Liability of Financial Experts in German and American Law

American Society of Comparative Law
Liability of Financial Experts in German and American Law: An Exercise in Comparative

Methodology
Author(s): Michael Coester and Basil Markesinis
Source: The American Journal of Comparative Law, Vol. 51, No. 2 (Spring, 2003), pp. 275-309
Published by: American Society of Comparative Law
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MICHAEL COESTER
BASIL MARKESINIS
Liability of Financial Experts in German and

American Law: An Exercise in
Comparative Methodology
A. GERMAN LAW
I. Introduction
1. The Problem
Professional advice is sought for (and paid for) in many contexts.
This happens much more often today than in earlier times because
the overall societal and economic structures have become more com-
plex, knowledge has expanded dramatically, and the willingness to
pay for it has greatly increased. At the same time, knowledge has
inevitably also become very specialized. The specialist professionals
sell their knowledge on a contractual basis, and the buyers rely on it
to make important decisions. In principle, if the provider of advice
has been negligent,' and the advice relied upon turns out to be false,
it seems only fair that he be held liable to pay damages. But many
other considerations may help dilute this starting point.
In contemporary legal systems the liability of experts has taken
on specific forms in different contexts (e.g., the liability of doctors,
lawyers, etc.). A broad field in which professional advice plays an im-
portant role and on which the following article will focus, is money
investment. Banks or private lenders often seek information about
the value of a business, its financial situation, or about the value of
securities before they decide about their own financial engagement. If
MICHAEL COESTER, LL.M., D.Iur. Faculty of Law, Ludwig Maximilians University of

Munich.
BASIL MARKESINIS, QC, LL.D. (Cantab.), DCL, (Oxon.), D.Iur. h.c. mult., FBA, Univer-
sity College London and Jamail Regents Chair in Law, University of Texas at Austin.
Both authors are grateful to Professor David Robertson of the University of Texas
at Austin for valuable comments on an early draft and Professor Markesinis also
wishes to record his thanks to Dr. Hannes Unberath, his co-author of The German
Law of Torts. A Comparative Treatise (4th ed. 2002)-henceforth cited as M&U-as
well as Dr. Joirg Fedtke (Hamburg and London); Dr. Gebhard Rehm (Munich); and
Nancy M. Scheifele, CPA and Attorney-at-law (Texas), Hielbeler, Hasner, Keller and
Partner, Munich, for long and useful discussions on this complicated topic.
1. In this article we are thus not concerned with fraud. In practice, the dividing
line is not always easy to draw.
275
276 THE AMERICAN JOURNAL OF COMPARATIVE LAW [Vol. 51
the information they have relied upon proves to be false, they may
suffer substantial financial loss. The magnitude of the loss, both in
terms of the number of people affected and total amounts at stake,
may be a particular feature of this type of experts' liability.
It is also a feature of modern business conditions that informa-
tion spreads easily so that even persons who were not parties to the
contract with the expert may become aware of his or her statement
and rely on it when making financial decisions. When they suffer
damage they, too, are likely to want to sue the expert. The latter may
often seek refuge in the doctrine of privity of contract and argue that,
by giving one advice to one contractual party, he should not be liable
towards a potentially indeterminate number of other persons. Never-
theless German as well as many American courts have imposed lia-
bility on the expert in these triangular situations. The aim of this
article is to mention some of the doctrinal differences in approach
adopted in these two systems and highlight some of their underlying
policy assumptions, which can be both similar and different. This, in
turn, can lead to insights about the respective role their courts are
prepared to play in shaping the law in this intricate area of profes-
sional negligence. On these grounds it will then be possible to suggest
ways in which one legal system might benefit from studying the
other. But in what frame of mind does one approach such a complex
comparative task?
A glass fifty per cent filled with water can, with equal accuracy,
be described as half full and half empty. The comparison of legal sys-
tems can equally proceed with a wish (expressed or unexpressed) to
demonstrate how different or how similar they are. We prefer the lat-
ter approach because we like to stress how similar we are-physio-
logically and in our societal, economic, and moral needs-as human
beings. From the last point it also follows that, increasingly, because
of enhanced communications, travel contacts, urbanization, and as-
similation of tastes, we are facing similar legal problems. We also feel
that the mental frame of looking for similarities can help the under-
standing of foreign legal institutions and-in appropriate circum-
stances-increase legal borrowings, whereas the 'differences'
approach encourages the neglect of foreign law. For when time means
money, many (especially busy practitioners) may be tempted to say,
"why bother to look at another system which is so different to ours?"
Though for the reasons given we subscribe to the 'growing legal
convergence' school of thought, we do not underestimate differences.
In our subject we thus note that they are significant. Nonetheless, we
also tentatively predict that in the current climate of globalization of
markets the systems cannot, in their essentials, remain divergent for
long. When talking of differences, we have in mind not just differ-
ences in academic and judicial reasoning. Just as important are dif-
2003] LIABILITY OF FINANCIAL EXPERTS 277
ferences in procedural devices available to potential claimants (e.g.,

presence or absence of class actions), methods of financing litigation
(contingent fee versus legal aid or self-finance), insurance practices
(including capping of damages), and even attitudes as to how finan-
cial markets should be allowed to operate. In this last context, the
regulatory framework within which accountants practice their pro-
fession can be of great significance. Comparatively speaking, one
might suggest that it appears to be more lax in the US, stricter in
England, and even more regulated in Germany. We say little about
this in this paper, not least because we feel this aspect of our topic
requires detailed input from those who undertake auditing work on a
regular basis. But if our material and thoughts are to be taken any
further, serious attention will have to be paid to all these wider back-
ground factors. Once this is done, legal borrowings will be made
much easier.
One final point should be made at the outset, since it follows
from the position stated in the previous paragraphs. Instead of pro-
ducing separate sections on American law and German law which
would require the reader to compile his own list of similarities and
differences, we have opted for a different presentation. As often as
possible, we have injected our own mixed appreciation with a view to
stimulating the reader to think more deeply about the two systems
and their common and diverging points of reference. As the subtitle
suggests, this is more an exercise in comparative methodology, along
the lines repeatedly proposed by one of us,2 than an attempt to pre-
sent each system in detail.
In the light of the above, we start with a brief account of German
law (by definition less well known to American readers) and then pre-
sent American law under three headings and in constant juxtaposi-
tion to the German. We conclude with some wider thoughts prompted
by this brief survey of two important systems in parallel. Inevitably,
the nature of these conclusions will be cursory; for they, as the com-
parative method we are trying to devise, can only be built bit by bit
and with refinements and modifications made as and when needed.
But whatever the deficiencies of our system, there is little doubt that
when two major legal and economic systems reach such potentially
different results, comparison is needed to understand the true extent
of the differences and further mutual understanding.
2. Basil Markesinis, Foreign Law and Comparative Methodology (1967) and Al-
ways on the Same Path (2001). For a learned and informative (but methodologically
different) account of our subject in the European Union see Ebke, "Die Haftung des
gesetzlichen Abschlusspriifers in der Europaiischen Union," 100 ZvglRWiss 62-89
(2001).
2. The approach of German law in general
In German law, as found in the Civil Code (BGB) of 1896, the

afore-mentioned conflict has caused a dilemma. For, in principle, the
provisions of tort law (?? 823-826 BGB) protect everyone, including a
third party. Yet, also as a matter of principle, the protection of the
tort rules does not cover "pure economic (or financial) loss". Though
this type of loss can be recovered under contract law, here contractual
privity tends to exclude third parties.
It has been a deliberate decision of the German legislator not to
grant compensation for pure economic loss under tort law. The free-
dom of action was-at the end of the 19th century-considered to be
very important; and it was feared that a far-reaching liability would
stifle social initiative and economic development.3 Thus, the protec-
tive scope of tort law, which created liability towards everyone, was
limited to rights which were considered to be fundamental and could
be defended against everybody-the so-called "absolutely protected
rights" such as life, health, freedom, and property, as enumerated in
? 823 I BGB. Although the statutory catalogue seems to be open, and
ends with the words "orother [similar] rights", this must not be taken
to undermine the basic decision of the legislator as far as financial
loss is concerned. This can be recovered under tort law only if addi-
tional elements are satisfied.4
There is considerable consensus in contemporary Germany that
this statutory structure no longer responds adequately to the
changed social and economic conditions of our times. The emphasis
on land and tangible property as the main basis of economic welfare,
though prevalent in Germany when the Code was drafted, now seems
outmoded. There are ample signs, economic and legal, that suggest
that nowadays rights and financial claims have moved into the center
of private wealth.5 And if it had been once the intention of the legisla-
tor to grant what were called the "higher classes" of society, i.e., the
self-employed professionals, a limited immunity from claims for dam-
3. For an analysis of the legislative motives see Picker, "Gutachterhaftung," in

Beuthien et al. (eds.), Festschrift Medicus (1999), 397, 432 ff.
4. E.g., ? 823 II BGB: violation of a special statute aiming at the protection from
the loss suffered by the plaintiff; ? 826 BGB: intentional and malicious infliction of
damages contrary to boni mores.
5. Compare Johannes Kondgen, Selbstbindung ohne Vertrag 366 (1981). Charac-
teristically, the German Constitutional Court has found that the protection of "owner-
ship" in art. 14 Basic Law (Grundgesetz) nowadays includes, e.g., vested pension
rights under social security law, BVerfG, Feb. 28, 1980, BVerfGE 53, 257, 289 ff.; see
von Briinneck, "Eigentumsschutz der Renten - eine Bilanz nach zehn Jahren," JZ
1990, 992 ff.
ages,6 such a motive no longer stands up to scrutiny in a society

based on the principles of democracy and equality.7
Courts and legal science have tried in various ways to cope with
the changed situation, and, from a dogmatic point of view, have some-
times strained the concepts of contract to excess. In the context of a
comprehensive reform of the law of obligations, the German legisla-
ture has now also addressed this issue. But instead of offering solu-
tions to factual permutations, the legislature has again handed over
to the courts the solutions of these problems. We will first consider
the approaches before the reforms of January 2002 (II.) and then look
briefly at the new statutory rules relevant to our topic (III.).
II. Judicial response to social change

Since German contract law has proved to be more flexible than
the narrowly designed provisions of tort law, it is a fertile source of
solutions.
1. Implied contracts for advice

