Free online seminars on consumer law

In response to the current outbreak of COVID-19 The Academy of European Law (ERA) is one of the companies that provides some of their services now for free (for an abusive approach of companies we reported here). They made available some of their past seminars for free on specific areas of law, including consumer law. We highly recommend these seminars as being delivered on topical matters by high level experts.

Spelling out the law - CJEU in Kreissparkasse (C-66/19)

On 26 March the CJEU published a judgment in a case Kreissparkasse (C-66/19), which was not accompanied by an opinion. The consumer in this case concluded a credit agreement secured by a mortgage. Four years after the conclusion of the contract, the consumer attempted to withdraw from the credit agreement, claiming that he has never received all the mandatory information from the credit provider and, therefore, the period to make use of his right of withdrawal has never started running. The contested matter was whether the mandatory information has indeed been provided and in a transparent enough manner, as the contract specified: "The borrower may withdraw from the contractual obligation, without having to provide any reasons, within 14 days and in writing (for example, by letter, fax or email). The period begins after conclusion of the agreement, but not before the borrower has received all mandatory information referred to in Paragraph 492(2) of the [BGB] (for example, information concerning the type of loan, information relating to the net loan amount, information concerning the contractual term). …". Should the consumer know from the above contractual provision when the right of withdrawal starts running (and runs out)? Would he need to check the legal provisions of the German Civil Code to determine what information the credit provider should give him and ensure that he has received them all (and when)?

The CJEU is not a fan of placing such obligations on consumers. Article 10(2) of the Consumer Credit Directive obliges credit providers to give consumers transparent information on the right of withdrawal, incl. the period during which the right might be exercised and the conditions under which it may be used. The CJEU emphasises that this means that the consumer should be given transparent information on how the period of withdrawal is to be calculated (para. 38). It is insufficient for fulfilling this objective for the credit provider only to refer to the national provisions implementing the Credit Consumer Directive, stating that the right of withdrawal starts from the moment of the conclusion of the contract or when the consumer receives all the mandatory information, if the latter occurs later. "Where an agreement concluded by a consumer refers to certain provisions of national law as regards information which must be provided pursuant to Article 10 of Directive 2008/48, the consumer is not in a position, on the basis of the agreement, to determine the scope of his or her contractual obligations, check whether all the required information, in accordance with that provision, is included in the contract that he or she has concluded, or a fortiori verify whether the period of withdrawal open to him or her has begun." (para. 44) 

In case law under the Unfair Contract Terms Directive the CJEU has already specified that the traders are required to inform consumers about the content of the legal provisions they are referring to in the contract (Invitel and RWE Vertrieb) (paras. 46-47). This judgment applies the same reasoning to information that needs to be provided under the CCD.

Replacing unfair terms with supplementary rules - not a mission impossible? AG Kokott elaborates on Dziubak in C-81/19 Banca Transilvania

Amid the current crisis it is worth taking a step back in order to catch up on some of the ongoing cases before the Court of Justice. Case C-81/19 Banca Transilvania is one of such noteworthy disputes. On March 19th the Advocate-General Kokott issued the opinion in the case, addressing a number of important points concerning consumer protection against unfair terms in foreign currency loan agreements. The opinion engages with the scope of fairness assessment, focusing on the exclusions of the terms reflecting mandatory statutory provisions and conditional exclusion of core terms. It further elaborates on the legal consequences to be drawn by national courts if a term governing the exchange rate risk is found to be unfair. In the latter regard, the dispute follows up on the widely commented Dziubak ruling, decided by the Court at the end of last year.

Facts of the case

The case was brought by a number of Romanian consumers, who, despite receiving their income in Romanian leu, entered into a credit agreement for a sum denonminated in Swiss francs. As a result of the fall in value of the leu, the amount to be paid increased very significantly. The consumers argued that the bank failed to provide them with adequate information on the exchange rate risk, which they found unreasonably disadvantagous. The bank responded that the contested term reflected the principle of monetary nominalism expressed in the Romanian Civil Code and, therefore, fell outside the scope of the unfairness test in line with Article 1(2) of Directive 93/13.

