Critical Legal Conference 2015

During the next Critical Legal Conference "Law, Space and the Political" that will take place in Wroclaw (Poland) 3-5 September, I'm organizing a stream devoted to issues of consumer law and behavioural research: "Making space for behavioural research in consumer law? The role of scientific evidence in policymaking: a critical approach". If you are interested in presenting your paper within this stream, send me an abstract thereof (max 250 words) by 30 June 2015. See here for submission details.

The core of insurance contracts and its transparency (ECJ in C-96/14)

Last Thursday, the ECJ published its decision in Van Hove v CNP Assurances SA (C-96/14). 

This is an important decision with reference to a number of issues in the field of unfair terms in consumer contracts, and namely:

- whether and under what conditions terms in insurance contracts defining the conditions under which a certain risk is covered are to be considered as exempted from control under unfair terms rules;

- what is required of insurers in order for terms and conditions of insurance policies to be considered transparent. 

Moreover, the decision incidentally raises, but does not answer, the question as to the relationship of pro-consumer interpretation of terms which are not clearly drafted and their possible unfairness. 

The facts in a nutshell The consumer had entered several contracts, in order to obtain credit and to secure payment of the loan in case he would become incapable of providing for that himself. The insurance contract, however, limited its coverage (for what is relevant here) to cases in which the insured person found herself "unable to take up any activity, paid or otherwise". After an illness, the claimant had been found unable to carry out his previous job, and therefore received a subsidy from the national social security. The insurance company, however, stopped covering his loan repayment after a while arguing that he would be able to undertake a different, if part-time, job. 

The legal question Mr Van Hove claimed that the clause limiting the policy's coverage was unfair. The insurance company, on the other hand, claimed that the term was exempted from scrutiny under French consumer law and Directive 93/13 as forming part of the contract's main subject matter; in particular, the term should also be seen as clear and comprehensible for the purposes of the exception set out in Article 4(2) of the Directive.  

The Court basically analysed the company's defenses. 

The answer It concluded that it is for the national court to ascertain whether the term is part of the contract's core in the case at stake (but, probably, this is indeed the case) and that the same court has to ascertain whether all in all the consumer was in a position to understand the consequences that the clause would have for him (which was probably not the case). 

More in detail As to the question whether the term should be considered as part of the contract's "core", the ECJ repeated that it is for the national judge to ascertain whether this is the case; under the Court's case-law (para 34), it cannot be excluded that a term like the one under scrutiny "will circumscribe the insured risk and the insurer’s liability and lay down the essential obligations of the insurance contract at issue" (para 36). The national court will have to take into account "the nature, general scheme and the stipulations of the contract and its legal and factual context" (para 37). 

Second and more interestingly, as to the question of transparency, the Court articulates a number of considerations which it is not easy to sum up in a consistent way. While the decisum requires 

"that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms,

so that, as articulated in previous judgments 

[the] consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it",

the Court's reasoning refers to a much broader set of circumstances and notions. 

First, it seems from the argument that also "the promotional material and information provided by the insurer in the negotiation of the insurance contract and, more generally, [...] the contractual framework" should be considered relevant in assessing the term's transparency.

Second, the court again makes reference to the "average consumer, who is reasonably informed and reasonably observant and circumspect" as the target of the required information provision. This reference, however, seems mitigated by the detailed requirements that the court sets to the end of finding that the consumer was indeed in a position to meaningfully assess the term (see, for both points, para 47). 

Furthermore, according to the Court (para 48), the fact that the insurance contract is part of a more complex stipulation should impose a higher transparency standard since "the consumer cannot be required, when concluding related contracts, to have the same vigilance regarding the extent of the risks covered by that insurance contract as he would if he had concluded that contract and the loan contracts separately".

Finally, the court concludes that, should the clause not fall within the "core terms" exception, the national court should also keep in mind that, where the wording of a contractual term is unclear, the interpretation most favourable to the consumer shall prevail. 