In cases where there was some direct contact between the expert
and the third party, the courts have been quick to find an "implied
contract" between both sides to provide reliable information, and to
base the liability of the expert on this contract. In a case decided as
early as 1902 a bank considered to give a loan to a client and take a
mortgage on his property as security. When the bank asked a notary
public about the mortgages already encumbering the property, he
negligently gave incorrect information. The German Reichsgericht
stated: "If somebody makes it his business to give advice to others,
and recognises that the person who addresses him with an inquiry
needs a reliable answer, and he gives the answer anyway, he thereby
concludes a contract which requires him to give correct information."8
The Federal Supreme Court (BGH) has continued this case law9 de-
6. Compare, for instance, von Bar, 44 RabelsZ 477, 478 (1980); Deutsch,
Unerlaubte Handlung und Schadenersatz (1987), n. 250. It should be remembered
that the special status of professionals relates back to the Romans: If learned noble
men rendered services to others, this was inconceivable as being an "employment con-
tract"-free men would not subordinate themselves to others (still today, most profes-
sionals of this type in Germany are called "Freiberufler", which translates into
freelance/ self-employed person). The relation was seen as a "mandate" (which was-
by definition-executed without consideration). A client, though, had the "honorary
duty" to reward the professional in exchange (Honorarium); see Theo Mayer-Maly,
Rimisches Recht 146 (2nd ed. 1999).
7. von Bar, supra n. 6.
8. RG, Oct. 27, 1902, RGZ 52, 365, 367; see also RG, Feb 9, 1921, RGZ 101, 297,
301; for a detailed discussion of the cases see Johannes Adolff, Die zivilrechtliche Ver-
antwortlichkeit deutscher Anwdlte bei der Abgabe von Third Party Legal Opinions
(1997) 86 ff.
9. BGH, Oct. 29, 1952, BGHZ 7, 371, 374; BGH, March 22, 1979, BGHZ 74, 103,
106.
280 THE AMERICAN JOURNAL OF COMPARATIVE LAW [Vol.51
spite critical comments in the legal literature which argued that the
"contract"which the courts used to find implied in the parties' rela-
tions was rather fictitious and in reality imposed by judicial decree.
Moreover, the reasoning of the courts ignored and, in reality and
through interpretation, reversed the statutory rule of ? 675 II BGB
(until 1999: ? 676), according to which a person which gives an advice
to others cannot, normally, be held liable for the incorrectness of the
advice.
The "implied-contract approach" is still used today by German
courts,10 but its effect is limited to cases of direct contact between the
expert and the plaintiff. The wider idea of a contract "for whom it
may concern" has consistently been rejected by the Federal Supreme
Court." Sometimes, however, the requirements for an express con-
tact have been watered down substantially by the court. A good ex-
ample for this is the "Teneriffa-Hotel case".12
This case concerned the statement of a bank (D) about the
creditworthiness of a businessman (U). U had, with substantial loans
from D, built a huge hotel on Teneriffa, but his financial liquidity had
become tight. Since D was not willing to grant further credit, U tried
to raise money from private lenders. D helped him by providing an
investment broker (B) with a statement on the financial situation of
U, which concealed the facts, rather than disclosing them. P, one of
the prospective lenders, relied on the statement and gave U a loan,
which was not repaid when U went bankrupt. The complicated fac-
tual situation can be depicted diagrammatically as follows:
(Bank)D Credits U
Loan
Information
(Broker)B formation P (Plaintiff)

X Prospective
Lenders
z
10. See BGH, Sept. 26, 2000, NJW 2001, 360, where the court proceeded on the
assumption that even the expert contract itself was "in reality" concluded between the
expert and the "third party".
11. See BGH, July 6, 1970, NJW 1970, 1737; BGH, Feb. 12, 1979, NJW 1979,
1595, 1597; BGH, Oct. 16, 1990, NJW 1991, 352; for a different view see K6ndgen,
supra n. 5, at 43-44.
12. BGH, Feb. 12, 1979, NJW 1979, 1595 = M&U, case 19.
The BGH granted the claim for damages of P against D. It found

that the bank had drafted its statement to be used by private inves-
tors, and for a contractual relation it was held irrelevant whether the
lenders approached D with an inquiry or whether D approached the
lenders with its information and the suggestion that they rely on it.
Although D did not know the prospective lenders, they formed, ac-
cording to the court, an identifiable group, so the information had not
been given "to an indeterminate and incalculable number of persons".
The principle of good faith required the bank to be contractually lia-
ble for its misleading statements. Yet reading the decision,13 this is
not as obvious as its ending seems to suggest-at any rate to a Com-
mon lawyer. For the reasoning of the court is, all along, about reason-
able reliance and not intention, and only at the end good faith
appears and creates a contract.
2. Contract with protective effects towards third parties

The institution of a "contract with protective effects towards
third parties" enables the courts to extend substantially the personal
scope of contractual duties. The courts had developed the concept by
analogy to the classical form of contracts for the benefit of third par-
ties regulated in ? 328 ff. BGB. Although the effects of the 'new' insti-
tution are limited to "secondary duties" of care arising from the
performance of the primary contractual duties, the risk of the debtor
is increased substantially.14 For, not only are the creditors (potential
plaintiffs) multiplied (as could be the case with the traditional third-
party-beneficiary contract); the duties and potential liabilities are en-
larged, as well. Therefore, this judge-made institution was, initially,
applied with great caution. Indeed, in the beginning it was restricted
to physical injuries to persons, which-as the debtor must have had
realised-belonged to the social sphere of the creditor and towards
whom the creditor had a personal duty of care. Thus, the scope of
application was mainly limited to family members of the contracting
party or its employees.15 Later, especially in the context of false
statements by experts, the Federal Supreme Court extended the
scope of the new institution dramatically, albeit in an incremental
manner.
13. For an English version see M&U, p. 268.

14. A better understanding of these fine German points will come if one reads
M&U, pp. 59 ff. and 301 ff.
15. Negligent injury to these persons is covered by tort law, too (infringement of
life, body, or health, ? 823 I BGB). But the debtor rarely acts himself, in most cases
the harm arising from the conduct of his employees. According to ? 831 BGB the em-
ployer can free himself from tort liability by showing that he had applied proper care
in the selection and supervision of the employees. However, no such defence is availa-
ble under contract law (? 278 BGB)-hence the pressure to shape such actions in
contract.
First, the requirement that the damage had to be physical injury

to someone with whom the creditor had a personal relationship and
towards whom he owed a duty of care increasingly seemed inade-
quate for modern mass transactions. So, the potential damage was
said to include damage to property and economic loss.16 Further, it
was stated that the relation between the creditor and the third party
need not to be a personal one-a contractual duty of care between
these two parties would suffice. Illustrative of these shifts is the
"debit-procedure case" of 1977.17
In that case the debtor had authorized the creditor (C) to collect
directly the money due to him from the bank account of the debtor
(D), and the debtor's bank (DB) was instructed accordingly. Later on,
C deposited some invoices with his bank (CB), which forwarded them
to DB. The latter, however, did not debit the account of its client be-
cause it was already overdrawn and, accordingly, did not pay the in-
voices. Although an internal bank agreement required the receiving
bank to notify in such situations the creditor's bank immediately, DB
failed to do so. Having received no such notice, C assumed that the
invoices had been paid, and continued to deliver goods to D. Several
days later, however, he was informed about the failure of D to pay.
Soon after, D became bankrupt, and C sued DB for damages on the
grounds that had he been given notice in time, he would not have
continued his business with D and would not have suffered additional
losses. Diagrammatically, the litigation can be depicted in the follow-
ing manner:
Invoices
(Creditor)C Bank Account CB (Creditor?Bank)
Invoices BankAgreement
Bank Account .
(Debtor)D Debt Instruction DB (Debtor'sBank)
(Debtor) D Debt Instruction DB (Debtor's Bank)
From the above facts it will be noticed that there was no contrac-
tual relation between C and DB, but only between C and CB. Since
CB had not made a mistake, C did not have a contractual claim
against CB. A contractual situation also existed between the two
banks: CB and DB. DB had violated its duties under the internal
16. BGH, Jan 10, 1968, VersR 1968, 375; BGH, Jan. 22, 1968, BGHZ 49, 350, 354.
17. BGH, Feb. 28, 1977, BGHZ 69, 82 = M&U, case 20.
bank agreement, but this did not result in any loss for CB: the bank
simply reversed the credit it had provisionally given to C. So the loss
fell on C. In considering whether the agreement between the two
banks (CD and DB) included C in its protective scope, the court found
that to look for some kind of "personal responsibility" of CB for the
well-being of C was besides the point. The interests and risks of CB
and C were at least very similar. C was a client of CB, and DB knew
that CB was contractually obliged to protect the interests of its cli-
ents. Thus, the principle of good faith required that the duty of DB to
give immediate notice was owed not only to CB, but also to C.18
While in the "debit-procedure case" there were at least some rela-
tions between a third party (C) and the contractual partner (CB), the
idea of including third parties in the protective scope of a contract
was soon extended to situations where the debtor had to perceive the
creditor as only one of a group of persons who shared the same or
similar interests. In the "group-of-buyers case" for instance, an expert
(D) was asked by a Mr. C to give a statement on the value of an apart-
ment building, which C "or one of the group of interested persons be-
hind C" was considering to buy. Some members of this group,
including P, were present when C gave D a respective order. After D
had delivered his opinion to C, eventually P bought the building, rely-
ing on D's value statement. Since D had failed to take into account
restrictions connected with a social housing regulation, the market
value of the building was much lower than that estimated by D, and
P ended up having to overpay the seller.'9
Diagrammatically this variation can be depicted as follows:
Contract
(Expert)D inion C (Creditor)

_
........ P (Plaintiff)
........................
X Group of potential Buyers
Y
In considering whether the contract between C and D had protec-

tive effects vis-a-vis P, the Federal Supreme Court stated: "It may be
relevant whether the instructing party was charged with the care of
the third party in question; it is not, however, a necessary prerequi-
18. In fact, the court stated that such duty would even have existed had there
been no explicit agreement between the two banks (as a kind of quasi-contractual
duty). According to Canaris, the court should have conceived the duty of care towards
C as one imposed by law rather than by contract, see Canaris, "Die Vertrauenshaf-
tung im Lichte der Rechtsprechung des BGH," in Claus-Wilhelm Canaris (ed.), 50
Jahre Bundesgerichtshof Festgabe aus der Wissenschaft 129, 190 (2000).
19. BGH, Nov. 2, 1983, NJW 1984, 355 = M&U case 22.
site for holding that such duty of care exists. In the present case it
will have to be considered that an interested party who asks for an
expert opinion to form the basis of a decision by a certain group, will
normally seek to protect not only his personal interests but also those
of the other members of the group... ."20 The court added that includ-
ing the other group members in the protective scope did not increase
the risks of the expert, since the damage remained the same if C or P
or some members jointly would have bought the house.
In this case, P had at least been present when the contract be-
tween D and C was made, and had been designated as one of the
potential buyers. In the famous "Consul case" it was found to be suffi-
cient that the expert should have realised that there was a third
party "behind his contract partner", although unknown by name and
identity.21
In the "Consul case", an expert (D) had, on an earlier instance,
given his opinion on the value of a large area of building land to a
land developer (L), who was looking for ways to fund his project. (L)
approached a Danish firm (F), which produced prefabricated houses.
F, in turn, asked a Danish bank (B) to grant a substantial loan to L. B
considered to use the building land as a security for the loan, and
tried to ascertain the value of the land. It asked the Danish Consul C
in Munich to call expert D and inquire whether his value statement,
already several months old, was still valid. In his telephone call, C
made it clear to D that the information given by D was required for
the purpose of deciding whether a loan was to be granted, but he did
not make any indication as to the potential lender. Expert D reaf-
firmed his earlier value statement and, at the request of C, gave him
a written confirmation of this oral information. Later on, B granted
the loan, but suffered substantial losses because the building project
was never realised. L became bankrupt and the value of the land had
been highly overestimated by the expert. B thus decided to sue D for
damages. The following diagram may, once again, help explain the
complex situation:
20. BGH, Nov. 2, 1983, NJW 1984, 355, 356.

