If it can be cleaned, it can be returned? - AG Saugmandsgaard Øe in slewo (C-681/17)

Another opinion given this Wednesday was by AG Saugmandsgaard Øe in the case slewo (C-681/17) concerning interpretation of Article 16e) of the Consumer Rights Directive. The question concerned the scope of application of the exception from the right of withdrawal for goods sealed due to health protection or hygiene reasons, when the seal was broken upon delivery and before withdrawal.

In a given case, the trader was selling mattresses, which the consumer purchased online for personal use. The mattress was wrapped in foil, which the consumer removed. The trader claimed that this prevented the consumer from later on withdrawing from the contract.

AG Saugmandsgaard Øe considers that the consumer should have the right of withdrawal in the case of purchasing a mattress, even if it has been 'sealed', which 'seal' (protective foil) has been removed by the consumer. He rightly compares mattresses to clothes - which both can be wrapped in protective foil by traders and may get in direct contact with the human body whilst being tested for their fit (para. 29). Due to the strict application of the exception from the right of withdrawal, it does need to be considered whether the trader could clean the mattress and make it possible to sell as new again upon the use by the consumer of the withdrawal right, similarly as clothes again (para. 32-34). Therefore, the exception from Article 16e) CRD will only apply to goods, which, if unsealed, would prohibit the trader from reselling them, as despite any action he might take they would be compromised as to their hygiene. Moreover, AG Saugmandsgaard Øe correctly draws attention to art. 14 para. 2 CRD, which allows the trader to claim the diminished value of the returned goods from the consumer.

Just in case the Court does not share his view, in the remaining part of the opinion AG Saugmandsgaard Øe elaborates on what it means for the goods to be recognised as sealed goods, and the moment of providing information to consumers about losing their right of withdrawal if they break the seal (for this elaboration we send our readers to the opinion).

Crying over spilled fuel - AG Tanchev in Moens (C-159/18)

On Wednesday AG Tanchev gave an opinion in the case Moens (C-159/18) concerning interpretation of extraordinary circumstances that Regulation 261/2004 allows the airlines to claim to avoid paying compensation for cancelled and delayed flights. In the given case, the airline claimed as an extraordinary circumstance the fact that there was a spillage of fuel on a take-off runway, which needed to be closed and cleaned for more than two hours. The flight in case ended up being delayed by over 4 hours as a result thereof.

In short, AG Tanchev recommends the Court to advise the national court that a spillage of fuel on a runway, causing its closure for more than two hours, classifies as an 'extraordinary circumstance', as the event is not inherent in the normal exercise of the activity of the air carrier and is beyond its actual control. 

This conclusion follows from seeing as an extraordinary circumstance not the event of spilling the fuel on a runway, but rather the subsequent decision of the airport authorities to close that runway. This decision was "not foreseeable, planned or announced in advance" (para. 23) and, therefore, may not be inherent in the normal exercise of the activity of the air carrier (para. 28). The reason for taking such a decision seems irrelevant to AG Tanchev (para. 26). AG Tanchev then relies on previous case law, such as McDonagh, Pešková and Peška, Wallentin-Hermann. 

I have some problems with comparing a given case to the previous case law. In the previously mentioned cases the events that were considered to qualify as extraordinary circumstances were all extraneous not only to the airline but also to other parties, upon which the air carrier could seek redress (extreme weather conditions, birds, terrorism). This is not the case here, as the air carrier could potentially claim its losses from the airport authority, or the other air carrier, whose faulty aircraft caused the spillage of the fuel (mentioned in para. 29). This route of compensation is not, however, available to the passenger. Should we, therefore, so easily exclude from the normal exercise of the activity of the air carrier having to deal with the results of the operational decisions caused by airport authorities? This would provide a significant leeway for claiming extraordinary circumstances.

The reasoning that the closing of the runway was beyond the actual control of the air carrier and that he could not otherwise accommodate passengers' timely departure is, in turn, convincing (paras. 35-36). However, the test is twofolds and the event should both not be inherent in the normal activity of the air carrier and lay beyond its actual control. As mentioned above, contrary to AG Tanchev, I would be more hesitant to recommend the national court to consider the first limb of that test as having been met.

An interesting point mentioned in the opinion is that an event such as a spilled fuel on a runway may be classified as extraordinary circumstances, but such a classification depends on all circumstances of a given case, thus should not be automatic. For example, if the airport authorities open other runways upon closing the one, which has been contaminated, there would be no need to delay or cancel flights (para. 11).

2019 forecast: Sun shines on consumer sales contracts

Over a week ago, on December 7, the Council has announced reaching an agreement on the revision of the sales of goods directive (Consumer Sales Directive 1999/44/EC) (More unified rules on contracts for the sales of goods: Council agrees its position). This means that there is a chance for the European Parliament to adopt the new Directive before the elections. The first reading has now been scheduled for March 2019.

 

The original proposal of the Commission intended to provide separate remedies for non-conformity of products purchased at a distance and of digital content. Due to the opposition to this further fragmentation of consumer protection rules, the proposal has, however, been adopted and the amended new rules would regulate non-conformity in all sales contracts. The Council welcomed this change. If we (and the EP) follow the Council's general approach, which may be read here in more details, this is what we may expect:

Harmonisation level

The new rules would apply targeted maximum harmonisation, with Member States being able to maintain further reaching consumer protection in respect of: time limits for guarantee periods (with the minimum set at 2 years); the reversal of the burden of proof for non-conformity (if it manifests within one year from the moment of the delivery there will be a presumption of non-conformity, but the Member States may extend this time period to two years); allowing consumers to choose a specific remedy if the lack of conformity became apparent within a short period after delivery, no longer than 30 days; maintaining flexibility on adoption of the obligation to notify about non-conformity within two months from detecting it. 

 

Goods with digital elements

IoT or connected goods (goods with digital elements) will be regulated by this new directive rather than the directive on digital content. Sellers will be obliged to provide updates for goods with digital elements but only for a period of two years (whilst digital content not integrated in goods will need to be updated during a time that consumers may 'reasonably expect').

 

Remedies

Consumer remedies for lack of non-conformity will remain the same (repair, replacement, price reduction and termination) but the strict two tier system has been mellowed down by the introduction of a more detailed exceptions allowing sellers to opt for price reduction or termination instead of specific performance. New provisions account for CJEU's case law stating that consumers should not be liable to pay for the normal use of goods during the period prior to their replacement, as well as that they are not to bear the costs of removal of installed non-conforming goods and the re-installation of the conforming goods.

