Don't forget about the price tag: judgment in Spanish cases on mortgage costs and legal costs

Another judgment we haven't yet reported on this blog is the CJEU's judgment in Joined Cases C-224/19 CY/Caixabank and C-259/19 LG and PK/BBVA. In short, the judgment pertains to a clause that imposes the costs of vesting and cancelling a mortgage on the (consumer-)debtor, which can be viewed as an unfair term. Moreover, the judgment pertains to the limitation period that applies to claims for reimbursement - the topic of the day, see our previous blog - and legal costs.

The cases on mortgage costs, "gastos hipotecarios", have drawn a lot of attention in Spain. The CJEU 's judgment of 16 July 2020 in Caixabank opens the door to an estimated 8 million consumers who have taken out a mortgage and can now bring a reimbursement claim against their bank. Click here for an overview of costs that may be involved, including a registration fee. From the perspective of EU consumer law, the first part of the judgment is not even that revolutionary: if the cost clause at issue is found to be unfair, the consumer is entitled to reimbursement of the costs paid on the basis of that clause. In this respect, the CJEU confirms what it held earlier in Gutiérrez Naranjo: nullity is nullity. An exception is only possible if there is a national legislative provision - i.e., not the clause itself - that serves as a basis to impose costs on the consumer. In Spain, such an exception only exists for the so-called "Impuesto de Actos Jurídicos Documentados" (IADJ, a mortgage tax).

The second part of the judgment confirms earlier case law, in particular Gómez del Moral Guasch and Kiss and CIB on core terms and transparency. Articles 4(2) and 5 of the Directive preclude national case law that deems a contractual clause to be transparent in itself, without an analysis of whether it constitutes a core term and whether it is drafted in plain and intelligible language. The CJEU adds that the mere fact that the costs involved are part of the total price of a mortgage loan does not mean that they must be considered as relating to the main subject matter of the contract. In respect of opening costs - a fixed fee for setting up the mortgage - the CJEU concludes that the clause may cause a significant imbalance to the detriment of consumers when the bank cannot prove those costs reflect actual services or expenses.

According to the Spanish Supreme Court, the bank must pay 100% of the registration fee; the notary fee and administration costs must be split 50/50 between the parties. One of the referring judges in the Court in First Instance of Palma de Mallorca doubts this, because administration and taxation costs are made in the interest of the bank and the consumer has no other choice.

Your blogger is not the only one who finds the part of the judgment on the limitation period for reimbursement claims more interesting. Such a limitation period should not make it practically impossible or excessively difficult for consumers to exercise their rights. The CJEU reiterates that if the limitation period would start at the conclusion of the contract, irrespective of consumers' knowledge or awareness of their rights, this could run counter to the principle of effectiveness and the principle of legal certainty. In national case law, a 5-year period is applied that starts running from the moment a term is found to be unfair. The first time the cost clause at issue was declared unfair by the Spanish Supreme Court was on 23 January 2019. This would mean the limitation period does not expire until 5 years later, but there is no legislative provision currently governing this.

As regards legal costs, the CJEU holds that they may be an obstacle that deters consumers from exercising their rights. Pursuant to Article 394 of the Spanish Code of Civil Procedure, no cost order is issued - and the parties bear their own costs - if the claim is only partially awarded. If the consumer's request for nullity is granted, but the cost order is made dependent on the amount to be reimbursed by the bank, this may have a deterrent effect. Therefore, the principle of effectiveness precludes the application of Article 394 along these lines. Once the clause is found to be unfair, the bank should pay the legal costs.

Knowledge is key: judgment in Joined Cases C-698/18 and C-699/18 Raiffeisen Bank and Société Générale

Earlier this month, the Court of Justice of the European Union gave judgment in Raffeisen Bank and Société Générale, two joined cases from Romania on limitation periods and Directive 93/13/EEC. This is not the first time we write about this topic; see e.g. our blog on Cofidis II, where it was observed that limitation periods as such are not necessarily incompatible with the principles of equivalence and effectiveness in EU law.[1] But they can be, as the CJEU's judgment of 9 July 2020 demonstrates, where they prevent consumers from claiming reimbursement of amounts paid on the basis of unfair terms in a credit agreement.

