Recent research reveals how consumers engage with crypto-assets

The Financial Conduct Authority, the UK's financial regulator/supervisor recently published an interesting report on how consumers behave in relation to crypto-assets: How and why consumers buy cryptoassets. To remind ourselves, crypto-assets are virtual, digital assets used for payment or investment purposes or both. This research fits well into the current EU efforts on regulating fintech services and products. We have reported earlier on the EU Commission's 2018 Action Plan on Fintech within which crypto-assets are of a special concern. More recently we have discussed ESMA's recommendation for a need for tailored regulation for the protection of consumers, buyers of crypto-assets.

The present research is focused on consumer behavior, on how consumers engage with crypto-assets. It is especially interesting to discover the profile of an 'average' fintech customer of crypto-assets and their ability to make informed decisions. The report answers questions such as why did consumers decide to buy crypto-assets, what sources of information they used to make their decisions, and how well in general they understand the market. As expected, this research seems to suggest crypto-assets are bought for investment purposes without fully understanding the risks involved in their decisions. 

The report is an interesting and easy read with plenty of direct testimonies from consumers, and  as such is highly recommended to our readers interested in consumer behavior and/or financial innovation.

In the future, it would be interesting to expand this research onto other areas of fintech services i.e. credit, insurance and payments to get a fuller picture of the fintech market structures and their consumers.

Early birds and credit costs' repayment - AG Hogan in Lexitor (C-383/18)

Last Thursday, on May 23rd, AG Hogan issued his opinion in the Polish case Lexitor (C-383/18) interpreting mainly Article 16 Consumer Credit Directive. Whilst many cases concerning consumer credit contracts are being referred to the CJEU on the basis of the Unfair Contract Terms Directive, this one relied purely on the framework of the CCD. Namely, consumers in this case decided to repay their credit early. Article 16 CCD regulates early repayment of a consumer credit (within the maximum harmonisation character of the directive). Its paragraph 1 obliges credit providers to reduce total credit costs of consumers in such a situation with 'such reduction consisting of the interest and the costs for the remaining duration of the contract'. The doubts in the case pertained to the interpretation of the notion 'remaining duration of the contract' in this provision. When the consumer credits were granted, credit providers charged consumers with a commission for granting these credits, the amount of which was independent from the duration of the contract. 

The question raised was, therefore, whether consumers paying off their credit early are entitled to the repayment of the part of the commission, proportional to the repayment period, or whether that commission, as a cost that does not depend on the duration of the credit agreement, is outside the scope of credit costs that should be reduced in such cases. 

Polish courts have differed in their interpretation of the repayment obligation resting on credit providers in such cases (para. 19). AG Hogan notes that there are four possible ways to interpret the phrase 'remaining duration of the contract' (see further on these various interpretations in paras 42-46) and argues that the most simple method of calculation of the reduction in credit costs should be applied, as this was demanded by Recital 39 (para. 52). Recital 39 CCD specifically states that 'the calculation method should be easy for creditors to apply'. AG Hogan advises the Court to recommend the Member States to apply one of the two interpretations (as either would be consistent pursuant to him with the objectives of the CCD) (paras 63-67): 

• 'the total credit cost must be reduced in proportion to the remaining contract period' (para. 43), with the phrase only specifying the method of calculation of the reduction, or
• 'the reduction to which the consumer would be entitled corresponds to the one-off or recurring payments not yet fallen due when the early repayment was made' (para. 46). 

Consequently, it would not matter for deciding whether a given fee or cost needs to be included in the reduction following an early credit repayment that it was labelled as not depended on the duration of the credit agreement by credit providers. AG Hogan also does not think that the reduction should be equivalent to the 'amount of expenses saved by the credit institution as a result of the early repayment' (para. 68).  Let us see what the CJEU decides in this case.

DSM directives published

Many of us have been waiting for this moment: on May 22 two Digital Single Market directives have been published in the Official Journal: Digital Content Directive (Directive 2019/770) and the new Consumer Sales Directive (Directive 2019/711). 

 

Time to update our frame of reference.

A consumer's preference for invalidity? AG Pitruzzella on the consequences of unfairness under the UCTD

Last week, AG Pitruzzella submitted an interesting Opinion on unfair terms in case C-260/198 (Dziubak) (the English version of this opinion is not yet available).

This case concerns a foreign currency-indexed loan undertaken by Polish consumers. The consumers claimed that the term establishing the conversion rate was unfair because it essentially allowed the bank to unilaterally determine the conversion rate. The competent Polish court agreed with the claim, raising the problem of what should happen to the contract given that the conversion mechanism determined the main interest rate. Should it be declared invalid?

