Federal Court of Justice judgment of 27 July 2023 IX ZR 267/20
By judgment of 27 July 2023 (IX ZR 267/20), the German Federal Court of Justice (Bundesgerichtshof, BGH) ruled on the admissibility of a model declaratory action brought against an insolvency administrator and additionally dealt with the questions of how provisions in energy supply contracts providing for a new customer bonus are to be interpreted under the law governing general terms and conditions and whether the netting with a new customer bonus has to be considered an inadmissible set-off under insolvency law. The present blog post focuses on the latter question.
A consumer protection association brought a model declaratory action against an energy supplier’s insolvency administrator. The energy supplier had solicited customers for gas and electricity supply contracts by offering, amongst other things, a new customer bonus depending on annual turnover. In 2019, the energy supplier stopped supplying its customers following its insolvency. The insolvency administrator carried out the billing for the contracts of more than 100,000 customers and, in cases where a minimum contract term of one year had not been reached beforehand, did so without taking the new customer bonus into account. The insolvency administrator took the view that the deduction of a bonus would be an inadmissible set-off under insolvency law, asking instead that the consumers concerned file their claims in this connection in order for them to be entered into the insolvency administrator’s schedule of claims. The consumer protection association responded by bringing a model declaratory action, applying for a declaratory judgment to the effect that the energy supplier’s fee claims must be reduced by the respective new customer bonus in the final invoices and that such a deduction does not constitute an inadmissible set-off under insolvency law.
As a general rule, a set-off requires the existence of two mutual, independent claims that are of the same nature, pursuant to Section 387 of the German Civil Code (BGB). In insolvency proceedings, however, there may be a conflict between the principle of equal treatment of creditors and the individual creditors’ interests. Sections 94 et seqq. of the German Insolvency Code (InsO) attempt to take this fact into consideration. Pursuant to Section 94 of the German Insolvency Code (InsO), the right to make a set-off is not affected by the opening of insolvency proceedings if, at the time the insolvency proceedings are opened, the insolvency creditor is entitled, by operation of law or based on an agreement, to make a set-off. The date of opening the insolvency proceedings and the existence of circumstances allowing a set-off to be made are thus decisive for the question of whether the prohibition of set-offs under insolvency law applies. If the circumstances allowing a set-off to be made do not arise until after the opening of insolvency proceedings, no set-off may be made. With conditional claims, the decisive question is which of the claims involved – the insolvent debtor’s claim or the claim of the creditor concerned – becomes unconditional and due first, Section 95(1), third sentence, of the German Insolvency Code (InsO). In addition, pursuant to Section 96(1) no. 3 of the German Insolvency Code (InsO), a set-off is inadmissible if the underlying transaction enabling the insolvency creditor to make a set-off can be contested.
The Federal Court of Justice held that taking a new customer bonus into account in the annual consumption billing under an energy supply contract does not constitute an inadmissible set-off or netting transaction under insolvency law if the new customer bonus takes the form of a discount (rebate) that depends on annual turnover. It argued that the new customer bonus was (merely) a dependent invoice item and, alongside the base price and the price of the energy consumed, the third calculation element in the tariff to be applied to determine the consumption-based fee and that it had been designed as a discount to be deducted from the total bill. The Federal Court of Justice further held that as a result of the new customer bonus that had been promised by the energy supplier, the remuneration for the energy supplied in the first year was to be reduced by the agreed percentage rate, rather than being calculated in accordance with the generally agreed tariff. It also held that even though the provisions of Section 96(1) no. 3 of the German Insolvency Code (InsO) apply also to netting transactions, they do not apply to the netting of dependent invoice items, and pointed out that especially deductions which directly reduce a claim do not constitute a set-off when determining the amount of a claim. Crucially, in the opinion of the Federal Court of Justice, the requirements for a set-off – i.e. the existence of two mutual, independent claims – are not met and, therefore, the applicability of a set-off prohibition under insolvency law can be categorically ruled out.
The Federal Court of Justice’s judgment of 27 July 2023 (IX ZR 267/20) has been much discussed in connection with the Court’s holdings as to the admissibility of a model declaratory action. The judgment is, however, also significant with regard to the Court’s holdings as to the admissibility of set-offs. From a creditor’s perspective, the judgment is to be welcomed inasmuch as it clarifies that the prohibition of set-offs does not apply to the netting of dependent invoice items. While this holding may not be “new”, it is nevertheless noteworthy in view of the current increase in insolvencies. It shows the importance of how contracts are drafted and the opportunities that may result from this regarding securing potential insolvency-proof set-offs.
In the final analysis, the crucial point was that the new customer bonus promised by the energy supplier was granted in the form of a discount (rebate) depending on the annual turnover. This made it possible to interpret the new customer bonus as a dependent deduction directly reducing the relevant claim, thus ruling out the applicability of the prohibition of set-offs under insolvency law.