Source: wikipedia.org

Earlier case law of the CJEU reveals that knowledge or awareness on the part of consumers of their rights plays a crucial role in the assessment of cases on limitation periods.[2] Raiffeisen Bank confirms this.The CJEU reiterates that reasonable time limits for bringing proceedings, laid down in the interests of legal certainty, do not make it practically impossible or excessively difficult as such for consumers to exercise their rights conferred by EU law, if such time limits are sufficient in practical terms to enable them to prepare and bring an effective action. Under the rules at issue in Raiffeisen, however, a three-year limitation period started to run from the time when the contract - here: a credit agreement - had been performed in full. That is when the consumer was presumed to have known of the unfair nature of one or more unfair terms of that agreement. According to the CJEU, it is nevertheless possible that the consumers involved are not aware of this, which means the limitation period is likely to have expired before they can take action. This runs counter to the principle of effectiveness. Moreover, performance of the contract does not retroactively alter the fact that the consumer was in a weak position at the time it was concluded. The protection of Directive 93/13 is therefore not limited solely to the duration of the performance of the contract in question.

Under Romanian law, the unenforceability of unfair terms is equated with absolute nullity, the effect of which is restitutio in integrum. The limitation period normally begins to run when the court establishes the cause of action, not on the date of full performance of the contract. The CJEU holds that such a difference in treatment of consumers cannot be justified on grounds of legal certainty. Thus, the rules appear to run counter to the principle of equivalence as well.

In Case C-698/18, the action for reimbursement was brought within three years after the agreement had expired. The CJEU's judgment suggests that this does not matter; it is inconceivable that a limitation period would expire when the consumers involved are not even aware of the unfair nature of the terms of the agreement.
In Case C-698/18, the action was brought 11 years after the agreement had expired. But the agreement was concluded in 2003, i.e. before Romania's accession toe the EU in 2007. Thus, the CJEU did not have jurisdiction.

An important difference between Raiffeisen and Cofidis II is that in Cofidis, the consumer was the defendant, not the claimant. In that case, consumers should not lose their rights merely because a claim against them is brought after expiration of a limitation period. Again, what is decisive here is the risk that they have never been aware of their rights before they were able to invoke them. Knowledge is key.


[1] See also our blog on OPR-Finance. 
[2] See further this contribution by Daniël Stein, available only in Dutch. 

EuCML journal: call for a new editor

EuCML is growing and looking for a new member of its editorial team – to join the articles’ editors.

EuCML (Journal of European Consumer and Market Law) has grown from strength to strength. The journal is now a well known fixture in the consumer and market law landscape, attracting high quality pieces and established authors from all over Europe. We receive a high volume of contributions.

EuCML is a flat structure journal. The editors attend regular Skype Meetings to prepare new issues. The current editors are split in teams corresponding with the section of the journal and all handle pieces and contact with authors. We are looking for an academic to join us (with a specialisation in data protection – broadly understood). The new editor would join the articles’ team and help us handle the new articles coming in. The process includes:

-    Receiving articles, contact with authors,
-    Identification of potential reviewers, contacting reviewers, management of review process (ensuring reviewers stick to deadlines), feedback to authors
-    Checking new versions of articles and use of reviewers’ comments
-    Advice on use of OSCOLA (our referencing system) to authors
-    Editing pieces (all in English)

To apply, please send a CV and covering letter to Christine.riefa@brunel.ac.uk by 30 September 2020. The EuCML editors will interview in the first week of November. The position is open and will start immediately upon appointment (unless otherwise agreed with the successful candidate). All editors are unpaid for their work.

The EuCML editors.
Christoph Busch, Alberto De Franceschi, Mateja Durovic, Joasia Luzak, Vanessa Mak, Jorge Morais Carvalho, Kristin Nemeth, Rupprecht Podszun, Christine Riefa.