Consumer organisations join forces against 'no show' practices by air carriers

A recent communication from BEUC informs about a coordinated initiative by several national consumer organisations directed against the so-called 'no show' clauses used by air carriers. Pursuant to these clauses air carriers are authorised to cancel complete multi-flight bookings if passengers miss parts of their journey. This can lead to cancellations of connecting flights or return flights in round-trip itineraries (already paid for by the passengers). According to BEUC, such clauses are contrary to national laws implementing Directive 93/13/EEC on unfair terms. Arguably, this interpretation has already found support from several national courts (e.g. in Germany, Spain and Austria).

Two aspects of this development are worth highlighting.

Firstly, it is not the first time 'no show' clauses have been brought to public attention. Most notably, partial ban of 'no show' clauses in contracts between air carriers and passenger (i.e. not just consumers) was envisaged in the proposed reform of Regulation 261/2004, put forward in 2013. The proposal, however, got stuck in the legislative pipeline. BEUC is now calling on the Commission to revisit the matter.

Noteworthy are furthermore the two types of strategies pursued by consumer organisations. On the one hand, there are measures taken directly against the companies concerned (formal requests to cease the practice, (threats of) taking legal action). Besides the abovementioned proceedings in Germany, Spain and Austria (interestingly, no requests for a preliminary ruling as far as I can see), this has reportedly been the case in Greece, Malta, Belgium, Denmark and the UK. On the other hand, there are complaints to national consumer authorities and calls for a CPC action.

It will be interesting to see whether and if so, which of these different avenues will prove successful. Equally relevant are, of course, the possible legislative developments at the EU level, including as part of the 2018 'New Deal for Consumers' package. It is far from certain, however, whether EU-wide proposals on collective redress will not suffer the same fate as the 2013 passenger rights reform. For the time being, consumers and consumer organisations have to make do with existing enforcement mix.

Brexit and consumers: the Court in C-621/18 Wightman

Dear readers,

A quick update. Yesterday the Court of Justice delivered its judgment in C-621/18 Wightman. The Court confirmed that the UK can indeed unilaterally withdraw its intention to leave the EU (see for a full analysis here), largely following AG Sanchez-Bordona's Opinion (on which we reported here).

Although the judgment is very generous, its real effect is yet to be seen. As always, we will keep you updated.

Italy fines Facebook for data related unfair commercial practices

Yesterday the Italian Competition Commission fined Facebook 10 million EUR for breaching the relevant provisions of the Italian Consumer Code implementing the Unfair Commercial Practices Directive. The Competition Commission found that not-disclosing that consumers' data is provided for commercial purposes amounted to a misleading practice and that the pre-selected consent on data sharing comprised aggressive practices. Interestingly, in addition to the large fine, Facebook was also ordered to issue an apology to its users on its website and on its app (see for more here).

This is an important step in the aftermath of the Cambridge Analytica scandal (see for more here, and our report here), and it will be hopefully followed in other Member States where due to the global nature of social media, it is very likely that similar breaches occurred. This then leads us back to an 'old' problem of national enforcement of EU wide infringements of consumer law, and the question of whether there is a need to overhaul and improve the existing enforcement regime of EU consumer law by empowering the EU Commission to take enforcement actions against EU-wide infringements (which we discussed here). What do you think?

Ex officio control of unfair terms presupposes an effective remedy: CJEU order in PKO Bank Polski

On 28 November 2018, the EU Court of Justice issued an order in PKO Bank Polski (C-632/17), which concerns the same issue as Profi Credit Polska (C-176/17), a case we have reported on earlier. In short, the question raised by the referring Polish court was whether the order-for-payment procedure at issue is incompatible with Article 7(1) of the Unfair Contract Terms Directive (93/13/EEC), because:

(i) the procedural rules restrict the consumer's right to lodge an objection against such an order for payment in such a way that there is a significant risk that she will not exercise that right, and

(ii) in the absence of the consumer, the court does not have the power to examine (a) the unfairness of the terms of the underlying credit agreement and (b) compliance with the requirements deriving from the Consumer Credit Directive (2008/48/EC).

Thus, there were two problems:

• The court's role is, in principle, limited to a review of formalities; it does not have available to it all the elements of fact and law arising from the credit agreement and thus, is not in the position to examine unfair terms. 
• The legal relationship resulting from the credit agreement is reviewed only if the consumer lodges an objection; the objection must meet various procedural requirements in an extremely short period (two weeks); and the consumer-defendant must pay a court fee that is three times greater than the claimant; see also our blog on Profi Credit Polska. 

In Profi Credit Polska, the CJEU already held that the Member States' obligation "to lay down procedural rules that ensure observance of the rights which individuals [i.e. consumers] derive from Directive 93/13", which "implies a requirement that there be a right to an effective remedy", also enshrined in Article 47 of the EU Charter of Fundamental Rights. The two above-mentioned problems combined prevented the court from carrying out the required assessment under the EU consumer protection legislation at issue. This is reiterated in PKO Bank Polski. The CJEU concludes that the Polish order-for-payment procedure is precluded by Article 7(1) of Directive 93/13 and Article 10 of Directive 2008/48/EC.

We can tentatively draw two conclusions from the CJEU's decisions:

1. While the CJEU (still) does not make a clear distinction between Article 7(1) of Directive 93/13 (which requires "adequate and effective means" against unfair terms) and Article 47 of the Charter, it appears that the first presupposes the latter. If a case is not brought before the court, it cannot perform unfair terms control (either ex officio or at the consumer's request). In case of an "inversion of the dispute", i.e. it is the defendant – here: the consumer-debtor – who must initiate adversarial proceedings by lodging an objection, the court must determine whether the procedural rules infringe the consumer's right to an effective remedy (or rights of the defence, for that matter) as guaranteed by Article 47 of the Charter. If the obstacles are too high, there is a significant risk that consumers will not lodge and objection. 
2. The CJEU seems to suggest that the national court must be able to perform ex officio control, whether the consumer involved invokes the existence of unfair terms or not. This is in line with its earlier case law, see e.g. Banesto and Radlinger. But how does the referring Polish court obtain the necessary information? One possible answer is that the creditor must submit the underlying credit agreement in evidence. This calls into question the entire order-for-payment procedure, which is based on only a banking ledger excerpt. Is such an excerpt sufficient? And what should happen in the absence of the consumer? Should she be required to lodge an objection at all? The CJEU does not answer these questions. 