This decision, carefully analysed, brings to the surface the tension existing between unfair terms control as a remedy for specific cases of unfairness and the same tool as an instrument meant to more generally remove unfair terms from the market. Under the first approach, for instance, it makes sense to leave considerable leeway to the national court in assessing the term, to consider the complexity of the economic relationship and, most prominently, to refer to "promotional material and information provided by the insurance" in order to assess the term's transparency. If, on the other hand, unfair terms control must ensure that the market is cleared of unfair terms (which is, e.g., what the Court's case-law concerning the impossibility to reduce unfair terms suggests), although a certain degree of flexibility should be ensured for reasons of justice, incorporating all these factors significantly weakens the predictive- and therefore dissuasive- value of court precedents. 

As to the matter of interpretation recalled by the Court in its very last paragraph, it is unclear whether the sentence should be understood as a reminder for the case that the term is found as intransparent thus non-exempt, but not unfair- which would make it perfectly harmless- or as an indication as to how the term should be approached in view of assessing its fairness- which would open complications that are best left for a different discussion forum...

More information duties for insurance companies - CJEU in Nationale-Nederlanden Levensverzekering Mij (C-51/13)

29 April 2015: CJEU judgment in Nationale-Nederlanden Levensverzekering Mij (C-51/13)

The Third Life Assurance Directive (92/96/EEC) is no longer binding (currently in force is Directive 2009/138/EC - Solvency II) but it was a subject of the recent proceedings at the CJEU. Since the aim of the Directive was inter alia to ensure that consumers receive clear, accurate information on the essential characteristics of the insurance products, it established various minimum provisions for insurance companies and Member States to observe (see Annex II). The question posed by the Dutch court pertained the validity of general principles of Dutch law (such as: the duty of care of the insurance company, pre-contractual good faith and requirements of reasonableness and fairness) that oblige insurance companies to provide policyholders with more information than required by the Directive (in case: a summary or full overview of the actual and/or absolute costs and risk premiums, and their composition, deducted by the insurer in respect of the death risk cover). The CJEU determined that the Third Life Assurance Directive does not preclude such obligations, as long as the information provided to consumers is "clear, accurate and necessary for the policyholder to understand the essential characteristics of the commitment and that it ensures a sufficient level of legal certainty". Whether this is the case with regard to general principles of Dutch law, is for the referring court to ascertain. It seems that the information that consumers were missing in the case at hand (overview of the costs and risk premiums) should be seen as information that would be necessary for the policyholder to understand the essential characteristics of the life insurance policy and, therefore, the insurance company could be required by Dutch law to provide this information. It will be interesting to see whether the Dutch court considers general principles of Dutch law as a sufficient legal basis for ascertaining this obligation of the insurance company. After all, these general principles are open and unwritten and, therefore, insurance companies could have difficulties in foreseeing what additional information they would be obliged to provide in various cases and what the policyholder could expect from them.

Italian leather shoes not what they used to be - AG Sharpston in UNIC and UNI.CO.PEL (C-95/14)

23 April 2015: Opinion of AG Sharpston in UNIC and UNI.CO.PEL (C-95/14)

A lot of attention has been given recently in EU consumer law to proper labeling of consumer products. One of the issues that remains complex is the country of origin label, especially for products that are designed in one country, materials for which production come from another one, and which are then manufactured in the third country etc. Textiles and clothing industry may be used as an example of an industry sector where it may be hard to identify just one country of origin of a given product. Italy has introduced in 2013 additional labeling requirements for leather products, where the leather has been obtained through various processes in countries other than Italy, but then the leather goods that were made of it (e.g. shoes) were labelled with an Italian word for leather (cuoio, pelle, pelliccia etc.). On such goods, according to then adopted Italian law (it was repealed and replaced with a new law in November 2014), the country of origin label would need point to the country in which the leather was obtained (e.g. China).

