One deal, two jurisdictions – interpreting competing jurisdiction clauses
The Court of Appeal has provided comfort to the derivatives market by giving a wide, commercial interpretation to an exclusive English jurisdiction clause.
The automotive industry continues to serve as a cornerstone to the German economy and the home of more than 770,000 employees working in a broad range of companies from OEMs to suppliers of different tier levels. More than seventy percent of all premium brand vehicles produced worldwide are manufactured by German OEMs serving all global markets.
Automated driving functionality is becoming an ever increasing area of interest across the entire value chain in the German automotive industry. The latter has assumed a market leader position in the development of automated driving functions. Majorly still in the premium brand sector, automated driving functions are continuously finding their way into new model launches.
We at Norton Rose Fulbright in Germany have a unique track-record in assisting automotive OEMs and suppliers. It is the breadth and depth of our automotive experience which makes us an ideal fit for our clients both on a national as well as an international level. We are happy to share our industry insight in the following brief overview on selected aspects of automated driving from a German law perspective.
Automated or even autonomous driving is mainly governed by the applicable road traffic regime in Germany. The latter is based on German national law but is also strongly influenced by European and international law.
While technology has already progressed far, the regulatory framework for automated driving in Germany still needs development. Amongst others, this stems from the fact that the currently applicable road traffic regulations have not been drafted with automated driving in mind and thus require adaptation.
The current status quo can be summarized as follows:
However, for testing purposes special permissions are available.
The German government is aware of the still existing legal deficiencies in the current regulatory framework and is advocating reform on both national as well as international levels.
The German Transportation Ministry’s Round Table, consisting of experts from the fields of government, industry and science, has reached an agreement on a technical classification of automated driving functions:
Assisted driving: Supportive tasks are performed by the vehicle’s system independently within certain limits. This is a preliminary stage of automated driving, i.e. the driver is still permanently in charge of either the steering or the braking and the acceleration of the vehicle. The system requires constant monitoring and readiness of the driver to assume full control of the vehicle at any time. Examples of the automated supportive tasks are:
Partially automated driving functions: The vehicle’s system automatically handles steering, braking and acceleration of the vehicle for a certain period of time or in specific situations. The system still requires constant monitoring and readiness of the driver to assume full control of the vehicle at any time. Examples are:
Highly automated driving functions: The vehicle’s system automatically handles steering, braking and acceleration of the vehicle for a certain period of time or in specific situations. The system no longer requires constant monitoring by the driver. There is a sufficient time buffer before the driver has to take over control in emergency situations, i.e. the system gives the driver advance warning.
Fully automated driving functions: The vehicle’s system automatically handles steering, braking and acceleration of the vehicle in a defined scenario. The driver does not need to monitor the system. The system is able to establish a minimal risk condition in all situations.
Autonomous driving (‘driverless vehicles’): This is the highest level of automation in driving. The vehicle’s system assumes full control of the vehicle from start to finish. In this case, all persons travelling in the vehicle are passengers.
The participation in road traffic in Germany is, amongst others, subject to compliance with the following regulation complexes:
Registration of the vehicle
The vehicle registration mechanism in Germany can be described as follows:
German Road Traffic Regulation
The German Road Traffic Regulation (Strabenverkehrsordnung) contains provisions regulating the “do’s and don’ts” for participating in public road traffic in Germany.
Vienna Convention on Road Traffic (indirect influence)
The 1968 Vienna Convention on Road Traffic (VC) is public international law and thus only has indirect influence on the German legislator. Germany ratified the VC in 1978. The VC aims at facilitating international road traffic and increasing road safety through the adoption of uniform traffic rules.
With regard to the legal admissibility in Germany, a distinction needs to be made between such automated driving functions still requiring the driver to constantly monitor the system and such driving functions no longer requiring the constant monitoring by the driver (see below).
Assisted driving and partially automated driving functions are to a certain degree admissible under the current regulatory framework in Germany and are thus already offered as technical features of vehicles in the market today.
There are no obstacles under the German Road Traffic Regulation and under the VC, as the concerned assisted driving and partially automated driving functions still require the driver to constantly monitor the vehicle’s systems. In other words, the aforementioned regulations still require the driver to have full control of the vehicle at any time.
However certain limitations exist from a vehicle registration perspective:
As UN ECE Regulations are permanently revised and adapted to technical innovations it can be expected that higher automated driving functions will be admissible in the foreseeable future. Germany has already initiated the adaptation of the relevant UN ECE Regulations, especially the provisions regarding steering equipment, in order to allow higher levels of automation in the future.