Opinion of AG

Against this background, the referring court firstly asked whether a contractual term that reflects a general principle established by law (such as the principle of monetary nominalism) is subject to the provisions of Directive 93/13. According to the AG,  the exemption in Article 1(2) extends to the statutory provisions - including both mandatory and default rules - which were adopted "specifically for the type of contract concerned" or which are applicable to the contract according to a legislative reference. This conclusion was justified by a teleological argument, according to which it is only possible for the national legislature to "strike a balance" between the parties inasmuch as the specific arrangement between the parties was indeed envisaged by it (para. 42). If the provision is not intended to create a balance between consumers and sellers or suppliers, the trader should not be able to rely on Article 1(2), which is for the national court to verify. Although the interpretation does not actually lie too far off from the previous case law of the Court of Justice, such as RWE Vertrieb or Aqua Med, it could potentially further reduce the improtance of Article 1(2) exemption.

Assuming the referring court should go forward with a substantive fairness assessment, a further question was raised as regards the analysis of core terms under Article 4(2) of Directive 93/13. In this regard the AG recalled, following the Andriciuc case, that a term under which a loan denominated in a foreign currency is to be repaid in that currency may concern the 'main subject matter of the contract' within the meaning of Article 4(2) of Directive 93/13. Terms of this kind escape fairness assessment under UCTD (provided Member States have not increased the level of consumer protection, see Ahorros) in so far they are in plain intelligible language. According to the AG, the relevant criteria have already been explained by the Court. The trader is thus required to comprehensively inform the consumer about the potential risks of variations in the exchange rate and the fact that they must be borne entirely by the borrower (para. 59).

Finally and perhaps most importantly, the referring court sought to find out whether freezing the exchange rate at the rate applicable on the date of signature of the agreement offers a solution which ensures the full effectiveness of the consumer’s rights under UCTD. According to that court, the agreement could not continue to exist without the contested term, yet its annulment would not be favourable to the consumer either, as it would put the latter at the risk of having to repay the entire loan at once. To recall, full annulment was an outcome welcomed by the consumers in the Dziubak case. This, however, has not been case in Banca Transilvania. According to AG Kokott, previous case law of the Court of Justice significantly limits the scope of actions that the national court can take in situations of this kind: among others, the court may not assume that the consumer is bound by the unfair term and may not modify the contract by revising the content of the unfair term. However, in view of the AG, a national court cannot be prohibited from plugging a gap in a contract left by the removal of the unfair term with a supplementary rule that restores the balance between the reciprocal rights and obligations of the parties, simply because one of the parties is a consumer (para. 73). Such a conclusion is not to be mistaken with a judicial interpretation of the term and with reduction of its content to a permissible extent, as this would indeed reduce the directive's dissuasive effect. However, where disuassive effect is also not achieved by the anullment, national courts should be able to substitute the unfair term with a supplementary rule that replaces the formal balance between the rights and obligations of the parties with an effective balance which re-establishes equality between them (paras. 79, 87). While the possibility of, exceptionally, replacing an unfair contract term with a supplementary provision of national law if the nullity of the contract would have particularly negative consequences for the consumer has already been recognized in prior case law (Kásler, Abanca), the interpretation of the concept of 'supplementary provisions of national law' has remained underdeveloped (see Guidance Notice to the UCTD, p. 42). Reference of the AG to the rules that "replace the formal balance between the rights and obligations of the parties with an effective balance which re-establishes equality between them" could be of help in this regard. The AG herself, however, did not give her opinion whether freezing the exchange rate at the rate applicable on the date of signature could provide such a solution. The mission given to national courts, therefore, remains quite challenging.

Concluding thought

Overall, the opinion brings the discussion on the legal consequences to be drawn by national courts if a contract term is found to be unfair back on its previous track, following the more fact-specific Dziubak judgment delivered last year. It does not go against the prior case law of the Court, since one of the proposed conditions for allowing the court to replace the unfair term with a supplementary rule is the finding that annulement would have particularly unfavourable consequences for the consumer. With this condition in mind, it does not seem unlikely the interpretation laid down in the opinion will eventually be followed by the Court.