21. BGH, Jan. 23, 1985, JZ 1985, 951; compare M&U, case 21 for an earlier deci-
sion in the same matter.
L Negotiations
....
Opinion F (Firm)
Loan Loanto L?
-\
B (Bank)
(Expert) D ....................................................
Phone Call
--0
,
Written Confirmation
"• Ir""~ Value of Land?
C (Consul)
The judgement of the Federal Supreme Court was based on an

interesting combination of the "implied-contract approach" (supra 1.)
and the "contract with protective effects towards third parties". Al-
though the expert did not charge an additional fee for his confirma-
tion, the court found an implied contract for information between C
(acting as agent for the State of Denmark) and D, and-for the first
time-gave this contract protective effect towards the third party
B.22 The court said: "Since the Consul obviously lacked any personal
interest in examining the creditworthiness of L, it could be assumed
that future suppliers of the credit were to be included in the protec-
tive sphere of the contract."
The Federal Supreme Court took its philosophy to new limits
when it applied the concept of a "contract with protective effects" to
cases where the creditor and the third party did not even share simi-
lar interests or belonged to the "same group" but, on the contrary,
had conflicting interests. Although such application had already been
considered in some earlier cases,23 the issue was for the first time
fully addressed in the "vendor case".24
The owner of a building (V) was planning to sell it, and ordered a
report from a building expert (D) on the value and the state of repair
of the house. When the expert inspected the house, the owner pre-
vented him on some pretext to have a look at the roof framework and
22. See Honsell, JZ 1985, 952/953.

23. BGH, Mar. 19, 1986, WM 1986, 711; BGH, Nov. 26, 1986, NJW 1987, 1758,
1760; BGH, Oct. 18, 1988, WM 1989, 375, 377. Frequently, also the above-mentioned
"Consul case" is referred to in this context. The Federal Supreme Court in that case
did indeed state that the conflict of interests between L (who ordered the original
expert opinion) and bank B (which gave the loan) would not preclude the inclusion of
B in the protective scope of the contract (JZ 1985, 951, 952). But this remark was
quite beside the point (and at best an obiter dictum) because the "contract" from
which the liability of expert D flowed was between D and C, directed at the confirma-
tion of the previous opinion. Since C acted on behalf of bank B, they had not conflict-
ing, but coinciding interests.
24. BGH, Nov. 10, 1994, BGHZ 127, 378 = NJW 1995, 392 = M&U, case 23.
convinced the expert that there was no defect. The vendor later used
the report of the expert as the basis for the sale contract with P. After
the transaction was completed, grave defects were detected in the
roof framework of the building. Since the expert had no knowledge of
these defects, he had set the value of the house much too high, and P
had, accordingly, paid too much. P sued D for compensation of his
loss. The following diagram may help:
ExpertOpinion
(Expert)D Contract N V (Vendor)
Sale Contract Expert-Opinion
P (Purchaser)
The Federal Supreme Court found P to be included in the protective

scope of the contract between D and V, regardless of the fact that V
was interested in a high price and P in a low price, and even though V
deliberately had concealed the defects of the house. In reaching its
result the court stressed that expert opinions are highly valued in
business transactions and that D knew that V would show his report
to potential buyers, who were likely to rely on it. But this was only
the starting point for the real problem of the case. Had the expert
been sued by his contract partner V, he could have defended himself
by pointing to the fraudulent behavior of V. Now in the law dealing
with contracts for the benefit of third parties, ? 334 BGB states that
the debtor has the same defenses against the third party as against
the promissee. Since the contract with protective effect was devel-
oped by analogy to third-party-beneficiary contracts, an analogous
application of ? 334 BGB, too, would seem to be appropriate in this
case. Indeed, this rule is appropriate when the promissee and the
third party share a common interest-the third party derives its
rights from the promissee, along with all its inherent 'weaknesses'
(defences, exemption clauses, etc.). But where the interests of both
are contradictory, it is rather the protection of the third party from
the wrongdoing of the promissee, which is called for. ? 334 BGB thus
appears to be totally inadequate for these situations. While this
seems to be widely agreed even by critics of the judgement, the final
solution of the Federal Supreme Court has met with little (if any)
approval. The court found an implied waiver on the side of the expert
to raise a defence of malice against a claim of P: The expert knew that
potential buyers would rely on his statement and that the statement
would dissipate potential distrust of the buyer against the vendor.
According to the Court, the statement could fulfil this function only if
the risk of deception by the vendor is taken over by the expert. If he
were not willing to take this risk, he would be obliged to say so explic-
itly in his statement.25
We conclude the evolutionary development of the case law of the
BGH by mentioning its seminal judgment of 2 April 199826 in what
English lawyers would describe as a Caparo27 type of setting.28 Over-
simplifying its facts, we note that the Federal Supreme Court held an
accountant, who conducted a mandatory audit (Pflichtpriifung)29 for
company A, liable to the owner of company B who purchased it by
relying on his (erroneous) assessment of the financial situation of A.
The decision is remarkable in the light of the fact that such cases are
governed by ? 323 I HGB,30 which provides that if the auditor negli-
gently fails in his duties he is liable only to the company in question.
Constant case law has also refused to hold that this statutory duty
could be construed as a "protective norm" including third parties
(e.g., shareholders of the audited company) within its protective scope
and thus leading to civil liability towards them under ? 823 II BGB.
While the Federal Supreme Court, in its 1998 decision, acknowledged
that the "legislative intention" expressed in this provision was "to
limit appropriately the risk of the auditor's liability", it also stressed
that this provision did not have an "exclusionary" effect. The conse-
quence of such an approach is that the auditor could, in principle,
owe a duty also to persons not expressly mentioned in ? 323 HGB.
This was the case where the auditor (contractually) undertook to per-
form his service without prejudicing the interests of a third party, in
the instant case a purchaser of the company. It is not entirely clear
whether this requires that the auditor issues a statement in addition
to the actual audit before his liability widens to include third parties.
In the somewhat unusual facts of the 1998 decision, the auditor had
25. For fuller details the Common law reader might wish to consult M&U, pp. 292
ff. According to Medicus (JZ 1995, 308, 309), ? 334 BGB is not applicable to such
situations from the outset. For other alternative solutions, see infra 3. The BGH, how-
ever, seems to be little impressed by the critique; it went on to apply the "contract
with protective effects" to situations of "contradictory interests" even where the stat-
ute expressly excludes the liability of the expert towards third parties, BGH, Apr. 2,
1998, BGHZ 138, 257 = NJW 1998, 1948 = M&U, case 24 (concerning an auditor's
report for a company; compare ? 323 HGB); see also BGH, Oct. 17, 2000, NJW 2001,
512; BGH Nov. 14, 2000, NJW 2001, 514.
26. BGHZ 138, 257 = NJW 1998, 1948 = JZ 1998, 1013.
27. Caparo Industries Plc v. Dickman [1990] 2 AC 605.
28. For a fuller comparative discussion see M&U, pp. 52-67 and pp. 291-306.
29. Such mandatory audits are the formation, annual, and special audits.
30. German Commercial Code.
confirmed to a second auditor employed by the purchaser that he

would stand by the views expressed in the annual report. The better
view would seem to be that this extended liability is engaged only if
such an additional statement is made.31 A consequence of this re-
strictive reading would be that in respect of the statutory audit, it-
self, no liability would arise in relation to third parties. But that does
not affect the striking feature of the decision, which is that such an
undertaking was said to flow from the intentions of the parties and
that this had been conclusively declared. Once again, therefore, one
must express serious doubts as to whether the auditor was actually
willing to accept liability beyond the level, which normally flows from
? 323 HGB-especially in the light of the pre-existing and restrictive
understanding of that provision. The inescapable impression thus is
that the duty is imposed by law with consequences, which may not
have yet been fully fathomed by the (German) courts. For, as Profes-
sor Ebke remarked: "Ifthe intention of the parties as expressed in the
contract no longer determines the existence and extent of liability,
and this is allowed to turn on 'objective interests' and the third
party's reliance, then the choice of the [contracting] parties and their
right to determine the extent of their obligations will take second
place. A result-orientated risk allocation that does not flow from the
will of the parties will then become predominant."32
3. Culpa in contrahendo
In the view of many critics, the BGH has stretched the concept of
a contract with protective effects towards third parties beyond its
proper limits. These critics point out that the emphasis of the judge-
ments has drifted away from the contract between the expert and the
creditor and has now been placed more and more on the professional
duties of the expert and the high degree of trust and reliance which is
normally attributed by the public at large to expert opinions. This
would suggest that the basis of the liability of experts flows directly
from their professional status and not from some kind of contractual
bond between persons who have really concluded a contract (even
though such a contract may modify or limit the liability imposed by
law). This is a justification, which, if anything, may also be fed by the
concern generated in Europe by the recent reported accounting irreg-
ularities that have affected adversely American shareholders and the
desire to keep auditors to high standards.
In the academic literature we can find several proposals as to
how this end-result can be achieved. One of them should be men-
tioned here because it may influence the future development of Ger-
31. On this see Canaris, "Die Reichweite der Expertenhaftung gegentiber Drit-
ten," 163 ZHR 206, 208 (1999).
32. "Abschlul3priifer,Bestatigungsvermerk und Drittschutz," JZ 1998, 991, 993.
man law.33 According to the view of Professor Canaris, the

relationship between the expert and the third party can be classified
as a quasi-contractual relation: the expert claims trustworthiness for
himself and invites others to rely on his statement. Others, in turn,
comply with his expectation and base important decisions on the ex-
pert's information. Thus, the classic elements of quasi-contractual li-
ability (culpa in contrahendo) are present, and there is no need to
look for a contract with other persons, to which the liability could be
attached.34
There are some well-established examples for this approach in
similar situations.35 An agent who openly acts for another but claims
a special expertise and trustworthiness for himself may be liable for
false statements under culpa in contrahendo although he is not a
party to the main contract.36 Another example is the liability of
banks, auditors, or other experts for false statements in the prospec-
tus. The courts prefer to base this liability on culpa in contrahendo.37
It would indeed be just a small step to extend this dogmatic approach
to false statements of experts. This seems to work in the "vendor
case" discussed above, since one could argue that the expert valuer,
by not mentioning that he had been prevented from inspecting the
roof of the building in question was, in effect, inviting third parties to
rely on his "unqualified" valuation of the building as a whole. The
culpa in contrahendo approach in this type of case seems less
strained than the contractual approach used by the Court. But does it
work in the context of the 1998 decision, especially given that the
law, as it then stood, did not lead to liability to third parties?
III. The new statutory approach