Highly automated driving functions, fully automated driving functions and autonomous driving (“driverless vehicles”) are inadmissible under the current regulatory framework in Germany.
Hence “highway pilots” allowing the driver to perform tasks other than driving, such as writing emails or surfing the internet, are not allowed under the current legal situation.
The German Road Traffic Regulation has not been designed with automated vehicles in mind. The primary addressee of the provisions of the German Road Traffic Regulation is a human driver. It therefore requires revision to allow for highly automated driving functions or a higher level of automation.
A. Status prior to 23 March 2016
The prevailing opinion in German legal literature saw significant requirements for change of the VC in order to allow for highly automated driving functions or a higher level of automation.
Article 8 (1) VC requires every moving vehicle to have a driver; according to the definition in Article 1 (v) VC, a driver must be a person. Articles 8 (5) and 13 (1) VC set out that vehicle drivers shall at all times be able to control their vehicle and shall in all circumstances have their vehicle under control so as to be able to exercise due and proper care and to be at all times in a position to perform all maneuvers required.
Highly automated driving functions or higher levels of automation were thereby not allowed, with the critical point being the transition to automated driving functions where the driver no longer needs to constantly monitor the system.
B. Development – changes in 2016
In light of the above, the VC contracting states have been working on amendments to allow higher levels of automation in the future; these entered into force on 23 March 2016 for all contracting parties. Under the new paragraph 5bis of Article 8 VC and the amendment to Article 39 (1) VC, which were proposed inter alia by the German Government, it is now assumed that drivers do fulfill their duty to have the vehicle under control and that the driving system conforms with the VC if it complies with UN ECE Regulations or if the driver can override or switch off the automated driving functions of the system. The fact that the VC references the UN ECE Regulations is a major improvement since the latter are constantly being adapted to technical progress in a much faster manner than the VC.
C. Further developments
The Governments of Belgium and Sweden submitted a working document with proposals to amend Article 8 of the VC to the competent Working party on Road Traffic Safety of the United Nations Economic Commission for Europe, clarifying the aforementioned potential admissibility regarding highly automated driving functions and fully automated driving functions and furthermore providing the legal basis for the admissibility of driverless vehicles.
The EC type-approval of cars with highly automated driving functions or a higher level of automation is currently prevented by UN ECE Regulations.
The applicable UN ECE Regulation No. 79 regarding steering equipment, for instance, still requires the driver to remain at all times in primary control of the vehicle’s steering system and thus prevents a level of automation where the driver no longer needs to constantly monitor the system.
Special permissions for testing purposes can be obtained in Germany for certain automated driving functions of vehicles – i.e. for certain automated driving functions which are currently not admissible under the applicable regulations. The granting of a special permission as well as its scope is subject to a detailed case-by-case analysis by the competent authorities.
As a result of this possibility numerous tests have been conducted in Germany with vehicles equipped with extensive automated driving functions.
The A9 motorway in Bavaria will be equipped with the “digital A 9 motorway test bed” to reflect, analyze and support the increasing automation and connectivity of modern vehicles. With the appropriate infrastructure, industry and researchers will be in a position to conduct trials and further develop innovations for connected and automated driving.
The planned digital infrastructure is supposed to enable the testing of car-to-car and car-to-infrastructure communication. Sophisticated sensor technology, high-precision digital maps and real-time communications with the latest transmission standards will be made available.
One of the first projects coordinated by the German Federal Ministry of Transport and Digital Infrastructure on the test bed took place on 9 November 2015, when several technology companies demonstrated real-time communication between vehicles via the LTE cell network.
Germany is working on the development of further test beds in cities as well as on highways. An inner-city test bed will be installed in Ingolstadt and the state government of Baden-Wuerttemberg plans a test bed which shall combine traffic situations on motorways, highways and cities.
On 27 January 2016, the European Commission has proposed a major overhaul of the EU type-approval framework for motor vehicles. It proposed a new regulation that yet has to be adopted by the European Parliament and Council. In such case it would be directly applicable and would repeal and replace the directive 2007/46/EC.
The new regulation mainly intends to reinforce the independence and quality of testing in the context of the EU type-approval process, to introduce an effective market surveillance system of cars already in use and to implement a wider European supervision regarding type-approval.
]It remains to be seen to what extent the Regulation will pass the European legislative procedure and what impact the final version will have on German legislation concerning the topic of automated/autonomous driving.