On a more general note, the commented case reminds us of the crucial role of the UCTD as a vehicle of consumer protection following the financial crisis of 2008. While the potential economic downturn caused by the COVID-19 pandemic would likely have a different nature, it is worth remembering the lessons learnt from previous times of hardship. In her opinion, AG Kokott seeks to provide for a high level of consumer protection while highlighting the importance of an "effective balance" between the rights and obligations of both parties, in line with their reasonable expectations. Lifting the economy following current crisis will be a challenging endevour and will likely require a similar balance to be struck. Yet the consumers' weaker position should not be forgotten along the way.

Coronavirus and unfairness: scams and unfair practices

Dear readers,

The news is full of warnings of scams and other unfair practices that consumers are exposed to these days. Using the words of The Guardian, what is for some the 'greatest heath and economic emergency for a century', for others, is a chance to 'scam a fortune from a captive market under effective house arrest.'

The spread of COVID-19 and subsequent government interventions has led to unprecedented situations, completely rearranging our lives, from working from home to social distancing. Fear for the health of our loved ones and our own and social solidarity with those in need of e.g. food is all part of our daily lives now. This is a new situation for everyone, and as such we are all vulnerable and easy prey for those that wish to take advantage of us, as consumers, to obtain financial gain.

This advantage taking can take harsh forms of fraud, that seem very common in these difficult times. BBC News ran a special feature on scams recently, giving the example of a young woman who was misled by a scammer posing as a rental agent into transferring part of her rent in advance to the scammers account, believing that she was helping other vulnerable tenants who could not afford to pay rent (see more examples here). A couple of days ago Finextra reported on a new pop up malware activated by a cyber-attacker to open a webpage titled 'Coronavirus Finder'  which clams there are people nearby infected with the virus. In order to find the infected individuals the victim is asked to pay only 0.75 euros on a payment page set up by the hacker. The attempted payment of this money would then transfer the bank details of the consumer to the fraudster. Fraudsters even pose as the EU Commission sending fake debt collect letters for unpaid taxes. There are also teams of people showing up at consumers' homes dressed in protective gear, to supposedly check whether the consumer's environment is not contaminated with the virus. When some of them are talking to consumers, others are robbing the house. New COVID-19 themed scams appear virtually every day, and they cost, for instance, UK customers 800 000 pound sterling in the past month.

Apart from clear cases of fraud, there are other, perhaps less financially harmful but still unfair practices. While many traders have shown their goodwill by providing free (digital) services and digital content, such as fitness training and free entertainment for kids, and free delivery of goods, there are also those that have taken unfair advantage of the current situation, by raising the price of goods in high demand such as toilet paper and by selling fake goods such as face masks and sanitizers that allegedly cure the illness.

The current situation placed the key actors in consumer protection enforcement on high alert across Europe. Authorities are already taking steps to prevent the illegal content to reach consumers, for instance, the Italian Consumer Protection Authority blocked the website of a trader who claimed that he sells the only drug that cures the illness.  On March 20 the national consumer protection authorities within the CPC network issued their Common Position on COVID-19, and subsequently the EU Commissioner for Justice and Consumers wrote to online platforms and marketplaces to combat these practices.

The new situation will be yet another grand challenge for EU consumer law. It is our job as academics and policy makers to question whether the current legal framework and enforcement tools are fit for purpose. In particular, enforcement of consumer rights at the EU level and the functionality of the CPC network and the role of the EU Commission might be questioned once again (see for instance our reports here  and here). It is also less clear what will the EU Commission and national authorities do about stopping specific scams such as the illegal transfer of money and the theft of personal data. These may even be outside the competence of national consumer protection authorities and will require further cooperation and coordination with the relevant authorities. Finally, we should consider whether the concept of consumer vulnerability needs to be further worked on in the new circumstances, and generally whether these new circumstances require new or redefined measures of protection.

If you are interested in these issues, please join the public webinar of our colleague Dr Christine Riefa tomorrow at 11 am BST on Consumer Rights, Scams and Coronavirus (details here). You can also share your views and information on COVID-19 related scams or unfair practices in comments.

