Capital Markets Union: the future lies with the better advised consumer-investor

On the 24^th of September, the European Commission revealed its new plans for the Capital Markets Union (here and here). With the post-coronavirus recovery in mind, the European Commission suggested a 16-point Action Plan. The Action Plan highlights the struggles that many businesses face in order to stay solvent in the medium and long term. When it comes to consumers, the new Action Plan intends to increase consumer choice regarding savings and investments, which involves better information and better overall protection. The European Commission also makes the case for market-based pension systems, in order to meet ‘the challenges posed by Europe’s ageing population’. 

In particular, the Action Plan highlights that while Europe has one of the highest saving rates in the world, the level of individual investment remains low. In order to increase individual investment, the EU Commission promises to increase trust in capital markets by improving financial literacy. Additionally, the Action Plan highlights the importance of harmonizing disclosure duties on investment products so as to increase comparability of similar products that are currently covered by different legislation. In this sense, the Commission promises to assess whether it can introduce a requirement for Member States to promote educational measures in relation to responsible and long-term investing. Understandable information also plays a central role in the Commission’s plan of attracting more individual investors. In particular, the Commission stresses that although there are already duties in place that impose the disclosure of financial information, the documents produced under those rules are considered ‘long, complex, difficult to understand, misleading and inconsistent’. Additionally, these documents may result in information overload. In this context, the Commission distinguishes between the sophisticated investor – who does not need as much information – and the inexperienced investor – who needs more information. The Commission commits to looking into the applicable legislation and amend it so as to guarantee that consumers receive ‘clear and comparable product information’.

Additionally, the Commission promises to improve the regime applicable to retail investment, to guarantee that an individual investor benefits from, among other aspects, bias-free advice. The importance of transparent information and bias-free financial advice cannot be understated. Financial advisers must be obliged to disclose their own interest in the sale of a given financial product. As BEUC also highlights here, biased financial advice has resulted in considerable financial losses to consumers all over Europe in recent years (see, for example, the case of Banco Espírito Santo in Portugal). In this regard, the Commission acknowledges financial advisors’ role as gatekeepers of the financial system. As a specific point of action, the Commission promises to work towards the harmonization of the threshold of professional qualification of financial advisors, in order to increase consumers’ trust in their advice.

Local authorisation schemes for Airbnb hosts cleared by the Court of Justice (kind of)

Earlier this week the Court of Justice delivered its judgment in joined cases C-724/18 and C-727/18 Cali Apartments concerning the requirements imposed on Airbnb hosts by the French authorities. The judgment largely follows the opinion of Advocate General Bobek, on which we reported several months ago. Like the AG, the Court seems ready to accept a variety of restrictions, including the most controversial "offset requirement", as compatible with EU law - with certain caveats. The judgment is both detailed and technical, and comes out in favour of evidence-based decision-making, which may pose a challenge to the national courts. Meanwhile, legislative works on the so-called Digital Services Act are ongoing, in which the sharing of platform data with the local authorities is one of the contentious topics. 

 Background of the case

The case revolves around a number of restrictions imposed by the French law on the property owners wishing to let apartments for short periods to a transient clientele  which does not take up residence there (hereafter simply 'tourists'). Most notably, in municipalities with more than 200 000 inhabitants, in order to change the use of residential premises to the one set out above, prior authorisation is required. Detailed conditions for obtaining such an authorisation are laid down at the local level and may include offset requirements in the form of a conversion of non-residential premises into housing. The appellants, who were sanctioned for letting their Parisian properties to tourists in violation of national and local rules, argued that the relevant requirements were contrary to Directive 2006/123/EC on services in the internal market.

Judgment of the Court

Scope of Directive 2006/123 and the notion of 'authorisation schemes'

Before moving to the key questions concerning the compatibility of contested national rules with the harmonised liberalisation framework, the Court first analysed whether they are subject to the Services Directive at all and if so, to which of its provisions. This part of the judgment is rather brief and essentially confirms the act's broad scope and recalls the distinction between authorisations and other requirements.