A fundamental change of the statutory provisions on contract
law came into effect in Germany on 1 January 2002.38 The reform
33. For further discussions see Damm, "Enwicklungstendenzen der Expertenhaf-

tung," JZ 1991, 373; Ebke, supra n. 5; Kondgen, supra n. 5, at 96 ff.; Krebs,
Sonderverbindung und auf3erdeliktische Schutzpflichten (2000); Neuner, "Der Schutz
und die Haftung Dritter nach vertraglichen Grundsaitzen"JZ 1999, at 126; Picker,
"Gutachterhaftung," in Festschrift Medicus 397 (1999); for a comparative legal analy-
sis see Schlechtriem, "Schutzpflichten und geschiitzte Personen," in Beuthien et al.,
(eds.), Festschrift Medicus 529 (1999).
34. Canaris, "Schutzgesetze - Verkehrspflichten - Schutzpflichten" in Festschrift
Larenz II 94 (1983); Canaris, "Schutzwirkungen zu Gunsten Dritter bei
'Gegenlaiufigkeit' der Interessen," JZ 1995, at 441; Canaris, supra n. 31; Canaris,
supra n. 18.
35. Adolff, supra n. 8, at 118 ff.
36. BGH, Apr. 5, 1971, BGHZ 56, 81; BGH, Jan. 21, 1975, BGHZ 63, 382; BGH,
Jan. 28, 1981, BGHZ 79, 281; BGH, May 25, 1983, BGHZ 87, 302, 304.
37. "Prospekthaftung", see BGH, Nov. 16, 1978, BGHZ 72, 382, 387; BGH, Oct. 6,
1980, BGHZ 79, 337, 340; cf. Canaris, "Schutzwirkungen zu Gunsten Dritter bei
'Gegenlaiufigkeit der Interessen," JZ 1995, at 441, 444; Damm, supra n. 33, at 380
(with further references).
38. Schuldrechtsmodernisierungsgesetz 2002, BGB1. 2001 I 3138.
may change the future approach towards the liability of experts vis-a-
vis third parties, because the legislature-influenced by Canaris-
has addressed the doctrinal basis of liability explicitly. The relevant
new provisions read as follows:
? 241 II BGB:
Each party to the obligation may, according to the content of the
obligation, be required to apply proper care as to the rights and
interests of the other party.
? 311 III BGB:

An obligation involving duties according to ? 241 II may also arise
with regard to persons not party to the contract. Such obligation
arises especially when the third party claims special trustworthiness
for itself and thereby exerts substantial influence on the contractual
negotiations or on the conclusion of the contract.
The scope of ? 311 III BGB is not yet entirely clear.39 But it could
be argued that sentence 1 covers third parties in a double meaning-
as those who enjoy protection, i.e., are included in a protective scope
of a contract concluded by others, and those who owe protection to-
wards others with whom they do not have a contractual relation.40 As
to the first function of the provision, it can be seen as the (first) statu-
tory recognition of the hitherto judge-made institution of a 'contract
with protective effects vis-a-vis third parties'.41 In its second func-
tion, the provision concerns extra-contractual liability-a liability
that could be classified as quasi-contractual, clearly independent of
tort law, covering all cases of culpa in contrahendo towards third par-
ties. Only with regard to this second function, sentence 2 provides
some guiding criteria: The claim (by the expert) of special trustwor-
thiness for himself and the causal link between the trust placed in
him by third parties and the conclusion or the content of a contract
between the third party and others. The wording of the statute is so
broad and unspecific that ? 311 III BGB is understood to cover all
types of 'third-party-liability', including the liability of experts to-
wards third parties for false statements.42
39. Very critical in so far Lieb in, Dauner-Lieb et al. (eds.), Das neue Schuldrecht
142-44 (2002).
40. For this double meaning of ? 311 III 1 BGB see Canaris, "Die Reform des
Rechts der Leistungsstbirungen," JZ 2001, 499, 520; Stephen Lorenz & Thomas
Riehm, Lehrbuch zum neuen Schuldrecht 191, n. 376 (2002); Krebs, in Anwaltkom-
mentar Schuldrecht (Barbara Dauner-Lieb et al., eds. 2002) ? 311 n. 47.
41. Lieb, supra n. 39, at 142-43, n. 45, 144, n. 47; Peter Huber & Florian Faust,
Schuldrechtsmodernisierung 18, n. 32 (2002); Krebs, id. (supra n. 40).
42. Canaris, supra n. 40, at 520; Lorenz & Riehm, supra n. 40, at 190, n. 374;
Dieter Medicus, Schuldrecht II (13th ed. 2002), n. 111; for a more restrictive interpre-
tation, which would exclude the liability of experts from the coverage of the statute,
see Krebs, supra n. 40, at ? 311 n. 49 (this interpretation is not likely to prevail be-
To sum up, it would seem that the liability of experts, hitherto

derived by the German courts from implied contracts or on the basis
of a 'contract with protective effects vis-a-vis third parties', has been
based by the legislature on new grounds. It has thus become a direct
liability of the experts towards the third party based on culpa in con-
trahendo.43 The contractual partner of the expert, and the relation-
ship between this partner and the third party, would then become
irrelevant. In future cases, the courts would have to focus on the "spe-
cial trustworthiness" mentioned by the statute, and will have to
search for the limits and boundaries of the new approach-one of the
many questions, which the legislature has left to the courts to decide
on a case-by-case basis.44 In that sense, doctrinal writings and even
past case law may still provide clues as to how courts might react in
the future. Comparative experience, showing specifically where reli-
ance has been found to exist, might also have something to offer. It is,
however, by no means clear that the German courts will, initially at
least, take much notice of it.
B. THE COMPARISON WITH AMERICAN LAW

1. Doctrinal issues
(a) Economic loss: the pariah approach
In principle, the Common law is as unhappy as German law is
with the idea of sanctioning compensation through tort law rules for
pure financial harm. More pragmatically, however, it tends to justify
the distinction between the treatment given to tactile forms of prop-
erty and that given to the purely financial interests by stressing the
fact that the former are easier to see, understand and, perhaps, quan-
tify. To these one should add the floodgates argument-the belief
cause it is based on a misunderstanding of the statutory concept, cf. Canaris, supra n.
40, at 520-21.
43. Compare Lieb, supra n. 39, at 143, n. 46: "Far-reaching and fundamental
change of paradigma".
44. For an attempt to introduce American experiences into the German discus-
sion see Adolff, supra n. 8, at 36 ff., 128 ff.; cf. Canaris, supra n. 31, at 232 ff. To make
the picture of modern German law on the liability of experts more complete, it should
be added that the legislator in yet another reform act ("Zweites Gesetz zur Anderung
schadenersatzrechtlicher Vorschriften" of Apr. 18, 2002, effective Aug. 1, 2002;
Bundesrats-Drucksache 358/02) has tackled the issue also from the angle of tort law.
A new ? 839a BGB provides for the liability of court appointed experts: If they wilfully
or by gross negligence make false statements and the judgement of the court is based
on these statements, the expert will be liable for damages which arise therefrom to
the parties of the proceedings. The legislature has decided to create a tortious liability
because contract terms do not apply to court appointed experts. Since the scope of the
provision is limited to such experts, ? 839a BGB does not interfere with the contrac-
tual solutions discussed in this paper, but rather serves as a supplementary regula-
tion for a specific, non-contractual area of expert activity (compare Adolff, supra n. 8).
By enacting ? 839a BGB, the German legislator has added another statutory excep-
tion to the general rule that pure economic loss is not recoverable under tort law
(compare supra 1.2.). On this see M&U, p. 898.
that liability may be less controllable where pure economic loss is in-
volved. This, however, should not be taken to suggest that the more
abstract justifications once invoked in Germany have not found simi-
lar advocates-at least in England. The considerable immunity ac-
corded for a long time to members of the medical profession and to
barristers was justified by an overall belief (no longer widely tenable)
that these kind of professionals needed greater protection. The differ-
ing efficacy of the remedies afforded by the Common law in protecting
life, land, chattels and-least of all-economic interests also suggests
a certain societal hierarchy of values reflected in the legal rules
adopted for their protection. But the doctrinal ways of explaining the
'dislike' for economic loss does not merit further discussion. Suffice it
only to stress the tone they adopted in each system and, more impor-
tantly, to note that over the passage of time both systems were
forced, in response to changing societal circumstances, to introduce
an ever-growing number of exceptions to their basic stance. The re-
sulting position is no longer always easy to predict; and the task of
reconciling among themselves leading judgments has become almost
impossible. This, we think, is true of both systems, suggesting, at the
very least, that the quest for the ideal answer has not yet come to an
end.
(b) Contract instead of tort
Until the mid 1960s,45 English law held that the maker of a neg-
ligent statement could not be held liable towards a third party for any
damage which the latter may have suffered as a result of relying on
such a statement. Absent fraud, liability could be engaged only if a
contractual link could be discovered between the maker of the state-
ment and the person who relied upon it (and suffered loss)-and in
practice this happened very rarely.46 When the change came, through
the landmark decision of Hedley Byrne v. Heller and Partners, the
imposition of liability had to be justified by the discovery of a duty of
care. To put it differently, it had to be tortious in nature, though an
eminent judge who participated in this decision-Lord Devlin-ad-
mitted that the problem facing the court was really "a by-product of
the doctrine of consideration".47
45. The turning point came with Hedley Byrne & Co. Ltd. v. Heller & Partners
Ltd. [1964] AC 465.
46. For an example see De La Bere v. Pearson Ltd. [1908] 1 KB 280. The first
major breakthrough came where a fiduciary relationship could be found to exist:
Nocton v. Lord Asburton [1914] AC 932, a case where it has been argued that Lord
Haldane (who had been a pupil of Gierke's in Germany) may have transferred (with-
out attribution) German ideas into English law. On this see Honore in 8 J.S.P.T.L.
284, 295 (1965).
47. Hedely Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465, 525.
In fact he should really have added: the English version of the

doctrine of consideration. For in the US, consideration was progres-
sively abandoned from the mid-late 19th century as an excuse for re-
fusing to enforce contracts in favor of third parties,48 thus opening up
the possibility of a greater doctrinal rapprochement-contract or
tort-with Germany. Thus, in the earlier part of the 20th century, we
find the first judgement by Benjamin Cardozo, which admitted (in a
way that no English court could have done until very recently) that,
in the context of negligent statements, American law could justify a
pro-plaintiff judgment either on the basis of an extended contract or
through tort.49
Here, then, is our first illustration of the proposition that the sys-
tems-in this case modern Civil law and Common law-can be both
similar and different. The problem is the same; the solution (subject
to what we shall say below) is often similar; the methodology is-at
first blush-different, but it can also be shown to be (or to have been
but for an accident in history) similar. To put it differently: the
Germans have had a tendency to find their answer in contract, the
English in tort, and the Americans have shown that a flexible ap-
proach to consideration make the differences between the two fami-
lies less formidable than they appear at first sight.
The importance of this last paragraph in fact goes beyond what
has just been stated in it. For, first, it shows the important differ-
ences that have existed (and still do exist) between English and
American Common law. Secondly, because it shows that two systems,
belonging to different legal families-here German and American-
can converge not only on the level of results attained in the face of
similar factual problems, but also at the level of doctrinal justifica-
tions of the said results. This 'ambivalence' between contract and tort
can still be seen most clearly in American law in the domain of an
attorney's liability towards third parties, potential beneficiaries of a
badly prepared will, where State jurisdictions are still divided as to
how to approach the problem: through contract or tort. Notwithstand-
ing the above, however, American law has, on the whole, gone down
the road of tort-based50 solutions-certainly in the area examined in
this article. From this optic, the difference with German law (and ac-
ademic theory) is great; and American law remains closer to English
law.
48. Thus, Lawrence v. Fox, 220 N.Y. 268 (1859).

49. Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922).
50. To be more precise, not as an example of application of the general tort of
negligence but of the specific outgrowth of negligent misrepresentation as regulated
by section 552 of the Restatement Second of Torts. This variation prevails at any rate
in those jurisdictions, which follow the reasoning of Billy v. Arthur Young and Co., 3
Cal. 4th 370, 834 P.2d 745, 11 Cal. Rptr. 2d 51 (Cal. 1992), discussed in more detail
below.
This is not the place to discuss which of the two approaches is

preferable from a doctrinal and practical point of view. More impor-
tant is to note that each puts the respective systems under different
kinds of pressures. Thus, the contractual (German) approach is con-
stantly confronted with the problem of how much one can extend the
original contract to include third parties-without making a mockery
of the basic idea of a contract as a vinculum iuris between two speci-
fied and (usually) restrictively defined parties. The tort approach, by
contrast, proceeding as it does through the amorphous notion of duty
of care, is faced with the opposite pressure: how to keep the potential
liability under manageable limits. Of course, both these questions
conceal, in effect, underlying policy issues, which the notions of con-
tract, tort, duty, protective effects, scope of rule, and the like only
conceal from our sight and our proper appreciation. This naturally
leads us to the next 'difference/ similarity' between the two systems.
(c) The two judicial approaches to the question
As a result of what has been said above and in their attempt to

solve the (common) problem confronting them, the two sets of courts
ask questions which are different in scope and structure. This differ-
ent-and as the German law shows-changing optic, has, to some ex-
tent, foreshadowed the different outcomes reached in many (but not
all) cases by the systems under comparison. Thus, the German courts
start by looking at the relationship between the receiver of the infor-
mation and the person who suffered the loss. By contrast, the Ameri-
can (and English) courts focus on the links (proximity), if any,
between the giver of the information and the harmed person-ulti-
mately the plaintiff in the ensuing action. For the Germans, who
must proceed in contract, their approach makes sense; and, in the
beginning, as our earlier analysis showed, it produced a controlled
result. For, if the receiver of the statement had an interest in protect-
ing the harmed person, the latter could, without too much of a dog-
matic strain, be brought within the protective ambit of the contract
between giver and receiver of the information. The solutions, how-
ever, increasingly become more open-ended (and, it is submitted, de-
batable) as the courts become prepared to accept a weak (and even a
non-existent) link between these two persons and look, instead, for a
coincidence of interests. And the vanishing point is reached in the
last of the aforementioned German cases where the German court
comes up with a contractual link, even in the face of a conflict of in-
terests and, as we saw, construes a fictitious surrender of legal de-
fenses. At that stage, the liability has really shifted from contract to
risk-a risk imposed on the maker of the statement by virtue of his
expertise and the superior knowledge that this carries with it.
It is at this stage of the enquiry that the juxtaposition of the two

systems can help put the comparative examination into a potentially
critical gear and give a normative content to the comparison. For the
American cases question, as their German counterparts hardly envis-
age, to what extent this superior knowledge of the maker of the state-
ment is, indeed, reflected by the realities of modern practice. Once
this point is identified as deserving special attention, the American
courts part company with current German trends. For the American
analysis, unlike the German, starts by stressing that "as a matter of
commercial reality, audits are performed in a client-controlled envi-
ronment".51 This opening shot will soon be intensified, as the argu-
ment will be developed in three directions.
First, it said, because "the auditor cannot in the time available
become an expert in the client's business and record-keeping systems,
the client necessarily furnishes the information base for the audit."52
Then, it is added, "client control also predominates in the dissemina-
tion of the audit report. . . . Once the report reaches the client, the
extent of its distribution [is] within the exclusive province of client
management."53 Last comes an argument that aims to destroy any
attempt to link this problem to that of the defective manufacture of
goods. The American court has no doubt that such analogies are un-
convincing. For, "in contrast to the presumptively powerless con-
sumer in product liability cases, the third party [who suffers the loss]
in an audit negligence case has other options. Among these options is
the possibility of verifying itself the accuracy of the information it
deems critical or taking legal steps to make clear that the audit is
being conducted on its behalf or otherwise establishing direct commu-
nications with the auditor."54
Will such an approach, potentially limiting the range of the audi-
tor's liability, make them less careful as a profession or conversely,
the imposition of liability make them more careful? The American
court, in a way that would be unimaginable from a court of a modern
civilian system, refuses to consider such arguments in the absence of
"empirical data supporting these prognostications."55 On the con-
trary, based on widely held knowledge it argues that given "the in-
51. Billy v. Arthur Young and Co., 834 P.2d 745 (Cal. 1992). (Henceforth, all refer-
ences are to this report.) Towards the end of its judgment the Federal Court acknowl-
edges this fact; but the answer it has strikes as theoretical rather than real. For, in
the opinion of the court, the accountant can, in such cases, protect himself by stating
that he has not been able to verify the facts provided by the client. But: (a) how often
does an accountant realise that something may be amiss? (b) How easy is it for him to
sense this, given the time pressure usually imposed on such exercises?; and (c) how
likely is it that such heavily qualified reports will either be commissioned, or used by
the interested parties?
52. Id. at 399.
53. Id.
54. Id. at 403.
55. Id. at 404.
herent dependence of the auditor on the client and the labour-

intensive nature of auditing. ... [audits cannot really] be done in ways
that would yield significantly greater accuracy without disadvan-
tages."56 The conclusion is thus, in the end, made to turn on (a) the
idea of "informational asymmetry", (b) the magnitude of conse-
quences unrelated to the possible degree of fault; and (c) the absence
of any contrary indication that a pro-liability rule would improve
standards of conduct. In terms of legal analysis, this policy-oriented
scrutiny leads to the denial of a duty of care. In terms of judicial style,
we have a clash between an inter-disciplinary versus a doctrinal ap-
proach to a problem.57 When faced with these kinds of divergences,
the comparatist's role is not to say which is better or worse, but
merely to note the difference, and any consequences that may flow
from it.
As stated, such arguments are absent from the German deci-
sions. One is almost tempted to say that the (subconscious) German
respect for hierarchy-that between the professional and the uniniti-
ated user of the former's advice-has prevented them from even con-
sidering the possibility of informational asymmetry. An asymmetry
that exists not only between the expert and the receiver of his ad-
vice58 but also between the expert and his client, who largely controls
the information which the expert needs in order to formulate his own
advice.59 The question we must thus ask is what effect or weight
would such arguments carry if put to a German court? The answer, of
course, is that we cannot be sure because no one, judging from the
reported decisions, has raised them thus far. But the chances of rais-
ing a point can only arise if one first becomes aware of it and is told
what practical results it could lead to. Such knowledge can only be
acquired through the use of comparative law; but the German courts
have not been good in taking advantage of it. On the contrary (and
perhaps surprisingly, given the reputed insularity of England and its
judges), the English judiciary seems to have made more use of foreign
decisional law in its cases than its German counterpart.60 But the
56. Id.
57. The two may and, perhaps, should be combined; but on their face at least the
German decisions give no signs that either this happens or is desirable. Doctrine,
instead, reins supreme.
58. Which is assumed by the BGH in its decision of Nov. 11, 1994, BGHZ 127, 378
(and by academic) commentators and leads both to speak in terms of special trust
being placed on such experts. By contrast, the American courts are either imbued by
mistrust or, at the very least, realize the fallibility of the process and its intrinsic
dangers.
59. Ironically, this was also the problem in case 23 reproduced in M&U (pp. 280
ff.) since there the surveyor also relied on false information received from the client.
But the German court did not regard this as defeating liability because in its view the
surveyor ought not to have relied on the information provided by the client.
60. The leading German comparatist Professor Hein Kotz admitted this in his
"Der Bundesgerichtshof und die Rechtsvergleichung," in Andreas Heldrich & Klaus J.
ideas we are promoting could be taken up by German academic

authors.
Assuming the above line of argument strikes one as being both
novel and potentially interesting, the next crucial question is how can
it be 'packaged' in order to suit the optic adopted by the German
courts? This is not an easy task. For, as we have seen in the first part,
not only is the optic evolving; the emphasis-it could be argued-is
excessively placed on the search of the right doctrinal foundation
rather than a workable result. How else can (an outsider observer)
explain the rivers of ink spent upon a search for a "third way" instead
of questioning accepted assumptions in the light of interdisciplinary
research? In our view, the approach here described could add to the
richness of the German academic debate. But it might also reveal an
(equally) unexpressed reason for such generosity towards potential
plaintiffs. For it might not be that far fetched to see these recent
trends in the law of negligent misstatements as part of the wider con-
sumerist spirit that seems to pervade German law (and society) these
days. If such a supposition were ever to be proved plausible by some
future researcher, the only reaction for those favoring a restriction of
liability might be to try and prove the social and economic costs of an
ever-expanding liability. But hoping for such an argument to be em-
ployed is like hoping for the impossible given the traditional German
preference to argue around notions and concepts. The wording of the
judgement we quote supports this; and the academic literature (de-
spite its frequent critical undertones) is, if anything, even more doc-
trine-oriented. In contemporary Germany an inter-disciplinary and
empirical approach to a legal problem is still as exceptional as is the
use of comparative law in practice. On both scores, it is submitted,
English (and American courts) may be ahead. But there may be other
more significant reasons why American courts are so strict towards
potential plaintiffs. And since they do not figure in the judgments,
correctly identifying them may be as crucial as evaluating them
rightly. We shall return to this point in the last two sections of the
paper.
2. One or many answers?
The preceding discussion will have made it clear that the main
issue examined in this paper is not capable of a single answer. Yet
German law seems to have settled on an answer, which is not only
different-how different we shall examine in the next section-from
that adopted by American law. It also seems to have opted for this
answer in a surprisingly unanimous way, at any rate as far the Fed-
eral Supreme Court is concerned. In the first subsection of this sec-
Hopt (ed.), 50 Jahre Bundesgerichtshof, Festgabe der Wissenschaft, Band II 842