And finally, please stay safe and stay alert at all times 🌈

Compensation for delayed flights also for package travellers - CJEU in Primera Air Scandinavia (C-215/18)

Going through the backlog: last week, on 26 March, the CJEU issued a judgment in Primera Air Scandinavia (C-215/18). The judgment has not yet been published in English, thus our readers may be especially keen to find out what did the Court decide in this air passenger rights case where air travel was included in a package travel contract (about the opinion in the case read here).

Compensation for a delay of a flight included in a package travel contract

The CJEU follows the reasoning presented by AG Saugmandsgaard Øe and decides that air passengers may claim compensation for a delayed flight from the operating air carriers pursuant Regulation 261/2004 also if their air travel follows from a package travel contract that they have concluded with a travel agency (paras. 31-37). As a reminder, Package Travel Directive does not contain a similar right to compensation which could lead to awarding passengers with double compensation for the same loss. This differentiates this judgment from the one in the case of Aegean Airlines where passengers wanted to claim reimbursement of a flight ticket's price, which right they also had on the basis of the PTD.

Jurisdiction 

Brussels I Regulation (Regulation 44/2001) specifies which court has jurisdiction over disputes resulting from a contractual relationship, as well as provides for special jurisdiction rules for consumer contracts. One of the questions raised asked whether a claim for a compensation may be perceived as a contractual one, considering that there was no contract between the operating air carrier and the consumer, but rather between the consumer and the travel agent. The CJEU again follows the AG's reasoning and previous case law (see flightright) in applying broad interpretation to the notion of a 'contractual' claim. It is namely not relevant whether the parties in the proceedings had a contractual relationship, but instead whether the claim between them follows from a voluntarily adopted obligation of one of these parties towards the other one (paras. 45 and 48-49). Therefore, jurisdiction rules applicable to contractual claims (art. 5 Brussels I Regulation) are applicable here. However, special jurisdiction rules from section 4 on consumer contracts do not apply here, as for their applicability it is actually necessary that a contract was concluded between consumers and the defendant (paras. 59-60).

Conclusion

In the given case, as the flight was conducted between Czech Republic and Iceland, the claim could be raised in one of these two countries, as they both may be seen as places of performance of the contract. This is convenient for the passenger who was domiciled in the Czech Republic. However, if the passenger in case was domiciled e.g. in France, they would not be able to benefit from a possibility to file a claim in French courts, following the special rules on jurisdiction for consumer contracts.

This judgment is very interesting, but it needs to be mentioned that the current COVID-19 crisis shows us that in practice air passenger rights might not be very helpful. Airlines who had to cancel flights en masse in the past weeks, keep on choosing not to reimburse passengers' air tickets but rather issue them with vouchers for future flights. That is a clear breach of Regulation 261/2004. Of course, accepting the voucher does not take away consumers rights to further claim the reimbursement, but whether such claims will be successful, even if consumers decide that the hassle is worth the trouble, remains to be seen. Some authors of this blog may be the guinea pigs in the upcoming legal battles and will keep you posted!

Can we make variable interest rates transparent? - CJEU in Gómez del Moral Guasch (C-125/18)

On 3 March 2020 (yes, we are a bit behind in our commenting on the most recent developments, sorry about that! We are making our way through the news of the past few weeks) the CJEU issued a judgment in the case Gómez del Moral Guasch (C-125/18). We have previously commented on the AG Szpunar's opinion in this Spanish case (Unfairness assessment of variable interest rates...), which brought up two main issues: 1) scope of unfairness testing for terms reflecting mandatory provisions; 2) transparency assessment. Just as a reminder the consumer's mortgage loan contract came with a variable interest rate and the claim raised a possible unfairness of a term referring to an index on the basis of which the rate would be calculated.

Ad 1)

The CJEU agreed with AG Szpunar that unless the index has been prescribed by the national legislation to mandatorily apply to consumer mortgage loan contracts irrespective of the parties' choice or in absence of their choice, a term referring to it falls within the scope of application of the UCTD (paras. 32-34). This means this term could be tested for unfairness (para. 36), as Bankia had the chance to define the interest rate in any way, as long as it was 'clear, specific and comprehensible to the borrower and was consistent with the law' (para. 35).

