joerges (Eds.), Wirtschaftsrecht als Kritik des Privatrechts 

p. 9-81 (1980), p. 38 f. and p. 46. On situations of structural inequality see Lotmar, Der Dienstvertrag 

im Entwurf des Zivilgesetzbuches, in: Rehbinder (Eds.), Philipp Lotmar: Schweizerisches Arbeitsvertragsrecht, 

Forderungen an den Gesetzgeber, p. 119-147 (1991/1905), p. 43 f.; On 'Vermachtung' 

of the economy see Gierke, Die soziale Aufgabe des Privatrechts (1948/1889), p. 18 ff. and 41 ff. 

66 Weber, Wirtschaft und Gesellschaft (1980/1921-25), p. 503; Wiethölter, Rechtswissenschaft 

(1986/1968), p. 180 ff.; Hart, Zur konzeptionellen Entwicklung des Vertragsrechts, Die Aktiengesellschaft 

(AG) p. 66-80 (1984), p. 70 f.; just as Rückert, Das BGB und seine Prinzipien, in: Rückert/Schmoeckel/Zimmermann 

(Eds.), Historisch-kritischer Kommentar zum BGB (2003), N 105; see 

also Tanner, Industrialisierung, Familienökonomie und Hungererfahrung: Sozialkonflikte, Arbeitskämpfe 

und Konsumboykott in der Schweiz 1880-1914, in: Gailus/Volkmann (Eds.), Der Kampf um das tägliche 

Brot: Nahrungsmangel, Versorgungspolitik und Protest 1770-1990 p. 233-257 (1994), p. 255 ff., who 

refers to the societal focus on the wages of factory workers during industrialisation. 

67 cf. Hofer, Freiheit ohne Grenzen?: privatrechtstheoretische Diskussionen im 19. Jahrhundert (2001), p. 

275 f.


113 

private law to politics, not, however, as an early culmination of contractual freedom 

as the dominant principle of contract law. 

With this social-societal background Luhmann is to be referenced, particularly with 

respect to his legal-historical explanations of “law as a social system,” which comes 

to a similar and yet at the same time contradictory conclusion as Hofer. 68 Luhmann 

points out that the concept of contractual freedom does not appear until politics 

tries in a higher degree to control the reciprocal irritation of legal and economic 

systems. Luhmann, however, in contrast to Hofer suspects that the concept of contractual 

freedom was invented “as for defense against state intervention, especially 

in labor law and cartel (anti-trust) law.” 69 Until then, a structural coupling of law 

and economics had existed, in that “the contract, expressed extremely formally, is 

nothing else than the agreement of the declarations of intention of the parties concluding 

the contract,” 70 whereas the subsystem of politics has temporarily withdrawn 

to an observation position. 71 However, from the point of view of the law the 

primary structural link to economics has been replaced by a simultaneous coupling 

to economics and, through compulsory contract law, to politics, which is mainly 

responsible for enacting compulsory norms: 

“The structural coupling of the legal and economic systems [mainly through contract] 

becomes a medium for the medium political power, that means a loose coupling 

of possibilities which can be brought into politically acceptable forms by collectively 

binding decisions [for example by compulsory norms in contract law]. For 

the sake of the hoped-for economic effects the use of property and contractual freedom 

are continually subjected to stronger legal limits.” 72 

What can we gain from such recognitions? Alongside many other things, the following. 

Today, in the age of reformulation of political tasks and privatization, 73 

especially under the pressure of globalization 74 and technologization, 75 because 

68 Luhmann, Das Recht der Gesellschaft (1993). 

69 Id. at p. 465 ff., mainly p. 468. 

70 Id. at p. 461. 

71 Id. at p. 467. 

72 Id. at p. 468. 

73 Compare Uebersax, Privatisierung der Verwaltung, Zentralblatt für Staats- und Gemeindeverwaltung, 

p. 393-422 (2001), p. 394 with further references. 

