Take me home! Lessons from Monarch's closure

On Monday, 2 October 2017 Brexit claimed its first major victim! The UK based Monarch (Airlines and Holidays) went into administration. The bankruptcy of the company came for many as an unpleasant surprise,  leaving 110.000 passengers stranded abroad and many more disappointed with the cancellation of their holiday. According to the BBC, Brexit is in the heart of the company’s failure. Namely, following the Brexit vote the value of the Pound has sharply fallen compared to US Dollar, and many substantial costs for running the airline such as for fuel and handling charges were denominated in US Dollars. This means that following the Brexit vote Monarch paid more for these services and goods than before. Conversely, fierce competition from other low-cost airlines and tour operators, disabled the company to recover the additional costs generated by the Brexit vote.

Following Monarch’s administration the Civil Aviation Authority (CAA), took over Monarch's website and coordinated the biggest repatriation operation which concluded on October 15^th. However, the ordeal of Monarch’ passengers is far from over, as many still have to make alternative travel arrangements as well as claim refunds or expenses. While customers that booked holiday packages with Monarch are protected by Air Travel Organiser’s Licence (ATOL), a UK protection scheme for holidaymakers (see CAA’s website for more information on ATOL), the same is not true for flight-only customers who need to contact their card issuer to find out how to claim a refund (see the Guidance on Monarch's website). 

The case of Monarch in the UK reflects the state of consumer rights also on an EU level. There is a distinction between consumers that buy package holidays and those that buy only air tickets. The first are protected in case of insolvency, according to art 17 of Directive 2015/2302/EU (the New Package Travel Directive), while the second category falls under Regulation 261/2004 which does not provide for insolvency of the provider and the ensuing difficulties in fulfilling their obligations to compensate consumers and reroute flights as per art.7 of the Regulation.
 

While it is mandatory for air carriers to insure their passengers, as per art 6.1. of Regulation 785/2004, insolvency is not specified as a risk. Art.9 of Regulation 1008/2008 on common rules for the operation of air services in the Community (RECAST) provides for the suspension and revocation of the operating license of an air carrier facing financial problems, yet does not cover issues of compensation or repatriation of passengers. Thus, flight-only consumers are disadvantaged in the event of insolvency of the airline, compared to package travel consumers.

EU Commission has recognised the changing landscape as more consumers arrange their travel independently rather than book a package holiday, by bringing a Proposal for amending Regulation 261/2004 in 2013. The Proposal includes the obligation of large airport to have a contingency plan in place in case of a large number of cancelled flights, as well as inform passengers of said cancellations.( See art.4 and 14.4 of the Proposal).

Do you think that the current framework and especially Regulation 261/2004 ensures adequate protection of air passengers in the event of insolvency of the carrier or should Monarch be a warning sign that there is need for reform?

Note: This is the first joint post of the blog and I kindly aknowledge the contribution of Andrea Fejős, especially on the role of Brexit to the closure of Monarch.

Towards stricter standards for endocrine disruptors

On 4^th October, the European Parliament issued an objection to the Draft Commission regulation amending Annex II to Regulation (EC) No 1107/2009 by setting out scientific criteria for the determination of endocrine disrupting properties. The European Parliament took issue with the last paragraph of the Draft Regulation, which allowed for excluding a substance with an intended endocrine mode of action from being identified as an endocrine disrupter for non-target organisms. According to the European Parliament, this exception was not based on scientific criteria as required by the Court; instead, the EU Commission took into account other criteria such as economic ones, thereby exceeding its implementing powers.

Endocrine Disrupting Chemicals (EDCs) are an exogenous substance or mixture that alters function(s) of the endocrine system and consequently causes adverse health effects in an intact organism. They are widely used and can be found in food and in a variety of consumer products, including toys and cosmetics. Even though the study of the effects of EDCs is ongoing, there are numerous studies showing the association between EDCs and human diseases, ranging from reproductive and endocrine to autoimmune and cardiopulmonary (see e.g. on World Health Organisation's website). Children are particularly vulnerable and their exposure to EDCs is linked to increased incidences of reproductive diseases, endocrine-related cancers, behavioural and learning problems amongst others.

Given that EDCs pose a real threat to the health of consumers and especially children, it is imperative that they are effectively regulated. The EU is leading the way in regulating EDCs, as it is in the process of adopting legally binding criteria to determine what is an endocrine disruptor, something that no country has done so far (see Commission's communication).

When regulating endocrine disruptors consumers' health and protection of the environment are the priority rather than the internal market. This was the message sent by the European Parliament to the EU Commission which now has to modify and resubmit the Draft Regulation. This development was welcomed also by BEUC, which urged for higher standards in relation to EDCs.

