A ruling by the European Court of Justice on the alleged EU-inconsistency of the HOAI is expected in spring 2019. The ruling may have far-reaching consequences.

Two proceedings with different effects

There are currently two different proceedings pending before the European Court of Justice concerning the HOAI: the first is an action brought by the EU against the Federal Republic of Germany; the second concerns directly a dispute between a client and an architect. It is this second proceeding in particular that can have a significant impact. The common thread running through both proceedings is the thesis that the statutory minimum fee prescribed in the HOAI violates EU law because the state is not allowed to prescribe prices. In the first proceedings (EU v. Federal Republic), however, it is only a question of the Federal Republic correcting this alleged infringement for the future, by amending the HOAI; for current projects and for the past, therefore, these proceedings are of no relevance.

In the second case, on the other hand, the Regional Court of Dresden has taken the view that the HOAI violates EU law and that the architect cannot therefore charge a fee according to the HOAI minimum rate from the outset, but always only what is agreed in the contract - i.e. if necessary considerably less. In this respect, the Regional Court of Dresden demands a so-called preliminary ruling from the ECJ. These proceedings therefore concern an ongoing project, and a ruling in these proceedings could have an impact on all planning contracts that have not yet been completed.

Will the HOAI be overturned?

The chances for the HOAI are not particularly good. According to EU law, the state should not interfere in price competition. If it does in individual cases, it needs a justification. The state that wants to regulate prices must prove this justification. It is therefore not the case that the EU has to prove that the HOAI minimum rate is unlawful, but conversely the Federal Republic has to prove that there is a requirement for the minimum rate. If this is not successful, the HOAI is unlawful.

What happens if the HOAI is overturned?

If the Federal Republic loses the infringement proceedings, the ECJ will formulate a requirement in its judgment that Germany must adapt the HOAI within a certain period. This judgment alone would therefore initially have no direct impact on the applicable law.

However, things would be different as soon as a judgment is handed down in the second procedure (preliminary ruling procedure). If in this judgement the HOAI is classified as contrary to EU law, this would mean that § 7 HOAI (which contains the minimum rate requirement) is void, i.e. ineffective. However, if a provision is null and void, then legally speaking this has always been the case - the provision then virtually never existed (!). This would mean that all fee settlements based on the minimum rate had no legal basis.

Protection of confidence for ongoing projects?

It is obvious that one has to draw some temporal boundary for this and cannot question all projects of the last 40 years. It is therefore to be expected that the ECJ, if it overturns the HOAI in the preliminary ruling procedure, will lay down rules on this. In all likelihood, the decision will have no effect on fully completed matters, i.e. on cases in which the final invoice has already been issued and paid. Conversely, it is clear that the decision will in any case apply to all projects that will only begin after the ruling. For the remaining, currently ongoing projects, it will probably come down to a far-reaching protection of confidence on the part of the client and contractor - but where exactly the line will be drawn if the HOAI is overturned, that is the big question.

Conclusion

In all likelihood, there will be significant movement on HOAI practice in the summer of 2019. If the Federal Republic loses the case, it will have to decide how to adjust HOAI for the future. In that case, the HOAI will certainly not disappear completely; but its core, namely the mandatory minimum rate, will probably no longer exist. This will have a considerable impact on the drafting of future planning contracts. And if the HOAI is overturned, it will be necessary to clarify in many ongoing projects what effects this will have on fee agreements and settlements.

Author/Source: GGSC Newsletter February 2019 (Attorney at Law Dr. Benjamin Tschida, Attorney at Law Dr. Sebastian Schattenfroh)

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