In its case law on other types of debt collection proceedings, the CJEU did not consider an "inversion of the dispute" to be contrary to EU (consumer) law in itself, as long as there were judicial remedies available to consumer. We have brought this up in previous blog posts.

However, PKO Bank Polski shows why a reliance on the consumer's initiative might be problematic, exactly because of the procedural obstacles discussed in light of Article 47 Charter. Removing those obstacles is a first step. Preventing creditors from circumventing judicial control – by allowing them to resort to extrajudicial enforcement procedures or to withhold information from the court – would be the next.

Brexit and consumers: AG Sanchez-Bordona in C-621/18 Wightman

Dear readers,

Yesterday AG Sanchez-Bordona delivered his Opinion in a landmark case C-621/18, in which a group of citizens lead by Mr Wightman challenged the revocability of UK decision to withdraw from the EU, that is, the now famous Art. 50 TEU. AG Sanchez-Bordona proposes that the Court of Justice should find that the case is admissible to the Court and that it should instruct the referring Scottish court that Art. 50 TEU allows the unilateral notification of the intention to withdraw from the EU.

Given that this case does not raise consumer law issues per se, we are not going to provide a detailed analysis (see for detailed account here). The case however may be of an utmost importance for consumer in Britain (see how Brexit may affect consumer protection here) and thus this case deserves a mention on our blog.

And who knows, perhaps it will be a catalyst for a major change? We will see soon and keep you posted!

Google tracks every step you take

Norwegian Consumer Council and seven European consumer organisations have filed a complaint today against Google, arguing that Google uses deceptive design and misleading information in order to acquire users' consent to constant tracking (New study: Google manipulates users into constant tracking). How would the users be tracked? Well, if you have an Android phone or use Google accounts on other devices, then it is likely that you are one of the victims of constant tracking, as Google accounts have 'location history' and 'web&app activity' integrated in their settings. You may have been prompted/manipulated to switch on such location history, without having realised that. Having read the above information you may think that Google has 'simply' access to your GPS data. Would you know though how detailed this data is (incl. determining which floor you are at in a particular building, which room in the house) and that it may be linked to other information, e.g., your online search results? The combined data may, of course, then be used for targeted advertising, increasing its effectiveness. Would you know how to switch it off and how to avoid having it be switched on again? If this short post does not make you want to check your phone and its settings, maybe you should look up the whole report on the study of Google tracking practices that has been published: Every step you take.

‘Nuts and bolts’ of extraordinary circumstances - AG Tanchev in Germanwings (C-501/17)

What happens when a tyre of an air plane gets punctured by a screw lying on a runway, damaging the plane? Is it an event that could be classified as an extraordinary circumstance releasing the airlines from an obligation to pay compensation to passengers whose flight was delayed for more than 3 hours due to the need to change the tyre? AG Tanchev addressed these questions today in the Germanwings case (C-501/17) and concluded that such an event falls within the scope of the notion of extraordinary circumstances, just as the Commission and the German and Polish governments suggested.  

AG Tanchev starts by highlighting the need for the judgment, due to the diverting national case law on what constitutes an extraordinary circumstance. The previous ECJ judgments did not clarify all matters. Technical defects of a plane remain controversial, even after the most recent judgments, such as in the Pešková and Peška case. The ECJ holds the line that a technical defect is an extraordinary circumstance if the event that caused it was not inherent in the normal activity of the air carrier and was beyond his actual control. These two requirements need to be jointly satisfied (para 41 and 48). Correctly he notes that technical defects may constitute an extraordinary circumstance also when they result from other events than hidden manufacturing defects (para 47). We could see that as well on the example of the above-mentioned case, where the defect was caused due to a bird colliding with the plane (which was seen as an extraordinary circumstance) and in case Siewert, where the mobile boarding stairs collided with the plane (which was not an extraordinary circumstance). 

AG Tanchev sees the difference between these two above-mentioned judgments in the fact that the use of mobile boarding stairs was inherent in the normal activity of the air carrier, as he willingly used such stairs. As in the given case the screw was lying on the tarmac without the knowledge of the air carrier and against his will, the damage caused by it did not qualify as falling within the normal activity of the air carrier (para 55-56). Is this argument convincing? The passenger argued that the use of runways is inherent in the normal activity of the air carrier. AG Tanchev compares it to the use of the airspace, where the collision with the bird was not perceived as ‘intrinsically linked’ to operating a plane (para 57). I am uneasy with this reasoning and this comparison. Perhaps I am mixing up the two requirements, of inherency and of control, but I see the difference between holding air carriers liable for what happened unexpectedly in the air and on the ground, and the ECJ case law to date also could be interpreted as upholding that distinction. The latter, i.e. the ground conditions, remains more controllable. It is true that the runways, their maintenance and cleaning, are under control of airport operators and not air carriers, but that could just mean that air carriers would have a redress right towards airport operators. It should not be seen, in my opinion, as taking away passenger rights, contrary to what AG Tanchev claims (para 63-64). Screws on a tarmac may not be controlled by the air carriers (para 71) but I am not sure whether they should be excluded from their operational risk, as AG Tanchev suggests. If we want to continue to interpret extraordinary circumstances narrowly and provide protection to passengers who will face delays, this case should be decided differently to what AG Tanchev suggests. Air carriers could protect themselves by holding airport operators accountable for the need to pay out any compensation to passengers in such cases. 

Recent study reveals surprising facts about automated financial advice

In September 2018 the EU supervisory authorities (ESAs)published a Joint Committee Report on the results of the monitoring exercise on ‘automation in financial advice that revealed surprising facts about automated financial advice in the EU.

Following the publication of a Discussion Paper on Automation in Financial Advice in 2015 and a Report in 2016 (on which we reported here) the ESAs  published the present follow up report on the evolution of automation in financial advice in the securities, banking and insurance sectors over the past two years. The report is based a survey with competent national authorities.