Ad 2)

The CJEU again stresses the need for both formal and material transparency assessment under the UCTD, observance of which should allow an average consumer to understand the specific method used for calculating the variable interest rate and evaluate potentially significant economic consequences of that term on consumer's financial obligations (para. 51). In reference to the material transparency assessment the CJEU instructs national courts to check whether the essential information relating to the calculation of the variable interest rate was easily accessible to anyone intending to take a mortgage loan, e.g. because the method used for calculating that rate has been published (para. 53). National court should further inquire whether consumers were given the data on past fluctuations of the index (para. 54).
The CJEU emphasises the importance of the principle of transparency in an earlier part of the judgment (paras. 44-46). The emphasis is placed on the weak position of consumers in a transaction, the protection of which requires traders to provide clear and intelligible information to consumers in standard contract terms, regardless of whether these terms are core contractual terms.

In the last part of the judgment (paras. 63-66) the CJEU highlights the fact that if a term, indicating an index on the basis of which the variable interest rate is calculated, is unfair and is nullified, when this would have 'particularly unfavourable' consequences for consumers, the national court may choose to replace this term with a reference to a statutory index.

Comment
This judgment is another in a series of judgments elaborating for national courts mainly how to evaluate the compliance with the principle of transparency. The continued references to the possibility of average consumers to understand complex financial contracts, as long as the data provided to them is complete enough, remain somewhat jarring in light of the behavioural evidence showing the widespread lack of financial illiteracy. It seems past time for the legislators and regulators to intervene and set more guidelines on transparent disclosures/further need for consumer advice services in this area.

Consumers buying ‘discount cards’ for future transportation contracts have the right to withdraw - Case C‑583/18 (Verbraucherzentrale vs DB Vertrieb GmbH)

Case C‑583/18 (available in French here) deals with the Consumer Rights Directive, particularly with its scope of application and the exclusion of contracts for the transportation of passengers. The case originated in a dispute between the Verbraucherzentrale, the German consumer association, and DB Vertrieb GmbH, a company in the group of the railway company Deutsche Bahn. In this context, DB Vertrieb sells cards that allow passengers to have discounts on the price of their train tickets – either 25% (BahnCard25) or 50% (BahnCard50). These cards are sold online but no information about the right of withdrawal is given to consumers. DB Vertrieb GmbH argues that this omission is justified by the fact that there is no right of withdrawal in these ‘discount cards’ contracts, since they are excluded from the scope of application of the Consumer Rights Directive. Indeed, the Consumer Rights Directive excludes contracts for passenger transport services from its scope (Article 3(3)(k)). Consequently, the referring Court asked the CJEU whether the contract concluded between consumers and Deutsche Bahn can be considered a service contract under Article 2(6) of the Consumer Rights Directive and, if so, whether it can also be considered a contract for passenger transport service under Article 3(3)(k) in such a way that it would be excluded from the scope of the Directive.

The CJEU answered the first question in a straightforward and broad manner, in line with the broad definition of ‘service contract’ in the Consumer Rights Directive. The CJEU highlighted that Article 2(6) states that a service contract is ‘any contract other than a sales contract’ and, given that the contract in question does not involve the transfer of ownership of a good (Article 2(5)), it is not a sales contract. Not being a sales contract, it is a service contract. ‘Discount contracts’ are, therefore, considered service contracts under the Consumer Rights Directive.

Regarding the second question, the CJEU considered that a contract through which the consumer enjoys a price discount if and when concluding a future transportation contract is not a contract for passenger transport services as defined by Article 3(3)(k), since the contract in question does not have as a primary object the transportation of passengers.

Furthermore, the CJEU argued that the two contracts in question – the ‘discount card’ contract and the actual passenger transportation contract – are two different contracts, not legally connected to each other. In other words, the conclusion of the contract which gives the consumer a price discount in a future transportation contract does not mean that the consumer will necessarily conclude the transportation contract.

Finally, the CJEU considered that the existence of a right of withdrawal in the ‘discount card’ contract does not create any objective inconvenient for the transportation company. The CJEU based this argument on the rationale behind the exclusion of contracts for the transportation of passengers from the Consumer Rights Directive, explained in Recital 49. Recital 49 states that it would be inappropriate to give consumers the right to withdraw from service contracts where the conclusion of the contract leads the professional party to set aside the corresponding capacity which could not be filled or would be difficult to fill in case of withdrawal. In this case, the acquisition of ‘discount cards’ by consumers does not mean that Deutsche Bahn will alter its capacity (e.g. available seats on trains).