In anticipation of the EU Commission’s revised Draft Regulation, it is reassuring that its new direction will be towards a stricter standard for regulation of endocrine disruptors to the benefit of consumers.

The UK enforcement action worked: Ryanair changed its practice

Following up on our last week's post on the enforcement action of the UK's Civil Aviation Authority (CAA) against Ryanair for failing to inform consumers of their rights, it looks like that the enforcement action was successful. Ryanair has changed its practice. It has emailed affected customers and published an announcement on its website, explaining passenger rights stemming from Regulation 261/2004 and what Ryanair is going to do about these rights.

Given that enforcement actions remain national, Ryanair seem to have done more that it was supposed to do. By its own account, it has emailed every affected customer. The published announcement is also accessible for all its customers. The UK based authority's action therefore seem to have gone beyond its territorial scope of authority, and helped every affected customer regardless of where they are domiciled, and regardless of where they were flaying to and from. Although (formal) enforcement actions for EU wide-infringements remain national, it seems that digital technology and a bit of a good will enabled a national enforcement action to have (informal) EU-wide effect closing thereby the current loophole in EU law.

Do you agree with the above analysis? Or would you consider that national authorities have scope to act beyond the borders of their Member State in situations like this where EU-wide compliance with the national enforcement action is possible? Share your views in comments below.

Flight cancellation saga continues: enforcement action against Ryanair in the UK

Following up on our previous blog post and on the ongoing Ryanair scandal, our readers may be interested that the Civil Aviation Authority (CAA), the UK's aviation regulator, started an enforcement action against Ryanair. The CAA alleges that Ryanair persistently mislead passengers by providing inaccurate information regarding their rights guaranteed by Regulation 261/2004 in respect of the cancelled flights, particularly their rights about re-routing, and reimbursement of expenses caused by the cancellation (for example, meals, hotels and transfer costs).  With these omissions Ryanair has breached the Consumer Protection from Unfair Trading Regulation 2008 (implementing Directive 2005/29/EC on Unfair Commercial Practices), the breach of which triggered the empowerment of the CAA to use enforcement actions for the protection of collective interest of consumers based on the Enterprise Act 2002. With the enforcement action the CAA now asks Ryanair to change its practice (voluntarily), should this not be the case, the CAA will then seek a court injunction against Ryanair (see for more here).

As we have discussed previously, enforcement matter of EU-wide infringements such as this (where a large number of EU consumers in various Member States are affected) essentially remain national (see our posts here and here). So the question that logically follows is, what have other countries do to make Ryanair to protect their customers? Has there been a similar action in your Member State? Please share this information with our readers in comments below.

Guidelines on food products of dual quality published (though mainly on the UCPD)

Remember Jean-Claude Juncker's State of the Union address? Not too many probably recall that it also referred to some consumer issues, which, admittedly, are less captivating than broad institutional reforms. One of the consumer topics which made its way to the speech and has also attracted a fair deal of media attention is the apparent divergence in the quality of some products sold under the same brand in different Member States. The issue appears to particularly affect the CEE food markets, where prices are also comparably lower. Earlier this week, the Commission published a Notice on the application of EU food and consumer protection law to issues of dual quality of products in the food sector. The notice contains guidelines aimed to help national authorities in their assessment, carried out on a case-by-case basis, whether marketing and sale of double quality products is in line with EU law. 

Here are the main take-aways:

• Business operators are generally free to market and sell goods with different composition or characteristics in different countries - also under the same brand. The problem arises when  the marketing of identically branded goods of different quality is liable to mislead consumers.
• The notice theoretically covers three acts - General Food Law Regulation No 178/2002, Food Information Regulation No 1169/2011 and Unfair Commercial Practices Directive 2005/29/EC - but in fact only elaborates on the latter. This is somewhat perplexing given that Food Information Regulation provides not only for a set of information duties, but also for a general principle according to which food information must not be misleading. Further notice on this particular act is expected to follow shortly.
• To give it credit, the Commission attempts to explain the interplay of the UCPD with food law to some extent. It cites the lex specialis principle set out in Article 3(4) of the UCPD, according to which in the case of conflict between the Directive and other EU rules regulating specific aspects of unfair commercial practices, the latter shall prevail and apply to those specific aspects. It further recalls that information required by sector-specific law in relation to commercial communications is considered "material" under the UCPD. This, of course, also applies to the information requirements set out in the Food Information Regulation. The omission of this information is thus considered misleading to the extent that it is likely to affect the transactional decision of the average consumer (e.g. cause him or her to buy a product that he or she would not have bought otherwise). The interplay of the UCPD with Article 7(1) of Food Information Regulation is not clarified, though.
• The notice goes on to explain that also where all required information particulars are provided, the marketing of goods with the same packaging and branding but with different composition and sensory profile can be contrary to the Directive. This can be the case when it is demonstrated that:
• consumers have legitimate specific expectations from a product compared to a "product of reference" and the product significantly deviates from these expectations;
• the trader omits or fails to convey adequate information to consumers and they cannot understand that a difference with their expectations may exist;
• this inadequate or insufficient information is likely to distort the economic behaviour of the average consumer.
• Overall, the relevant assessment can be summarised as follows:

Flowchart included in the Commission Notice

• Competent authorities (i.e. national authorities responsible for food law and for consumer protection, if they are separated, as well as competent authorities from different Member States) should cooperate with each other. As regards cross-border cooperation, enforcement efforts should be coordinated under the CPC framework (pursuant to Regulation No 2004/2006, currently under review).
• Parallel EU-level actions include: 1) dialogue with the industry, consumer organisations and national authorities, 2) exploring possibilities of improving transparency and clarity of the exact content of food products (with a code of conduct for producers as one of envisaged options) and 3) developing guidelines for a common testing methodology to gather evidence and facilitate the assessment of particular cases.

Let's see whether this set of measures will ensure that Slovaks get more "fish in their fish fingers", Hungarians more "meat in their meals", and Czechs more "cacao in their chocolate". Or at least more transparency on each of those vital matters!

Enforcement without bite- national authorities urge for action as the Volkswagen saga continues

As announced on the 7^th of September, national consumer authorities of all EU Member States, spearheaded by the Netherlands’ Authority for Consumers and Markets (ACM) along with the EU Commission sent a joint letter to the Volkswagen Group reminding them to honour their commitment to take ‘confidence building measures’ such as repair cars of affected consumers.^[1] Volkswagen had previously committed to the Commission to repair all affected cars by autumn 2017. The letter requests that Volkswagen individually informs consumers about the repairs and makes legally-binding assurances that the car’s overall performance will be retained post-repair. Furthermore, the letter asks for an extension of the deadline for free repairs should it not be completed in autumn 2017.
This is an important development as it is the first time that EU Member States take a unified stance to address the VW scandal, making use of Regulation 2006/2004 on Consumer Protection Cooperation.

It has been two years since the scandal broke that Volkswagen fitted its diesel cars with software suppressing the emission und testing conditions; yet, redress for EU consumers is proving elusive. The situation in the EU is in stark contrast with that of the US, where regulators took swift action leading to Volkswagen admitting guilt and paying billions of dollars in compensation to consumers.

This initiative by consumer authorities follows the efforts made by consumer organisations and law firms across the EU to coordinate in bringing legal action against Volkswagen in different jurisdictions. The Netherlands are again leading on this front, as they have filed a large class action cooperating with other Member States such as the UK. So far, Volkswagen has benefitted from the EU system which leaves enforcement to the Member States, as can be seen in the reluctance of Volkswagen to commit to legally binding action.

Volkswagen’s response to this joint letter will show whether the cooperation of the national authorities will benefit EU consumers and this blog will continue to cover the developments. While the letter is a welcome initiative, it does not address the main hurdle in getting redress for consumers, which are the disparities between national laws. Although the Member States are willing to cooperate, any legally binding action will be taken on a national level.

The Volkswagen scandal has been an example of a global consumer challenge that calls for the EU to take a uniform stance. However, the current regulatory framework has proven inadequate in protecting consumers. This raises the question: should enforcement of EU consumer law be centralised in such cases to effectively protect consumers or is this a matter best left to the Member States? What do you think? Please share your view in the comments.

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[1] http://europa.eu/rapid/press-release_IP-17-3102_en.htmin

Tube back in business? Uber loses its license in London

Transport for London (TfL) decided not to renew the licence that Uber holds for operating in London. Uber has now one month to appeal, during which time (and the appeal procedure) they may continue to conduct business in London. If the appeal is unsuccessful, however, this may cause thousands of Uber drivers to lose their extra income and Londoners to have to switch back to more expensive black cabs, overcrowded public transport or investing in hiking shoes.

The decision not to renew the license is based on "public safety and security" concerns, meaning Uber apparently not doing its best in background checks for its drivers and not reporting criminal offences. Uber denies these accusations, claiming that their practices are no different from those of black cabs. Is it then just a matter of restricting access to innovative services, sustaining the old-fashioned options? This will be undoubtedly followed as the case continues. Read more e.g. here: Uber Loses Its License to Operate in London.

Foreign currency loans? Inform consumers of risks! - CJEU in Andriciuc (C-186/16)

The Court issued its judgement yesterday in the Andriciuc case (C-186/16), another case concerning consumer loans taken in foreign currency. As we have previously reported on this blog (Foreign currency and unfair terms...), AG Wahl considered average consumers to be able to foresee foreign currency fluctuations without the need for the banks to provide separate warnings about this possibility.