The regulatory gaps/uncertainties concerning automated/autonomous driving in the current regulatory framework in Germany have been identified by the German government and are likely to be closed in due time.
This will allow the German automotive industry to further develop and test automated driving functions and continue to be a leader in this sector. A well-developed infrastructure and legal certainty in Germany will also benefit the international automotive industry.
The German Federal Statistical Office records approximately 2.4 million annual traffic accidents, causing economic damages of over € 30 billion. Significantly over 80% of the incidents are caused by human error. Only less than 1% are results of technical failures, whereas most of such can again be linked to poor maintenance.
As self-driving vehicles will progressively eliminate the (direct) human factor as causal element, technical issues will proportionally significantly increase as root-causes for accidents. Further, due to the vast technical complexity, such failures are also likely to increase in absolute terms.
De lege lata, the German product liability regime would significantly shift the overall liability to OEMs and suppliers (respectively their product liability insurances). The German legislator is aware of this situation and this topic is also being discussed in round tables initiated by the German Transportation Ministry (cf. above). However, assuming the absence of any near-term amendments or changes in the legislative framework, OEMs and suppliers will stay subject to the regular German liability regime and the further technical development of self-driving vehicles is likely to raise various issues in this regard, some of which are outlined in the following.
Under the current German liability regime in the event of a road accident various parties – irrespective of directly involved or not – can be held liable by the injured.
The German Road Traffic Act (Strabenverkehrsgesetz - StVG) embodies a strict liability regime for the keeper (Fahrzeughalter) of a motor vehicle. Para. 7 StVG holds him strictly liable for damages caused by the vehicle, irrespective of any fault and could even apply if the vehicle is not even moving. The concept behind this is that keeper must bear all risks of the operation of the vehicle (Betriebsgefahr).
The liability of the keeper generally covers all personal and property damages caused by the vehicle, but is capped at € 1,000,000 for property damages and € 5,000,000 for personal injury or death (an exemption applies for the transport of persons for remuneration), but will not apply to the driver. More extensive liability claims can be based on the general negligence rules of Para. 823 of the German Civil Code (Bürgerliches Gesetzbuch - BGB), which are not excluded by the specific provisions of the StVG. This would, however, require any negligence by the keeper (e.g. maintenance errors and omissions).
Is an accident caused by self-driving vehicle a matter of force-majeure?
The keeper can avoid liability by proving that an accident was a result of force-majeure. This leads to the question, if the malfunction of a self-driving functionality, directly leading to an accident, is to be qualified as an act of god under German law. In general, this requires an external cause which is unforeseeable and unavoidable. In particular, the first precondition should not be met. However, this could be different if an accident is caused by e.g. hacker attacks or defects in the telecommunications infrastructure (i.e. not the vehicle itself).
The driver is jointly liable with the keeper of the motor vehicle (cf. above). Unless the driver is not also the keeper, the strict liability rule does not apply and he can only be held liable for negligent (or intentional) behavior. However, Para. 18 StVG reverses the onus of proof in this regard; i.e. a driver is held liable unless he proves that he did not negligently (or intentionally) cause a damage.
The limitation of liability of Para. 12 StVG (cf. above) does also apply in respect of the driver, but – again – a more extensive (unlimited) liability can be based on general tort law provisions.
Under the strict liability of the German Product Liability Act (Produkthaftungsgesetz - ProdHG) a producer is liable for any damage occurring from a product defect, irrespective of any negligent behavior.
Generally, defects can result from a failure in design, i.e. if the product stays behind the state-of-the-art at the time of its marketing, or manufacturing failures, i.e. if there is a discrepancy between the actual and the targeted condition of a product. Further, instructional errors can qualify as relevant defects. In particular, if the omission of a warning renders a product unsafe.
Also under the provisions of the ProdHG compensatory damages can be awarded to the extent necessary to restore incurred damages. However, regarding damages to property, compensation can only be claimed for the destruction of objects in private use, different from the defective product itself and with a deductible of € 500. As to personal injury, the liability is capped at € 85,000,000. Further-reaching claims can be claimed under the (general tort law) concept of producer liability (cf. below).
Better than a human driver?
With a view to product liability claims relating to autonomous vehicles the core question remains when a relevant defect can actually be assumed. Firstly, this will – as for all vehicles – be the case in the event of e.g. material failures or electrical- or software errors not related to any self-driving functionality. However, this group of “traditional” triggers for product liability claims are additionally flanked by “new” failures directly affecting self-driving functionalities. In particular, possible software issues or a lack of necessary sensors.