There are two layers to this question, as correctly observed by the AG: first of all, it is to be ascertained whether the contract really cannot be upheld without the unfair term or a replacement thereof. Whether this was the case in Dziubak is something the referring court, the AG thinks, needs to ascertain in light of its national law. According to Pitruzzella, the Directive requires that this assessment be carried out objectively, ie without reference to the parties' will or preference, but also in light of the applicable national law. In this case, it would depend on Polish law whether the fact that the contract's "type" would change - from a foreign currency-indexed loan to a loan in Polish currency subject to a pretty low - would lead to invalidity of the agreement without the original clause.

Invalidity was the solution preferred by the consumers, while the bank claimed that, rather than invalidating the contract in its entirety, the court should set an exchange rate in accordance with general principles contained in the Polish Civil code, such as preserving the parties' intentions and customs.

In previous case-law, the AG says, the CJEU has repeatedly asserted that in principle unfair terms are never to be replaced, but exceptions can be made when the contract as a whole could become invalid as a result of removing the unfair term and the consumer would be worse off if the contract falls (see para 34 opinion).

The referring court had a number of questions as to the application of these principles to the case at stake: concerning the objective possibility of continuing the contract, is this to be assessed with reference to the moment of adjudicating, or to the moment of concluding the contract? And did the fact that the consumer in this case preferred invalidity over preservation make the "Kásler exception" inapplicable?

To the first question, the AG answers that the assessment must take place with reference to the moment of adjudication. This is, according to the opinion, in line with the Directive's aim to re-establish an effective balance between the parties and in line with the Kàsler requirements.

As concerns the relevance of the consumer's preference for invalidity, according to the AG this is enough to make the Kàsler rule inapplicable - as an exception, the requirements on which it is based must be applied strictly (para 66) and one of them failing no exception to the general rule can be made.

As to the feasibility of the solution preferred by the bank - integrating the contract by means of general rules - the AG takes an interesting approach in his reasoning: he says that the Kásler rule presupposes replacement of the unfair term with terms which enjoy a presumption of fairness under the directive's article 1, ie the somewhat obscure class of "statutory mandatory provisions" that, case-law adds, "apply to the contract when nothing else has been agreed between the parties". From a contract lawyer's perspective, this is essentially a non-sense combination - conflating mandatory and supplementary  (or "default") provisions. However, it is interesting that the AG elaborates on the Leitbild function: replacement, in his view, is only possible when the resulting rules express the legislator's view of what a fair balance of the parties' interests in a specific contract would be. The general principles possibly relevant to this case, however, do not satisfy this requirement. As a consequence, a judge's intervention in the contract according to these principles would represent an excessive interference with contractual autonomy. Such intervention would, furthermore, again go beyond the strict limits set in Kásler, which did not intend to allow for any sort of judicial discretion. (79)

The referring court finally also wants to know whether maintaining the unfair terms in place is an option when this is "objectively" to the consumer's advantage. The CJEU has stated in Pannon that such upholding of the clause is an option when the consumer chooses not to avail themselves of the invalidity - replacing the adjudicating court's assessment for this expression of the consumer's will is, according to the AG, not an option. This is arguably the lease surprising part of the opinion.

Whether the Court will follow the conclusions, and the reasoning therein, is not obvious. As usual, we will keep you posted!  

AG Hogan in Kiss and CIB Bank (C-621/17)... not making transparency better

The questions on the application and effects of the prohibition of unfair contract terms in consumer credit contracts seem incessant. AG Hogan issued a long opinion today in the Hungarian case Kiss and CIB Bank (C-621/17). Mr Gyula Kiss concluded a credit agreement with three different rates stipulated in it: annual interest rate for the amount of loan set at 5.4%, annual management charges of 2.4% per year, and APRC of 8.47%. Moreover, he had to pay a sum of money as a disbursement commission. In his claims, Mr Kiss argues that the standard terms and conditions, which determine the disbursement commission and the management charges are unfair. He finds them unfair due to the fact that the contract does not list services, for which these amounts are supposed to be paid. He further considers that any bank's costs of processing and management of the loan have already been covered by the interest on the borrowed capital. The bank claims that they were under no obligation to list specific services they provided in exchange for these commissions/charges.

The national court filed this issue mainly under the scope of application and interpretation of the principle of transparency. The main question addressed to the CJEU thus inquires whether provisions of the UCTD, which prescribe transparent disclosures, demand not only to provide consumers with exact charges they would have to pay, method of their calculation and time for payment, but also with a list of specific services that will be provided in return for these charges.