Therefore, Article 3(3)(k) must be interpreted as not including ‘discount cards’ contracts, which means that, in practice, the contract in question is covered by the Directive and by its provisions regarding the right of withdrawal.

Case C‑511/17 Unicredit Bank Hungary: Ex officio unfairness assessment limited to subject matter and to existing legal and factual elements

In  the case C-511/17, the CJEU followed the AG’s opinion closely (about which we wrote here). The case deals with the scope of the obligation to assess the unfairness of contractual terms ex officio, under Directive 93/13/EEC (Unfair Terms Directive).

The CJEU clarified that the Unfair Terms Directive does not oblige national courts to conduct any unfairness assessment beyond the subject matter of the dispute (paragraph 28). In other words, as AG Tanchev also defended, the CJEU highlighted the importance of protecting the ne ultra petita principle. However, the CJEU considered that it is within the subject matter of the dispute that national courts examine ex officio the unfairness of contractual terms in order to guarantee a high consumer protection, particularly to prevent the consumer’s claim from being rejected when it could have been upheld had the consumer invoked the unfair nature of that particular term (paragraph 32).

In addition, the CJEU established that national courts are only obliged to carry out an ex officio assessment of unfairness regarding those contractual terms whose unfairness can be determined by existing elements of law and fact available to the court (Profi Credit Polska case). However, in order to implement the duty of ex officio examination, national courts should not be confined exclusively to the elements of law and fact provided by the parties (paragraph 36). This means that national courts can, of their own motion, take investigative measures in order to complete the case file. However, national courts should only do this if the existing elements of law and fact ‘give rise to serious doubts as to the unfair nature of certain clauses which were not invoked by the consumer but which are related to the subject matter of the dispute’ (paragraph 37).

Finally, the CJEU reiterated that in order to assess the unfairness of a contractual term (on which the claim is based) the national court must take into account all the other terms of the contract (Banif Plus Bank, C‑472/11). This obligation is justified by the fact that the assessment of one or more specific terms must be contextualized, and the ‘cumulative effect of all the terms of that contract’ must be taken into account (paragraph 47). This does not mean, however, that there is an obligation for the national court to ex officio assess the unfairness of all individual clauses in the contract – it is rather a duty to contextualize the assessment of unfairness. The CJEU also calls for a non-formalistic consumer protection, that is, an interpretation of the claim that is based on the comprehension of its content and of the laws it invokes (paragraph 33).

Therefore, the CJEU concluded that Article 6(1) of the Unfair Terms Directive does not require national courts to examine every individual contractual term ex officio. Instead, the Unfair Terms Directive must be interpreted as imposing an obligation to examine only the contractual terms which are connected to the subject matter of the dispute, as long as the national courts have the legal and factual elements required for that assessment (which can be supplemented by measures of inquiry). The CJEU also determined that, while Articles 4(1), 6(1) and 7(1) impose a duty to take all contractual terms into account, there is no duty for the national court to individually assess the unfairness of each term.

In this specific case, the CJEU determined that the terms that the consumer did not challenge but whose unfairness assessment is required of the referring court are not connected to the subject matter of the dispute in the main proceedings. Therefore, the national court does not have a duty to ex officio assess the unfairness of those terms (paragraph 39).

Double compensation available in case of a delayed re-routing flight: case C‑832/18 Finnair

Earlier this week, the Court of Justice delivered a judgment in case C-832/18 Finnair. The case proceeded without written opinion from the AG and concerned the interpertation  of Regulation (EC) No 261/2004 on passenger rights in the event of denied boarding and of cancellation or long delay of flights. The judgment adds another major element to the pro-consumer case law of the Court of Justice.

