Notary public warns against unfair contract terms - AG Cruz Villalón in C-32/14 (Erste Bank Hungary)

25 June 2015: opinion AG Cruz Villalón in case C-32/14 (Erste Bank Hungary)

Due to the importance of the mortgage agreements in most MS consumers planning to purchase a real estate need to conclude a loan/mortgage contract through the act of a notary public. Hungary is one of these countries. In this case a question arose inter alia as to the responsibility of the notaries public with regard to examining terms in the contracts they prepare against the unfairness test, as well as whether the proceedings to establish an executory title on a loan/mortgage agreement need to allow for an unfairness test of agreement's terms.

In December 2007 Attila Sugár concluded a loan agreement combined with a mortgage with Erste Bank Hungary. The contract was prepared by a notary public. Due to the consumer defaulting on his loan payments upon the bank's motion in December 2011 the notary public annulled the loan agreement and started execution proceedings against the consumer. In June 2013 the consumer appealed to the notary public to take away the executory title due to the loan agreement containing unfair contract terms. The notary public refused consumer's claim, confirming he acted in accordance with the formal proceedings that bind him as well as lack of his competence to preside over a dispute. The consumer appealed to court.

Advocate General concludes in his opinion that generally Member States may allow notaries to give executory titles to loan/mortgage contracts without having to engage in testing unfairness of this contract's terms. The Hungarian procedure taking place at the notaries' offices is purely formal and does not leave any room for unfairness test to be conducted. The AG indicates that while CJEU previously opposed a possibility to give an executory title to a loan/mortgage agreement without conducting an unfairness test, this assessment pertained to the judiciary role of courts. A notary public and his tasks are incomparable to these of a judge and a court (Par. 65-67) A consumer may still oppose the notaries' decision by going to court and if his protection against unfair contract terms is guaranteed in judiciary system, then AG considers Hungarian law compliant with the Directive (Par. 70-71)

However, if a notary public while preparing a notary act finds a potentially unfair contract term in it he should inform about this the consumer. The AG infers this duty to inform from the notaries general duty to inform and advise consumers (Par. 78-80). Just a warning about potential unfair contract terms in the contract is also insufficient, since the notary needs as well to explain to the consumer his role in and the procedure of execution of the loan/mortgage agreement (Par. 81).

While a notary public doesn't have a duty to search for unfair contract terms in a contract or to examine contract terms as to their unfairness, he acquires a duty to notify (inform/warn) the consumer that there is a potential unfair contract term in his contract. As with most duties to inform we may wonder when exactly consumer could expect to receive such a notification and what standard of care/ due diligence would be expected of the notary public by national courts.

Comeback of the EU data protection reform

Today the Council announced that its ministers agreed to open negotiations with the European Parliament on the new data protection rules. The Data Protection Directive has been under review for quite some time, with the European Commission proposing new rules in January 2012 (see our previous post EU data protection reform announced) and the European Parliament supporting them in March 2014 (New EU data protection rules - one step forward). It's quite controversial whether data protection can be improved, whether and to what extent this improvement is desirable (considering e.g. often conflicting consumer interests - in privacy but also in lowering transaction costs). The reform is, therefore, still likely to take some time. However, the first talks between European legislators are to commence already this month. As a result of the reform consumers rights are to be strengthened through the right to be forgotten, a right to data portability, data protection by design and by default, a right to be notified of personal data breaches. Enforcement of data protection is to be strengthened to. (see Stronger data protection rules for Europe)

Upgrade to the Package Travel Directive

On 28 May 2015 the Council accepted the new Package Travel Directive that has been negotiated for quite a few years among the European institutions (since 2007). The goal of the revision was to modernise the existing provisions, adjusting them to the increased online market for selling travel products and services, as well as to more independent and central role consumers take in setting up their travel plans (Protecting independent travellers). This means that the new rules will, at least partially, cover also such travel arrangements where consumers decide themselves which of the presented travel options to put together into a package. Additionally, travellers will have a stronger cancellation right - even allowing them to cancel their holiday for any reason upon paying a reasonable cancellation fee. Contrary to the previous rules the new Directive provides for liability of the organizer of the package travel if things go wrong (the retailer may only be liable aside the organizer). This should eliminate the uncertainty as to whom to hold liable since the previous rules allowed the Member States to choose between indicating the organizer or the retailer of the package as the liable party. Businesses should also appreciate the the protection against insolvency they need to arrange for will now be recognized throughout the EU and they will not need to apply for various insolvency schemes in different countries they operate.