AG Hogan continues in this opinion on his quest (started with the opinion in Lovasne Toth case - see our comment) to diminish the importance for consumer protection of the previous judgments of the CJEU. This time he undermines the position that the CJEU has expressed in RWE Vertrieb and Matei cases (previously, it was VKI v Amazon case). At this point it is important to note that the CJEU has not yet issued its judgment in Lovasne Toth, thus it remains to be seen whether AG Hogan may support his argument in Kiss v CIB Bank case by referring to his previous opinion. What are the main issues?

Divergent interpretation of transparency under Art. 4(2) and Art. 5 UCTD and separation from unfairness test under Art. 3(1) UCTD

Already in his previous opinion, AG Hogan did not seem to think much of the requirement expressed in Art. 5 UCTD to ensure that standard terms and conditions are provided in plain and intelligible language. The fact that he does not see the lack of transparency under this provision as resulting in the unfairness of a non-transparent term could be supported, as such a direct consequence is not provided by the UCTD (although it could be under national laws) (para. 59). However, many scholars discussing this provision have argued for such an application of the rule of contra proferentem, which would be most beneficial for consumer protection. This meant they favoured assigning such a meaning to a contested term, which would lead to the recognition of the term's unfairness, in case it were more beneficial to consumers to have the term removed from a contract. AG Hogan adopts a staunch interpretation approach perceiving the contra proferentem rule as requiring the adoption of a consumer-friendly meaning of the term, prior to any consideration of unfairness under Art. 3(1) UCTD, which would not allow the above interpretation technique to apply (para. 60).

Art. 5 UCTD only represents formal transparency

To make matters worse, AG Hogan confirms his previous conviction that Art. 5 UCTD does not require the principle of transparency to apply in both its formal and substantive character (para. 61). To remind our readers, formal transparency means that the term will be visible, attracts consumers' attention. Substantive transparency requires the term to be understandable, comprehensible to consumers (readers interested in the differences between formal and substantive transparency may read more about this topic in the forthcoming article by J.Luzak and M. Junuzović - check the Journal of European Consumer and Market Law (EuCML) 3/2019 next month!).

"In this context, the requirement for a term to be drafted in plain, intelligible language has to be understood as a general statement aimed at introducing the interpretative rule laid down in Article 5. What matters, therefore, is not how the consumer understands a term, but rather whether the latter is objectively ambiguous." (para. 61)

This obviously leads the AG to conclude that a bank does not need to list their services to make the consumer understand what they are paying for. However, we continue to hope that the CJEU does not support this diminished understanding of Art. 5 UCTD. 

Understanding economic consequences of a credit contract

What is more convincing in the opinion is the AG Hogan's reasoning that to understand the economic consequences of the concluded contract, so for substantive transparency to be complied with, consumers do not need to know exactly which services are covered by which part of the payment (para. 62). It should suffice that consumers know what the total payment is and what services consumers may expect overall. We may find a consumer-friendly application of the transparency test in para. 41, where AG Hogan states that in case different terms in a contract determine different payments, with different methods of calculation, then these terms should be: "grouped together in one place in the contract or, at least, their combined effect needs to be specified. Indeed, the consumer cannot be considered as being in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from the contract if the price to be paid is stated, for example, partly at the beginning of a very long contract, partly, in the middle and, partly at the end of it.". Moreover, AG Hogan draws attention to the fact that just a mention of the APRC does not signal transparency of the payments in credit contracts, as it is only illustrative (para. 44). Thus just providing consumers with the APRC does not inform them about economic consequences of a credit contract.

Core terms

AG Hogan leaves the assessment whether the clauses on management charges and the disbursement commission are core terms, which could only be tested for unfairness if they are non-transparent, to the discretion of national courts. This would according to him depend on the estimation whether services provided in return for these charges are services primarily provided under the contract (para. 33). This is interesting, as AG Hogan does not see any difficulty in the contract not specifying these services to properly inform consumers, as long as national courts may deduct what these services were (were supposed to be?) (para. 55).

Adequacy of payments - look to UCPD rather than UCTD?

Another controversial statement made by AG Hogan, questions the possibility to engage in unfairness test of adequacy of charges under the UCTD and refers consumers to look into UCPD instead. Consumers may of course only then require unfairness test of the adequacy of price when it was non-transparent, but that is what this case was trying to argue, thus this claim should not be so easily dismissed, in my opinion. AG Hogan draws our attention to the fact that consumers will bear the costs of such management charges either way (whether they will be disclosed separated or hidden within general interest rates) (para. 36) and that banks may structure their payments in a myriad of ways (para. 37). True, but that is one of the reasons why it is important to keep the payment structure transparent and that transparency may be missing, if consumers are not in state to easily compare offers as some banks decided to introduce separate management charges without telling them what these charges are for. Consumers will then not be able to check whether the same services are offered by other banks within other charges. Of course, I agree with AG Hogan that a misleading practices claim may be feasible then (para. 71), but in many national laws it still will not provide consumers with sufficient individual remedies thus availability of remedies under other rules may be useful.

