Friday, 29 September 2017

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!

Sunday, 24 September 2017

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

As announced on the 7th 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.

Friday, 22 September 2017

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.

Thursday, 21 September 2017

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.

Tuesday, 19 September 2017

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

Thursday, 14 September 2017

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

Tuesday, 12 September 2017

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!

Saturday, 9 September 2017

"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.