Thursday, 30 November 2017

Between equivalence and effectiveness: Opinion of AG Sharpston on unfair terms control in default proceedings

Today, Advocate General Sharpston delivered her Opinion in a Belgian case (C-147/16Karel de Grote Hogeschool v Susan Kuijpers) on the scope of Directive 93/13 as well as the powers and obligations of national courts under that Directive. The case concerns the 'Europeanization' of (national) civil procedure and the 'proceduralization' of unfair terms control. More particularly, it concerns the role of the civil court in default proceedings, i.e. when the defendant does not appear.

Judicial districts in Belgium
A claim was brought by an educational establishment against a student who had borrowed the amount of money she needed to pay her registration fee, but subsequently defaulted on her repayments. The student did not take any (active) part in the proceedings the school initiated to recover the outstanding debt. In Belgium, when a judgment in default is given, civil courts are only required to apply national rules of public policy (Article 806 of the Judicial Code, amended in 2015). This caused uncertainty within the judiciary as regards the rules on unfair contract terms [*]. Could and should a court examine of its own motion (ex officio) whether the contract at hand falls within the scope of the Directive as implemented in Belgian law, and if so, whether its terms are unfair?

AG Sharpston first reiterates that the procedural autonomy of the EU Member States is limited by the principles of equivalence and effectiveness. She then refers to Asturcom (C-40/08) to point out that the principle of effectiveness "cannot be stretched so far as to mean that a national court is required to make up fully for the total inertia on the part of the consumer" (para 28). However, the principle of equivalence entails that inasmuch as the court is required to assess whether a term conflicts with domestic rules of public policy, it must do the same with the rules under Directive 93/13. Thus, those rules should be treated as rules of public policy.

In a forthcoming article [cited below], the Belgian scholar Janek Nowak explains the two approaches very clearly. The difficulty with the effectiveness approach is, in short, that Belgian civil courts would have to disregard Article 806 insofar as it limits them in their tasks. The equivalence approach is less 'disruptive': it reconciles EU law requirements with national civil procedure, while it also avoids the issue of the (lack of) horizontal direct effect of directives. AG Sharpston shares the Belgian Government's view that Article 806 provides room for a broad interpretation of the national court's powers and obligations in light of Directive 93/13. Yet she also refers to the effective legal protection guaranteed by the Directive which must be ensured "whatever the rules of domestic law":  the Directive must be applied "irrespective of the status afforded to the national rules" implementing it in the national legal order and irrespective "of the parties' procedural actions or submissions" (para 33). The only exception is that national courts do not have to - and cannot - intervene where none of the parties has brought proceedings. In all other cases, they must exercise ex officio control.

The second part of the Opinion addresses the meaning of 'seller or supplier'. AG Sharpston advocates a broad interpretation (see para 67). She focuses on "the capacity of the contracting parties" (para 66). In this respect, there is a link between the first and the second part: the substantive imbalance between the parties (in terms of both bargaining power and level of knowledge) is accentuated by a procedural inequality. A consumer is, in the words of AG Sharpston, "likely to find himself on the receiving end" of the proceedings, which "will affect his legal situation, whether he participates in the proceedings or not" (para 32). This would justify an active role of national (civil) courts as decentralized EU-judges, even though such a role might 'clash' with their position in the domestic (procedural) framework. Especially in default proceedings with consumers as defendants, national courts struggle with the practical problem of having to deal with a great number of cases, insufficient factual information and the need to take the interests of the claimant into account (as follows from the CJEU's case law on the right to a fair hearing as safeguarded by Article 47 of the EU Charter of Fundamental Rights). The stream of preliminary references on procedural questions is not likely to stop anytime soon.

[*] J.T. Nowak, 'On the impact of EU law on national civil procedure. Some considerations and recent examples from Belgium', draft paper (to be published) presented on 25 November 2016 during the 21st annual conference of the Ius Commune Research School.

