Ryanair disruptions - looking forward to a bunch of interesting court cases!

Dear readers, 

we certainly hope none of you have recently been involved - or will be affected in the coming weeks - by Ryanair's decision to cancel hundreds of flights in order to cope with their apparent failure to schedule pilot holidays in a way that would allow them to comply with their contracts with several thousands customers. 

We are not aware of any similar cases since the adoption of Regulation 261/04, so it is likely that this situation will engender court cases to clarify what obligations the airline has towards the many consumers whose plans have been disrupted or anyhow affected by the company's answer to its planning mistakes. 

For a mostly accurate overview of your rights in case your flight has been cancelled by the Irish company, take a look at the Guardian's summary. 

Procedural obstacles to tackle Swiss francs credits - AG Wahl in Gavrilescu (C-627/15)

AG Wahl issued an opinion today in the case of a Romanian couple, Gavrilescu (C-627/15), who have concluded a credit contract in Swiss francs with Volksbank Romania. The contract obliged them to pay back the loan in the same currency. Such contracts used to be very popular in Central and Eastern Europe, as they were perceived as protecting the borrowers from currency fluctuations - with Swiss francs being perceived as stable, whilst local currencies - not so much. Unfortunately, with the financial crisis and the significant depreciation of local currencies against Swiss francs, a lot of people got in financial trouble with their mortgage and other credit payments, as they kept on receiving their salaries and pensions in local currency but had to pay the credit back in Swiss francs. Of course, we could argue that they took that risk knowingly, choosing to conclude a contract in a foreign currency, but before such a statement would be made, we'd need to consider that 1. this might not have been a conscious choice, as banks could present only credit offers in Swiss francs to consumers; 2. there was a long tradition in these countries of contracts being concluded in foreign currency rather than local one, which significantly impacted estimation of risks and decision-making.

Gavrilescu argued that terms on repayment of the loan in foreign currency were unfair, as they placed the risks of possible fluctuations of currency exchange rates on consumers. Despite the couple settling with the bank, the referring court asked for the preliminary reference procedure to continue, seeking clarification of the nature of core terms in such contracts, to assess whether they could be subject to the unfairness test. Moreover, as the contract gave a unilateral right to the bank to converse the rate of repayments from Swiss francs to the local currency, if certain conditions were fulfilled, but did not grant such a right to consumers - the Romanian court asked about the applicability of unfairness test to such a term. 

Unfortunately, AG Wahl argues that all these very interesting and very pertinent questions will need to remain unanswered, considering that the case has been settled and, therefore, they are now purely hypothetical and answering them would potentially violate the principle of individual autonomy (the right of the parties to settle and end the proceedings) and of sound administration of justice. None of the substantive questions is, therefore, discussed in the opinion. We leave it to our readers to look up the analysis of the civil procedure-related questions.

Call for papers for a conference on nutrition information

CJEU in Schottelius: a sales contract under Directive 99/44 is... a sales contract.

Back to school for students and us teachers, but also back to work for the CJEU. 

Last week, the Court had to decide on a case allegedly involving the Directive on Consumer Sales and Associated Guarantees of 1999 - Schottelius, or C-247/16. 

Under the Consumer Sales Directive, the seller of a defective good must perform a repair request within a "reasonable time", after which inaction on their side authorizes the purchaser to seek alternative remedies. Under general contract law, on the other hand, the creditor of an outstanding obligation usually first has to set a deadline for the debtor to comply. Failing that, they have no recourse against the debtor for any expenses they may have undergone as a result of the latter's failure to comply. 

In the case before the CJEU, the contract at stake concerned the renovation of a swimming pool- a contract that national private laws usually would identify as one of "services". The Directive, on the other hand, only applies to sales contracts. 

The referring court asked whether a general principle of European contract law should be deduced from the Directive, according to which in consumer contracts the setting of a term for performance is not required when the consumer is acting as the creditor. 

The Court of Justice answered that, even though the definition of "sales" under the Directive does not need to coincide with the various definitions given under national contract laws, and it even expressly seeks to deviate from those by including contracts that comprise the delivery and installation of certain goods (see article 1.4 of the Directive), a contract to carry out renovation works such as the one as stake in this case cannot fall under the remit of the Directive. 

Nice try from the referring court, though!

"We gave you an inch, please don't ask for a mile" - CJEU on the notion of 'distance' in Regulation 261/2004

With more than 20 preliminary references submitted and resolved to date one would think that the most contentious issues concerning the interpretation of Regulation No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights have already been addressed. Nothing could be more wrong, apparently. Last Thursday the CJEU delivered another interesting judgment on that matter - this time in case C-559/16 Bossen and Others. The case pertained to the calculation of a distance, which determines the amount of compensation due to passengers whose flights were delayed. 