Loan extension fees are within 'total cost of credit' - the CJEU in C-686/19 Soho Group

Yesterday the CJEU delivered another interesting judgment on consumer credit, C-686/19 Soho Group v Pateretaju tiesibu aizsardzibas centrs. This time the case involved the interpretation of Art. 3(g) of Directive 2008/48/EC and the question whether the term 'total cost of credit' includes loan extension fees.

The facts

Soho Group is a Latvian high cost short term credit provider, specializing in loans between 70-425 EUR for the duration of 30 days to 12 months. In performing its supervisory function the Latvian Consumer Protection Authority discovered that the firm charged high fees for extending the duration of the loan, breaching the relevant Latvian law that capped the total cost of credit. Consequently, the authority imposed a 25000 EUR fine on the firm that triggered the relevant national court process for the preliminary reference.

The legal question

The legal question in front of the court was whether the contract extension fee was within 'total cost of credit' provided by  Art. 3(g) of the Directive and implemented into the relevant national law. 

The ruling

The CJEU ruled in favor of the Consumer Protection Authority finding that the term 'total cost of credit' needs to be interpreted to include fees for the extension of the duration of the loan provided: the conditions for the possibility of the extension are laid down clearly and precisely in the relevant standard terms and conditions of the contract and that the costs are known to the creditor. 

In reaching this conclusion, the CJEU was guided by four considerations. 

First, the fairly broad language of Art. 3(g) provides that the 'total cost of credit' includes all costs, including interest, commissions and taxes and any other fees which the consumer is required to pay except notarial fees. The definition even includes ancillary services such as insurance, if they are compulsory for obtaining the loan. Thus, the provision broadly includes all costs except notarial fees.

Second, referring to its previous case-law and the recitals of the Directive, the CJEU concluded that the provision applies not only to the understanding of total cost of credit necessary for the conclusion of the contract but also for its use, that is, performance.

Thirdly, the CJEU took into account that the 'total amount payable by the consumer' under Art. 3(h) means the sum of the total amount of the credit and the total cost of credit. Thus the CJEU reasoned that the two notions, the notion of a 'total cost of credit' and the 'total amount of credit' are mutually excluding concepts and consequently the 'total amount of credit' cannot contain any cost elements comprising the 'total amount payable by the consumer'. 

Finally, the CJEU also considered the aim of the Directive to provide a high level of consumer protection and to facilitate the creation of the internal market in consumer credit.

Our evaluation

This is another important decision on the clarification of the scope of the Directive. It is particularly important that it raises and answers a substantive question on the content of the contract rather than the provision of information. Most of the CJEU case -law tackles the meaning and scope of the creditors many information obligations. Understandably so given the overwhelmingly information approach of the Directive. In practice however many cost-related questions arise, and this is now a welcomed development that the CJEU had a chance to clarify the meaning of one of these provisions.

The 'consumer friendly' approach is positive and is also justified not just by the above reasoning of the CJEU but also the broader socio-economic circumstances in which these loans are consumed. High cost short term loans are usually used by the less well of or poor(er) consumers (see more here) and it is particularly unfair to charge high fees for them because they had to extend the duration of their loans. As the facts of the case state, and this is a common practical situation, consumers would normally ask for the extension of the loan to avoid default (that would trigger even higher fees and other unwanted circumstances such as  the effect of default on ones credit rating). 

Looking broader than the high cost short term loans in question, regulating ancillary fees is always a positive approach. Financial firms would use these to covertly achieve high profits, with very little market control over the amount of these fees and with uncertain application of legal control mechanisms such as the unfair terms legislation. Therefore, bringing loan extension fees under the control of the Directive via the notion of  the 'total cost of credit' may be necessary to provide the envisaged high level of protection for consumers.

* This comment is based on the Hungarian language version.