Wednesday, 29 November 2017

Temptation of subscriptions

In the UK the organisation Citizens Advice conducted a study of consumers subscribing to various services and discovered that on average consumers pay ca 160GBP over a period of three months for unwanted services. These would include subscriptions to gyms, insurance, online streaming, TV channels - that would not end up being used. The message to consumers is to be aware of their usage habits and not to be too easily tempted to conclude yet another service at a seemingly attractive price, with an easy subscription process. Reading contract terms before signing up is always a good idea. A simple subscription process makes consumers easily sign in, but the sign-out process may be more complex and conditional. Citizens Advice reports on 9 out of 10 consumers being initially refused cancellation, in practice. This indicates the need for more inquiry into the terms and conditions of these services providers and the fairness of their provisions on terminating the contract. Still, even if termination is possible, consumer behaviour biases mean we tend to overestimate our future behaviour (how many times we will make use of the gym subscription, for example) and may be unlikely to timely cancel a contract we don't benefit from. An attractive price still may mean paying money for something that we end up not using at all, which profits service providers not consumers. 

Tuesday, 28 November 2017

New EU regulation on organic farming

The Proposal for a new Regulation on organic production and labelling of organic products was approved by the Agricultural Committee of the EU Parliament on 22nd November.

Organic farming in the EU has increased rapidly over the last years, yet it only represents 6% of the total EU agricultural area (see the background note of the EU Parliament). Therefore, the European Commission wishes to further encourage organic farming in order to reduce the need for imported organic products and increase consumer confidence in the EU. For that reason, the decision was taken to repeal and replace the previous Regulation (EC) No 834/2007 so that the legal framework better corresponds to the changing needs of the sector.

Organic farming plays a dual role, both in meeting the increasing consumer demands for organic products and in promoting sustainable farming. The aim of the new Regulation is to balance promoting sustainable organic farming with the internal market meaning promoting consumer interests as well as the interests of EU farmers.

Some of the key changes introduced by the new Regulation include that in the future imported organic goods will have to comply with EU rules on organic products rather than equivalent standards. The stricter standards for imported goods are meant to translate to increase consumer confidence in organic produce. That rule will apply after 2025, following a transitionary period of 5 years.

Avoiding contamination of organic food from pesticides is another important issue as farmers will have to take precautions. Still it will be allowed for farms to combine conventional and organic production provided the two activities are clearly separated. Furthermore, measures will be taken to boost organic production, such as increasing supply of organic food and animals and making it easier for small farms to get organic certification.

The new Regulation is designed to deliver an increased level of consumer trust by ensuring the high quality of products as well as improve the clarity of the information provided to consumers about organic products, in a market where consumers have high expectations.

Yet, the new Regulation, and the benefits it can deliver for consumers, will be only as good as its enforcement. The EU Parliament has been crucial in ensuring that the enforcement procedures are not undermined. It secured that organic farming had its own rules on controls rather than centralising them as the EU Commission envisioned. Furthermore, controls will not be limited to the final product but will happen all throughout the production cycle. 

If the EU Commission is serious about increasing consumer confidence in organic products it needs to be vigilant in supervising the control bodies that offer accreditation.

Monday, 27 November 2017

Towards the creation of the EU Financial Consumer Protection Agency?

A couple of months ago we reported on the results of the public consultation on the Operation of the European Supervisory Authorities (ESAs), and mentioned that civil sector representatives (Better Finance) advocated a complete overhaul of the existing system of EU financial supervision as opposed to partial improvements in the interest of consumers. This voice has now become lauder, and several representatives, including BEUC has joined their forced to request this reform. Today they posted an Open Letter to the EU Commission on the Proposal for the EU financial supervisory reform.

In this letter they explain that the current supervisory framework is not adequate to effectively protect consumers. Consumer protection comes as the last objective of the ESAs enjoying low priority as compared to other objectives. This low priority is evidenced for example by a failure to ever use one of their most significant powers, a power to temporarily prohibit the use of dangerous financial products. The letter also highlights that the ESAs has also failed to adequately coordinate national supervisory authorities, and that consequently consumer protection, or conduct of business supervision is neglected in some Member States.

In order to priorities consumer protection, the letter advocates the move towards a 'twin peak' model in the EU, that is, a towards a creation of a separate supervisory authority that would be in charge to control the ways in which financial firms conduct business with their customers. This separation of the consumer protection objective from other supervisory objectives (the 'twin peak' model) is already working well in some EU countries like the UK and Belgium, and outside the EU, for example, in the US. The letter therefore urges the EU Commission to reconsider its current approach to keeping the regulatory/supervisory structure as it is, and to give thought, and preferably action, to the 'twin peak' model.