74 Compare Hofstetter, Globalisierung und Wirtschaftsrecht, 119 II Zeitschrift für Schweizerisches Recht 

(ZSR), p. 361-396 (2000), p. 361 ff, especially 366 ff.; Koller, Globalisierung und Internationalisierung des


[Vol. 05 No. 01 

tasks are increasingly being performed by private actors it is urgently necessary to 

show that unlimited private autonomy is only a myth. At the same time, however, 

it must be emphasized that the original conception of economic law was almost 

exclusively directed at the constitution of a free domestic market, in which initially 

only a small fraction of the population participated. 76 However, after the integration 

of further population groups and trade areas of society into the free market this 

“pure” economic system could no longer be maintained. Rather, from then on it 

was a matter of the precarious balance between autonomy and intervention, that 

private law saw itself as maintaining in regard to self-regulating markets. This remarkable 

responsiveness, that private law had already developed by around 1900 

pertaining to the autonomy of the economic system and its associated social issues, 

can serve today as the great historical role-model for the relationship of law to other 

(new) autonomous areas of civil society. In the words of Teubner: Today, especially, 

it is a matter of institutionalizing the precarious balance between autonomy 

and intervention that private law saw itself as maintaining in respect of selfregulating 

markets in other autonomous fields of civil society as well. Neither an 

overly strong coupling to the economy nor political intervention is the agenda of 

the future, but rather a variety of structural couplings to the different sectors of civil 

society. 77 

Wirtschaftsrechts - Auswirkungen auf die nationale Gesetzgebung, 119 II Zeitschrift für Schweizerisches 

Recht (ZSR), p. 313-360 (2000), p. 313 ff, especially p. 324 ff.; Imhof, Marktgleichgewicht, Vertragsgerechtigkeit 

und Globalisierung; letzteres insbesondere hinsichtlich des Arbeitsvertrages, in: Kilias (Eds.), 

L'étique et le droit; discordances et points de rencontre, p. 67-109 (2000), p. 67 ff.; fundamentally: Zumbansen, 

Spiegelungen von "Staat und Gesellschaft": Governance-Erfahrungen in der Globalisierungsdebatte, 

in: Anderheiden/Huster/Kirste (Eds.), Globalisierung als Problem der Steuerungsfähigkeit des 

Rechts und der Gerechtigkeit, ARSP Beiheft 79 , p. 13-40 (2001) with further references. 

75 Compare Kenney/Curry, Beyond Transaction Costs: E-commerce and the Power of the Internet 

Dataspace, Working Paper 18, E-Conomy Projekt, Berkeley p. 1-39 (2000), p. 2 f. and p. 6 ff. in the Internet. 

76 In fact, for the beginning of the second half of the 19th century Kocka only counts 3-5 % of the population 

toward the economic bourgeoisie, together with the small bourgeoisie and the middle classes they 

are, however, 13 %, see Kocka, Bürgertum und bürgerliche Gesellschaft im 19. Jahrhundert: Europäische 

Entwicklungen und deutsche Eigenarten, in: Kocka (Eds.), Bürgertum im 19. Jahrhundert p. 11-76 (1987), 

p. 11 ff. 

77 Teubner, Nach der Privatisierung? Diskurskonflikte im Privatrecht, Zeitschrift für Rechtssoziologie p. 

16-36 (1998), p. 14 f.; see also Teubner/Karavas, http://www.CompanyNameSucks.com: The Horizontal 

Effect of Fundamental Rights on ‘Private Parties’ within Autonomous Internet Law, 4 German Law 

Journal No. 12 (1 December 2003), available at: http://www.germanlawjournal.com/article.php?id=356.

LEGAL CULTURE 

Book Review - Gunther Mävers: Die Mitbestimmung der 

Arbeitnehmer in der Europäischen Aktiengesellschaft 

(Employee Participation in the European Stock Company 

– Societas Europaea) 

Gunther Mävers, Die Mitbestimmung der Arbeitnehmer in der Europäischen Aktiengesellschaft, 

Studien zum ausländischen, vergleichenden und internationalen Arbeitsrecht, 

Bd. 12. Nomos Verlagsgesellschaft: Baden-Baden 2002, ISBN3-7890-7710-0, 

454 pp., € 69,-. 