Under the definition of the ProdHG a product is deemed to be defective if it falls short of the safety standards that an average customer can reasonably expect. Even though, a product may generally not be expected to be 100% safe and additional efforts and expenses of a producer to increase safety must always be considered in relation to the achievable safety advantage, if the paramount protected interests of life and health are at stake, very high safety expectations will be set.
On the other hand, an average customer cannot reasonably expect that an autonomous vehicle operates completely accident-free, as incidents may sometimes not be preventable due to acts of god, physical limits or third party behavior.
Within this framework, the skills of a due diligent (ideal) driver – improved by economically feasible technical measures to overcome biological limits (e.g. reaction time) – should form the comparative yardstick for what could reasonably be expected. A self-driving vehicle not complying with these expectations would very likely be deemed “defective”.
Restricted mitigation of liability risks
As stated at the outset, the liability for a product defect is irrespective of any fault of the producer. Liability may only be excluded under very restricted circumstances. From a technical point of view, this might in particular be the case if at the time of marketing the respective defect could not have been detected under the current technical state-of-the-art (Para. 1 ss. 2 no. 5 ProdHG).
This makes it crucial for OEMs / suppliers to comply with all applicable safety standards and procedures. E.g. ISO 26 262 is worth mentioning in this regard, as this standard aims to address possible safety issues caused by malfunctioning behaviors of electronic and electrical systems installed in series production passenger cars and – inter alia – covers product development and functional safety management issues. In practice, however, even adhering to all applicable state-of-the-art safety standards will very likely not suffice to fulfill the requirements of Para. 1 ss. 2 no. 5 ProdHG. The reason is that any safety standard provision – ISO 26 262 or alike – only sets the (i) minimum standard (ii) at the time of their taking effect.
Alongside of the provisions of the ProdHG producers can also be subject to a more extensive liability by negligently putting defective products (cf. above) into circulation under the general tort law provision of Para. 823 BGB.
As a matter of principle, a producer must take all reasonable and economically feasible steps to secure that products are free of endangering defects. Against this background, under German (case) law producers can generally be held liable for culpable violations of organizational and/or instructional duties. In this light, producers must (at least) maintain a state-of-the-art design, production and QC procedure (cf. above) mirroring the degree of possible risks resulting from a possible defect. If in compliance with these requirements – differing from the strict liability under the ProdHG – liability could at least be avoided for “unavoidable” outliers (“Ausreiber”) or defects that did not become apparent by using all reasonable risk reduction measures.
Bone and bane of monitoring possibilities
Apart from the above-mentioned obligations, producer’s risk mitigation obligations are not terminated after the design, manufacture and marketing of a product. In fact, also an adequate product monitoring in the field is requested and reasonable measures must follow emerging defects. The scope of these obligations must be assessed in the light of (i) the degree of the imminent dangers as well as (ii) the factual and reasonable monitoring and reaction possibilities. Both aspects will lead to rather comprehensive monitoring and reaction obligations in the present context. The vast amount of data collected by the vehicles (irrespective of the question, who actually owns this data) and the possibility to almost without any delay transmit any malfunction messages cuts both ways. On the one hand, producers should relatively easy be able to comply with their monitoring obligation. On the other hand, this will impose rather strict obligations as to the “reasonable” reaction time to detect and cure emerging defects.
The combination of possible joint liabilities of the driver (if negligent behavior cannot be rebutted) and the keeper, as well as the latter and the producer (cf. above) leaves the injured party with the option to claim the full damage from either. The joint debtors could then claim recourse from each other.
In practice, as in the event of an accident caused by a technical failure, the driver will often be able to rebut negligent behavior, liability will often stick with the keeper and the producer. As (i) the burden of proof is significantly lower for claims against the keeper, who is (ii) further subject to a compulsory liability insurance (whereas the claimant has a right of direct action against the insurer), it is foreseeable that the keeper, respectively its insurer, will be the “debtor of choice” (at least for claims below the mentioned liability cap).
However, in the internal relationship between the keeper (respectively its insurer, following a subrogation) and the producer, the latter will very likely be subject to a recourse claim, as under German law provisions joint and several debtors shall internally only bear damages according to their respective causal contribution. As a result, in practice, accidents caused by technical failures could significantly shift liability towards the OEM / supplier.
The Court of Appeal has provided comfort to the derivatives market by giving a wide, commercial interpretation to an exclusive English jurisdiction clause.