The European Parliament is expected to vote this month on these new rules (even though they are not on its agenda for either the current or the next plenary session) and the Council would vote on them in the fall (EU Council backs new EU rules giving more protection to over 120 million holidaymakers).

PETITION - Zero Roaming

Consumers are being called upon to sign a petition appealing to the European Council to end roaming in the European Union (BEUC members launch Zero Roaming petition). While the European institutions previously seemed to have agreed on abolishing roaming charges at the end of 2015 in the EU, this agreement ultimately has not been supported by some Member States in the Council. Prolongation of roaming charges until 2018 is currently discussed. To support the original proposal of the European Parliament (European Parliament's last stands) you can sign THIS PETITION.

Raspberry and vanilla adventure - CJEU in Teekanne (C-195/14)

4 June 2015: CJEU in Teekanne (C-195/14)

With healthy lifestyles becoming more en vogue, the popularity of such drinks as fruit teas increases. Still, advertises try to convince more consumers by purchasing them by coming up with attractive packaging, advertisements and product names. One example thereof could be "Felix Himbeer-Vanille Abenteuer" ("Felix raspberry and vanilla adventure") produced by Teekanne. The packaging shows pictures of raspberries and vanilla flowers, mentions it's a "fruit tea with natural flavourings" as well as a "fruit tea with natural flavourings - raspberry-vanilla taste". Moreover, it contains a seal indicating "only natural ingredients" inside a golden circle. Wait for it... it turns out that this fruit tea "does not in fact contain any vanilla or raspberry constituents or flavourings. The list of ingredients, which is on one side of the packaging, is as follows: ‘Hibiscus, apple, sweet blackberry leaves, orange peel, rosehip, natural flavouring with a taste of vanilla, lemon peel, natural flavouring with a taste of raspberry, blackberries, strawberry, blueberry, elderberry.’". (Par. 16) Weird, though to be honest they did mention natural flavourings so maybe consumers should just read more carefully and don't believe that 'natural ingredients' mean actual raspberries are processed in this tea?

German consumer organisation (the BVV) didn't believe that the fault was on the consumers' side and the CJEU agreed. They would even go as far as deny the misleading character of this labelling practice if only the tea contained natural flavouring obtained from raspberries or vanilla and not just natural flavouring "with a taste" of these ingredients. (Par. 29) Directive 2000/13 on labelling, presentation and advertising of foodstuffs aims to enable consumers' informed choice with regard to food products and not mislead them. (Par. 30-32) The CJEU reiterates its previous findings that "consumers whose purchasing decisions depend on the composition of the products in question will first read the list of ingredients, the display of which is required". (Par. 37) However, accurate description of the list of ingredients does not always negate the misleading character of the labelling, taken as a whole. (Par. 38-40) 

"In the event, it is for the referring court to carry out an overall examination of the various items comprising the fruit tea’s labelling in order to determine whether an average consumer who is reasonably well informed, and reasonably observant and circumspect, may be misled as to the presence of raspberry and vanilla-flower or flavourings obtained from those ingredients.

In the context of that examination, the referring court must in particular take into account the words and depictions used as well as the location, size, colour, font, language, syntax and punctuation of the various elements on the fruit tea’s packaging." (Par. 42-43)

Notification without naming the cause of non-conformity possible - CJEU in Faber (C-497/13)

4 June 2015: CJEU in Faber (C-497/13)

And important judgement has been issued today by the CJEU in the Dutch case Froukje Faber v Autobedrijf Hazet Ochten BV. Ms Faber bought a second-hand car from the Hazet garage. The contract was a pre-printed form entitled 'contract of sale to a private individual'. A few months after the purchase (26 Sep 2008) Mrs Froukje was driving her car with her daughter, on her way to a business meeting, when it burst into flames and was completely destroyed. It's in dispute between the parties whether immediately after the accident they discussed the matters of liability of the garage. A few months after the accident the garage contacted Mrs Faber and was told she was waiting for the police report on the fire. The police informed her that no technical report had been compiled. The vehicle was scrapped in May 2009, upon which event Ms Faber informed Hazet garage that she held them liable for her damage (purchase price of the car + value of items in the car). Since the car had been scrapped, investigation into the fire cause was no longer possible. In her claim against the company, Ms Faber raised the issue of non-conformity of the car, without, however, alluding to her status as a consumer. If she was seen as a consumer, she could have used the non-conformity presumption reversing the burden of proof as to the defect's cause when the defect materialised within 6 months from the delivery.