By Friedemann F. Kiethe * 

During the Nice summit on 7 December 2000 – 9 December 2000, European heads 

of state finally agreed on the statute of the Societas Europaea (the European company). 

After 40 years of discussions, proposals, countless opinions, rejections and 

further delays, at last an agreement was reached. There is a Council Regulation on 

the European company’s statute itself 1 and a Council Directive on the employee 

involvement in the Societas Europaea’s corporate governance 2 . 

As early as August 2000, Gunther Mävers delivered his doctoral thesis on employee 

involvement in the SE’s corporate governance to Cologne’s University Law School. 

An agreement on the European company seemed almost impossible; therefore he 

finished his thesis with a couple of proposals to a prospective compromise. 

The decision during the Nice summit came completely unpredicted. Has his thesis 

become superfluous by now? 

* Friedemann F. Kiethe passed his First State Examination (J.D. equivalent) June 2003 in Frankfurt, at 

present he is Doktorand at Frankfurt's University Law School and works as paralegal for Ashurst in 

Frankfurt. Email: friedemann_kiethe@yahoo.de. 

1 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE). 

2 Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute of the European company 

with regard to the involvement of employees.


[Vol. 05 No. 01 

The employee’s involvement in the Societas Europaea’s corporate governance became 

the most disputed issue in terms of the European company. Mävers gives a 

large amount of background information and tells the entire history; both essential 

in order to evaluate the law currently in force. 

First of all, he introduces his readers to corporate governance and to employee involvement 

in those Member States that most influenced today’s law. Germany’s 

legislation has not only been trend-setting in time, it was also trend-setting in the 

range of workers’ participation in Europe. 

Mävers begins by presenting basic structures of German corporate law. Contrary to 

English corporate law, under which companies are equipped with a board of directors 

3 - described as a one-tier system - German companies are set up in a two-tier 

system with two different boards: The managerial board 4 is in charge of the everyday 

management of the company. The separate supervisory board employs or dismisses 

the managerial board’s members, fixes the managers’ salaries, monitors the 

other board’s corporate governance and annual accounts and makes the very fundamental 

decisions. The managerial board is the company’s only organ entitled to 

represent the company to outside parties; the supervisory board is empowered to 

take actions inside the company. 

Initially, employee participation in the supervisory board of German companies 

had been voluntarily introduced by companies of the coal and the iron and steel 

industries directly after World War II. Only a few years later, in 1951, when the 

highly disputed Montan-Mitbestimmungsgesetz (Act on Employees’ Participation in 

Corporate Governance in Coal, Iron and Steel Industries) was passed by parliament, 

the models established voluntarily were transformed into statutory law. 

Since that time, employees and shareholders are represented equally in the supervisory 

board of companies in the coal, iron and steel industries, while the chairperson 

is a neutral person, elected by majority vote of both, employee representatives 

and shareholders. The Montan-Mitbestimmungsgesetz 1951 is applicable to enterprises 

of the coal, the iron and steel industries, constituted as public limited companies, 

private limited companies and incorporated cost-book mining companies 

employing more than 1,000 employees. However, since it is not the managerial but 

the supervisory board where employee participation takes place, employees neither 

directly elect their executive managers nor directly decide on the corporate governance. 

Still do employees control their executive managers indirectly and thus influence 

the decisions on company policies. 

3 Verwaltungsrat, conseil d’administration. 

4 Vorstand, directoire.

2004] Book Review 

117 

Only one year later employee participation in the supervisory board was extended 

to other industries. However, since the political climate had changed already, under 

the Betriebsverfassungsgesetz (Works Constitution Act) 1952 employee participation 

in the supervisory board remained far below the level of representation 

reached in the coal, iron and steel industries: only a third of the supervisory board 

members are employee representatives. As the Montan-Mitbestimmungsgesetz 1951 

the Betriebsverfassungsgesetz 1952 applies only to companies of a specific legal form 

(public limited companies, private limited companies, incorporated cost-book companies 

under mining law, co-operatives and mutual insurance companies) employing 

a certain minimum number (at least 500) of employees. Contrary to the Montan- 

Mitbestimmungsgesetz 1951 the scope of application of the Betriebsverfassungsgesetz 

1952 is not limited to certain branches or industries. 