(2000).
tion we shall illustrate briefly how varied American law is; whilst in
the second we shall put forward evidence to suggest that this contrast
between monolithic German law and diversified American law is not
exactly what it appears to be once one brings the academic literature
into the picture.
(a) Unity v. diversity in two different federal systems

What was said about German law in the first part of the article
suggests a unified approach in the whole of the territory of the Fed-
eral Republic and, what is more, a unity, which is also characterized
by a progression towards greater protection of the recipients of negli-
gently supplied statements. At first sight, the position in the US
could not be more different. In this subsection we attempt a summary
which tries to suggest the gamut of diverging solutions.
Thus, negligent statements relied upon by third persons have
proved as troublesome in the US as in other systems though, if any-
thing, the case law here is both enormous in its volume and not possi-
ble to reconcile. The diversity is not only due to the usual variations
endemic in the American private law system; it is also due to the fact
that negligent misrepresentations can take an infinite variety of fac-
tual forms. That this is as true of America as it is of Germany can be
seen, for instance, by the attempts of Professor Werner Lorenz to
group the cases under recognizable factual patterns and discuss them
accordingly.6' American law seems to divide these cases broadly into
two groups.
In the first, the defendant makes a statement (usually a report)
to the person who asked and, invariably, paid for it, but knows that it
intended to be relied upon by a specified third person.62 In the US
this situation is usually described as being covered by the "privity or
near privity rule". It finds an excellent illustration in Glanzer v.
Shepard.63
Real difficulties appear in the second type of situation where A
commissions the (negligently prepared) report from B and then
shows it to others who rely on it to their detriment. BGH WM 1979,
548 is such a case and it is here that the problem of 'indeterminate
liability', so well identified by Cardozo J. in Ultramares Marine Corp.
v. Touche,64 rears its ugly head. The courts, if they abandon strict
adherence to the privity requirement (as they are nowadays inclined
61. "Das Problem der Haftung ftir primare Vermogensschiden bei der Erteilung
einer unrichtigen Auskunft," in Festschrift K. Larenz 575 (1973); see also Medicus,
supra n. 42, n. 111.
62. OLG Mtinchen BB 1956, 866 is such a case and it is discussed along with
other similar cases in Lawson and Markesinis, I, 83 ff. For further German decisions
see, inter alia, BGH WM 1965, 287; BGH WM 1963, 913.
63. 233 N.Y. 236, 135 N.E. 275 (1922).
64. 255 N.Y. 170, 174 N.E. 441 (1931).
to do), are, in such cases, forced to seek a balance between two oppos-
ing positions. The first is liability resting on pure foresight (or some
equivalent concept). The second is liability based only on a form of
direct nexus between the representor and the representee of the kind
found in the aforementioned decision of the Court of Appeal of Mu-
nich or in the Glanzer decision. Yet a third option, available to some
plaintiffs, is to rely on statutory enactments such as ss. 11 and 12 of
the (American) Securities Act of 1932 or s. 18 of the Securities Ex-
change Act of 1934.65
The US provides, as one would expect, the greatest variety of
court-devised techniques to avoid the strictures of the Ultramares
rule. Thus some courts, while not overruling Ultramares, appear to
be extending the rationale of the Glanzer decision, namely the third
party can recover only if he can show to be "the end and aim of the
transaction".66 According to this approach, if A prepares a report for
B for a particular purpose, knowing that C will-in furtherance of
that purpose-rely upon the said report, then he will be liable to C if
there is evidence of some conduct linking A to C and evincing A's un-
derstanding of C's reliance on his report. Though these conditions
may represent a modification of the Ultramares tough stance, the
New York court in Credit Alliance was eager to stress its willingness
to adhere to the policy objectives set out in Ultramares. So, in the
absence of some actual and meaningful contact between A and C, it
was thus been said by way of an illustration that a mere telephone
exchange between A and C will not suffice and liability will thus not
ensue.67 A New Jersey statute68 adopts a similar position and spares
the accountant of all liability unless he knew the specific plaintiff and
the specific transaction for which his report was intended.69
A more middling or flexible approach is that advocated by the
Restatement,70 which rejects the private requirement and renders ac-
countants liable not only to those persons whom they intended to in-
fluence but also towards the persons whom the accountants know
65. But such actions have been of limited use to ordinary investors or creditors,
besides suffering from the drawback of a short-one year-limitation period. For the
protection currently afforded by federal securities law see Kraakman, "Gatekeepers:
The Anatomy of a Third-Party Enforcement Strategy?" 2 J. of Law, Econ. & Org. 53
(1986).
66. See, for example, White v. Guarente, 43 N.Y.2d 356, 372 N.E.2d 315 (N.Y.
1977); Credit Alliance Corp. v. Arthur Andersen and Co., 476 N.Y.S.2d 539 (1984);
rev'd in 483 N.E.2d 110, 493 NYS 2d 435 (1985); amended 489 N.E.2d 249 (1985).
67. Security Pacific Business Credit, Inc. v. Peat Marwick Main & Co., 597 N.E.
2d 1080.
68. New Jersey Stat. Ann. 2A 53A-25.
69. To our knowledge, four further States-Arkansas (Ark. Code Ann. ? 16-114-
302, (1995)), Illinois (Ill. Ann. Stat. Ch. 225 (1993)), Kansas (Kan. Stat. Ann. ? 1-402
(1991)), Utah (Utah Code Ann. ? 58-26-12 (1996)) and Wyoming (Wyo. Stat. ? 33-3-
201 (1995))-have passed analogous but differently phrased limiting legislation.
70. (Second) of Torts, para. 552 (1977).
that their clients intended to influence. Rusch Factors, Inc. v. Levin7l

offers an early illustration, the court in that case being influenced by
a tentative draft of the Restatement.72 Ohio73 and New Hampshire74
were among the early converts to this rule. Other important decisions
roughly following this approach are Raritan River Steel Co. v. Cherry,
Bekaert & Holland,75 Billy v. Arthur Young & Co.,76Boykin v. Arthur
Andersen & Co.,77 and Nycal Corp. v. KPMG Peat Marwick LLP.78
But the interpretative "refinements" attempted by some courts may
have also made it possible for 'daring' practitioners or judges to go
beyond the (undoutedly) ambiguous wording of the Restatement
(which, itself, has not escaped criticism). Thus in Marcus Bros. Tex-
tiles, Inc. v. Price Waterhouse,79the Supreme Court of North Carolina
'clarified' (through an extension) its aforementioned judgment in
Raritan. It thus held that actual knowledge by the accountant of
those persons who might rely on the accountant's opinion is not nec-
essary under Restatement 552, general business practices from
which such reliance can be inferred being sufficient. And in NYCAL
Corp. v. KPMG Peat Marwick LLP,80 the Supreme Court of Massa-
chusetts, while following the Restatement rule, emphasized that its
test would be construed in a way as to require the accountant to have
actual knowledge of the limited- though unnamed-group of poten-
tial [third parties]" (emphasis added).
Finally, a number of minority decisions have moved towards the
adoption of the most liberal test, namely that of pure foreseeability
(thus see H. Rosenblum, Inc. v. Adler;8s in this vain also: Citizens
State Bank v. Timm, Schmidt and Co.,82 International Mortgage Co.
v. John P. Butler Accountancy Corp.,s3 and Touche Ross v. Commer-
cial Union Ins.84). Yet even in these States, a variety of limitations
help keep matters under control. In Wisconsin, for instance, the Su-
preme Court in its aforementioned Citizens State Bank decision was
71. 284 F.Supp. 85 (DRI 1968).

72. Note that the Rusch decision (at p. 93) talks of an 'actually foreseen and lim-
ited class of persons' [italics supplied], whereas the German decision, while agreeing
with the idea that the identity of the relying person need not be known to the
representor, insists that he must be 'part of a calculable group of persons'.
73. Haddon View Investment Co. v. Coopers and Lybrand, 436 N.E.2d 212, 70
Ohio St. 2d 154 (1982).
74. Spherex, Inc. v. Alexander Grant and Co., 122 N.H. 898, 451 A.2d 1308 (1982).
75. 367 S.E.2d 609 (1988).
76. 834 P.2d 745 (1992), indisputably a leading case.
77. 639 So.2d 504 (1994).
78. 426 Mass. 491, 688 N.E.2d 1368 (1998).
79. 350 N.C. 214 (1999).
80. 426 Mass. 491 (1998).
81. 93 N.J. 324, 461 A.2d 138 (1983)-now rejected by the legislator (see statute
mentioned above).
82. 335 N.W.2d 361 (1983).
83. 223 Cal. Rptr. 218 (1986).
84. 514 So.2d 315 (1987) (Mississipi).
eager to stress that liability would not be imposed where the harm
was found to be too remote, disproportionate, or financially crushing.
This approach may evince some awareness of the realities that troub-
led Cardozo; but it also suggests that judicial reliance be placed more
on causative notions rather than on the duty of care (with all the
drawbacks that this approach may entail, especially in a jury depen-
dant system). Additionally, all States insist that "justifiable reliance"
is a conditio sine qua non. Thus, a North Carolina court held that
reliance on the audit, not directly but through a summary of it pro-
duced in a Dun & Bradstreet report, was not sufficient.85
(b) Academic disputes in Germany: shattering of the

image of uniformity
Although German case law may be displaying an unusual degree
of uniformity,86 one finds a great variety of approaches and solutions
offered in the doctrinal discussions, which-as a matter of historical
tendency-are more likely to influence the courts (or even the legisla-
tor) than in Common law countries. These doctrinal divergences may
still be important, given that the new text of the Code, as we shall
note further down, throws back the resolution of this question to the
courts. The possibility of interplay with academic writings remains
strong; and the final answer, as at least one German commentator
has suggested, may not depend on conceptual niceties but on policy
considerations and the interests involved in the individual case.87
In German academic writing diversity can be found mainly on
three levels:
(1) The first concerns the basic political approach. Thus,
while many authors seek to emancipate the liability of ex-
perts from the narrow boundaries of tort law or contract law
and are looking for 'new ways' to impose liability on experts,
others evoke the 'floodgates argument' and criticise a con-
sumerist approach, which prevents the ordinary citizen from
reasonable self-protection and invites blind reliance upon
the statements of others.88
(2) On the second level, the dispute is directed at the dog-
matic legitimation and construction of an extended expert li-
ability. Four major approaches can be distinguished: (a)
Some would prefer solutions within the framework of tort
85. Raritan case, supra n. 76.