• Not surprisingly, according to the Court, an activity consisting in the repeated short-term letting, for remuneration, of furnished accommodation to tourists is covered by the concept of 'service' within the meaning of Article 4(1) of Directive 2006/123 (paras. 32-34). 
• The Court further found that national norms targeting such an activity are not excluded from the scope of the Services Directive; in particular, they do not fall under the "rules concerning the development or use of land [and] town and country planning" referred to in recital 9 of Directive 2006/123 (see paras. 40-44).
  
• Finally, the Court confirmed that legislation requiring persons wishing to provide services mentioned above to obtain a formal decision from a competent authority, enabling them to access and to exercise service activity, constitutes an 'authorisation scheme' within the meaning of Article 4(6) of Directive 2006/123 (paras. 51-52).
  

In the subsequent part of the judgment the Court analysed whether, in the case at issue, the use of an authorisation scheme as well as more its specific criteria and their effective implementation were in line with requirements set out, respectively, in Articles 9 and 10 of the Services Directive. In both respects, the Court appeared to largely sympathize with the French authorities. This sympathy, however, is not as unconditional as it may seem at first sight.

 

Proportionality in Articles 9 and 10 of Directive 2006/123

As for the case for establishing an authorisation scheme in the first place, the Court recognized that the objective of "dealing with the worsening conditions for access to housing and the exacerbation of tensions on the property markets [...] to protect owners and tenants, and to increase the supply of housing while maintaining balanced land use" constitutes an overriding reason relating to the public interest referred to in Article 9(1)(b) of the Services Directive (paras. 65-68). The Court further found that a scheme of ex ante authorisations, such as the one considered in the main proceedings, could be both suitable and proportionate to the objective pursued. In reaching this conclusion, the Court underlined the importance of economic data showing the gravity of the problem in the areas covered by relevant legislation (cf. paras. 69, 73).

A similar reasoning can be observed in the subsequent part of the judgment, concerned with the specific criteria for granting authorisations. To recall, pursuant to Article 10(1) of the Services Directive, authorisation schemes shall be based on criteria which preclude the competent authorities from exercising their power of assessment in an arbitrary manner. Paragraph 2 states, among others, that the criteria shall be non-discriminatory, justified by an overriding reason relating to the public interest and proportionate to that public interest objective, not unlike in the previously discussed Article 9. In this more specific context, however, the role of "studies and other objective analyses" of the local conditions appears to be considered even more important (cf. para. 88). Particular attention is drawn to the proportionality of the offset requirement as a condition of relevant authorisation schemes. Overall, in the case at issue, the Court considered such requirement to be potentially in line with the Services Directive, without, however, giving national authorities a carte blanche in this regard.

• Note, among others, the importance attached by the Court to the fact that the local authorities, chosing to impose an offset requirement in the case at issue, were supposedly required to ensure that, firstly, the requirement was strictly relevant to the specific situation of individual neighbourhoods or districts and that, secondly, the same was true for required quantum of the offsetting (e.g. para. 83).
  

• Another aspect highlighted in the judgment is the compatibility of the offset requirement with the exercise of services activities [of letting apartments to tourists], which appears to be somewhat intransparent way of saying that conditions of the scheme should not discourage such activities entirely (paras. 91-94).
  

The above suggests that establishing compliance of the offset requirements with the principle of proportionality in the Services Directive is all but black-and-white and requires considerable expertise on the part of national courts.

Other criteria for granting authorisations (Article 10 cont'd)

The last part of the judgment engages with the remaining conditions laid down in Article 10(2), namely unambiguity, objectivity, prior publicity, transparency and accessibility. Also in this respect, the Court provides a number of reference points, which national courts use to uphold authorisation schemes before them, without, again, providing them with unlimited discretion. It is highlighted, among others, that:

• the fact that relevant terms (such as 'repeated short-term letting of furnished accommodation to a transient clientele which does not take up residence there') are not defined using numeric thresholds does not, in itself, affect the requirements of clarity, non-ambiguity and objectivity (para. 98) → the terms should nonetheless be clarified in a way that prevents doubt as to the scope of the conditions and obligations, so that the concepts are not applied arbitrarily (para. 99-100);
• the fact the delegation of the power from the national to the local level is focused on the objectives which the local authorities must take into consideration cannot, in principle, lead to a finding that those conditions are insufficiently clear and objective → in so far as reference is also made to the objective factors on the basis of which the granting conditions are to be determined (paras. 102-103);
• the fact that the conditions for granting authorisations and the quantum of the offsets are to be determined by the municipal councils of individual municipalities does not, in itself, affect the transparency, accessibility and prior publicity requirements → what matters is rather whether all owners wishing to let furnished accommodation to tourists are in a position to familiarise themselves with the conditions for granting authorisations, before committing to activities in question. More specifically, the Court found that the publication of the minutes of municipal council meetings in the town hall and on a website is sufficient to meet the prior publicity, transparency and accessibility requirements → in so far as it effectively enables any interested person to be informed immediately of the existence of legislation likely to affect access to, or the exercise of, the activity concerned (paras. 104-107).