In the years after 1952 the trade unions tried intensively to persuade the legislator 

to extend the model of the Montan-Mitbestimmungsgesetz 1951 to all areas of industry. 

Finally, in 1976 a compromise was reached and a third model of employee representation 

in the supervisory board was established: in companies falling under 

the Mitbestimmungsgesetz 1976 the supervisory board consists of an equal number of 

employee representatives and shareholder representatives. Contrary to the model 

in the coal, iron and steel industries, there is no neutral chairperson provided for. In 

case of a tie, a second ballot has to be held. If this second ballot again results in a tie 

the chairperson of the supervisory board has the casting vote. The chairperson is to 

be elected by a two-third majority of all members of the supervisory board. If the 

necessary majority is not attainable, the chairperson is elected by the shareholders 

only. The Mitbestimmungsgesetz 1976 is applicable to enterprises of a specific legal 

form (public limited companies, partnerships limited by shares, private limited 

companies, incorporated cost-book mining companies, and co-operatives) employing 

at least 2,000 employees. 

The reader is also informed about the other influential concepts from the Netherlands, 

France, Great Britain and Sweden. The German model, however, was and 

currently is the furthest reaching model of employee participation in corporate 

governance. It also served as a model for the first proposals for employee participation 

in the Societas Europaea. Consequently, the author starts his analysis from the 

point of view of the aforementioned German system but exclusively focuses on 

employee involvement in the company’s competent decision-making entities. 

As soon as the initiative to introduce an EC-wide legal framework for companies 

had been taken by the Commission and Member State governments, Member States 

fought for the greatest possible export of their own national corporate law. A first 

major conflict arose from the suggestion to introduce a compulsory one- or two-tier 

system, a second about employee involvement in corporate governance. The solu-


[Vol. 05 No. 01 

tion to both disputes largely depended on the legal technique the European company 

was approached with; either a basic structure with additional provisions by 

each Member State or a uniform and complete corporate law body. 

Mävers starts with the Commission’s first proposals on a Societas Europaea of 1970 

and 1975. He also presents other activities of the Commission concerning the issue 

of employee participation in corporate governance. He later reviews the 1989 and 

1991 proposals. Each of those legal acts is analyzed in the same way and scrutinized 

with regard to the same questions. Following a single analytical structure certainly 

contributes to the clear arrangement of the historic outline. 

The other side of the same coin consists in somewhat clumsy, awkward passages: 

The author relates many opinions on the discussed legal acts by trade unions, employers' 

associations, the Economic and Social Committee, Parliament etc. Albeit, 

opinions on a political decision like employee participation lead to politician-like 

answers: “In general, we welcome and look upon this proposal favourably, but in 

particular…” Mävers more or less hides behind press releases and leaves his readers 

to official statements. His readers are left without the essentials and without 

interpretation of the statements. Given arguments lack a background in which they 

can be fitted. 

Of course, background information is very hard to get due to secrecy of Council 

deliberations and a lack of accessible documents. However, readers long to know 

the exact reasons and details for why the proposals and initiatives have not been 

passed. Many questions remain unanswered: Did some governments’ attitude to 

employee involvement change in the light of altering political majorities at home? 

What scope was left to effect a compromise? Which alliances have been formed 

during the consultations? Which provisions were undisputed? Who raised the final 

objection and why? 

Relying on Mävers’ study, readers are able to answer a number of these questions. 

After several failures, the Commission declined to enforce a uniform corporate law. 

The Commission, for the sake of compromise, worked towards a European framework 

with enough flexibility for national preferences. Since then, European companies 

were allowed to choose between a one- or two-tier system. Still, employee participation 

remained to be the key to the Societas Europaea’s approval or dismissal. 

Allegedly all German governments fought for their high level of employee participation 

against Great Britain and Spain, who refused this kind of involvement. Or as


119 

Mävers puts it, each government tried to export their own concept instead of striving 

for a common level as a compromise. 5 

Diplomatic work towards an agreement meant slight changes of the disputed passages. 