UNIC is a trade association representing the tanning industry (one of the processes through which leather is obtained) and UNI.CO.PEL is a consumer organisation. These organisations joined forces to demand that defendants stop using Italian terms to describe the shoes' leather inner sole without indicating its origin, since this could mislead consumers in thinking that the entire product is Italian in origin (par. 17). Such a practice could not only misled consumers (placing a higher value on Italian leather shoes), but also constitute an unfair competition practice.

AG Sharpston agrees, however, with the defendants that the adopted Italian provisions setting a higher standard for labeling country of origin of leather products may be contradictory to EU law (Directive 98/34, Articles 34 to 36 TFEU, Footwear Labelling Directive). Directive 98/34 requires Member States to notify the Commission and other Member States when they intend to introduce measures (technical provisions) that could create barriers to trade. Italian rules are perceived by the AG Sharpston as such technical provisions (since they refer to the packaging, marketing or labelling of a product - footwear) and they became effective in Italian law before the standstill requirements set in Directive 98/34 run out, which would make them unenforceable (par. 44, 46-47). 

Additionally, the free movement of goods as regulated in the TFEU would suffer due to the quantitative restrictions on imports set by this Italian law, since they would raise production costs, discriminate against products distributed to many EU countries (where leather is labelled in various languages, incl. Italian), adversely influence consumer opinion about these goods with additional labeling requirements etc. (par. 51-53):

"An obligation to affix a label indicating the country of origin to leather goods obtained from working carried out in foreign countries which use the Italian terms ‘cuoio’, ‘pelle’ or ‘pelliccia’ (or their derivatives or synonyms) is a measure having equivalent effect to quantitative restrictions on imports, making the free circulation of such goods more difficult or more costly. It has long been recognised that the purpose of indicating the origin of products is to enable consumers to distinguish between domestic goods and imports and that this enables them, inter alia, to assert any prejudices which they may have against foreign products. Within the single market the origin-marking requirement not only makes the marketing in a Member State of goods produced in other Member States in the sectors in question more difficult; it also has the effect of slowing down economic interpenetration by handicapping the sale of goods produced as the result of a division of labour between Member States. " (par. 49)

Consumer protection may not justify the introduction of such a rule. (par. 54)

Finally, while the Footwear Labelling Directive does not exhaustively regulate the whole sphere of labeling of footwear, it does set an exhaustive list of requirements for labeling of the materials used in the main components of footwear. Therefore, the trader needs to indicate that the footwear in question is made of leather through the use of a relevant word or the hide pictogram - the country of origin requirement is not mentioned, and, therefore, prohibited. (par. 58-60)

David vs. Goliath

Collective proceedings in form of a so-called “Sammelklage” have recently been initiated against facebook in Austria alleging a number of data protection violations (see writ). Law student Max Schrems who acts as the plaintiff in the test case brought together 25,000 claimants. He seeks injunctive relief and alleges individual damage of 500 euros. The claim is of a hybrid nature: The European provisions on data protection apply whereas the compensation claims have to be assessed according to the law applicable in California (as specified in Facebook’s terms and conditions). The case is financed by a German process financer, which – if successful – is entitled to 20 % of the proceeds. The remaining amount less the litigation costs would be distributed to the participants.

The case was closed at the first hearing before the Regional Civil Court Vienna (“Landesgericht Wien”) on 9^th April which dealt with admissibility matters of the case. The judgment is expected for May.  

For further information please follow this link. Finding a working format of collective actions in Europe is a pending matter. Recently France, Belgium and Lithuania have introduced new proceedings of such kind.

To be or not to be - AG Cruz Villalón's Opinion in Case C-110/14 Costea

Should a practising lawyer who concludes a credit contract with a bank, security for which is provided by a mortgage on property belonging to his solely-owned law firm, be considered to be acting as a 'consumer'? The question was raised in the Romanian case of Horațiu Ovidiu Costea v. SC Volksbank România SA, which is currently pending before the Court of Justice of the EU. Today, Advocate General Cruz Villalón presented his opinion in the case (English translation not yet available; this post is based on the original Spanish text, and Dutch and French translations).