Concluding thought

Overall, even though the judgment has reportedly been welcomed by the advocates of a stronger grip on platform-based activities, including by the mayor of Paris, it requires national courts to carry out a complex assessment of multiple criteria and does not give Member States an unconditional license to regulate services provided via platforms. The question remains: will national courts rise to the challenge?

Profi Credit Polska Joined Cases C‑84/19, C‑222/19 and C‑252/19 – An Introductory Class on the Unfair Terms Directive

In Joined Cases C‑84/19, C‑222/19 and C‑252/19 (here), the CJEU mainly interpreted the Unfair Terms Directive. The CJEU’s decision is comprehensive and it covers all central aspects of the regime imposed by the Unfair Terms Directive: its scope of applicability (including the exclusion of terms derived from mandatory legislation, present in Article 1(2)), its unfairness assessment (including its requirements, present in Article 3(1)) and the obligation to draft contract terms in plain, intelligible language (present in Article 4(2)). Overall, this decision does not surprise, but it does summarize relevant recent case law under what can be described as a mini-lecture on the Unfair Terms Directive.

All three cases involved contracts between credit institutions and consumers, particularly the recovery of sums claimed by those credit institutions under consumer credit agreements. In all three cases, the total cost of the credit was between 2000-2500 euros. However, in all three cases there were high non-interest related costs, such as costs contractually designated as ‘commission fee’, ‘initial payment’, ‘fees for the grant of the loan’, ‘management fee’ and ‘administrative fees’. In general, while these costs were mentioned in several contractual clauses, they were not defined or explained. Additionally, all three cases concern a Polish law provision whereby there is a maximum amount of non-interest related credit costs that can be claimed from the consumer (Article 36a of the Law on Consumer Credit). That provision also establishes the formula according to which that amount must be calculated.

Case C‑84/19

In case C-84/19, the referring court asked whether a contract term that establishes non-interest credit costs (such as ‘commission fees’) within the maximum upper limit established by national legislation is excluded from the scope of the Unfair Terms Directive (Article 1(2)). Moreover, the referring court posed a very relevant question regarding the principle of transparency and its materialization. In specific, the referring court questioned whether a contractual term can be considered to be plain and intelligible if the various types of costs it introduces (such as ‘commission fee’ and ‘initial payment’) i) do not explain in return for what specific services they are charged and ii) do not differentiate between similar concepts. Finally, the referring court asked whether the contract term in question is considered a part of the main subject matter of the contract or whether it relates to the adequacy of the remuneration against the service provided, in which case, according to the Unfair Terms Directive, an unfairness assessment would not be possible unless the term was not drafted in plain, intelligible terms (Article 4(2)).

Regarding the first question, the CJEU highlighted that in order to trigger the exclusion from the Unfair Terms Directive’s scope two conditions must be met by the contractual term in question. First, it must reflect a statutory or regulatory provision; second, that statutory or regulatory provision must be mandatory (para 59). The fulfillment of these conditions must be checked by the national court. However, the CJEU stated that the Polish law provision in question does not ‘determine the rights and obligations of the parties’ but rather ‘confines itself to restricting their freedom to set the non-interest credit costs above a certain level’ (para 61). Just like in the recent Mikrokasa case (which the CJEU often cited; see our blogpost on it here), the CJEU concluded that the contract term in question is not excluded from the scope of the Unfair Terms Directive.