Are credit providers required then to list services for which they charge payments?

Generally, AG Hogan seems to think it is a too far-reaching obligation. He distinguishes Matei case, where the CJEU considered that consumers will only then have understanding of a contract if they are informed why certain terms have been included in it, due to the question in that case whether the charge was provided in exchange of any additional service (para. 47). If it is possible to ascertain that some services are provided in exchange for a given charge, regardless whether the term establishing such a charge specifies these services or they could be inferred from other parts of a contract, the substantive transparency requirement would be fulfilled (see also paras. 49-53).

Strikes as extraordinary circumstances

To avoid paying compensation to passengers of cancelled flights pursuant to the Regulation 261/2004, airlines may try to claim that the cancellation resulted from extraordinary circumstances. Recital 14 enumerates strikes that affect the operation of an airline as an example of extraordinary circumstances. However, previous case law of the Court of Justice limited this exception to such strikes, which are not within the operating air carriers' control and do not consitute a part of their normal economic activity (see joined cases Krüsemann and our comment on them). Could a strike protesting the low wages paid by airlines to their employees be seen as remaining within the airline's control and falling under their normal economic activity? Ryanair seems to think so as they just paid out compensation to consumers that pursued their claims in German courts (see further Ryanair Recognizes Strikes As Reason For German Passenger Compensation). The article indicates that this may be a strategic decision from the airline to avoid a referral to the CJEU that would further specify the airlines' obligation in case of such strikes to pay compensation. This seems unlikely, as to date airlines seemed pretty keen to refer any cases, which could lead to divergent interpretations of their obligations towards passengers. What is more likely is that Ryanair did not have good arguments to present to support its claim that the strike resulted from an unreasonable position of trade unions and thus remained outside their control.

AG Szpunar: No residency-based discrimination for direct debit payments

On the 2^nd of May, AG Szpunar published his Opinion on Case C-28/18 Verein für Konsumenteninformation v Deutsche Bahn AG. This is a case concerning payments within the SEPA area, so not on consumer protection legislation. Nevertheless, if the Court follows the AG opinion, this case can have a significant impact on the interests of consumers.

The opinion starts with setting the scene around residency requirements pointing out that while residency requirements are usually seen as discriminatory within the context of the internal market that view is limited to the relationship between public and private entities. In contrast to that, the position on residency requirements in the context of private relationships is a lot less clear. The nature of conditions placed in private relationships is at the centre of this case. 

The Verein für Konsumenteninformation is an Austrian Consumer organisation which brought an action against Deutsche Bahn, the German train company. Deutsche Bahn in its website offer customers 2 different modes of payment, namely credit card, instant bank transfer or under the single euro payments area (SEPA) direct debit scheme, the latter being limited to those customers with a residence in Germany.

The Verein für Konsumenteninformation argued in its action in front of Austrian courts that Deutsch Bahn breached article 9(2) of Regulation No 260/2012 on direct debit payments in euro by requiring that only German residents are able to participate in the scheme.

This case went up to the Oberster Gerichtohof, the Supreme Court of Austria, which referred the following question:

‘Must Article 9(2) of Regulation No 260/2012 be interpreted to mean that the payee is prohibited from making payment under the SEPA direct debit scheme dependent on the payer’s place of residence being in the Member State in which the payee also has his establishment (residence), if payment in a different way, for example with a credit card, is also allowed?'

Article 9(2) of Regulation No 260/2012 states that  ‘a payee accepting a credit transfer or using a direct debit to collect funds from a payer holding a payment account located within the Union is not to specify the Member State in which that payment account is to be located, provided that the payment account is reachable in accordance with Article 3 [of that regulation’.

The main objective of regulation No 260/2012 is to establish a Single European Payment Area (SEPA), yet in some parts of it, such as notably the article in question, it is concerned also with the relationship between payees and payers and offers protection to payers (para 29).

As the AG notes, the fact that most persons in the EU hold a bank account in the country where they reside is undisputed. Therefore, requiring a payer to be resident in a certain Member State is therefore tantamount to specifying in which Member State a payment account must be located (para 30). Pursuant to this, the AG found that Deutsche Bahn’s requirement breached art. 9(2) (para 31).