Dutch Authority for Consumers and Markets to take action against fake online reviews

At the end of last month, the Dutch Authority for Consumers and Markets (ACM) announced that it would be taking action against fake reviews, fake likes, and fake followers active on the Internet (here). The ACM identified these practices on platforms such as Facebook, Instagram, YouTube, and Google. This puts social media and influencer marketing – and associated practices perceived as harmful for consumers - in the spotlight. According to the ACM, these practices are harmful for consumers since they undermine the consumers’ confidence in the market, and they provide consumers with unreliable information. This is an important step in the regulation and enforcement of legal rules regarding online review mechanisms. It is not the first time that the ACM devotes attention to this problem. In 2017, the ACM published a study regarding online reviews mechanisms and suggested that their transparency should be increased to fight reliability concerns. The decision to take action against fake reviews and other misleading practices follows up on the guidelines on the protection of the online consumer developed by the ACM earlier this year (here). In these guidelines, the ACM explained that, among other aspects, a business cannot post fake reviews or instruct others to do so nor can it highlight only positive reviews or delete negative reviews. The ACM stated that it will reprimand businesses, influencers or other market participants that offer ‘misleading endorsements’ and, in case of refusal to stop their illegal activity, the ACM admits the possible imposition of fines.

Although online review-related commercial practices are covered by existing EU legislation (such as the E-Commerce Directive and the Unfair Commercial Practices Directive), the enforcement of such rules in this context is not frequent, although growing in the last couple of years. However, fake online reviews (or misleading online reviews that, not being necessarily fake, are biased due to, for example, social pressure, leading to a problem of reputation inflation) are a problem that affects many consumers. For example, a 2014 study conducted at the request of the European Commission (here) estimated that around 82% of consumers consult online reviews before purchasing a good. The EU consumer law regulation of online review mechanisms has been recently strengthened by the Omnibus Directive that, for the first time, explicitly imposed duties on traders regarding online reviews (see our blogpost on the Directive here). It will be interesting to see how Member States will transpose these measures and what framework will be applicable to online reviews at national level (e.g. competition law, contract law, advertising law).   

No judicial fine-tuning of the scope of UCTD: CJEU departs from AG's opinion in Banca Transilvania

Earlier this month we reported on the interpretation of Directive 93/13/EEC on unfair contract terms (UCTD) proposed by the Advocate General Kokott in case C-81/19 Banca Transilvania. The questions referred in the case concerned, firstly, the exclusion from the scope of the UCTD of terms reflecting mandatory statutory provisions in Article 1(2) and, secondly, the conditional exclusion of core terms in Article 4(2) from the scope of fairness assessment. In both respects the Advocate-General proposed a pro-consumer reading, widening the scope of relevant assessment and elaborating on the competences of national courts to fill gaps in the contract. In the judgment issued last week, however, the Court of Justice  departed from the AG's opinion and limited its reply to the first question only.

Facts of the case

The case was brought by two Romanian consumers, who entered into a credit refinancing agreement, converting the original loan in Romanian leu into an agreement denominated in Swiss francs. Due to subsequent fluctuations in the CHF/RON exchange rate, the amount which they ultimately had to pay increased considerably. The claimants argued that the bank failed to provide them with adequate information on the exchange rate risk, which they found unreasonably disadvantageous. 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 the UCTD. Against this background, the referring court asked the CJEU whether a contractual term which reflects a supplementary rule of national law articulating a general principle (such as the principle of monetary nominalism) is subject to the provisions of the UCTD. In case of an affirmative answer, a further question was raised as regards the analysis of core terms under Article 4(2) of Directive 93/13 and the associated legal consequences to be drawn by national courts.

Exclusion of contract terms reflecting mandatory statutory or regulatory provisions

Pursuant to Article 1(2),  contractual terms which reflect mandatory statutory or regulatory provisions are not subject to the UCTD while recital 13 explicitly clarifies that this also extends to the rules "which, according to the law, shall apply between the contracting parties provided that no other arrangements have been established". One could assume that this definite formulation leaves no doubt about the scope of the exclusion. However, the provision has been interpreted differently by the Romanian courts, leading the referring court to wonder how far it indeed applies to supplementary provisions. 