86. Which is due (1) to the fact that private law in general belongs to the federal
jurisdiction rather than that of the single states, and (2) to the-not binding, but
persuasive-authority of the Federal Supreme Court in Karlsruhe.
87. Schlechtriem, supra n. 33, at 529. For comparative observations see M&U, p.
295.
88. See, for example, Honsell, "Probleme der Haftung fiir Auskunft und
Gutachten," JuS 1976, 621; id., supra n. 22 (note to the "Consul case", supra n. 21).
law, i.e., the development of special duties of care for profes-

sionals and the inclusion of pure economic loss in the protec-
tive scope of tort law.89 The Federal Supreme Court
sometimes follows this line of reasoning, disguised by an ex-
tremely liberal interpretation of the "general clause" of Ger-
man tort law, ? 826 BGB.90 (b) Others try to solve the
problem by adaptations and modifications of contract law.
The "implied contract for advice"91belongs to this category,
as do implied contractual guarantees between the expert
and the third party,92 or even the extension of protective ef-
fects of a contract vis-a-vis third parties.93 (c) A third group
of authors is looking for a "third way" between tort law and
contract law. According to these views (which have become
the basis of the new statutory law94), the liability of experts
is based on an overriding principle of reliance and good
faith95 or-looking more at the expert-on the deliberate
creation of legitimate expectations of third parties.96 Accord-
ing to a recent analysis, direct liability of experts towards
third parties should serve as a substitute wherever the third
party is affected "like a creditor", but the contractual rela-
tions between all persons involved do not-in contrast to a
simple, bilateral contract-yield a claim for damages.97 (d)
The fourth and most radical approach argues in favor of a
new category of liability. This 'professional liability' should
be developed apart from contract law or tort law, according
to the needs and duties of professionals.98
(3) Finally, at the third level of discussion, Anglo-American
lawyers would discern the real crunch. It concerns the con-
89. See, for example, von Bar, Verkehrspflichten (1980), 204 ff.; id., "Vertragliche
Schadenersatzpflichten ohne Vertrag?" JuS 1982, 637; id., "Vertrauenshaftung ohne
Vertrauen," ZGR 1983, 476; Mertens, "Deliktsrecht und Sonderprivatrecht," AcP 178
(1978) 227; Huber, "Verkehrspflichten zum Schutz fremden Verm6gens," in Fest-
schrift von Caemmerer 359 (1978). For a critical view see Picker, "Positive Forderung-
sverletzung und culpa in contrahendo - zur Problematik der Haftung 'zwischen'
Vertrag und Delikt," AcP 183 (1983) 369, 489.
90. ? 826 BGB declares: "A person who wilfully causes damage to another in a
manner contra bonos mores is bound to compensate the other for the damage".
91. Supra A. II. 1.
92. For this approach see Philippsen, Zur Dritthaftung des privat beauftragten
Gutachters fiar fahrldssig verursachte Verm6gensschdden (1998), 142 ff.
93. Supra A. II. 2.; for critical comments on this approach see Philippsen, supra n.
92, at 44 ff.; Canaris, "Die Reichweite der Expertenhaftung gegentiber Dritten," ZHR
163 206, 215 (1999); K6ndgen, supra n. 5, at 365.
94. Supra A. III.
95. "Vertrauenshaftung"; see Canaris, supra n. 34.
96. "Selbstbindung ohne Vertrag"; see K6ndgen, supra n. 5.
97. Krebs, supra n. 33, at 275, 339, 625.
98. Hopt, "Nichtvertragliche Haftung ausserhalb von Schadens-oder Ber-
eicherungsausgleich," AcP 183 (1983) 608.
crete criteria and limits of a direct liability of experts vis-a-

vis third parties-questions which have to be answered re-
gardless of the dogmatic approach. What behavior of the ex-
pert is necessary to create liability, and how do we
determine the persons towards whom this liability exists?
The views differ widely in this respect.99 This is especially
true with regard to the knowledge, which the expert has to
have of the third party: personal knowledge; or only knowl-
edge that there will be (determinable) persons who will rely
on the statement; or mere foreseeability that this might hap-
pen? According to a recent view, it is not the knowledge of
persons but rather of the project this statement will be used
for, which will define the personal scope of liability or protec-
tion.100 It is unclear whether the expert, himself, can ex-
clude or restrict the use of his statement, and thereby limit
his liability.'10 In theory, the future discussion of these ques-
tions will be determined by the wording of the new statute
(? 311 III 2 BGB).102In practice, however, we may well get a
repetition of well-entrenched positions without, alas, the
consideration of the wider factors we have mentioned in this
essay.
3. Analogous or different results-how would the German

cases be decided in the US?
The conceptually different way adopted by each system for reach-
ing the desired result has already been noted. Here, we ask ourselves
how these problematic German cases would have been handled in the
US. It is submitted that, if one excludes the few jurisdictions that
base liability on the pure foreseeability of harm, the result in most
US jurisdictions-to the extent that one can speculate on hypotheti-
cal facts-would be different. To American eyes, the German solu-
tions will be seen as having gone too far.
The "Teneriffa-Hotel case" might be closer to the margins, given
that the plaintiffs-though individually unknown-belonged to a po-
tentially identifiable group of victims. The case of such plaintiffs
might be stronger if their loss is the result of a specifically commis-
sioned audit rather the normal annual kind of report that auditors
conduct routinely. But there are strong decisions that suggest that
99. See, for example, Canaris, "Die Reichweite der Expertenhaftung gegeniiber
Dritten," ZHR 163 (1999) 206, 232 ff.; id., supra n. 18, at 184 ff; more restrictive
Neuner, supra n. 33, at 135; a comprehensive system of different aspects is offered by
Krebs, supra n. 33.
100. Philippsen, supra n. 92, at 156; Canaris, id. at 235.
101. Canaris, id. at 230 (with further references).
102. Supra A. 3.
even this liability might be seen as being too extensive by some US

courts. 103
The extension, which next took place in Germany via the me-
dium of contract with protective effects to cover physical damage to
third persons, is precisely what was left uncovered by the traditional
Common law as seen in old cases such as Cavalier v. Pope,'04 and is
now covered through tort. So, conceptualism apart, these results will
cause no concern to the modern Common lawyer.
This is less so, however, once the theory is extended to include
pure economic loss. For the concern for indeterminate liability in-
creases as the nature of the link between creditor and third party/
plaintiff became weaker. This happens as we move away from the
original requirement-that there be a close family link-to a close
relationship, then to a coincidence of interests, and finally to a situa-
tion where creditor and third party even have opposing interests. Our
overall impression here is that Common lawyers would be totally
unimpressed by such exaggerated emphasis being placed on the sta-
tus of the giver of the information as the source of imposing liability.
Practical questions would then follow as to how German accountants
cope financially in the context of such an apparently pro-plaintiff en-
vironment. In the absence of an empirical study on this point we
raise, but cannot answer these questions. We do, however, note a
more general point, which is that this type of factual situation-and
others could be supplied?05-demonstrates that an across-the-board
description of American tort law as being more generous than the
European systems is not sufficiently nuanced to be convincing. But
since ending with such a general observation would clearly be inade-
quate, we thus proceed further and suggest a number of background
factors (or practices), which may make the German practice economi-
cally viable.
We thus note that in these cases we must look at the level of
damages awarded in successful claims. The quantification being un-
dertaken by professional judges rather than juries is one factor which
must be taken into account, the absence of punitive damages being
another. The German Sammelklage106 is a third. For though the pro-
cedure allows for the joinder of actions, it is very different from the
American class action and does not offer, either the lawyers (who ini-
tiate the process) or the potential claimants, the advantages found in
the American institution. In particular, one must see this observation
against the background of a prohibition of contigency fees. In the case
of actions against auditors who prepare one of the "mandatory au-
103. See, for instance, Nycal Corp. v. KPMG Peat Marwick LLP, 426 Mass. 491,
688 N.E.2d 1368.
104. [1906] AC 424.
105. For instance tortious liability for psychiatric injury.
106. Regulated in ?? 59 ZPO (Code of Civil Procedure).
dits"•07we note also the protective effect of ? 323 I HGB which, effec-
tively, sets an upper limit of liability per certification. For public
registered companies this does not exceed the amount of 4 million
Euros, which, at the time of writing, equals about $4 million. For
smaller companies, the ceiling is lower. In the case of Prospektus-
Priifungen, affecting future investors, the auditors' liability is limited
by the agreement between the fund/investment initiator and the au-
ditor with the initiator not being allowed to circulate the prospectus
(along with the auditors' report) without the investor agreeing in
writing to the limitation of liability clauses. These provisions still
leave uncovered many of the litigated "valuation cases", which did
not involve auditing company records. Here, we are told, the defen-
sive mechanism often used is to insert a clause in the valuation con-
tract limiting the liability of the valuer to the amount of his
insurance coverage. A further clause in the same contract may state
that the valuation report can only be shown to third parties if they,
too, agree to be bound by the same clause which is, in any event,
brought to their attention since it is included in the valuation report.
Alternatively or additionally, valuers are advised to state precisely
the facts (and who supplied them) on which they base their assess-
ments and evaluations. The "vendor decision" of the BGH of 1994,
discussed above, is seen as a good illustration of the valuer having
failed to protect himself by stating that he had been prevented from
inspecting the roof and thus having, it is said, ultimately only himself
to blame.
The above quick sketch suggests a regulatory environment and a
multitude of practices which may make the "avenues for expressing
human greed"-to quote the words recently used by Mr. Allan Green-
span-less accessible than they appear to be at present in the US.
None of these factors seem to exist (or to exist to the same degree)
there. This conclusion could well justify the view that US courts, im-
bued in the American idea of how markets work, may well feel the
need to limit potential liability by (over-) utilizing the one concept in
their control-duty of care-that allows them to achieve this goal.
Though we believe that the above explanations are plausible, it
is difficult to argue that there is an over-abundance of supporting evi-
dence for them in contemporary German legal literature. On the con-
trary, this seems much more concerned to define the nature of the
potential liability in doctrinal terms than review the law in action.
Nonetheless, isolated German decisions do exist that make allusion
to some of these factors;10s and discussions with some colleagues
107. These Pflichtpriifungen include the formation audit, the annual audits and
"special" audits.
108. E.g., BGH WM 1985, 450, nos. 6 and 8 (availability of insurance); BGH NJW
1987, 1758, 1760 (litigation may, de facto, be limited to the amount of insurance
coverage).
from the accounting profession not only confirmed these suppositions