The AG continues to address whether the breach of art. 9(2), and the subsequent restriction to the freedom of payment can be justified. The AG rejects the argument put forward by Deutsch Bahn that there is a danger of abuse associated with direct debit payments, thus making credit checks and their practice necessary and justified. He states that while the reasoning of Deutsche Bahn may be sensible from a commercial point of view, there is no provision of justification in art. 9(2) or in any other part of the Regulation and the introduction of such a justification would be a matter for the legislator rather than the court (paras 45-46).

As the AG points out, the regulation does not require traders to offer direct debit payments. However, he argues, when they do, they should be non-discriminatory (para 49). However, attention should be paid to not make it more favourable for traders to offer fewer modes of payment in order to avoid adhering to additional requirements. 

Overall, this is a welcome and well-written opinion that, if followed in the judgement, can produce tangible benefits for consumers in the EU, facilitating cross-border payments in the internal market. Still the views expressed in the Opinion can have an impact going beyond payments and beyond consumers to further a broader debate on the role and indeed the obligations of private actors in respecting the fundamental freedoms of the EU.

Crossing Paths: AG Bobek on jurisdiction in consumer cases under Regulation 1215/2012 and Directive 93/13

Yesterday, Advocate-General Bobek published his Opinion in a case where the Brussels I Regulation (Recast) and the Unfair Contract Terms Directive cross paths (C-347/18 Salvoni v Fiermonte). The case concerns the question what happens if a national court fails to check - ex officio - whether the rules on jurisdiction over consumer contracts have been observed in a cross-border dispute and the court issues an order for payment, even if there are indications that the consumer involved lives abroad? Once the order becomes final, can judicial review still take place in the country of origin before the order is enforced in another Member State?

When the defendant is a consumer, only the courts in the Member State where the consumer is domiciled have jurisdiction under the Brussels I Regulation (Article 18). In the case at hand, the consumer involved - Ms Fiermonte - appeared to live in Hamburg, Germany, which would mean that the Italian court where the order-for-payment procedure was brought did not have jurisdiction. In so far as Ms Fiermonte did not enter an appearance, the court should have declared of its own motion that it had no jurisdiction (Article 28). And if she did appear in court, she should have been informed of her right to contest jurisdiction (Article 26(2) of the Regulation).

Source: e-justice.europa.eu

The court in Milan nevertheless issued an order for payment against Ms Fiermonte, who did not oppose it. The court was subsequently requested to issue a so-called 'Article 53 Certificate'. Under the Regulation such a Certificate is necessary for cross-border enforcement (i.e. in Germany) to demonstrate that the order is enforceable in the country of origin (i.e. in Italy). The court then concluded that it should have verified its jurisdiction.
It found - ex officio - that the order in question was based on a legal relationship between a consumer and a professional. Thus, the order was issued in breach of the jurisdiction rules in the Regulation. The court asked the CJEU whether it should rectify this in the course of the Certificate-procedure. In this respect, it referred to the CJEU's case law on effective consumer protection under the UCTD and pointed out that the automatic issue of the Certificate might deprive Ms Fiermonte of an effective remedy as guaranteed by Article 47 of the EU Charter of Fundamental Rights.

Before we discuss AG Bobek's Opinion, let us briefly recall that in the context of the UCTD, the CJEU has repeatedly held - e.g. in Océano, Pénzügyi Lízing, and most recently Aqua Med - that costs or distance may deter consumers from taking legal action or exercising their rights of the defence. This would be the case where proceedings are brought before a court which is very far away from the consumer's place of residence (see Aqua Med, para 54). If this is already the case in domestic disputes, it applies all the more strongly in cross-border disputes. Moreover, the CJEU has held that rules conferring final and binding effect (res judicata force) on a decision must still meet the requirements of equivalence and effectiveness; see e.g. Finanmadrid. For instance, short time-periods to oppose an order for payment or to challenge its enforcement are problematic, also from the perspective of Article 47 Charter; see e.g. Profi Credit Polska.

Against this background, the referring court's question whether it should review the order and/or inform the consumer of the possibility to challenge its enforcement in Germany is not so strange. In addition, it was unclear whether the documents were properly served and thus, whether Ms Fiermonte had had an actual opportunity to oppose the order for payment. In a domestic situation, it would therefore be questionable whether the requirements of effectiveness and Article 47 Charter are complied with. The court responsible for the enforcement may operate as a last resort.