The case concerns Mr Costea, who in 2008 had concluded a credit agreement with Volksbank România, surety for which was provided by his solely-owned law firm. In May 2013, he brought civil proceedings against the bank, stating that the contract term on provision for risk was unfair and, for that reason, claiming repayment of sums paid to the bank on the basis of that contract clause. The claim was further substantiated by the statement that the term had been one-sidedly imposed on Costea by the bank and that it was unnecessary given the fact that security was provided by the mortgage. The Romanian judge assessing the case raised the preliminary question whether the claim falls within the sphere of EU Directive 93/13/EEC on Unfair Terms in Consumer Contracts, given Mr Costea's professional capacity and the fact that the suretyship had been provided by his law firm.

AG Cruz Villalón starts by pointing out that the 'consumer' concept in EU law is interpreted differently according to the legal area in which it is applied. It is an 'operational and dynamic concept' that is defined by specific legislation's content (para. 18 of the AG's opinion). Article 2(b) of the Directive stipulates that '"consumer" means any natural person who, in contracts covered by this Directive, is acting for purposes which are outside his trade, business or profession'. Article 2(c) determines that '"seller or supplier" means any natural or legal person who, in contracts covered by this Directive, is acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned'. As AG Cruz points out, the distinction is not symmetrical: not all persons who cannot be qualified as sellers are consumers (para. 21).

While Costea had concluded the contract as a natural person, and not on behalf of his law firm, it was contested that he had acted as a consumer in the sense of the Directive, given his professional capacity as a practising lawyer. AG Cruz, however, observes that a person's profession should not influence the assessment of whether or not he falls within the scope of the Unfair Terms Directive's consumer notion - the 'consumer' is not a static category. Rather, a person's capacity depends on the situation in which he finds himself as regards the conclusion of a transaction (paras. 25-26). In sum, 'consumer' is an objective and functional concept, which depends on one criterion: whether or not the specific juridical act falls within the framework of activities that are outside of the professional sphere (para. 28). Taking into account factors relating to e.g. a consumer's experience, education, profession or intelligence would hamper the Directive's effectiveness and would, in particular, exclude legally trained people from protection in private legal transactions (para. 30). Accordingly, a lawyer concluding a credit agreement secured by his firm's property should not be excluded from the consumer concept in case it is shown that he was acting for purposes outside his profession.

The AG goes on to consider mixed-purpose contracts, in which a person concludes a contract partly for purposes outside of his profession and partly for purposes relating to his profession. In the present case, the purpose for which the contract was concluded had not been clearly stated. Referring to recital 17 of the Consumer Rights Directive (Directive 2011/83/EU), Cruz Villalón is of the opinion that in case a national judge establishes that it is unclear whether a contract was concluded exclusively for personal or for professional purposes, the contracting party should be considered to be a consumer if the professional objective was not predominant within the overall context of the transaction (para. 47).

AG Cruz Villalón's opinion, thus, clarifies to what extent a person's (legal) professional capacity could affect his being able to rely on consumer protection. The case addresses a relevant point for European consumer law, both in regard to its scope (who is and who is not a consumer in the sense of the Unfair Terms Directive) and, in a second step, its effectiveness to protect consumers against unfair terms in mortgage credit contracts (a recurring theme in CJEU case law).

Yes, yes, yes! Information to a single consumer is a commercial practice - CJEU in Case C-388/13

Contrary to the controversial opinion of AG Wahl the CJEU stated today in the judgment in Case C-388/13 UPC Magyarország that an information by a professional to only one single consumer may be classified a commercial practice within the meaning of Unfair Commercial Practices Directive.