Surprisingly, the report shows that while the phenomenon of automation in financial advice (or 'robo-advice') seems to be slowly growing, the overall number of firms and customers using automated financial advise is still quite limited. In addition, while some new trends seem to emerge (such as the use of Big Data, chatbots for customer service and extension to a broader range of products) there seems to have been no substantial change to the overall market since the publication of the ESA Report in 2016. The Report identifies:

• cultural/psychological barriers as one of the main causes of lack of engagement, that can be traced back to low level financial literacy, and a lack of consumer trust and confidence in using digital tools;
• regulatory barriers such as the complexity of the applicable legislation (MiFID II/MIFIR, IDD, GDPR, PRIIPs) that pose special challenges for small, startup FinTech firms.

It therefore seems that the market for automated financial advice has not taken up, and that its full potential is yet to be explored. Given the above identifies barriers, one may wonder whether the time is not ripe for a shift to greater digitization in the financial sector or whether the regulatory environment needs to change both in terms of giving greater room for small Fintech firms to expand on the market, and in terms of the existing consumer protection tools. 

Consumer protection and rule of law - AG Wahl's opinion in Dunai (C-118/17)

Much like the Spanish Aziz saga, the CJEU's 2014 decision in Kásler keeps generating new litigation - in Hungary and in Luxembourg alike. 

In Kásler, the Court decided on the applicability of unfair terms control to certain terms in foreign currency denominated loans. These terms had the effect of maximising the lender's profit by exploiting the difference between currency selling and buying rates. The ECJ held that such terms are not exempted from control, as they do not establish the main content of the contract - represented by the notion of foreign currency-denominated loan -  but rather are ancillary to that determination. While it is a core component of these loans that, in return for lower interest rates, consumers accept to take up the risk of currency fluctuation, the bifurcation between selling and buying rates is a further sophistication which alters the original model (in favour of the lender). 

As a consequence of Kásler, the Hungarian Supreme Court (Kuria) decided that those terms were unfair. This triggered a further reaction: the Hungarian legislator issued new rules with the aim of providing "replacement" terms. Under these rules, in foreign currency denomination loans the exchange rate is set at the level determined by the Hungarian Central Bank. 

This mechanism preserves the validity of the foreign currency denomination loans by making sure that there is always a way of determining the value of the debt. The laws in question also established some limitations on the possibility for consumers to claim the relevant remedies, which were the object of a different preliminary reference (OTP Bank and OTP Factoring).

In Dunai, the Court will have to decide whether the rules are compatible with the Directive. In particular, the referring court wonders how the replacement with the Central Bank exchange rate, which leaves the risk of currency fluctuation with the consumers, fares with the test set out in Kásler. A part of that judgment, indeed, concerned the replacement of terms with default rules when the contract could otherwise not continue into existence after unfair terms control. This is how the reasoning (para 83-84) went:

 [...] if, in a situation such as that at issue in the main proceedings, it was not permissible to replace an unfair term with a supplementary provision, requiring the court to annul the contract in its entirety, the consumer might be exposed to particularly unfavourable consequences, so that the dissuasive effect resulting from the annulment of the contract could well be jeopardised.

   In general, the consequence of an annulment is that the outstanding balance of the loan becomes due forthwith, which is likely to be in excess of the consumer’s financial capacities and, as a result, tends to penalise the consumer rather than the lender who, as a consequence, might not be dissuaded from inserting such terms in its contracts.

This reasoning, and in particularly the second part thereof, raised the possibility that the consumer's interest may play a role in assessing whether replacement & preservation would have to be preferred to sheer invalidation. 

The referring court thus asked, in essence, whether a law that forces them to recognise that the unfair term had been replaced by mandatory legislation determining the applicable interest rate, making it impossible for them to instead invalidate the contract for being incapable of continuing into existence, was compatible with the Directive. It also asked two related questions which we will discuss in turn.

Last Thursday, AG Wahl published his opinion in this case (here the French version, the English text is not yet available).

On the first question, the AG gives a very puzzling reply. After explaining that the goal of the Directive's article 6 is to establish an effective balance between the parties and not to invalidate all contracts containing unfair terms (para 75), the AG considers that the possibility of maintaining the contract must be assessed objectively, without letting the consideration of the party's interest play a determinant role (76-77). 

In this context, the judge's ability to replace the unfair terms must be interpreted as only applying in exceptional circumstances.   

From the above, the AG infers that a provision of national law which, in cases of partial invalidity arising from a declaration of unfairness, aims to preserve the contract's validity without the unfair term is consistent with the directive. This because the competent judge cannot remedy the term's unfairness just because invalidating the contract would be more advantageous to the consumer. 

If the AG assumes that in some way his reasoning has demonstrated that invalidating the contract would be the same as "remedying" an unfair term, this blogger has to admit to not being able to see how.

The rest of the opinion is (yes, it's possible!) even more technical to the extent that the AG delves into the distinction between the core and ancillary elements in the contract. The argument goes as follows: the original unfair terms were non-core terms, but the term that replaces them - fixing the exchange rate - is a core term. Therefore, whereas the referring court sees the Hungarian legislation as limiting their possibility to adjudicate on unfair terms, it is the Directive itself that imposes that limitation by excluding core terms from control. 

This reasoning allows the AG to answer that, contrary to the suspicions raised by the referring court in its second question, the Hungarian legislation does not hamper the effectiveness of Directive 93/13, which itself does not aim to reach into the domain of core terms. 

The third and last question by the referring court concerned the role of certain guidelines issued by the Hungarian Supreme Court - which the referring judge, again, perceived to be unduly limiting their ability to secure consumer protection. Here the AG again takes a somewhat surprising route: over four short paragraphs (109-112), the AG suggests that since national courts are always in a position to disapply national legislation incompatible with union law and/or raise a preliminary ruling request, there is no risk that the Kuria guidelines will prevent the application, by the national courts, of relevant EU law provisions. 

The institutional background of this case deserves separate mention. While asking about Directive 93/13, the referring court relates to a much broader panorama: take in particular the second part of the third question, whereby the court asks: is it in conformity with the EU's competence to secure a high level of consumer protection as well as fundamental EU law principles of effective judicial protection and fair trial for all questions of civil law that the the "harmonisation council" of a MS highest jurisdiction can guide adjudication through [guidelines], where the appointment of judges to this council does not happen in a transparent manner, according to pre-established rules, when the procedure before said council is not public, and it is not possible to know afterwards the procedure followed, the expertise and publications used and the vote of the different council manners?