Importantly, in addition to raising the importance, the letter also sets out a basic strategic plan for moving towards the new model. Phase 1 would include a clear separation of consumer protection mandate from other mandates of the existing ESAs, by reforming the Consumer Protection Divisions of these authorities and in phase 2, these would then be merged into a newly created  single authority, the EU Financial Consumer Protection Agency. The letter addressed other important questions such as funding, governance and mandate.

Is a single supervisory authority for consumer protection viable in the EU, or could consumers be just as effectively protected by prioritizing the consumer protection objective of the existing authorities? What do you think?

Tuesday, 21 November 2017

More consumer access to cross-border online services

The European institutions reached an agreement on further EU approach to "unjustified" geoblocking of online consumer products or services (EU negotiators agreed to end unjustified geoblocking). What does it mean "unjustified"? First, it would apply to situations where traders prevent consumers from other Member States to conclude online contracts for the sale of goods, even if traders are released from the obligation of delivery to the consumer's Member State. If the consumer undertakes to pick up the good at the trader's premises or arrange the delivery himself, preventing the sale of goods contract from being concluded based on the geographical location of the consumer seems unjustified. Also, when consumers wish to purchase electronically supplied services (such as hosting services for their websites), they should not be required to pay additional fees than consumers located in the same Member State as the service provider. The same should apply to the situation when the services are provided in a specific physical location, as it should not matter then who purchases these services. Does this mean that traders will now have to sell cross-border? No, there won't be an obligation to sell to consumers from other Member States, but rather an obligation not to discriminate against them, without a justification. It could be seen as unjustified to require consumers to pay only with the debit or credit card issued in the Member State of the trader's location. The plan is for the new Regulation to enter into force within the next year.

Thursday, 16 November 2017

New Commission study on insurance services

On 27th October the European Commission published a study on consumers’ decision making in insurance services. Insurance services are particularly important due to the size of the market (with non-life premiums rising to € 343bn in 2015, according to Insurance Europe) as well as for ensuring financial stability.

The study focused on non-life insurance products purchased domestically and cross-border, with cross-border purchases being key for the internal market. The methodology of the study combined a systematic literature review, market data collection and stakeholder interviews along with behavioural experiments both online and in the laboratory. The use of behavioural experiments shows the increasing influence and status of behavioural economics in EU policy making, as the results of the study are meant to inform the European Commission’s Consumer Financial Services Action Plan

The study produced some interesting findings. For example it highlighted that consumers are more likely to engage with the information provided when it is presented in a concise, salient and user-friendly way. However, the real challenge lies in pointing out exactly the strategies that would make the presentation of the info user-friendly, and the study provides some insights on that. For example, separating sections using boxes and presenting text in two columns, using icons to indicate the subject of each section, and using traffic light coloured ticks as bullet points to indicate risks covered and not covered. Weight is placed on national authorities frequently monitoring the provision of information and harmonising the rules on provision of information where possible. Price comparison websites, another informational aspect, can be helpful for consumers but the study raised concerns as to their impartiality and independence.

Another key finding of the study is the negative effect of pressure in the decision making of consumers, with pressure selling being particularly prevalent in car rental and add-on insurance. Pressure selling makes consumers make sub-optimal decisions or buy products they do not need. Beyond improving enforcement, what is suggested could help with pressure selling is better information, especially underlining the existence of alternatives and presenting the product in a balanced way. Timing is key for addressing pressure, as well as for processing information. Allowing consumers time to reflect on their decisions and to modify them at a later date can prove to be helpful, according to the results of the study. However, there is the issue of how much consumers make use of such measures and what can be done for addressing pressure selling ex ante.

As most behavioural studies, this one also points out that consumers tend to be passive, they prefer the familiar and do not devote sufficient time and effort in comparing alternatives in the market. Consumers have a low awareness and understanding of contract terms. Behavioural biases play a role in consumers buying excess that is too low for their needs or choosing not to buy insurance at all. The image of the consumer painted in this study is at odds with the that of the average consumer as used in CJEU case law, a consumer who is expected to be ‘reasonably well-informed, observant and circumspect’.