For the Advocate General Kokott the reference constituted an opportunity to clarify the scope of the exclusion, paving the way to its judicial fine-tuning in a pro-consumer manner. The AG admitted that the exclusion in Article 1(2) covered contractual terms reflecting both mandatory and supplementary (default) rules, but proposed a qualification at a later stage. Specifically, according to the AG, the exclusion only applied to the provisions which were adopted specifically for the type of contract concerned or were applicable to the contract according to a legislative reference. This conclusion was justified by a teleological argument, following which it was 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. Consequently, following the opinion, if the provision was not intended to create a balance between consumers and sellers or suppliers, the trader should not be able to rely on Article 1(2). Having reached this conclusion, the AG moved to the analysis of the remaining questions.

The Court of Justice, however, did not see eye-to-eye with the reading of Article 1(2) proposed by the AG. Even though it stressed that the exclusion was to be interpreted strictly (para. 24), it did not agree with the consequences drawn by the AG from the previous case law explaining the rationale of analysed provision. In this regard, the Court reiterated that the exclusion "is justified by the fact that, in principle, it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts" (para. 26). Accordingly, it stressed, the fact that such a balance has been struck does not constitute a condition for the application of the exclusion in Article 1(2) of Directive 93/13, but the justification for such an exclusion (para. 27). Consequently, to establish whether the conditions for applying the exclusion are met, the national court has to determine whether the contractual term in question reflects mandatory provisions of national law that apply between contracting parties independently of their choice or provisions that are supplementary in nature and therefore apply by default. The Court did not elaborate on what it means to 'reflect' the relevant rules, as it previously did in Aqua Med (see our comment here). Rather, it merely referred to the findings of the national court, according to which the contested term did indeed reflect the provision of national law and confirmed that the supplementary nature of that provision was irrelevant for the application of Article 1(2).

Concluding thought

While the judgment of the Court may be seen as conducive to greater legal certainty it does not necessarily contribute to an increased consumer protection. The pro-consumer reading proposed by the AG was not entirely unfounded and seemed well-aligned with the rationale of the provision as well as the requirement to interpret the exceptions strictly and ensure a high level of consumer protection. While in the case at hand, the Court was not ready to expand the scope of fairness assessment under UCTD, the case is not entirely lost for the consumers. Firstly, national courts should continue to assess whether the analysed contract term indeed "reflects" the relevant national provision. Secondly, due to the minimum level of harmonisation introduced by the UCTD, Member States may decide to extend the scope of the fairness assessment, for example in the direction proposed by AG Kokott.

The floor is lava - CJEU further on floor clauses in Ibercaja Banco (C-452/18)

Last week the CJEU has also provided us with the judgment in the Ibercaja Banco case (C-452/18) regarding a possibility of novation of a consumer credit contract containing possibly unfair terms, namely floor clauses. We have already explained in details the facts of the case and the AG Saugmandsgaard Øe's opinion (Free and informed consent required to accept an unfair term...), thus here we will only focus on the judgment itself and questions answered in it.

May the parties novate a contract term, which could possibly be unfair? 

Whilst Article 6(1) UCTD determines a non-binding effect of unfair contract terms on consumers, the consequence of unfairness is voidability, leaving an option to consumers to oppose to the annulment of an unfair term (para 25). Consumers may prefer to keep the unfair terms in force and as long as they do so in full awareness of the consequences of their decision, providing free and informed consent, their choice needs to be respected by national courts (para 27). By way of analogy, therefore, consumers may enter into a novation agreement the subject of which is a potentially unfair contract term - again provided they do so with a free and informed consent, which involves consumers' awareness of the non-binding character of an unfair term and consequences of waiving that effect (paras 28-29).

What terms are individually negotiated?

The CJEU informs further the Spanish courts that it is rather unlikely that new terms intended to amend potentially unfair contract terms in previous standardised contracts have been individually negotiated between parties, and therefore do not require unfairness assessment themselves (para 34). The national courts must ascertain whether such terms proposing novation of the previous contract have indeed been individually negotiated, which would mean consumers were able to influence their substance (para 35). What indicates that the term was likely not individually negotiated are the following facts: novation of contracts was part of a general policy of renegotiating mortgage loan agreements (para 36), consumers were not given a copy of the new terms in advance or allowed time to examine it after the meeting (para 37). Importantly, the bank may not rely on the handwritten signature by consumer attesting to having read and understood the term as proof of the term having been individually negotiated (para 38).