However, AG Bobek makes a strict separation between the CJEU's case law on the UCTD and the system of the Regulation. In his view, judicial review (ex officio) in the course of the Certificate-procedure is neither permitted nor required by EU law. It would run against the logic and spirit of the Regulation, which is aimed at the rapid and efficient enforcement of judgements abroad. The court must issue the Certificate automatically when the formal conditions are satisfied. It cannot re-evaluate the underlying judgment on points of substance and jurisdiction. This would compromise the Regulation's effectiveness.

Whereas AG Bobek's view is understandable in light of the Regulation's framework, his explanation of the distinction between the Regulation and the UCTD seems a bit artificial. On the one hand, he states that the Regulation lays down rules of a procedural nature, which are not as result-oriented and far-reaching as the (substantive) provisions of the UCTD. Yet, the rationale of the CJEU's case law on the UCTD is that consumers must be enabled to exercise their rights and that, because of their weaker (procedural) position in terms of knowledge and financial means, courts fulfil a compensatory role.
On the other hand, Bobek submits that the Regulation recognises that consumers are worthy of specific protection as defendants and that it contains additional procedural guarantees for that reason. Doesn't this mean that courts should play a role in enabling consumers to exercise their rights under the Regulation as well? It might be true that Ms Fiermonte can make an application for refusal of enforcement of the order in Germany on the grounds of lack of jurisdiction or the absence of due service of documents, but this depends on her initiative (Articles 45 and 46 of the Regulation). To what extent will it be taken into account that Ms Fiermonte is a consumer who might not be aware of her rights or not be able to pay lawyer's fees? (Ironically, the case was about unpaid lawyer's fees.) Shouldn't she at least be informed of her defence possibilities?
Bobek observes that it would be strange for the court to issue a Certificate for enforcement of the order while simultaneously pointing out its allegedly erroneous nature. This would be contrary to the principle of legal certainty. It would also undermine the principle of fair trial if the court would take on the role of the defendant's legal counsel.

Still, one cannot help but wonder why "an extra layer of protection for consumers" as proposed by the referring court could not "be ‘read into’ the provisions of Regulation No 1215/2012". That would be a true crossing of paths.

Unlike Uber, Airbnb provides information society services, AG says

Last Tuesday Advocate-General Szpunar delivered his opinion in case C-390/18 Airbnb Ireland. The case does not directly relate to consumer law, but remains highly relevant to consumer protection. Most notably, it provides an opportunity for the AG and the Court to refine the criteria for distinguishing different types of services provided in the platform economy and, consequently, the scope of Member States' regulatory discretion.

Airbnb Ireland is a direct follow-up to the two earlier Uber cases, both of which we have reported on extensively on this blog (see eg CJEU gives Member States a green light to regulate Uber, Nihil novi from the CJEU in Uber France). To recall, the Court of Justice found, back then, that services provided by Uber – an operator of a popular ride-hailing app – did not qualify as information society services, but rather constituted services in the field of transport. This meant, among others, that Uber could not rely on the freedom of movement established in Directive 2000/31/EC on electronic commerce. Or, in other words, that Member States enjoyed a wider margin of discretion when it comes to regulating Uber and similar service providers.

Setting the scene

The questions asked in C-390/18 Airbnb Ireland were very similar to those asked in C-434/15 Uber Spain. Essentially, the controversy was whether the provisions of French law, requiring a person who engages in the mediation and management of real property to hold a professional license (among other requirements), could be applied to a service provider, established in another Member State, who enables hosts to be connected with guests via an online platform. To reply to this question it needed to be established, as a first step, whether services provided by Airbnb qualified as information society services within the meaning of Directive 2000/31/EC. Contrary to the Uber case, Advocate-General Szpunar responded to this question in the affirmative.

It is worth highlighting that it was also AG Szpunar who advised the Court in Uber cases. Szpunar’s finding that the business model of Airbnb falls within the scope of the E-Commerce Directive does not contradict his earlier argumentation (which was largely followed by the Court). Rather he elaborates on the previously established framework and applies it to a new factual setting.

Key points of the opinion 

What I particularly like about AG's opinion is the attempt to structure the assessment of composite services under free movement law. Services of this kind – provided partially by electronic means and partially not – without doubt form an intrinsic part of the platform economy. In particular, the Advocate-General tries to elaborate on the criteria set forth in the previous cases: C-108/09 Ker Optika  and the aforementioned Uber cases (C-434/15 Uber Spain and C-320/16 Uber France).

Essentially, the AG argues, there is one major question to be asked with respect to composite services: whether or not services provided by electronic means are inseparably linked with services 'having material content'. Both types of services are not inseparably linked when the former do not lose their economic interest and continue to be independent of the latter (and, so it seems, vice versa, cf. paras. 46 and 59). If it is clear that services are not inseparably linked, then the component provided by electronic means falls under Directive 2000/31/EC, while the other component does not. When both services are inseparably linked Directive 2000/31/EC does not apply. However, some services may prima facie appear to be separable, but still require an additional assessment to make sure this is indeed the case.