In relation to cross-border shopping for non-life insurance the study found that although there is some interest for it, there are barriers preventing consumers from cross-border purchases, including low awareness of the possibility for cross-border purchases, language barriers and the complexity of the market, as well as regulatory differences and concern over problem solving. Harmonisation is key for promoting cross border purchases and it is one of the suggestions made, especially for harmonising definitions and contract formats.

Though the study itself calls for further research and collection of more data, it is a welcome systematic effort to study the European insurance market with robust methodology and concrete suggestions. It remains to be seen how much it will influence EU policy when it comes to taking concrete measures.

Is Max Schrems a consumer? AG Bobek in C-498/16

On Tuesday, 14th November, Advocate-General Bobek delivered an important opinion in case C-498/16 Schrems v Facebook. Readers of this blog will certainly remember an earlier court battle involving the same parties, fought entirely on the grounds of data protection law, which resulted in the invalidation of the Commission's Safe Harbour decision and its later replacement with a somewhat more robust, yet no less controversial, framework renamed as Privacy Shield. The present case also revolves around data protection issues, albeit in a more horizontal setting. These, however, are not the focal point of the commented opinion as the preliminary reference had been made before  national courts even began to assess the merits of the action. This was due to the doubts as to whether the court seised was at all competent to try the case.

Legal framework and the contested issue 

In the EU competence of national courts to hear and adjudicate disputes in civil and commercial matters is established under the so-called Brussels framework. The instrument which currently lies at its heart is Regulation No 1215/2012 (Brussels I bis), which, as of 2015, repealed and replaced Regulation No 44/2001 (Brussels I). The case at hand still refers to the previously applicable act, but – as the provisions under analysis have not been affected by the reform (recast) – the interpretation provided by the AG and, ultimately, the Court remains of direct relevance also to the law as it currently stands.

Key provisions under dispute are Articles 15 and 16 of Regulation No 44/2001. Both of them form exceptions to the general rule of actor sequitur forum rei set out in Article 2(1) and aim to assist consumers in the pursuit of their claims against traders. Pursuant to Article 15(1)(c) if a matter relates to a contract concluded by a person for a purpose, which can be regarded as being outside his or her trade or profession (the consumer) and the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer's domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities, the special regime laid down in the subsequent provisions kicks in. This includes Article 16(1) according to which "a consumer may bring proceedings against the other party to a contract either in the courts of the Member State in which that party is domiciled or in the courts for the place where the consumer is domiciled".

Relying on these provisions, Max Schrems – an Austrian national domiciled in Austria – lodged a number of claims both on his own behalf as well as on behalf of several others Facebook users who assigned claims to him concerning the company's alleged infringements of the data protection rules. The defendant contested the jurisdiction of the Austrian court, submitting that Schrems cannot rely on the consumer status as he has been using the platform not only for personal, but also – and increasingly – for professional purposes. According to the defendant, the fact that Schrems specialises in data protection law, publishes books, delivers lectures for remuneration, operates a website and a Facebook page concerning the ongoing litigation, coordinates collective redress and collects donations for that purpose suggests that he no longer acts merely in his private capacity. Secondly, in view of the defendant, jurisdiction established for Schrems was, in any case, not transferable onto other persons who assigned claims to him.

AG opinion

The opinion of AG Bobek does not bring a clear win for either of the parties. Indeed, the AG ultimately sides with Schrems on first account and with the social network's operator on the other. The proposed reading of the regulation is supported by an extensive reasoning, which appears to be well grounded in the existing case law and not particularly ground-breaking. On a closer look, however, the opinion offers several hints which could lead to important developments in the jurisdictional regime for consumer contracts.

Question 1: Consumer status

As regards the interpretation of the notion of a consumer for purposes of Article 15(1), the AG points out, in a seemingly conservative way, that the assessment should always be contract-specific, that the parties should generally able to rely on the status of the other party determined at the time of the contract’s conclusion and that in case of ‘dual purpose’ contracts the Gruber case law should be applied (paras. 29-34).