Facts of the case

Factual circumstances of the case were pretty straightforward and involved a passenger booking a trip from Rome to Hamburg via Brussels. The flight was delayed by almost 4 hours meaning that the applicant was entitled to demand compensation analogous to the one which can be claimed by passengers of cancelled flights, in line with the earlier, pro-consumer case law of the CJEU (see cases Sturgeon and Nelson). The demand itself was not questioned by the air carrier - the bone of contention was rather the amount of the compensation due. This depended on the distance covered by the flight, which, pursuant to Article 7(4), should be calculated using the so-called great circle route method. What remained uncertain was whether, in the application of that method, account should be taken of the distance between the first point of departure and the final destination or whether the distance of each connecting flight should rather be considered.

Against this background, the national court decided to stay the proceedings and ask the CJEU whether the concept of ‘distance’ referred to in Article 7(1) of the regulation relates, in the case of air routes with connecting flights, only to the distance calculated between the first point of departure and the final destination on the basis of the ‘great circle’ method, regardless of the distance actually flown.

CJEU judgment

The Court of Justice decided to side with the air carriers this time and ruled that it is the distance between the first point of departure and the final destination that counts. Specific passenger itinerary, in particular the existence and the choice of particular connecting flights, should be irrelevant.

The ruling was supported by a rather concise reasoning. Further insights cannot also be drawn from the Advocate-General's opinion as the CJEU decided to proceed without one. According to the Court, in case of passengers whose flights were cancelled or delayed the damage which Regulation 261/2004 aims to remedy consists in depriving them of the opportunity to reorganise their travel arrangements freely. As a result "if, for one reason or another, they are absolutely required to reach their final destination at a particular time, they cannot avoid the loss of time inherent in the new situation, having no leeway in that regard" (para. 27). Understood in this way, the extent of the inconvenience suffered by a passenger concerned does not depend on the fact whether his final destination is reached by means of a direct flight or by a journey with connecting flights. Speaking more generally, the ruling appears to strike the right balance between the rights of passengers and interests of air carriers. The reasoning, however, begs the question why the distance covered by the flight is considered in the regulation at all. 

7-8 September - workshop Sustainable Consumption: Information Regulation, Consumer Behaviour, And the Rule of Law

Sanctioning EU-wide infringements: is there a need for an overhaul of the existing enforcement regime?

I recently read the news that the Commission announced taking steps towards fining Google, Twitter and Facebook for breaching EU consumer protection rules. The Commission has found that the standard terms and conditions of the three companies are continuously breaking EU consumer protection rules, for example by forcing European consumers to take their disputes to California courts (see the press release here). The Commission has warned the companies that sanctions will take place unless they bring their standard terms and conditions in compliance with EU consumer protection rules, the final deadline being now the end of September. However, although the breach affects consumers across the EU, the Commission is powerless in taking EU-wide action to protect every affect European consumer, and to defend the authority of EU consumer law. The Commission can only negotiate and exercise pressure by putting forward the prospect of being fined by Member States. However, final actions need to be taken by Member States and their respective authorities.

In spite of harmonizing substantive law, (public) enforcement of consumer law remains national. It is confined to national enforcement authorities, the Commission's role being simply in coordinating their activities via the Consumer Protection Cooperation (CPC) network. Consequently, EU wide infringements must also be addressed at national level. In the situation like the present one, the Commission cannot directly sanction businesses in breach of EU consumer law. Fines have to be ordered by national authorities. It makes me wonder whether this is the most effective and efficient way to enforce EU consumer Law? The one potentially huge fine is now sliced up on 28 slices, even if the aggregate amount of 28 fines would be higher than one single fine, the present solution requires considerable resources at Member States' level for conducting the enforcement procedure and for monitoring compliance with the sanctions. The slicing up the fines and the 28 independent enforcement procedures may undermine the preventive, deterrent effect of the sanction. The fact that the Commission negotiates with the companies but has actually no power to act may leave a confusing message as to the importance of EU consumer law. It looks like that harmonized substantive law rules fall apart at national level... Leaving aside aspects of effectiveness and efficiency, it looks like this approach may ultimately encroach on one of the  basic values on which the EU is founded upon, on the principle of the rule of law (Article 2 TFEU). It therefore begs the broader question as to whether there is a need to overhaul and improve the existing regime of the enforcement of consumer law by empowering the Commission to take enforcement actions against EU-wide infringements.

Even though there may be disagreements on the answer to the above question, and some may argue that enforcement of consumer law should stay national, it looks like that we may look ahead of some changes. According to the press release: 'EU lawmakers are currently negotiating a separate draft EU law that would give the Commission more power to directly sanction firms that violate consumer protection rules'.

Is there a need to reform European financial supervision for the benefit of consumers?

The European Commission has recently closed its public consultation on the Operation of the European Supervisory Authorities (see the feedback statement here).