Before addressing the issues of the knowledge of average consumers and banks' obligations towards them, the Court establishes that contractual terms denominating a consumer loan in a foreign currency and requiring this loan to be paid back in the same currency are core terms of the loan agreement. They are seen as defining the 'main subject matter of the contract' (par. 38). This means that they are not subject to the unfairness test, provided the terms were transparent. Interestingly, the Court's reasoning distinguishes here between consumer loan agreements denominated in foreign currency which have to be paid back in the same currency (like in current case), and such loan agreements which only have been indexed to foreign currencies, which means that the repayment occurs in local currency and its rate is calculated on the basis of the exchange rate of foreign currency (par. 39-40). In the second case, the term describing the repayment mechanism could be classified as an ancillary contractual term, and, therefore, subject to the unfairness test. The same cannot be said of the term setting an obligation to repay the loan in the same (foreign) currency:

"...the fact that a loan must be repaid in a certain currency relates, in principle, not to an ancillary repayment arrangement, but to very nature of the debtor’s obligation, thereby constituting an essential element of a loan agreement." (par. 38)

Consumers in Andriciuc case may not, therefore, enjoy the protection of the UCTD unless they can prove that the contractual term was non-transparent (not written in plain and intelligible language). This required the Court to give more guidance as to the obligations following the application of the principle of transparency. The referring court asked whether the term determining loan repayments in a foreign currency would require, in order to be transparent, the bank to indicate to consumers currency exchange risks and their consequences for the price paid by the consumer, and, more specifically, whether the bank would have a duty to warn consumers about 'the possibility of a rise or fall in the exchange rate of the foreign currency'.

The Court reiterates its previous assessment that the requirement of transparency must be broadly interpreted in practice, to sufficiently protect weaker parties, i.e. consumers (par. 44). This requires the terms of the loan agreements to be drafted in a way enabling consumers 'to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him' (par. 45), as was previously mentioned in cases Kásler and Van Hove. Whilst the Court's conclusion in par. 51 does not seem overly innovative, the reasoning the has led to it is and could potentially lead to creating new information duties for the banks. Namely, the Court emphasises the need for consumers being able to make well-informed decisions (par. 48 and 51). With regards to foreign currency loans this means that 

'...the borrower must be clearly informed of the fact that, in entering into a loan agreement denominated in a foreign currency, he is exposing himself to a certain foreign exchange risk which will, potentially, be difficult to bear in the event of a fall in the value of the currency in which he receives his income. Second, the seller or supplier, in this case the bank, must be required to set out the possible variations in the exchange rate and the risks inherent in taking out a loan in a foreign currency, particularly where the consumer borrower does not receive his income in that currency.' (par. 50).

This reasoning follows also from the Court invoking the European Systematic Risk Board's Recommendation ESRB/2011/1 of 1 September 2011 which specified risks to consumers of lending in foreign currencies (par. 49).

Whilst the Court relates to the case at hand, i.e. loan agreements taken and repaid in foreign currencies, I would be hesitant to conclude that this new information duty would not apply to loan agreements indexed in foreign currencies but repaid in the local one. The distinction between these agreements introduced by the Court seemed to be relevant for purposes of subjecting terms defining the repayment mechanism to the unfairness test. In either case, though, the term would be subject to the requirements of transparency and the Court has not yet specified that these should differ for core and non-core contractual terms.

The last question pertained to the assessment of the good faith and significant imbalance between the parties' rights and obligations. The answer to this question would either be significant in case the contractual term would not be assessed as a core term (indexed foreign currency loans that are repaid in local currencies?) or when it would be a non-transparent core term (bank didn't fulfil its information duty?), and the term would then be subjected to the unfairness test. Under such circumstances, the lack of good faith and significant imbalance between the parties' rights and obligations needs to be ascertained at the moment of the conclusion of the contract. The Court suggests, however, that it is likely that the banks, considering their expertise and knowledge, were aware of 'the possible variations in the rate of exchange and the inherent risks in contracting a loan in a foreign currency' (par. 56). Moreover, it is clear that 'In the event of the devaluation of the national currency against that currency, such a term therefore places all the exchange risk on the consumer.' (par. 55). Therefore, if the terms is subject to the unfairness test, whilst it remains for the national court to assess it, the CJEU seems to suggest that it could be considered unfair: 'the national court must assess for those purposes whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations' (par. 57).

This is a very important case for many consumers who have concluded foreign currency loans agreements, with the Court indicating a possibility for national courts to determine that such agreements are not fulfilling the requirements of the UCTD.

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.