Thursday, 15 April 2010

Sometimes when you gotta pay, you gotta pay - ECJ in Friz (C-215/08)

15 April 2010: ECJ case C-215/08 Friz

The ECJ was busy today as to cases concerning consumer law and gave a judgment also in the Friz case (C-215/08) concerning interpretation of the provisions of the Doorstep Selling Directive 85/577/EEC.

Mr von der Heyden in 1991, in Germany, entered into a doorstep transaction joining a closed-end real property fund (what is that? hey, I did not know that one either - the answer may be found on Wikipedia, as usual) as a partner in exchange for a capital investment. The object of the fund was the repair, modernisation and management of a property in Berlin. In 2002 Mr von der Heyden terminated without notice his membership in that fund making use of the fact that he never received a notice with information on his right of withdrawal, which meant that the time to withdraw from that contract has not started to run yet. Friz, as a manager of the real property fund, claimed from Mr von der Heyden payment of the difference between the value of the initial investment paid by the latter at the date he entered that partnership and his share of the losses which had been incurred by that partnership at the date the membership was cancelled. German case law allowed for such a claim.

The first question addressed to ECJ was whether this contract could be governed by the Doorstep Selling Directive taken into account that its Article 3 (2) excludes its application with regard to contracts concluded 'for the construction, sale and rental of immovable property or contracts concerning other rights relating to immovable property'.

The ECJ decided that this type of contracts are indeed covered by the scope of the Doorstep Selling Directive. Firstly, the ECJ reminded that 'derogations from the rules of EU law for the protection of consumers must be interpreted srictly'. (Par. 32) The contract concluded by Mr von der Heyden concerned his entry into a real property fund by means of acquisition of holdings in a partnership in exchange for a capital investment which should not be seen as transaction concerning rights relating to immovable property within the meaning of Article 3 (2) of the Doorstep Selling Directive. (Par. 33)

Secondly, the ECJ was asked whether national case law may provide for a claim for the consumer against a partnership, that he entered in a doorstep transaction and subsequently withdrew his membership from, to his severance balance, calculated on the basis of the value of his interest at the date of his retirement from membership, and may therefore get back less than the value of his capital contribution or have to participate in the losses of that fund.

The ECJ first reminds that the protection of consumers provided for in the Doorstep Selling Directive has certain limits and is not absolute. (Par. 44) 'Notification of the cancellation has the effect, both for the consumer and for the trader, of the restoration of the status quo ante (...) However, the fact remains that there is nothing in the Directive to preclude the consumer, in certain specific cases, from having obligations to the trader and, depending on circumstances, from having to bear certain consequences resulting from the exercise of his right of cancellation'. (Par. 45) And therefore, the ECJ decided that German case law's rule could be in accordance with the provisions of the Doorstep Selling Directive. '(...) that rule is intended to ensure, in accordance with the general principles of civil law, a satisfactory balance and a fair division of the risks among the various interested parties' (Par. 48) Moreover: 'such a rule offers the consumer cancelling his membership of a closed-end real property fund established in the form of a partnership the opportunity to recover his holding, while taking on a proportion of the risks inherent to any capital investment of the type at issue in the main proceedings. Secondly, it also enables the other partners or third party creditors (...) not to have to bear the financial consequences of the cancellation of that membership, which moreover occurred following the signature of a contract to which they were not party'. (Par. 49)

Decision:

1. Doorstep Selling Directive applies to a contract for an entry to a closed-end real property fund established in the form of a partnership when the principal purpose of joining is not to become a member of that partnership, but is a means of capital investment.

2. Doorstep Selling Directive does not preclude a national law which, in the event of cancellation of membership of a closed-end real property fund, entered into following a doorstep transaction, the consumer has a claim against that partnership, to his severance balance, calculated on the basis of the value of his interest at the date of his retirement from membership of that fund, and may therefore get back less than the value of his capital contribution or have to participate in the losses of that fund.

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