However, on a more careful reading, the opinion appears to be more nuanced. Starting from the last point: the AG first reminds that, in line with Gruber, if a contract serves both professional and private purposes "the consumer status is maintained only if the connection between the contract and the trade or profession of the person concerned is 'so slight as to be marginal', meaning it had only a negligible role in the context in which the contract was concluded" (para. 34). Direct reference to the key passage of that judgment highlights the discrepancy between the Court's early case law on dual purpose contracts and the subsequent legislative developments on that matter. Indeed, in a number of more recent acts such as Directive 2011/83/EU on consumer rights (recital 17) or Directive 2013/11/EU on consumer ADR (recital 18) the EU legislator opted for a somewhat different – and more consumer-friendly – approach towards mixed purpose contracts. Naturally, indications included in the preambles of several acts do not preclude the applicability of the CJEU's test, especially in other contexts. By way of illustration, a more stringent stance towards consumer status in private international law can potentially be justified by reasons of procedural certainty.

This, however, does not seem to be the reading the AG is after. Despite direct references to the fairly tough standpoint in Gruber, he also presents some very interesting points as to how he understands that ruling and, ultimately, considers Schrems to qualify as a consumer. In this respect, two observations made by the AG in para. 59 are worth highlighting.

In the words of the Advocate-General: "First, what Gruber aims at, in my view, and what should remain negligible within one single contract, are activities having immediate commercial aim and impact, in the sense of structured and profit-making activity being the driving purpose of such use."

This may appear somewhat contradictory to one of his earlier observations regarding the interpretation of the phrase 'trade or profession'. Indeed, one can read in para. 31 that the term relates "in broad terms to one's economic activity" meaning that for a person to be disqualified as a consumer the contract at issue does not have to be "necessarily connected with immediate economic profit", but what matters is rather that it is "entered into in connection with an ongoing, structured economic activity". On the whole, however, it seems that the AG seeks to align, step by step, the reading of Gruber with the more recent trend concerning the issue of mixed purpose, which, in itself, is to be welcomed.

The second observation made by the AG in para. 59 is equally non-standard and goes back to his earlier discussion on the possibility of losing (or gaining?) the status of a consumer over time (paras. 35-41). While the AG confirms that the status of a party should generally be determined at the time of the contract's conclusion and not at the moment when the action was lodged, he does not consider this point to be absolutely fixed. "In abstract terms" and "in rather exceptional cases" a dynamic approach to consumer status could be envisaged (para. 39). This could be true particularly for long-term relationships, in which the aim of a contract is not specified or the contract is open to different uses. If, under these circumstances, there is "a clear evolution" of the type of the capacity in which the applicant has made use of the contract, the potential dynamism of the contractual relationship would need to be assessed (para. 59). While the application of this more flexible approach towards consumer status has not changed this assessment with regard to the claimant, if shared by the Court, the reading proposed by the AG could shake the foundations of consumer law as we know it.

Question 2: Collective redress

By contrast, the AG was not inclined to go into similarly subtle distinctions with regard to the second question and considered that Article 16(1) of Regulation No 44/2001 simply does not leave room to the interpretation advocated by the applicant (with the support of the intervening governments). It his view neither the text, not the context and the purpose of that regulation, support the establishment, solely on the basis of that act, of a new special jurisdiction with respect to claims assigned to a consumer on the same subject by other consumers domiciled in the same or another Member State or in a non-member state. This remains in line with the earlier case law, in which the CJEU  prevented both private companies (Shearson Lehman Hutton) and consumer organisations (Henkel), acting as assignees of the rights of the consumers, from relying on the special head of jurisdiction designed for the protection of the latter. According to the AG, the Court did so not only because those legal persons were not 'weaker parties', but also because they were not parties to the contract in question, which was also the case for Schrems (para. 96).

The Advocate-General thus denied the consumer-assignee the possibility of collecting numerous claims in the single proceedings carried out in his domestic court. This, however, was not yet his final word. In his concluding remarks the AG decided to share some broader views concerning the need for  an EU-wide collective redress in consumer matters. According to Bobek, collective redress undoubtedly "serves the purpose of effective judicial consumer protection" and may provide "further systemic benefits to the judicial system". He notes that the question is not only extensively discussed in the legal scholarship, but has also already led to several attempts at a legislative action and that, all in all, the EU legislator appears to be best placed to devise the relevant system, including its jurisdictional dimension. Consequently, even if it does not propose a major shift with respect to the assignment of claims under the applicable regime, the AG's opinion could provide for an additional impulse to revive these important discussions. This will, nevertheless, largely depend on whether the Court actually picks up on the many interesting proposals put forward by its advisor.