The Dutch court of appeals asked among other 1) whether it should investigate ex officio whether consumer protection granted by the Consumer Sales Directive should apply in this case to preserve effectiveness of these rules, 2) especially when the court did not have sufficient information to establish consumer status, 3) also on the appeal when the matter was left open in the proceedings of first instance. Moreover, 4) the Dutch court asks whether Art 5 (3) of CSD on the presumption of non-conformity within 6 months from delivery should be seen as equivalent in status to rules of public policy. Furthermore, 5) it is questioned whether Dutch law requiring consumer to notify the seller about non-conformity could be validly combined with a duty to present facts and evidence with regard to that non-conformity at the same time. Finally, 6) it is inquired what standard of proof should be placed on the consumer with regard to presenting facts and adducing evidence on non-conformity and its apparent character within six months of delivery. Should the consumer prove which defect caused the goods to malfunction or only that they malfunction?

The first three questions were easiest to predict the answer to. Consistent with its case law (Par. 42), the CJEU establishes the duty of national courts to ex officio determine whether the buyer could be classified as a consumer, even if the buyer did not rely on that status. This holds true when the court "has at its disposal the matters of law and of fact that are necessary for that purpose or may have them at its disposal simply by making a request for clarification" (Par. 48). It is for the national court to undertake necessary investigation as to these facts. (Par. 40)

Art. 5 (3) of the CSD changes the burden of proof with regard to the non-conformity, considering that it is usually easier for the professional to disprove the existence of the default at the moment of purchase. The CJEU declares this provision as of equal standing to national rules of public policy. (Par 56)

Dutch law used the option from the CSD and adopted the notification duty for the buyer within two months after the discovery of the lack of conformity. Some case law of the Dutch Supreme Court accepted also as valid notification delivered after this period of time, if circumstances of the case (difficulties in gathering evidence) justified this. It is the buyer who has the burden of proof that he fulfilled this notification duty.  (Par 59) The aim of the CSD was to encourage diligence of the buyer and increase the legal certainty for the seller, without imposing an obligation on the consumer to carry out a detailed inspection of the goods. (Par 61) "As is apparent from the wording of Article 5(2) of Directive 1999/44, read in the light of recital 19 in the preamble thereto, and from the purpose of that provision, the obligation thereby imposed on the consumer cannot go beyond that of informing the seller that a lack of conformity exists." (Par 62) Most interesting is the following paragraph 63 giving detailed instructions as to the requirements for the notification duty:

"As regards the content of that notification, the consumer cannot be required, at that stage, to furnish evidence that a lack of conformity actually adversely affects the goods that he has purchased. In view of his weak position vis-à-vis the seller as regards the information relating to the qualities of those goods and to the state in which they were sold, the consumer cannot, in addition, be required to state the precise cause of that lack of conformity. By contrast, in order for the notification to be of use to the seller, it must include a certain number of particulars — the degree of precision of which will necessarily vary depending on the specific circumstances of each case — relating to the nature of the goods in question, the wording of the contract of sale in respect of those goods and the way in which the alleged lack of conformity became apparent."

Dutch law may not, therefore, make it difficult for consumers to fulfil their notification duties by obliging them to provide excessive evidence with regard to the lack of conformity. What is then for the consumer to prove?

"In the first place, the consumer must allege and furnish evidence that the goods sold are not in conformity with the relevant contract in so far as, for example, they do not have the qualities agreed on in that contract or even are not fit for the purpose which that type of goods is normally expected to have. The consumer is required to prove only that the lack of conformity exists. He is not required to prove the cause of that lack of conformity or to establish that its origin is attributable to the seller.

In the second place, the consumer must prove that the lack of conformity in question became apparent, that is to say, became physically apparent, within six months of delivery of the goods." (Par. 70-71)

The seller would then need to prove that the cause or origin of that lack of conformity lies in circumstances that occurred after the delivery. (Par. 73)

Very important case for all aficionados of notification duties and evidence rules! I would think that in this case Ms Faber could then rest by stating that her car caught fire within 6 months from delivery and it would be the seller who would need to establish the cause of that fire as not resulting from a lack of conformity. This would eliminate the need for consumers to await the professional reports on the non-conformity potential origins, which often delay them in making notifications to the seller.