The AG is very conscious that the struggle highlighted by this question goes far beyond the - already quite relevant - question of the fate of foreign currency denominated loans affected by unfair terms. His response is to carefully try to unload all questions of this background - an exercise that works better at certain turns than at others. 

Finding out whether the Court will take the very same path or take some deviations into rule of law discussions is one more reason to await the decision with great interest.   

AG Bobek in Pouvin C-590/17: The scope of the UCTD should be interpreted broadly

A recent request for a preliminary ruling C-590/17 Pouvin v Electricité de France from the French Cour de Cassation raised interesting and so far unexplored questions about the applicability of the 1993/13/EC Unfair Contract Terms Directive (UCTD) on contracts concluded between employers and employees that are connected to but do not fall within the employers' main business. Last week AG Bobek delivered his Opinion on the case.

The Facts

Claimants Mr Pouvin and his wife Ms Dijoux entered into a mortgage loan contract with Mr Pouvin's employer, Electricité de France (EDF). The contract contained an automatic termination clause according to which the loan becomes immediately and in full payable if Mr Pouvin leaves his employment. When Mr Pouvin resigned, the employer called on the loan. In the case that followed the claimants argued that the termination clause was unfair under the UCTD.

Questions to consider

1) Can EDF, the employer, be considered the 'seller or supplier' within Art. 2(c) UCTD given that lending is not its main business?

2) Can Mr Pouvin, the employee and his wife (not an employee of EDF) be considered  'consumers' under Art. 2(b) UCTD?

Can employers be considered the 'seller or supplier'?

Relying on the wording of Art. 2(c) of the UCTD and previous CJEU case-law AG Bobek proposed a wide interpretation to the notion of 'seller and supplier' so as to include the employer in the present case. Under Art. 2(c) a 'seller or supplier' means any natural or legal person who, in contracts covered by the UCTD, is acting for the purposes relating to his trade, business or profession.

First, AG Bobek considered the meaning of acting for the 'purpose' of someone's trade, business or profession. He dismissed EDF's argument that in providing the loan they did not act for the purpose of their trade, business or profession given that lending is not their main business. Drawing a parallel with the CJEU's earlier judgment in C-147/16 Karel de Grote (on which we reported here) that confirmed that complementary or ancillary services carried out in connection with the main activity can be included into the concept of 'business, trade or profession', which defines the status of the 'seller or supplier', AG Bobek concluded that in the present case too, the employer provided an ancillary service that was connected to its main activity. While in Karel de Grote the educational institution directly provided the loan to consumers, in the present case the connection is more indirect, since the employer only provided the loan and not the property- that had to be purchased from a third party seller. Regardless of the indirectness of the connection, the AG argues that the connection is not too remote to push the contract outside the scope of the UCTD. Especially since providing loans to employees is part of the companies' social policy that is used to attract high quality employees and as such is essential for a running a successful business.

Second, AG Bobek argued that giving a broad meaning to the notions of 'seller and supplier' is in line with the UCTD's intention that provides for 'any' natural or legal person acting for the purpose relating to his trade, business or profession. Both the words of 'any' and 'relating' provide additional strong basis for the definition to conclude that the UCTD's intention is to include ancillary services, not just the core activities, those that squarely fall within the 'sphere of professional competence' of the business.

Can employees be considered 'consumers'?
The second question that AG Bobek needed to answer is whether Mr Pouvin who is an employee of EDF can be considered a consumer.  Again, the AG proposed a broad interpretation of Art. 2(b).

Although one of the recitals of the UCTD expressly excludes employment contracts from its scope, AG Bobek dismissed the applicability of the exclusion in the present case. First of all, he contends that the recital has no biding force and that in any way it only provides an illustration of a sort of contracts that should be excluded because the parties to them are not acting as 'consumers' or 'sellers or suppliers' in the sense of the UCTD. In the present case the loan agreement does not form part of the employment contract and does not regulate the employer-employee relationship; the loan is merely provided in connection with the employment contract of Mr Pouvin. Therefore, the fact that the loan was reserved only for employees does not change the characterization of the parties as a 'consumer' or 'seller or supplier'.

Conclusion 

AG Bobek proposes the following answers:

1) Art. 2(c) of the UCTD should be interpreted as meaning that where a company grants a mortgage loan to an employee and the employee's spouse that is covered by a scheme only available for the employees of the company, it is acting as a 'seller or supplier'.

2) Art. 2(b) of the UCTD is to be interpreted as meaning that an employee of a company and the spouse of such employee, who entered into a loan agreement with the employer to purchase a home, is acting as a 'consumer'.

Evaluation 

AG Bobek's proposed wide interpretation of the two notions is a welcomed approach that is likely to serve the UCTD's intention to deliver a high level of consumer protection. The Opinion is well reasoned and the relevant connection is made between the two notions and the UCTD's broader policy aim to protect consumers that are in a weak(er) position compared to businesses (general inferiority vis-à-vis businesses, weak bargaining power and information asymmetries). It is particularly interesting to read AG Bobek's rejection on the decisive role of these rationales in the present case. The core of AG Bobek's thinking seems to be that the rationales are not decisive per se whether the employer acted as a seller or supplier, and that applicability of the UCTD does not depend on a balancing exercise between the interest of the parties, since this has already been done by the legislator and is included in the broad wording of the relevant provisions. These are certainly compelling arguments that invite the reading of the relevant parts for our readers interested in the role of the UCTD in the society (paras. 24-29).

AG Opinion on Kirschstein (C-393/17): UCPD is not to interfere with high quality of education

On 15th November 2018, AG Bobek delivered his opinion on Case C-393/17 Openbaar Ministerie v Kirschstein (Hereafter: Kirchstein). The case revolved around the application of the Unfair Commercial Practices and the Services Directive on the sector of higher education. As the AG succinctly points out, the underlying issue of this case is whether higher education programmes can be classified as 'services', and if so, what kind of services?


Facts of the case

Under Belgian law, and more specifically under Flemish law, only higher education establishments that have obtained an accreditation may award certain degrees. Doing so without that accreditation may lead to criminal prosecution resulting in a prison sentence and/or a fine.