The case gets interesting regarding the CJEU’s discussion of the transparency obligations present in Article 4(2) of the Unfair Terms Directive. The CJEU reformulated the transparency-related question and left out the two interesting dimensions concerning explanation and differentiation of credit-related concepts. In the words of the CJEU, the referring court asked whether it is possible, under Article 4(2), to assess the unfairness of a contract term that ‘imposes on the consumer costs other than the payment of contractual interest’ but that does not ‘specify either the nature of those charges or the services which they are intended to reimburse’. It would have been interesting to see the CJEU directly address the original transparency-related question, since it asked about the meaning of the obligation to inform transparently (or to draft contractual terms transparently) in two different levels: explanation of concepts and differentiation of concepts.

Answering the question, the CJEU highlighted, once again, that the exception in Article 4(2) must be interpreted strictly, since a broad interpretation would result in decreased consumer protection (para 66). After that, the CJEU reminded that a term that forms the main subject matter of the contract must be a term that characterizes the contract in question and that describes the essential obligations of B2C contracts (para 67). Interestingly, the CJEU defines ‘adequacy’ in the context of Article 4(2) as ‘the relationship between the payments required and the service to which they relate’ (para 81). In this case, since the contract terms did not specify the service to which the charges referred to as ‘front-end fee’ and ‘commission’ related, the CJEU concluded that it was not possible to discuss an adequacy problem. Furthermore, the CJEU states that it is up to the national court to determine whether the obligation to make payments concerning additional services (external to the loan) is an essential element of the agreement (para 71). Still concerning transparency, the CJEU repeated what it has said on multiple other judgements and reiterated the idea of substantive transparency: contract terms should not only be grammatically (or formally) intelligible, but they must allow the consumer to assess the economic consequences deriving from them (para 73). In paragraph 75, the CJEU specified that for the contract term to be considered transparent it is important that the nature of the services provided in return for the costs imposed can be ‘reasonably understood’ or inferred from the contract. Besides, the consumer must be able to understand that there is no overlap between the different costs or between the different services for which the costs are due. In a way, the CJEU states that the duty to draft contract terms in plain, intelligible terms imposes the duty to differentiate between costs or services. All this seems, according to the CJEU, unclear; the CJEU considered it difficult to assume that the consumer had an ‘understanding of his payment obligations and of the economic consequences of the terms providing for those charges’ (para 78). In conclusion, if the contract terms give rise to confusion on the part of the consumer concerning her obligations – which is for the national court to determine – then those contract terms are not drafted in plain, intelligible language and, therefore, do not fall under the scope of the exception of Article 4(2).

Case C‑222/19

In case C-222/19, the referring court asked the CJEU whether a contractual term which has not been individually negotiated and which imposes non-interest related credit costs (including costs related to the lender’s professional activity) below a statutory maximum upper limit may be regarded as unfair under Article 3 (para 89). The CJEU reminded that it is up to the national court to consider a given contractual term unfair, and that the CJEU merely provides guidelines (para 91). Additionally, the CJEU stated that, in order to determine whether there is a significant imbalance created by the contract terms that impose costs beyond interest on the consumer, it is important to go beyond a quantitative economic assessment. In particular, it is not enough to compare the total value of the contract and the costs charged to the consumer based on that term (para 92). There must be a ‘sufficiently serious impairment of the legal situation’ of the consumer, which can be, for example, the restriction of rights that the consumer contractually enjoys or the constraint on the exercise of those rights (para 92). Moreover, in order to determine whether the imbalance is contrary to good faith, the national court must assess whether the professional party could reasonably expect that the consumer would have agreed to such a term during negotiations (para 93). The CJEU noted, nonetheless, that the contract term in question (which sets a non-interest related credit cost) could give rise to a significant imbalance (even if it is below the maximum upper limit established by national law) if, for example, the amount charged to the consumer for granting and managing the credit was not proportional to the amount of the credit. In order to determine this, the CJEU concludes, the national court should take the remaining contractual terms into account (para 95).

Case C‑252/19

Finally, in case C-252/19, the referring court asked the CJEU whether the applicable Polish law provisions are compatible with the Consumer Credit Directive. In particular, the referring court wondered whether, based on Article 3(g) (definition of ‘total credit costs’) and on Article 22(1) (maximum harmonization of the Consumer Credit Directive), Polish law can impose a calculation of the upper limit of non-interest credit costs that includes not only the credit costs usually associated with the conclusion of a consumer credit agreement but also costs related to the lender’s professional activity. The referring court therefore questioned whether this method of calculation was in fact creating a new type of cost that is not compatible with the harmonized areas, which would undermine consumer protection.