It is in this second group of cases when the Uber case law kicks in. As the AG recalls in para. 49 of the opinion, the Court concluded in Uber that the company, in addition to an intermediation service consisting in connecting drivers with passengers through an app, simultaneously offered urban transport services, which it rendered accessible, in particular, through software tools … and whose general operation it organised. According to the Advocate-General, in doing so, the Court developed two criteria for establishing inseparability of composite services. These relate to the fact that the service provider, firstly, offers services having material content (eg transport services) and, secondly, exercises decisive influence on the conditions under which such services are provided.

Expressed in this way, the two criteria may not seem logically connected. First, it is required that the platform provider himself offers services 'having material content' and then, additionally, that he exerts a decisive influence on the conditions under which such services are provided (by himself?). Further parts of the Airbnb opinion, however, explain this in a more convincing way. Here are some of the most relevant takeaways:

• The criterion of 'offering services having material content' essentially means creating a new offer. It was fulfilled in Uber because, arguably, non-professional drivers would not be led to provide transport services and passengers would not use the services provided by those drivers without the relevant application (para. 51).
• The fulfillment of that criterion, in any case, is only an indication that a service provided by electronic means is inseparably linked with a services having material content (being a subject of the new offer; para. 65). Most importantly, the fact that it is not fulfilled (i.e. that no fundamentally new offer is created) does not yet mean that services provided by electronic means are separable from services having material content (and therefore fall under E-Commerce Directive).
• Thus, overall, the second criterion - decisive influence over the conditions of the supply of services having material content - is (nomen omen) decisive for assessing the nature of services provided by an operator of online platform (para. 67). This, in turn, should be assessed by looking at the key parameters of underlying services, which may vary from market to market. In urban transport such parameters included price, availability, quality and safety. In short-term accommodation rental, elements related to location and standard of accommodation appear to be most relevant from AG's perspective. Price can also play a role, although not as important as in the urban transport market (para. 71).

Following a more detailed examination, the Advocate-General concluded that Airbnb did not exert decisive influence over the conditions of the supply of short-term accommodation services. Consequently, these services could be separated from services provided electronically by Airbnb. A similar conclusion was reached with respect to additional services provided by Airbnb, such as photography, insurance and guarantee, which – according to the AG – were only ancillary to the intermediation service provided by electronic means (para. 82).

Concluding thought

All in all, in view of the AG, a service consisting in connecting, via an electronic platform, potential guests with hosts offering short-term accommodation, in a situation where the provider of that service does not exercise control over the essential procedures of the provision of those services, constitutes an information society service within the meaning of Directive 2000/31/EC. This does not mean that no additional requirements, related in particular to consumer protection, can be imposed on a provider of such services by the Member State other than the Member State of service provider's establishment. The relevant restrictions, however, must comply with substantive and procedural criteria laid down in Article 3(4) of E-Commerce Directive. So, at least, the Advocate-General – the judgment of the Court still lies ahead.

* The author carries out a research project on consumer protection in the collaborative economy, financed by the National Science Centre in Poland on the basis of decision no. DEC-2015/19/N/HS5/01557.

The last decade of EU consumer law

IMCO committee of the European Parliament has commissioned a report with Osnabrück University on the last decade of achievements in European consumer protection (2008-2018), which has just been published: Contribution to Growth: Legal Aspects of Protecting European Consumers. The report counts 140 pages and is a good summary of the legislative initiatives for anyone interested in looking up what rights consumers enjoy and what obligations traders and service providers have pursuant to EU consumer law. It is a good starting point to identify various applicable directives and regulations, find out about their main scope, in such diverse areas as e.g. digital services (e.g. geo-blocking), financial markets and services (e.g. market abuse directive, MAD) and product safety (all discussed in part 2). However, it comes short on referencing further scholarship or case law on the referred topics. Thus, readers interested in taking a more in-depth look into these measures would need to look elsewhere. The report also identifies current challenges to consumer protection in the digital world and with regards to the environmental protection, and what is currently being proposed to tackle them (part 3).

It might be worth noting that the report identifies only three instruments as adopted in this time period, which have a straightforward objective to raise the level of consumer protection by providing consumers with substantive consumer rights: Consumer Rights Directive, new Package Travel Directive and the Mortgage Credit Directive (page 23). That does not seem much for a 10 year period. Of course, the report mentions the ongoing legislative process under the DSM and New Deal proposals, but it has been finalised before the adoption of some of these measures, and does not account for their final texts. 