Mr Freddy Kirschstein and Mr Thierry Kirschstein are involved in United International Business Schools of Belgium BVBA (‘UIBS Belgium’), a higher education institution that is not accredited by Flemish authorities. UIBS Belgium is affiliated with other education services companies from Switzerland (GES Switzerland) and Spain (GES Spain). UIBS Belgium, supports the courses of GES Switzerland in Belgium by providing courses in their Belgium campuses, with programmes that when completed, diplomas have 'master' in the title.

The Kirschsteins were fined on two occasions for breaking Belgian law by offering Master courses.

Questions referred

The following three questions were referred by the Belgian court to the ECJ, focusing on whether the Belgian law requiring that only accredited institutions contravenes the UCPD and the Services Directive, as being disproportionate.

(1)      Must Directive 2005/29/EC (the Unfair Commercial Practices Directive) be interpreted as precluding the provision in Article II.75(6) of the Codex of Higher Education of 11 October 2013 which imposes a general prohibition on non-accredited educational institutions using the designation “master” on the diplomas they award, where that prohibition is aimed at safeguarding a matter in the general interest, namely, the need to ensure a high standard of education whereby it must be possible to check whether the predefined quality requirements have effectively been met? 

(2)      Must Directive 2006/123 (Services Directive) be interpreted as precluding the provision in Article II.75(6) of the Codex of Higher Education of 11 October 2013, which imposes a general prohibition on non-accredited educational institutions using the designation “master” on the diplomas they award, where that prohibition is aimed at safeguarding a matter in the general interest, namely the protection of recipients of services?

(3)      Does the criminal provision applicable to educational institutions not recognised by the Flemish Government which award “master’s” diplomas pass the proportionality test in Articles 9(1)(c) and 10(2)(c) of [Directive 2006/123?’

AG Opinion

In an unusual turn of events, for preliminary references and AG opinions, there was need for a number of clarifications both in relation to the facts, as well as in relation to the applicable law.

In particular, an issue that is disputed also in the main proceedings was which entity awarded the 'master' diplomas in question. With the caveat that the facts are ultimately for the national court to decide, the AG makes certain assumptions:
1) there is a complex business structure between UIBS Belgium, GES Spain and GES Switzerland but it would appear that the teaching activities are carried out by UIBS Belgium, while the diplomas are administered first by GES Spain followed by GES Switzerland (para 32).
2) These three companies have never received accreditation for their study programmes, neither in Flanders, nor in any other country where they operate (para 33).
3) The study programmes in question did not receive any public funding and were entirely private (para 34).

Another disputed issue was the subject matter of the case; on the one hand it was argued that the questions referred to the ECJ centre around criminal sanctions, and criminal law is outside the scope of the EU law in question. On the other hand, it was suggested that the Court should limit itself to examining the sanctions and not the underlying issue of the accreditation process.

The AG chose a more measured approach admitting that even though the accreditation process and its compatibility with EU law is not the main focus of this case, nevertheless it is not possible to not address the accreditation issue indirectly in order to answer the referred questions (para 44).

The key element of the higher education services provided is the teaching and education activities provided by UIBS Belgium, rather than the issuance of certificates provided by the GES Switzerland (para 51). This is an important remark in terms of scope, as Switzerland falls outside the scope of the Services Directive.

Services Directive

The AG devotes a great part of his opinion in this case to discuss whether higher education qualifies as a service under EU law. One way to do so is using the test established by the Humbel case.
The Humbel case, which referred to secondary education, drew the distinction between publicly and privately funded education, arguing that courses funded entirely or mainly by public funds cannot constitute services, while, on the other hand privately funded education establishments can be classified as services, as their activities are for profit (para 58).
However, the AG points out that criteria of the Humbel test are not well suited for today's higher education which spreads over a range of different activities, blurring the lines of that public-private education distinction.

The Services Directive further complicates the, seemingly clear-cut distinction of the Humbel case with the introduction of the category of non-economic services of general interest in art. 2(2), as an exception from the scope of the Directive.

The meaning of 'non-economic categories of general interest' is unclear as it seems to be another category of non-services (which would be excluded from the scope of the Services Directive in any case). The AG refutes the argument that higher education should fit in this category as that would amount to another block exemption, similar to the one in place for healthcare services, and maintains that the Humbel test would apply to determine whether a higher education programme qualifies as a service or not (para 71).

In the case in question, as UIBS Belgium is entirely privately funded, if the Humbel test were to apply, the courses offered would be considered as 'services' (para 89). The AG takes care to clarify that education has its specificities that can and should be retained, similar to healthcare, and is not in any way a regular service. In a highly polarised issue, such as education, he clarifies that considering some education programmes as services would also infer certain rights to them, such as the right to freedom of establishment, something that could be beneficial (para 99).

The next issue is whether the Services Directive is applicable in this case. The AG answers that in the positive, as the defining element of the service is the teaching, which is conducted in Belgium and according to the Xandvisser judgement there is no need for a cross-border element to engage the services directive in terms of freedom of establishment (para 106). That being said, it can be argued that the case is not purely of internal interest (para 107).

Since the Services Directive is applicable in this case, the substance of the question rests on whether the accreditation system of the Flemish government is consistent with the criteria laid down by art 9 and 10 of the Services Directive on accreditation systems.

According to art. 9(1) of the Services Directive the authorisation scheme need to be non-discriminatory, justified by an overriding reason relating to the public interest, and proportionate. The AG argues that the Flemish scheme in question fulfils all the above criteria and is fully justifiable and consistent with EU law (para 113). There has been no indication the system is discriminatory and ensuring a high level of university education is a legitimate public interest. Furthermore, the relatively low penalties for breach of the Flemish law were found to be proportionate.

Therefore, the answer to the second question must be that 'Directive 2006/123 must be interpreted as not precluding a national provision, which imposes a general prohibition on non-accredited educational institutions using the designation ‘master’s degree’ on the diplomas they award, as long as the accreditation procedure meets the conditions laid down in Article 9(1) of that directive' (para 119).

UCPD

The first question referred to the Court asks whether the accreditation system for higher education in Flanders is compatible with the UCPD.

The Belgian and Norwegian governments argued that the UCPD does not apply to education because the Flemish government is not a trader and because education is not consistent with the main objective of the UCPD as protecting economic interests of consumers (para 131).