Transparency by providing information on past changes in the index

Once again the CJEU has a chance to highlight, with reference to the previous case law, the importance of the principle of transparency going beyond terms being simply formally and grammatically intelligible (paras 44-48). The Court reminds its previous assessment that although it cannot be demanded variable rate credit providers to inform consumers precisely on the exact values for the whole duration of the credit, as it is the specificity of a variable interest rate that it fluctuates, such providers should illustrate for consumers 'data relating to past changes in the index on the basis of which the rate is calculated' (para 53). This should then also clearly show to consumers how the application of floor clauses will prevent consumers from taking advantage of rates dropping below the 'floor' rate proposed to them (para 54). The CJEU is convinced that an average consumer having such information will understand the economic consequences of novating a credit agreement with a variable interest rate loan by adopting a new floor clause in it (as compared to not having floor clauses in it at all, as a result of their unfair character) (para 55). 

Comment

There is a problem with this assessment by the CJEU. This last point could be true only if the credit provider indeed clearly indicates to consumers the potential unfair character of the original floor clause and informs them of the consequences of finding such unfairness, as well as provides such illustrations of past changes to the index that are transparent to consumers. In its reasoning, however, the Court focuses again on what information needs to be given to consumers (on past changes in the index, although even there the CJEU does not specify that the examples provided to consumers have to show the practical applicability of floor clauses) rather than on how this information is to be provided (when will it be understandable?).

Unfairness of a novation agreement

The CJEU determines that when in order to resolve a dispute parties decide to conclude a novation agreement pursuant to which both parties wave their rights of action under the old contract, this may be perceived as constituting the main subject matter of the new novation agreement pursuant to Article 4(2) UCTD. Consequently, such a waiver could be exempt from the unfairness test, provided it was clear to consumers what rights they were waiving and what were the consequences of such a waiver (principle of transparency) (para 68). The CJEU leaves the assessment of transparency to the national court, but draws its attention to the fact that at the moment of novation, the unfairness of the floor clause was a possibility rather than certainty, and that there was also uncertainty as to the scope of potential reimbursement for consumers (paras 71-73). As such, the bank may not have been able to inform consumers as clearly as consumers could expect on the consequences of unfairness. The CJEU is adamant, further, that any waiver of consumer rights resulting from the newly signed novation agreement is invalid (paras 75-76), as these disputes have not yet arisen.

Blog comments option disabled

Dear readers,

As this year we have been flooded with spam comments more than ever before, we have decided to disable the 'comments' option on the blog for the moment (read: until Blogger installs a better spam filter). We are still happy to receive comments on our posts - please reach out to us either on our email addresses (check our listed bios) - or start a discussion with us on Twitter. Most blog contributors have their own Twitter accounts, but we also share information on all posts via my account @joasialuzak.

Best,

Joasia (in the name of all contributors)

The missing suitcase - CJEU in Vueling Airlines (C-86/19)

Last week the CJEU issued a judgment in the Vueling Airlines case (C-86/19) deciding on the liability of air carriers for lost or damaged checked in baggage. As a reminder to our readers, this area of air passenger rights is not regulated in Regulation No 261/2004, but rather in the Montreal Convention.

The checked in luggage of the passenger in the given case never arrived at the final destination, which led the passenger to claim the maximum amount of compensation provided in Article 22(2) of the Montreal Convention - 1131 of Special Drawing Rights (SDR) (which would currently amount to ca 1376 Euro) - to compensate them for both material and non-material damages. The air carrier acknowledges its liability but wants to limit its compensation to the passenger to EUR 250 for all suffered by passenger losses. The passenger did not indicate the contents of the baggage, its value or weight, nor provided receipts for items bought to replace the lost items. Instead the passenger relies on the fact that loss of baggage is the most serious ground for liability of air carrier in Article 22(2) Montreal Convention and, therefore, should be awarded by the maximum amount of compensation provided in it. The referring courts indicates the different practice of national courts in awarding compensation in such cases: some courts require evidence as to specific passenger losses, others do not. Therefore, the CJEU is asked for its guidance.