Facts of the case

The dispute revolved around a Finnair flight from Helsinki (Finland) to Singapore, which encourtered multiple problems. Not only was the original flight cancelled due to a technical defect, but also the alternative connection, scheduled for the next day, was delayed by almost 19 hours. The applicants brought an action in a Finnish court seeking to have the airline ordered to pay them the sum of EUR 1200 each: covering EUR 600 on account of the cancellation of the original Helsinki-Singapore flight plus additional EUR 600 on account of the delay of the subsequent Helsinki-Chongqing-Singapore re-routing flight. While Finnair agreed to award compensation of EUR 600 in respect of the cancellation of original flight, it refused to grant the second compensation claim. According to Finnair, Regulation No 261/2004 did not impose an obligation of this kind and, even if it did, the delay of re-routing flight had been caused by extraordinary circumstances (defect of an ‘on condition’ part). Interestingly, unlike the Finnish court of first instance, the Court of Justice did not find the arguments of Finnair convicing and opted for a pro-consumer reading of applicable EU law.

Judgment of the Court

Double compensation

The Court began its analysis by recalling that, pursuant to Article 5(1)(a) of Regulation No 261/2004, read in conjunction with Article 8(1), in the event of cancellation of a flight, the passengers concerned should be offered the choice between three different forms of assistance, namely either reimbursement of the ticket and, where appropriate, a return flight to the first point of departure, or re-routing to their final destination at the earliest opportunity, or such re-routing at a later date at their convenience, subject to availability of seats. Passengers in the case at hand opted for the latter form of assistance, in the course of which, however, the encountered further difficulties.

Focusing on the scope of Regulation No 261/2004, the Court found that nothing in its Article 3 suggests that the regulation should not apply to air passengers who have been transferred by the air carrier, following the cancellation of a booked flight, on a re-routing flight to their final destination. On the contrary, Article 3(2)(b) explicitly referrs to passengers who have been transferred by an air carrier from the flight for which they held a reservation to another flight, irrespective of the reason. 

Furthermore, as noted by the Court in para. 27, Regulation No 261/2004 does not contain any provision intended to limit the rights of passengers who find themselves in a situation of re-routing. Broad reading of the scope of passenger rights was further supported by the purpose of that regulation, which is to address the serious trouble and inconvenience caused by denied boarding, cancellation or long delay of flights (in the case at hand experienced twice), as well as the effectiveness of an obligation to provide assistance in the form of re-routing under Article 8(1). Consequently, a possibility of claiming double compensation in analysed conditions has been accepted.

Extraordinary circumstances

Also in the second part of the judgment the Court did not clearly side the airline, even if its findings remain at a high level of generality. The Court appears to suggest that key elements of the notion of ‘extraordinary circumstances’ have already been explained in its prior case law and it is now the task of national courts to apply them to cases before them. The Court thus began by recalling that according to Article 5(3) of Regulation No 261/2004, read in the light of recitals 14 and 15, by way of derogation from Article 5(1), an air carrier is to be released from its obligation to pay passengers compensation under Article 7, if the carrier can prove that the cancellation or delay of three hours or more is caused by ‘extraordinary circumstances’ which could not have been avoided even if all reasonable measures had been taken or, where such circumstances do arise, that it adopted measures appropriate to the situation, deploying all its resources in terms of staff or equipment and the financial means at its disposal, in order to prevent that situation from resulting in the cancellation or long delay. In doing so, the Court referred to its previous case law, on which we reported in our earlier posts (see eg Runaway closure..., Loose screws...). The Court further recalled that events may be classified as ‘extraordinary circumstances’ if, by their nature or origin, they are not inherent in the normal exercise of the activity of the air carrier concerned and are outside that carrier’s actual control, both conditions being cumulative (para. 38). The notion, therefore, does not include technical shortcomings inherent in aircraft maintenance, considering that breakdowns of this kind, even premature, are, in principle, intrinsically linked to the operating system of the aircraft.

In the case at hand Finnair contended that technical defect it was faced with should nonetheless be qualified as an extrordinary circumstance, considering that the affected rudder steering servo was a so-called ‘on condition’ part, which is only replaced by a new part when it becomes defective. The airline appears to have stocked up on the spare part, but a delay - related to repair itself - was nonetheless unavoidable. The Court did not expressly endorse such an interpretation, however. Rather, according to the Court, the failure of an ‘on condition’ part, which the air carrier has prepared to replace by permanently stocking a spare part, constitutes an event which, by its nature or origin, is inherent in the normal exercise of the activity of the air carrier concerned and is not outside its actual control, unless such a failure is not intrinsically linked to the operating system of the aircraft, which it is for the referring court to determine.