Another broad interpretation of the notion of a consumer: the CJEU in case C-694/17

Yesterday the CJEU delivered its judgement in C-694/17 Pillar Securitisation Sàrl v Hildur Arnadottir that is yet another judgement interpreting the notion of a consumer. This time  it came under scrutiny under the Convention on jurisdiction and the recognition and enforcement of foreign judgments in civil and commercial matters (known as the Lugano II Convention) and Directive 2008/48/EC on Consumer Credit.

The facts

In March 2005, the defendant, who is a resident of Iceland, obtained a loan for more than 1 000 000 EUR from Kaupthing Bank Luxembourg (KBL) to buy shares in the Icelandic company Bakkavör Group hf of which she was an employee. The loan was supposed to be repaid in a single transfer by 1 March 2010. Guarantee was provided by the company itself, of which the defendant was one of the directors, who signed the guarantee. Subsequently, KBL was divided into two entities. One of those entities, Pillar Securitisation, claimed repayment of the loan, and when the defendant was unable to meet this request, Pillar Securitisation brought an action before the Luxembourg courts pursuant to a term of the loan agreement that conferred jurisdiction to those courts. 

The first and second instance Luxembourg courts declared lack of  jurisdiction on the ground that the defendant should be regarded as a ‘consumer’ within the meaning of Article 15 of the Lugano II Convention, and that the jurisdiction clause should be removed from the contract pursuant to Article 17 of the Convention. The claimant finally turned to the Court of Cassation claiming that the lower courts erred in finding that the claimant acted for non-commercial purposes; that the courts misinterpreted Article 15 of the Lugano II Convention in finding that a loan for more than EUR 1 000 000 could have been taken out by a ‘consumer’ within the meaning of Article 15, and that in order to determine whether the loan agreement was a consumer loan, it must be determined whether that agreement is a ‘consumer credit agreement’ within the meaning of Directive 2008/48. The court stayed the process and referred the following question to the CJEU for preliminary ruling:

The question 

Should Article 15 of the Lugano II Convention be interpreted as meaning that, for the purposes of ascertaining whether a credit agreement is concluded by a ‘consumer’ within the meaning of Article 15 be determined whether the agreement falls within the scope of Directive 2008/48 in the sense that the total cost of credit in question does not exceed the ceiling set out in Article 2(2)(c) and whether it is relevant, that the national law transposing Directive 2008/48/EC does not provide for a higher ceiling.

The answer

Similar to Regulation 1215/2012 (Brussels Regulation), Article 15 of the Lugano II Convention provides an exemption in favor of consumer contracts, conferring jurisdiction on courts where consumers are domiciled. Thus, following the exemption, in the case at hand these would be the Icelandic courts.

In determining whether the claimant was a consumer the CJEU did not consider the purpose of the loan. Starting from the premise that the loan was taken by the claimant for her non-professional purposes (para. 24), the CJEU proceeded with discussing the relevance of the monetary limit of the transaction, and more broadly, the relevance of Directive 2008/48/EC in determining the character of the contract in question. 

The CJEU concluded that the monetary limit of 75 000 EUR that defines credit agreements for consumers within the meaning of Directive 2008/48/EC is not relevant in the present case and neither is the fact that there is no higher limit provided in the applicable national law (para. 48). The CJEU relied on the different purpose of the two instruments. While Directive 2008/48/EC aims to harmonize the substantive law on consumer credit to protect consumers and to facilitate the functioning of the internal market (para. 41), the Lugano II Convention only aims to settle the procedural matter of court jurisdiction in all consumer contracts. According to the CJEU, it would be unattainable to limit the scope of the Convention to only certain consumer credit contacts, especially that the text of the Convention does not impose any monetary limits on any contracts, including consumer credit.

Concluding thoughts

In this judgment the CJEU followed its established approach and observed the various EU legal instrument distinct from each other (see our earlier post here), primarily referring to their purpose. In the present case, it also resulted in accepting the broad notion of a consumer. While I would not argue with the arguments raised by the Advocate General and the CJEU on the unfair nature of having a distinctive approach to credit agreements of different value that may ultimately exclude very small loans from the scope of the Convention causing detriment to those vulnerable consumers that are most in need of this sort of protection; I am puzzled with the result of this judgment and find it unfortunately that the CJEU did not have a chance to tackle the question of whether the purpose of the loan was professional or non-professional. I would think that the amount of the loan and the fact that claimant was one of the directors of the company cast a shadow of doubt at their status as a consumer. Would you agree?