Particularly from the 1997 Davignon-Report onwards, the Luxembourg, British, 

Austrian and German presidencies each adjusted the pending proposals to the 

respective negotiations. Diplomats started to alter contents and partially worked 

with references to other provisions within the same legal act. At this stage, readers 

run the risk of losing their overview and cannot perceive how the initial concept is 

softly bending to one direction or another. Unfortunately, readers might miss a 

clear thread to follow because Mävers limits himself to outlines of the current 

wordings and refers to previous chapters. However, is there a thread in the content 

to be followed at all? 

The author still gives the best in-depth illustration of the legislation process I have 

read. The book highlights a classical example of European legislation. Spanish governments 

had always opposed any kind of employee co-determination. But they 

also needed French help to fight ETA-terrorism, since terrorists often used France 

as a safe harbour for planning and preparing bombings in the Basque Provinces. In 

the end, the French President Chirac and the Spanish Prime Minister Aznar traded 

the approval of the present kind of employee involvement for closer co-operation 

fighting terrorism. 6 How can a book on a legislation process like this be expected to 

be better structured and arranged than the legislation process itself? The author 

fought very hard to give the best presentation possible. 

But what was finally decided? 

A European company can be founded in four different ways: (1) by merger of at 

least two existing national companies from at least two different Member States 

(“SE by merger”) 7 , (2) by foundation of a holding of at least two existing companies 

from at least two Member States (“holding-SE”) 8, (3) by formation of a subsidiary of 

at least two existing companies from at least two different Member States (“sub- 

5 Page 372. 

6 Klaus J. Hopt, Europäische Zeitung für Wirtschaftsrecht, 13. Vol. 2002, page 1, left column. 

7 Art. 2 (1), Artt. 17 – 31 Reg. (EC) 2157/2001. 

8 Art. 2 (2), Artt. 32 - 34 Reg. (EC) 2157/2001; see hereto Oplustil, Selected problems concerning formation 

of a holding SE (societas europaea), in: 4 German Law Journal No. 2 (1 February 2003), available at: 

http://www.germanlawjournal.com/article.php?id=230.


[Vol. 05 No. 01 

sidiary-SE”) 9 and (4) by conversion of an existing national company with an existing 

subsidiary in another Member State (“SE by conversion”) 10 . 

The provisions concerning the formation of a European company, its structure in 

form of a one- or two-tier system, its general meeting, annual accounts, and liquidation 

are included in the Regulation. However, since the Regulation does not establish 

one uniform model of a European company but offers a variety of models from 

which the Member States have to choose, the Regulation in many respects needs 

implementation into national law. The Regulation as well as the Directive dealing 

with employee participation have to be implemented into national law by 8 October 

2004. 11 

Employee involvement in corporate governance in the European company is a very 

complex matter. The Directive distinguishes between information and consultation 

on the one hand and participation on the other. In the context of the Directive, information 

means the informing of the body representative of the employees and/or 

employees’ representatives by the organ of the SE on questions which inter alia concern 

the SE, while consultation means the establishment of a dialogue and an exchange 

of views between the body representative of the employees and/or employees’ 

representatives and the competent organ of the SE. Participation, eventually, 

entails the influence of the body representative of the employees or the employees’ 

representatives in the affairs of a company by way of the right to elect or 

appoint some of the members of the company’s supervisory or administrative organ 

or the right to recommend and/or oppose the appointment of some or all of the 

members of the company’s supervisory or administrative organ. 

The Directive, however, does not regulate in what matter employees are to be informed, 

consulted or allowed to participate. Since the differences between the different 

models of employee involvement in the different Member States were too 

huge to be bypassed, the Directive only provides a procedural framework which 

shall lead to information, consultation and participation. As a consequence, the 

level of information, consultation and participation, may vary from company to 

company. 

9 Art. 2 (3), Artt. 35, 36 Reg. (EC) 2157/2001. 

10 Art. 2 (4), Art. 37 Reg. (EC) 2157/2001. 

11 Art. 9 (1) c Reg. (EC) 2157/2001; see, for an extensive discussion, Teichmann, The European Company 

– A Challenge to Academics, Legislators and Practitioners, in: 4 German Law Journal No. 4 (1 April 

2003), available at: http://www.germanlawjournal.com/article.php?id=259.