but, interestingly enough, also indicated the absence of any real con-
cern with the status quo, which observers-such as us studying the
legal rules-at one stage imagined to be widespread. So, if this is,
indeed, how most accountants feel in Germany, then the conceptual
differences between American and German law (and the different re-
sults they lead to), described in the previous paragraphs, are attenu-
ated in practice in a roundabout way.
C. POSTSCRIPT
German case law may not display the diversity of possible solu-
tions to the problem under discussion in the way that its American
counterpart does. In this way it immediately makes us aware of the
existence of the different patterns of federalism: the American and
the German. But diversity in Germany can be found aplenty if one
looks at a different level, namely the level of academic doctrine,
which most German lawyers regard as the real powerhouse of the
intellectual tradition. And here, indeed, one finds not just doctrinal
discussions but also the whole range of options favoured by diverse
American courts-from the one that shows excessive attachment to
the privity doctrine and abhors the expansion of liability to the most
liberal position of all, which makes liability coterminous with foresee-
ability of harm. Learning where to look can thus help reveal con-
cealed similarities.
And yet, despite this effort to reduce the differences between the
two systems, comparison is (again) difficult to make, not least be-
cause so much of the German learning is devoted to notions, concepts,
and dogmas. These are not only complex; worse, one often gets the
impression that they are used by courts as smokescreens to conceal
what really is happening in the judicial mind. The decision of the
BGH of 12 February 1979109 thus rambles on as if the judge is
searching for signs of reliance and then, suddenly, concludes with an
implied contract, apparently supported by good faith. Decisions such
as this suggest that the judge knows what result he wishes to reach
and hardly cares how he is going to justify it in legal parlance. This,
of course, it could be argued (and has been argued by an eminent
English judge"1), can also happen in the Common law world."11
109. NJW 1979,1595, M&U, case 19.
110. Lord Mustill has argued this point extra-judicially in his "What do Judges
do?"Sdrtryck ur Juridisk Tidskrift, 1995-96 Nr. 3, 611 ff. Variations on this theme
can, of course, be found in the literature of the Realist movement and, more recently,
the Critical Legal Studies School.
111. Thus policy hides behind vague and open-ended notions such as 'duty' or 'fair,
just and reasonable'-though one hastens to add that not all Common lawyers would
adopt such skepticism towards the role played by concepts. Professor Robertson is one
who, in his comments to us, observed that "good legal doctrine is often an efficient
way to exchange policy information and argumentation among those who speak the
These kinds of problems are likely to continue under the new

Codal regime in Germany. Indeed, the debates, which have already
begun over the new text of the Code, suggest that the German aca-
demic material will remain difficult to use by foreign jurists. For this
reason there is a great risk that German law may remain ignored by
Common lawyers. The only way to avoid this fate is to flesh it out by
factual examples, which have been the subject of litigation, and then,
through the kind of analysis known to Common lawyers and used in
this article, show them to be of use to the latter. Those in Germany-
and they are a growing number-who wish to see their culture stud-
ied abroad and remain influential, should thus take note of the dan-
gers of excessive theorizing.
So this part of the comparative exercise, if properly done, might
hold lessons for Common lawyers. The capping of damages may thus
be an idea worth investigating further. And on the dogmatic front,
the German material seems to suggest that it is misleading to treat
the concepts of reliance and assumption of responsibility as part of
general tort law. Instead we are dealing with liability arising in spe-
cial relationships (Sonderverbindungen) and not looking at relation-
ships between complete strangers (as tort law normally does). This
indicates that something akin to contract or near-contract is the right
doctrinal response, and that therefore the assumption of responsibil-
ity, properly defined, may be a useful concept. Recent trends in En-
glish law suggest that if German law is attractively presented, it will
catch the eye of our judges.
But how about the reverse? Can the Common law be of use to
German lawyers?
Current German law displays, as we have said time and again in
this article, two characteristics. The first is an expansive tendency on
the part of its Supreme Court. The second is a pre-occupation of aca-
demic writers with the notions of contract, tort or culpa in con-
trahendo. All this is well and good. But the question where one draws
the line of liability remains for both systems a sensitive one, notwith-
standing the confidence, which the German accounting profession
seems to display in the practical devices they have developed, occa-
language." The problem, however, is that not everyone uses the notions in the same
way. Thus, duty and forseeability are notoriously vague notions; fairness and reason-
ableness, it would seem, even more. The search for legislative intent, on the face of it
a straightforward exercise, is often also a smokescreen for the judges' view of what
the outcome should be in a particular case. The way German courts have shifted from
one contractual notion to another also suggests that the judges have reached the re-
sult and are just searching for the best tool available to formulate it in their decisions.
This is why we feel that the open discussion of policy, such as we find it in the Billy
decision, could be usefully undertaken in the German context, as well. And if it were,
it might throw up policy arguments (e.g., a different regulatory background), which
dictate a different result in Germany than the one, which may be appropriate to the
U.S. In any event, in comparative law a comparison of systems via their concepts and
not the functions they try to achieve can lead to dead ends and should be avoided.
sionally with statutory assistance, to keep liability within managea-

ble bounds. For the capping rules work in some instances, while in
others contractual devices can help extend the reach of exclusion
clauses. Our illustrations, however, also show that immunity cannot
be contained by the "key"contract (between auditor/valuer and pur-
chaser of the advice). In those instances, the bounds of liability can
become too extensive. This, however, is not to suggest that the con-
trary American model, either in its protective tendencies or in its cur-
rent desire to devise severe, ex post facto criminal sanctions for
fraudulent activities of the kind we have seen recently, is necessarily
better. What we do suggest is that the current German emphasis on
the defendant's professional status as the basis of (almost) guarantee
liability may be exaggerated while not paying sufficient attention to
the argument about informational asymmetry which in some in-
stances may, indeed, be crucial. In this context the American materi-
als may thus contain ideas which could encourage new thinking in
Germany.
Will the German courts engage in such a comparative exercise?
The answer is probably 'no'-at any rate in the near future. The evi-
dence for this comes from their current track record, which shows
them to be less willing than English courts to use the comparative
method as a way of testing the validity of their conclusions.112 But
what about academics? Will they bring into their writings this addi-
tional dimension? Again, the omens are not good. For the current out-
pouring of academic writing on the new text of the Code suggests that
(with very few exceptions) they, too, are continuing with their time-
honored practice of trying to subordinate judicial decisions to their
theories. For the Common lawyers this apparent lack of interest in
the wider, interdisciplinary factors which affect law in action can be
annoying - even short sighted. But the comparatist must warn their
Common law brothers that the lack of such references in judgments
(and even doctrinal writings) does not mean that this kind of think-
ing is not taking place in different fora and under different headings.
For the purposes of our topic it is thus extremely important to recall
that the German economy is a social market economy and does not
espouse the pure market or capitalist model, which we find in the US.
The German Constitution contains after all a "social state clause",
which (though thus far contained to the status of an exhortation
rather than a directly applicable rule) says much about current
thinking in Germany and, indeed, the entire European Continent. It
is against this background and other similar debates about the role of
112. Though strongly advocated by some of their most eminent jurists. See, for in-
stance, Zweigert, "Rechtsvergleichung als universale Interpretationsmethode" (inau-
gural lecture in Tiibingen) RabelZ 15 (1949/1950), 5-21; Haiberle,Rechtsvergleichung
im Kraftfeld des Verfassungsstaates (1992), pp. 27 ff.
the state in a modern society (e.g., the need to 'protect' weaker par-
ties, the idea of socialization of risks, etc.) that one must explain what
we termed "the consumerist movement in German (and European)
law. One needs a much greater awareness of the content of these de-
bates both in Germany and in the US in order to understand how and
why the rules we have described were born and the extent to which
they are limited in practice by other factors. But we hope we have
said enough to suggest that, whatever the origins of the German
rules, their soundness in practice has been ensured by a cluster of
rules and practices, which are not always immediately apparent to
the 'pure' lawyer, most certainly the foreign lawyer who is studying
German law through books. This brings us to our last and, from a
methodological point of view, the most important point of our piece.
To attempt the presentation of a foreign system to a lawyer who
belongs to another legal family, one is best advised to start his study
of the foreign system by focusing on narrow problems and institu-
tions. The well-selected foreign decision or decisions is the best start-
ing point. For it puts the foreign observer at ease just as he is about
to start his journey into the unknown, by equipping him with factual
situations which are familiar to him from his own practice. But this
will not be enough. The foreign judicial answer, once found and di-
gested, must also be seen in the wider context of its environment and
not to be taken as containing the whole truth and nothing but the
truth. Once this has been more or less grasped and the basic answers
discovered, they must then be 'packaged' in a suitable way for expor-
tation. If the work is done properly, it will lead to reflection-if not
cross-fertilization of ideas and solutions. Intellectually, this is an ex-
citing and, even, a noble task. And in practical terms it can lead to
the kind of enhanced mutual understanding that the globalization of
financial trade and markets nowadays require.

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American Society of Comparative Law

Liability of Financial Experts in German and American Law: An Exercise in Comparative

Liability of Financial Experts in German and

MICHAEL COESTER, LL.M., D.Iur. Faculty of Law, Ludwig Maximilians University of

ferences in procedural devices available to potential claimants (e.g.,

2. The approach of German law in general

In German law, as found in the Civil Code (BGB) of 1896, the

3. For an analysis of the legislative motives see Picker, "Gutachterhaftung," in

ages,6 such a motive no longer stands up to scrutiny in a society

II. Judicial response to social change

1. Implied contracts for advice

(Broker)B formation P (Plaintiff)

The BGH granted the claim for damages of P against D. It found

2. Contract with protective effects towards third parties

13. For an English version see M&U, p. 268.

First, the requirement that the damage had to be physical injury

(Expert)D inion C (Creditor)

In considering whether the contract between C and D had protec-

20. BGH, Nov. 2, 1983, NJW 1984, 355, 356.

The judgement of the Federal Supreme Court was based on an

22. See Honsell, JZ 1985, 952/953.

Sale Contract Expert-Opinion

The Federal Supreme Court found P to be included in the protective

confirmed to a second auditor employed by the purchaser that he

man law.33 According to the view of Professor Canaris, the

III. The new statutory approach

33. For further discussions see Damm, "Enwicklungstendenzen der Expertenhaf-

? 311 III BGB:

To sum up, it would seem that the liability of experts, hitherto

B. THE COMPARISON WITH AMERICAN LAW

(b) Contract instead of tort

In fact he should really have added: the English version of the

48. Thus, Lawrence v. Fox, 220 N.Y. 268 (1859).

This is not the place to discuss which of the two approaches is

(c) The two judicial approaches to the question

As a result of what has been said above and in their attempt to

It is at this stage of the enquiry that the juxtaposition of the two

herent dependence of the auditor on the client and the labour-

ideas we are promoting could be taken up by German academic

Hopt (ed.), 50 Jahre Bundesgerichtshof, Festgabe der Wissenschaft, Band II 842

(a) Unity v. diversity in two different federal systems

that their clients intended to influence. Rusch Factors, Inc. v. Levin7l

71. 284 F.Supp. 85 (DRI 1968).

(b) Academic disputes in Germany: shattering of the

85. Raritan case, supra n. 76.

law, i.e., the development of special duties of care for profes-

crete criteria and limits of a direct liability of experts vis-a-

3. Analogous or different results-how would the German

even this liability might be seen as being too extensive by some US

from the accounting profession not only confirmed these suppositions

These kinds of problems are likely to continue under the new

sionally with statutory assistance, to keep liability within managea-

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