However, the AG is clear that higher education does fall within the scope of the UCPD for a number of reasons, even though that may make governments uneasy.

Firstly, it is recognised, as seen above, that higher education programmes may constitute a service, as they have an economic dimension. Therefore it would be difficult to argue that suddenly that economic dimension disappears in the case of applying the UCPD (para 134). The AG argues that for engaging the UCPD the crucial point is whether the regulation in question affects the business-consumer relationship by limiting certain commercial practices (para 137). It is not important whether the primary aim of the regulation is in the public interest or not.

In the case in question, there is also a level of dispute as to which is the practice in question. It seems to focus on the advertisement of UIBS Belgium that they provide Master degrees.

The AG finds the prohibition of such a practice by the Flemish government consistent with the Directive and its aims, as it protects consumers from an unfair practice that is likely to distort their economic behaviour. Furthermore, the practice in question can be caught by Annex I of UCPD and more specifically, by points 2 and 4 on displaying  a quality mark without authorisation and claiming that a product has been authorised by a public body when it hasn't.

Conclusion

 
This case revolved around the controversial topic of higher education and a lot of the opinion was devoted to establishing whether higher education can and does fall within the scope of the Services Directive and the UCPD. This is to be expected as Member States are highly protective of higher education and its special aims. In an eloquent opinion, AG Bobek explains that it is not an all or nothing situation, but there should be a measured approach in deciding when to apply these Directives, and when it is appropriate to consider higher education institutions as service providers engaging in commercial practices. While the objective of maintaining a high level of university education is a noble and necessary one, it is important to recognise that higher education is a sector that is transforming and that EU law will need to catch up with that.

In which currencies should air fares be displayed online? CJEU in C-330/17 Germanwings

We would like to draw the attention of our readers to several interesting judgments and opinions published today at the Court of Justice. One of them concerns the case C-330/17 Verbraucherzentrale Baden-Württemberg v. Germanwings, in which the Court of Justice elaborated on conditions for price transparency under Regulation 1008/2008 on common rules for the operation of air services in the Community.

The dispute was rather simple. The prices of connections between London and Stuttgart operated by Germanwings were expressed in pounds, not euros. A German consumer protection organisation didn't like it and applied for an injunction. The claim was successful in the court of first instance, but the court of appeal disagreed and eventually the case was referred to the CJEU. The Federal Supreme Court wanted to know whether an assessment of the currency in which air fares are to be displayed should be based on particular parameters. 

Legal framework

To recall, pursuant to Article 23(1) of Regulation 1008/2008 "air fares and air rates available to the general public shall include the applicable conditions when offered or published in any form, including on the Internet, for air services from an airport located in the territory of a Member State to which the Treaty applies. The final price to be paid shall at all times be indicated and shall include the applicable air fare or air rate as well as all applicable taxes, and charges, surcharges and fees which are unavoidable and foreseeable at the time of publication". There is no mention of the relevant currency, other than in Article 2(18) which defines ‘air fares’ as "the prices expressed in euro or in local currency to be paid to air carriers or their agents or other ticket sellers for the carriage of passengers on air services and any conditions under which those prices apply, including remuneration and conditions offered to agency and other auxiliary services".

Judgment of the Court

It is understandable that a German passenger flying to Germany might prefer to have the air fare displayed in his local currency when booking his ticket online. However, as rightly pointed out by the Advocate-General and confirmed today by the Court, any such right is not reflected in the interpreted rules. A reference to Rome I regulation on applicable law did not seem justified, either. Eventually, the consumer organisation found no allies in Luxembourg.

There are some differences between the AG's opinion and today's judgment, though. Most notably, while the Advocate-General proposed that the Court steps away and leaves air carriers a margin of discretion, the Court did not show as much judicial restraint. According to the today's judgment, air carriers who do not express air fares in euros are required to choose a local currency that is objectively linked to the service offered. This is the case in particular for the currency of the Member State in which the place of departure or arrival is located.

Two observations

The case is not ground-breaking and the judgment appears to be well-balanced. There is really not much one can say against it. Coming from Poland, a non-eurozone member where complaining is a national discipline, I will nevertheless take a shot.

It is useful to take a step back and note that the entire discussion in the case at hand as to what local currency can be used to express air fares is secondary: it only becomes relevant if an air carrier chose not to express its fares in euros. In other words: displaying air fares in euros is always a good option - also when one travels between non-eurozone countries (so it seems).

To be sure, this is not entirely without justification. Following AG, the Court considered the background story behind the interpreted rules and observed that the previous version of the regulation made reference to ecu. Unlike euro, ecu was not a local currency for any Member State, but rather a common standard used to improve price comparability. This implies that it is not passenger protection that lies at the heart of the interpreted regulation, or at least not in the sense of ensuring that passengers are able to view and then pay the price in a currency to which their journey is related. The emphasis rather lies on price comparability - and to that end, a uniform comparator is preferable.

I do not quite remember the times when air fares were displayed in ecus (or perhaps there wasn't much to miss), but I can hardly imagine them being expressed in ecus only. This brings me to my second thought or rather lack of comprehension why, in the digital age, we are still in need of having this discussion at all (instead of focusing on other questions such as dynamic pricing). When flying from a non-eurozone to a eurozone country (or vice versa) or between non-eurozone countries couldn't one simply have a choice between the respective two currencies? I have already observed this in the market practice, at least of some air carriers. The technology, of course, offers an even broader range of options. One could think of a currency of the country of passenger's residence, as advocated by the German consumer organisation. The privacy concerns arising from such a solution are fairly obvious, though. All in all, a technological response could be preferable; however, for everyone's sake, let us not overcomplicate things.

Efficient collective redress mechanisms in Visegrad 4 countries - conference

A conference "Efficient collective redress mechanisms in Visegrad 4 countries: an achievable target?" will take place on November 23, 2018 at the Czech Academy of Sciences in Prague (Narodni 3, Praha 1/ 2nd floor, room 206). During the conference existing problems of collective redress for mass damage occurring to consumers and the environment will be discussed by legal experts from various countries. This conference presents results of a bigger research project, which you may find information about on this website. The conference is free of charge to attend, but please register your attendance at: ilaw@ilaw.cas.cz. We attach the conference programme in the pictures below.