According to the CJEU, the UCPD is characterised by a particularly wide scope ratione materiae. Article 2(d) of the UCPD defines commercial practice broadly as ‘any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader’. Therefore, this provision only requires that the trader’s practice must be directly connected with the promotion, sale or supply of a product or service to consumers. The UCPD is applicable to commercial practices in relations between a professional and a consumer and following the conclusion of a contract or during the performance of that contract (paras 34–36). However, the CJEU emphasized that it is immaterial that the action of the professional takes place on only one occasion and affects only one single consumer. The UCPD does not contain any indication that the act or omission on the part of the professional must be recurrent or must concern more than one consumer. Moreover, the provisions of the UCPD cannot be interpreted as imposing conditions of that kind where they do not even set out such conditions explicitly. The UCPD does not establish a threshold beyond which an act or omission must come within the scope of that directive and under the UCPD the consumer has no obligation to establish that other individuals have been harmed by that same trader (paras 41–46).

In the light of the questionable opinion of AG Wahl indicating that the UCPD only protects the collective interests of consumers (paras 31–34) other conclusions of the CJEU in the judgment in Case 388/13 UPC Magyarország seem to be of minor importance. Individual interests of consumers are also covered by the UCPD. Long live the CJEU!

Less antibiotics, more milk and fruits

The Health Committee voted yesterday on a resolution that aims at improving EU healthcare. Among other measures, the MEPs hope to encourage doctors to be more restrictive and responsible in prescribing antibiotics (also to animals) as well as to prohibit their sale without prescription; to motivate pharma companies to search for new antimicrobial agents (with resistance reaching 25% for commonly used antibiotics in several MS); to monitor more strictly potential conflict of interests between producers and prescribers of drugs. This resolution is the result of a report showing that 8-12% of patients admitted to EU hospitals experience adverse effects while receiving healthcare (e.g. infections) while ca 50% of these occurrences could have been avoided. (Health MEPs propose blueprint for safer healthcare)

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Also yesterday, the Agriculture Committee amended draft rules on schemes to provide fruit, vegetables and milk in schools encouraging MS to better and at a larger scale promote healthy eating and consumption of local food amongst children. Two, so far separate, schemes will be merged - on providing milk and fruit to schoolchildren (which should reduce the administrative burden for upholding them). The Committee introduces a proposal to enable EU funding for local milk products such as yoghurt, cheese and curd (as long as they do not contain added flavouring, fruits, nuts or cocoa); to require MS to spend 10-20% of the EU funding on additional educational and promotional activities related to healthy eating habits (visits to local farms, distribution of local specialties etc.); to increase the EU funding in this area and to better divide it amongst the MS. (Milk and fruit in schools: agriculture MEPs promote healthy eating)

Google under the EU fire

As we have mentioned before (Google continued) there is a growing worry among the European authorities protecting consumer interests as well as fair competition on the EU market about the dominant position of Google. The European Commission has just sent a Statement of Objections to Google against its practices, potentially in breach of EU antitrust rules, that allow Google (more than 90% of market shares) to systematically favour their own comparison shopping product (currently, "Google Shopping") in the general search results pages that consumers in the EU receive. That is to say, EU consumers would not necessarily receive the most relevant search results and not have a possibility to use the services of Google's competitors in providing comparison shopping services (Commission sends Statement of Objections to Google on comparison shopping service). Moreover, the Commission opened a formal investigation against Google with regard to its Android mobile operating system, applications and services for smartphones and tablets. Since the majority of smartphones in the EU are based on Android, it is important that Google does not abuse its dominant position on the market. While anyone could freely use and develop Android, Google delivers the Android operating system together with a range of Google's proprietary applications and services and expects manufacturers, software developers etc. to conclude contracts with Google e.g. demanding exclusive pre-installation of Google's own applications and services on smartphones and tablets. (Commission opens formal investigation against Google in relation to Android mobile operating system)

Surveillance of dangerous products and plastic bags' use

In its fight to increase product safety in the EU the European Commission published a yearly overview showing that ca 2500 products have been stopped from entering the EU market or removed from it in 2014 ("2014 Keeping European Consumers Safe"). In 2014 toys (28%) and textile and clothing products (23%) dominated among the products against which safety measures were taken. The predominant risks notified as associated with these products were these of injury, chemical risks and choking. Unfortunately, China remains the number one offender, despite increased cooperation between the European and Chinese authorities in this area (Keeping consumers safe: nearly 2500 dangerous products withdrawn from the EU market in 2014).