The CJEU confirms first that Articles 17(2) and 22(2) Montreal Convention read jointly indicate that the amount of compensation for the lost baggage is not a fixed sum payable automatically to the passenger, but rather indicates the maximum amount of compensation that the air carrier needs to be prepared to pay when they are liable (para 35). This is not a surprising interpretation, as the previous case law on the Convention was also clear in indicating that these provisions aim to set absolute limits to the air carrier's liability, absent passengers indicating separately and explicitly a higher value of their checked in luggage, rather than regulate it on a fixed level (see e.g. our previous comment on Walz judgment).

The second question was more interesting: How are national courts to determine the amount of payable compensation? The answer to it is not surprising either, however, but rather deeply rooted in the limitations of the EU Law in relation to procedural matters. The CJEU is only able to indicate that the Montreal Convention leaves it to the national rules of evidence to determine how passengers are to prove the suffered losses, with the caveat that the national procedural rules must comply with the principles of effectiveness and equivalence (para 44). Already in the previous case - Espada Sanchez and Others (see our previous comment here) - the CJEU has confirmed that the burden of proof as to the value of the baggage is on the passenger (para 37). The CJEU mentions that the passengers could e.g. be asked to present receipts for items purchased to replace lost luggage, documents confirming the harms suffered as the result of the loss (para 41). When the passenger does not produce any such documents, the courts could consider the weight of the luggage, whether it was lost on an outbound or return journey, but any such assessments need to be made in consideration of the case as a whole (para 42). As it is the air carrier who is likely to have the record of the weight of the luggage, the national court may require them to help with providing evidence thereof (para 43).

CJEU on jurisdiction in Dieselgate disputes: C‑343/19, VKI v Volkswagen

Dear readers, 

as many of us prepare to enjoy some well-deserved holidays, we should not neglect to pay attention to a judgment by the Court of Justice from this week which can have important consequences on Dieselgate litigation. 

Since the scandal known as Dieselgate emerged a few years ago, several individuals, consumer organisations and law firms have started actions against Volkswagen to claim damages or other remedies in connection with the company's emissions fraud. While national courts are gradually also starting to render important decisions on the subject, this week the Court of Justice had to answer an important question: which national courts have jurisdiction to adjudicate on actions for damages brought by disappointed consumers?

image: pikist.com

Under article 7.2 of the so-called Brussels I regulation (n 1215/2012), a person domiciled in a Member State can be sued in a different member state, in tort cases, when this is the place where the "harmful event" has occurred or may occurred. 

In the case of Dieselgate claims, the referring Austrian court doubted what would have to be considered as the harmful event: is it the installation of a "defeat device" making the car's tracking of emissions unreliable, or is it, as claimed by the plaintiffs, the place where the defective vehicle has been purchased?

Recalling its earlier case-law, the CJEU (para 23) asserted that the concept of the "place where the harmful even occurred" covers both the place where the damage has occurred and the place where the damage-generating event took place.

The damage suffered by the buyers emerged immediately with the purchase of a vehicle whose value was lower than the price paid due to its defect and was not purely financial loss exactly because the vehicle was defective (para 35). For this reason, the damage emerging at the moment of purchasing the vehicle is suitable for establishing jurisdiction in the MS where the contract was concluded - in this case, Austria. 

According to the Court, this outcome does not undermine legal certainty as a manufacturer who sells in several Member States can expect to be sued in these MS and because, given the nature of the damage, courts of the state in which the contract has been concluded will be best placed to investigate the loss. Indeed, the CJEU observes, the possible loss of market price of the defeat vehicles depends very much on local market conditions, which means that courts of the MS where the original sale has been made can assess whether the consumer has suffered a loss of value. 

By taking away exceptions of jurisdiction, the CJEU has thus cleared one of the stumbling stones standing between consumers and effective remedies in this interesting saga.