In the news

Some of the interesting reads we found in the news from last week:

Five misleading pricing tactics to avoid in sales (V. Crowe in Which?) - warns which pricing offers may be misleading considering the rulings of the UK's Advertising Standards Agency from last year

How Airbnb's Tech Is Impacting People's Fundamental Human Rights (L. Coulman in Forbes) - more specifically the right to housing

Blue Planet has "huge impact" on shopper behaviour, finds report (L. Wells in Talking Retail) - Waitrose study shows more sustainable behaviour patterns of consumers and what impacts them

Calls for mandatory labelling of vegetarian/vegan food products

We have previously mentioned a European Citizens' Initiative urging the European Commission to take steps to label the origin of food products ("Eat ORIGINal! Unmask your food" initiative). Today the European Commission decided to register another initiative "Mandatory food labelling Non-Vegetarian/Vegetarian/Vegan' (see news item). 

The idea is for the EU to design and enforce pictorial labels allowing for easy identification of such products across all Member States. As of next week the Commission will start collecting signatures in support of this initiative.

Consumers in the age of digital health and AI

The European Consumer Organisation - BEUC - recently published a new position paper on digitalisation in healthcare. The paper comes at the right time as the impact of digital technologies on health products and services indeed continues to grow. The potential benefits are recognized: better access to medical care, more effective prevention, diagnosis and treatment of diseases, support of healthy lifestyles. However, as pointed out by BEUC, the risks are also present. The issues of consumer privacy, security and safety are listed among the most salient ones.

Main insights

The position paper makes reference to the eHealth communication of the European Commission, which focused on three areas: 

1. citizens' right to secure electronic access and share their health data (improving electronic health record systems), 
2. improved research, disease prevention and personalised medicine (pooling data resources and using common standards),
3. digital tools for citizen empowerment and person-centered care (shifting focus from disease treatment to health promotion and well-being, supported by digital solutions such as wearables and mHealth apps).

While endorsing these general objectives, BEUC - as was to be expected - emphasises the need for adequate consumer safeguards. This general observation is followed by a list of more specific principles and recommendations. We sketch some of them further below - for more details we invite our readers to consult the original paper.

Consumers' control over their personal health data (including the right to decide about data-sharing, to access one's own data and to report on possible errors) features prominently throughout the paper. This translates into a call for a diligent implementation of the General Data Protection Regulation with respect to this sensitive category of personal data. Importantly, BEUC argues, data protection safeguards are also relevant in the context of electronic health records and relationship between patients and physicians.

Another eminent topic addressed in the paper are the digital health tools, which, in view of BEUC, should respect the principles of privacy and security by design and by default and remain under supervision of competent authorities. The paper emphasises the connection between security and safety by providing an illustrative example of a hacked pacemaker. An argument is also made for a minimum set of security measures for all digital health connected products, including mobile health applications, as an ex ante market access requirement. Medical Devices Regulation, Radio Equipment Directive and General Product Safety Directive are listed among key instruments to be revisited in this context.

Consumers and artificial intelligence (in healthcare)

An interesting part of the BEUC paper concerns the growing deployment of artificial intelligence in the healthcare sector and in consumer markets more generally. Indeed, the advances in machine learning have made it possible to generate operable knowledge from the previously intransparent data sets. As a result, data contained in health records as well as vast amounts of data produced through our daily use of digital products and services have become an even more valuable resource. The prospect of AI transforming the way diseases are prevented, treated and diagnosed is anything but exciting. A look at the website of IBM Watson Health will give the reader a good impression. However, as pointed out by BEUC, the picture is not always so rosy.

The observations which BEUC makes in this regard largely follow its earlier position paper on automated decision-making and artificial intelligence. Similar issues were also pointed out in the European University Institute's working paper on consumer law and AI published a couple of months ago. They concern, in particular, the growing information asymmetry and power imbalance, the impact on consumers' decision-making capacities, implications for access to essential services and the risk of discrimination. These, of course, are only early contributions and both the extent of indicated problems and the possible remedies must still be investigated. Considering the growing interests in AI of both scholars and policymakers further research is certainly to be expected.

Conference and call for papers on New Deal for Consumers

On 11-12 April 2019, the conference A New Deal for Civil Justice? The New Deal for Consumers and the Justiciability of EU Consumer Rights will take place in Amsterdam. It is organised by the Centre for the Study of European Contract Law (CSECL) and revolves around the New Deal for Consumers that was proposed by the European Commission on 11 April 2018. The conference focuses on issues of civil justice that the New Deal aims to address – as well as, crucially, the questions it appears to raise. It will bring together researchers interested in (the future of) European private law, civil procedure, consumer law and, possibly, others with an interest in the enforcement of EU law and EU constitutional law.

For more information and the call for papers, click here. 

CSECL particularly welcomes papers that expressly address the interaction and tension between different functions of (consumer law) adjudication and enforcement mechanisms, as well as the converging or diverging (public and private) interests involved at the different relevant levels. Who or what is the New Deal for?

The 2018 Consumer Scoreboard

On 12th October the European Commission published the 2018 Consumer Markets Scoreboard. The Consumer Scoreboard provides an overview of how the EU single market works for consumers. There are two kinds of Consumer Scoreboards, the Markets scoreboard and the Conditions Scoreboard which get published in alternate years. This year it is the turn for the Markets Scoreboard which monitors the performance of over 40 markets as experienced by consumers.

Here is a summary of some of the most interesting findings of the scoreboard:

• The overall positive trend of consumers' assessment of markets continues; however there is divergence between different part of the EU. Markets in Western Europe perform better, while markets in South Europe are lacking in performance. The Eastern Europe markets are the ones that show the greatest improvements.
•  Services continue to underperform in the Scoreboard with the lowest performing being banking services and real estate.
• The financial situation of consumers plays an important role in their assessment of markets as poorer consumers are, unsurprisingly more negative in their assessment.
• Choice and comparability in utility markets, and especially in electricity, is leaving consumers dissatisfied.
• The highest incident of problems reported (16.9%) was noted for telecommunications, with that percentage being even higher (20.3%) for internet services. While the performance of the markets ranges across countries, with southern countries being less satisfied, the sector continues to be a cause for concern.

Justice Commissioner Vera Jourova responded to the findings of the Scoreboard by pointing out that the 'New Deal for Consumers'and the announced measures, such as a new representative action for consumers should serve to increase consumer trust in the single market.