Ex-officio powers of national courts in enforcing Directive 2008/48/EC: the CJEU in C-679/18 OPR-Finance

Earlier today the European Court of Justice (CJEU) delivered its judgment C-679/18 OPR-Finance s.r.o. v GK on the interpretation of Articles 8 and 23 of Directive 2008/48/EC on Consumer Credit (CCD).

The facts

In April 2017 the consumer concluded a revolving credit agreement with OPR Finance for 192 EUR. After defaulting on payment of due installments, the creditor started enforcement action infront of the District Court of Ostrava (Czech Republic), claiming 307 EUR plus statutory interest. It appeared to  be clear for the referring court that OPR Finance did not claim they have assessed the consumers creditworthiness prior to granting the loan, and it was also clear that the consumer did not raise the objection of nullity  of the contract, the applicable penalty for failing to assess creditworthiness under Czech law.

The legal issues

The referring national court was unsure whether Article 8 on creditors obligation to assess consumers creditworthiness read in conjunction with Article 23 on the obligation of Member States to provide for effective, proportionate and dissuasive penalties for the breach of national provisions adopted pursuant to the CCD, provides for the national courts ex officio obligation to act i.e. obligation of national courts to examine on their own motion whether the creditors have complied with their obligation to assess consumers creditworthiness and ex officio obligation to apply the appropriate penalties provided by national laws.

At second instance, the national court asked whether the national provisions that provide for an obligation of consumers to raise the objection of nullity of the credit agreement within a 3 year time limit are contrary to the said provisions.

The ruling

The first question the CJEU answered positively, ruling that there is an ex officio obligation of national courts to examine whether creditors have complied with their obligation to assess consumers creditworthiness. Not only that national courts must assess ex officio whether the duty of creditworthiness assessment has been complied with but they should also apply the appropriate penalties ex officio, provided they are compliant with Article 23.

In its reasoning the CJEU referred to its previous case-law on establishing an obligation of national courts to rule ex officio on infringements of EU consumer law (para. 18), reinforcing the justification for such approach the weaker position of consumers vis-a-vis businesses in their contractual relationships (para. 19). It has also considered the importance of ex officio powers for achieving the objectives of the CCD. Importantly, it has highlighted that the purpose of Article 8(1) is to make creditors accountable for their lending decisions and to prevent them from providing consumers with unaffordable credit (para. 20). Moreover, the CJEU emphasized the importance of ex officio powers for the protection of consumers against the risks of over-indebtedness and bankruptcy and for the emergence of a well-functioning internal market in consumer credit with a high level of consumer protection (para. 21).

The CJEU further ruled that where national courts find the infringement of Article 8 on their own motion, they should also apply the appropriate sanctions without waiting for consumers to make applications to that effect, provided that national provisions on penalties are compliant with Article 23 and the associated CJEU on its interpretation (paras. 25-27). As mentioned above, under the applicable provisions of Czech law, the penalty of nullity of the contract only applied under the condition that consumers raised an objection of nullity within the limitation period of 3 years. The sanction of nullity itself relieved consumers from paying interest and associated costs to the credit, only requiring the repayment of the principle sum borrowed (para. 29). The CJEU examined the these requirements from the aspects of equivalence and effectiveness (paras. 32-33) and concluded that they are contrary to principle of effectiveness (para. 36). The said conditions make the sanction impossible or excessively difficult to operate in practice. Importantly, the CJEU dismissed the relevance of administrative penalties of competent supervisory authorities, emphasizing the separation of civil and administrative penalties for breaches of consumer credit law (para. 37), given that such penalties have no effect on harmed consumers, consumers to whom the credit was granted in the infringement of Article 8 of the CCD (para. 38).

Concluding thoughts 

This seems to be a well reasoned judgment that provides additional important protection for consumers against the risks involved in borrowing and raises the responsibility of creditors for complying with their obligation to assess consumers creditworthiness. It is now important that national courts follow the judgment and use their powers where appropriate.