The supervision of financial firms in the EU is subject to a complex, multi layered system consisting of national and EU supervisory authorities that has became even more complex after the creation of the Banking Union. For us here most important are the European Supervisory Authorities (ESAs). The ESAs, the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), the European Insurance and Occupational Pensions Authority (EIOPA) has been created in 2010 as a response to the financial crisis. Although they are primarily concerned with prudential supervision (ensuring that financial firms have enough capital to operate, that they are safely and soundly), consumer protection is also on the list of their objectives.

Consequently, the recently held consultation asked whether the current tasks and powers of the ESAs are sufficient to protect consumers and how they could be improved in this respect.

Many stakeholders found that the scope of ESAs' tasks and powers is adequate and should not be extended. Instead, they should use their existing powers more efficiently, and should be more aligned with the problems at national level. However, some stakeholders saw room for extending ESAs' powers, e.g. by giving ESAs the right to prohibit or restrict certain products for investor protection purposes, want to see more work in the financial innovation space, including on virtual currencies, or on financial education, cross-border protection, big data etc. Finally, some, like Better Finance, advocate for the overhaul of the current system of supervision by opting for a 'twin-peak' model instead of the current 'silo' approach. The argument is that the current ESAs priortise prudential matters over consumer protection matters (see their press release here).

Learning from the experience of the UK, the twin peak model could be an interesting option. In the UK, the former Financial Services Authority has left behind a number of scandals causing significant detriment to consumers (PPI, payday loans, etc). Having both the objectives of prudential supervision and consumer protection, it had not been sufficiently sensitive to consumer problems, and prudential matters had often been prioritized. The creation of a separate consumer protection authority (the Financial Conduct Authority) has improved consumer protection standards and practice, and the approach so far seems to work well for the UK. However, we must admit, that although the solution of having only one supervisory authority for the entire EU financial market sounds appealing, it is a radical suggestion that requires, among others, substantial background research.

What do you think, is there a need for an EU Financial Consumer Protection Authority, and is it a viable solution?

E-commerce: consumer confidence grows significantly

Yesterday, the Commission published the 2017 edition of the Consumer Conditions Scoreboard. 

Next to the observation that the share of consumers buying online has pretty much doubled over the last 10 years (from 29.7% in 2007 to 55% in 2017), the most striking finding is that consumer trust has increased quite dramatically since the 2015 edition. The study records a 12 points increase of trust vis à vis "national" retailers and 21 points(!) improvement when ordering cross-borders. 

copyright European Union

The study also checked whether consumers were aware of certain key rights (right to return a product bought at distance within 14 days without giving any reason; right to a replacement and/or the repair of faulty products;  right to neither pay nor return unsolicited products) that they enjoyed when shopping online. Only 12% of the surveyed consumers gave correct answers in respect of all three rights, showing 3 points improvement compared to 2015.

While the study also investigated complaints and dispute resolution and paid some attention to the issue of vulnerability, the results are less striking in these areas. 

The full report can be downloaded here and a factsheet can be downloaded under yesterday's press release.

Debt collection requires consumer protection, too - CJEU in Gelvora (C-357/16)

From previous European case law we already know that commercial practices directed at consumers have been broadly interpreted by the Court of Justice (see e.g. CHS Tour Services). In the most recent case - Gelvora (C-357/16) - which was decided last Thursday, July 20, the CJEU decided to encompass within this notion also services of debt collection agencies, which collect debts resulting from consumer credit agreements.

Gelvora is a private debt collection agency operating in Lithuania, which contracted with banks not consumers, to take over banks' claims from consumer credit contracts. Upon being assigned the debt, Gelvora would start recovery actions, sometimes in parallel with enforcement procedures following judicial decisions. Consumer debtors filed a complaint about unfair commercial practices of Gelvora with the Lithuanian consumer protection authority (Valstybinė vartotojų teisių apsaugos tarnyba). The CJEU was asked as to whether the UCPD could apply at all to such practices.

The CJEU reminds that to qualify certain commercial actions or omissions as a commercial practice, there is no need for a contractual relationship (para 20). The practice needs to be 'directly connected with the sale of a product', which covers also actions undertaken to obtain a payment for the product (para 21). In the given case, banks provide consumers with credit (a service) in exchange for consumers' repayment (together with interest) (para 22). Subsequently, Gelvora provides debt recovery activities  - which should be seen as a 'product' provided by debt collection agencies under Art. 2(c) Unfair Commercial Practices Directive (para 23). At the same time, these activities could be perceived as a commercial practice, as the activities of debt collection agencies may influence consumers' decision as to the payment of the product (para 25). It is irrelevant that the bank provided the original service (credit), as the debt collection activities form a part of after-sales commercial practices, that may be facilitated by third parties (para 26). The CJEU clearly emphasises also the danger of excluding such practices from the scope of application of the UCPD - as it could then be tempting for service providers to separate the recovery of payment phase from the provision of the service, avoiding the application of consumer protection (para 28).