121 

As far as information and consultation are concerned, the SE-Directive follows the 

model of Directive 94/45/EC on European Works Councils. European companies 

shall be fitted with a negotiated involvement of employees in the Societas Europaea’s 

corporate governance. Negotiations take place between a special negotiating body 

representative of the employees 12 on the one hand and the participating companies’ 

competent organs on the other hand. An agreement on information and consultation 

has to be concluded in any case. The parties to the negotiation are however free 

to agree on their preferred kind and extent of information and consultation. Contrary 

to companies falling under the European Works Council Directive, an agreement 

on employee participation may additionally be concluded. If a European 

company is formed by means of conversion, the agreement shall provide for at least 

the same level of all elements of employee involvement as the ones existing within 

the company to be transformed into an European company. Any reduction of the 

existing level of workers’ participation requires a majority by two thirds within the 

special negotiating body. 13 In case an amicable agreement cannot be reached within 

6 months (or 12 months at the very latest), a certain level of information, consultation 

and, under certain circumstances, participation, as laid down in the Directive’s 

annex, shall apply. 14 Member States shall take adequate precautions against a misuse 

of European companies aimed at minimization of employee involvement. The 

annex entails the most disputed provisions of the Directive: In brief, the level of 

employee participation in the Societas Europaea’s corporate governance is designed 

not to fall behind the highest level of the participating companies. 15 

Is this to be the end to all ambitious plans for another boost to the common market? 

Does the European company in its current form help to make the European Union 

the most competitive economic area in the world? Will German companies be denied 

access to European companies by prospective partners in order to evade German 

levels of workers’ involvement? 16 Will German companies be able to benefit 

from the foreshadowed € 30 billion annual savings 17 by transformation into a Societas 

Europaea? 

12 Art. 3 (2) Dir. 2001/86/EC. 

13 Art. 3 (4) Dir. 2001/86/EC. 

14 Art. 7 Dir. 2001/86/EC. 

15 Para 18 Dir. 2001/86/EC. 

16 Frankfurter Allgemeine Zeitung, 17.6.2003, page 18. 

17 Mario Monti, Wertpapiermitteilungen, Vol. 1997, page 607.


[Vol. 05 No. 01 

“The proof of the pudding is in the eating.” Time will tell about the Societas Europaea’s 

success or failure. Undoubtedly, the legislative technique to count on subsidiary 

national corporate law promotes legislatory competition. Maybe we will 

soon experience a competition for best practice in corporate law. Germany’s 103year-old 

civil code bears legal competition between land charge 18 and mortgage 

charge 19 and thus fosters prudent decisions between the two. What some may welcome 

as a step towards better legislation, is what others might fear as a “Delawareeffect”. 

As a matter of fact, there is no Societas Europaea as such, there are as many 

different European Companies as Member States. 

Will European companies first register in Spain or Great Britain without any employee 

participation at all and later on transfer the registered office to another 

Member State? 20 Mävers warns of insisting on too high of a standard on workers’ 

involvement. Those who do so, might after all end up with nothing at all. Was this 

potential result of the legislative process just "bad luck" or actually intended by the 

governments who officially fought hard in order to safeguard employee involvement? 

After all, when will we first get on touch with European companies in practice? The 

Regulation will become effective by 8 October 2004. A national Act to transfer the 

Directive is currently undergoing the usual legislative procedure. Much more than 

employee involvement, the crucial obstacle is the taxation of the European company. 

Taxation of a formation will have to comply with the provisions of Directive 

90/434/EC. However, at present there are no legislative proposals in order to solve 

the taxation problems. 

Gunther Mävers’ final proposals to a (then seemingly impossible) agreement came 

remarkably close to the actual provisions. His summary on the legislative process is 

anything but superfluous! 

18 Grundschuld, § 1191 German Civil Code. 

19 Hypothek, § 1113 German Civil Code. 

20 Art. 8 Reg. EC No 2157/2001.

The German Law Journal

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