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Aside protecting consumers from dangerous products, the EU intends to protect the environment from some dubious consumer products, such as plastic bags. European consumers on average throw out ca 200 plastic bags a year and the particles in these bags may enter water or even the food cycle. If the Parliament votes for the proposal on this new law EU countries would either need to bring down the number of lightweight plastic bags used by a person to 90 bags pp per year (until 2019; in 2025 - 40 bags) or prohibit these bags from being given away for free (until 2018). (EU restricts the use of plastic bags to protect the environment)

COJEF debate

On 21 April 2015 a COJEF (Consumer Justice Enforcement Forum) debate will take place on the challenges and needs of the enforcement of consumer law in the EU. Location: Brussels. Registration is possible through this website.

Digital Single Market: equal pricing across the EU and ban of geo-blocking

Many consumers are nowadays aware that they may purchase the same product online from the same trader at a different price in various countries. For example, purchasing flights from Amsterdam to Warsaw could be more expensive than flights from Warsaw to Amsterdam; the same dress sold on the Dutch website of an international clothing designer could be more expensive than on their English website. This difference in pricing could hinder further development of a Single Digital Market and therefore, the investigation into the reasons for it and its functioning has been announced by the European competition commissioner, Margrethe Vestager (Competition policy for the Digital Single Market: Focus on e-commerce). Another issue that will be looked into are the geo-blocking software that enables certain service providers to limit provision of their services to certain countries only. For example, if you log in with your account to Netflix in the Netherlands you will access different movie library than in the United States or in the United Kingdom, mostly due to film and TV rights-holders increasing their own income by selling these rights at a different price for various countries; YouTube will not show a certain video to you based on your geographical location (EU plans competition inquiry into e-commerce sector; Europe wants to stop geo-blocking on Netflix and RTE). Vestager said in her speech: “(...) consumers must be allowed to look for the best deals online wherever they want. Contractual bans of so-called passive online sales are therefore considered hardcore restrictions of competition.”

0,5l of beer or a chocolate bar?

The Regulation (EU) No 1169/2011 on the provision of food information to consumers, which entered into force in December 2014, exempts producers of alcoholic beverages (containing more than 1,2% by volume of alcohol) from publishing a list of ingredients or a mandatory nutrition declaration on their products (Article 16 Par 4). The Commission was supposed to produce a report on the need to include this information on alcohol labels in December 2014, but this report has so far been delayed (Delayed Commission report on alcohol labelling frustrates beer industry) (partially due to problems with defining "alcopop" drinks, which mix alcohol with soda or juice). In the meantime, according to BEUC, few consumers are e.g. aware that a half litre of beer (5% alcohol) contains approx. 220 calories - the same can be found in a chocolate bar (BEUC demands bolder EU action on alcohol labelling), therefore, alcoholic drinks should not be treated any differently from other food and drink products. 

The Brewers of Europe representing the European beer industry (over 5000 breweries across Europe) took upon themselves a voluntary commitment to present this information to consumers even without the mandatory provisions to this extent (Commission applauds beer industry's move on labelling). One of the issues that may prove problematic in sufficiently informing consumers about alcohol's nutritional values is that the serving size is usually bigger than 100ml that serve as a reference points for most consumers when comparing calories etc. in food and drinks. It could, therefore, be valuable to add also information on a standard serving size of a given product and its nutritional value. Also Diageo, producer of such well-known alcohol brands like Johnnie Walker and Smirnoff, has also last month committed to voluntarily provide nutritional information (per typical serving) for all of its products (Diageo's Nutrition Labels Give Industry Something to Digest).