The CJEU briefly addressed this question by once again referring the answer to the Mikrokasa case. In particular, the CJEU stated that the concept of ‘total cost of the credit’ in Article 3(g) of the Consumer Credit Directive is intentionally broad and it is meant to cover all costs that the consumer must pay in connection with the credit (except notarial fees). Article 3(g) does not impose any limitation on the type of costs that may be imposed on the consumer. Therefore, the CJEU concludes, the Consumer Credit Directive does not exclude that costs associated with the lender’s business activity are imposed on the consumer, which means that there is no incompatibility with Polish national law. 

AG opinion in Star Taxi App and the limits of the principle excluding prior authorisation: was Uber Spain really necessary?

Last week brought a very interesting opinion of the Advocate General Szpunar in case C-62/19 Star Taxi App. The case constitutes a follow-up to a range of preliminary rulings on the platform economy, most notably the judgments in the two Uber cases (see our comments, respectively, on Uber Spain and Uber France) and in Airbnb Ireland, as well as the pending case Cali Apartments. It is worth noting that it was also AG Szpunar who successfully advised the Court in the first three of them, while on the fourth pending case, in which AG Bobek delivered the opinion, the Court is about to rule later this month.

Facts of the case

Similarly to Uber references, case C-62/19 Star Taxi App involved a provider of a mobile application connecting drivers and passengers in urban transport. Furthermore, the doubts raised equally concerned the legal qualification of the service provider (as a provider of information society services or not) as well as the scope of Member States' regulatory discretion concerned. More specifically, in the case at hand the question was whether the provider of Star Taxi App could be subjected to the Romanian requirements imposed on operators of taxi 'dispatching' services, including the requirement to obtain prior authorisation.

At this stage, it is necessary to note that the business model of Star Taxi App was not merely a copy of the (in)famous Uber platform. Like Uber, the application helped passengers to establish contact with providers of urban transport services. However, the provider did not automatically select two parties for a ride, but rather displayed a list of drivers available for a journey, from whom the passenger was free to choose a party. Secondly, the application provider did not set the fare, which was rather paid directly to the driver. Finally, only taxi drivers authorised and licensed to provide taxi services were allowed on the platform and no additional steps were taken to control the quality of the vehicles and their drivers or the drivers' conduct.

Not unlike the Uber France case, the provider of Star Taxi App, operating without authorisation, was eventually fined for having infringed the applicable Romanian norms. The provider appealed, arguing that the legal provisions applied to it were contrary to the EU law. Against this background, the Regional Court in Bucharest decided to stay the proceedings and refer a number of questions to the Court of Justice.

Opinion of the AG 

The questions referred concerned, firstly, the notion of the information society service, secondly, the scope of regulatory discretion of the Member States under the E-Commerce Directive and the Services Directive and, thirdly, the notification requirements laid down in Directive 2015/1535.

Finding 1: Star Taxi App provides information society services

The Advocate General began his response to the first question by reitering the notion of information society service defined in Article 2(a) of the E-Commerce Directive by reference to Article 1(1)(b) of Directive 2015/1535. To recall, an information society service is "any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services". According to the AG, the service consisting in putting taxi passengers directly in touch, via an electronic application, with taxi drivers, such as the one considered in the main proceedings, fell under that definition. Most notably, the AG did not consider the business model of Star Taxi App to be "inherently linked" to the underlying transport services, as it did in the Uber cases. In his view, the service was merely an adjunct to a pre-existing and organised taxi transport service (considering it was offered to licensed drivers only), while its provider did not exercise control or decisive influence over the conditions under which transport services were provided by the taxi drivers (paras. 45, 49). Hence, unlike in the case of Uber, the E-Commerce Directive should be considered applicable to the analysed services.

Finding 2: National rules are not precluded by the principle excluding prior authorisation in the E-Commerce Directive

The key part of the opinion in Star Taxi App is linked to the second question, concerning the interpretation of the principle excluding prior authorisation in the E-Commerce Directive. To recall, pursuant to its Article 4(1), Member States shall ensure that the taking up and pursuit of the activity of an information society service provider may not be made subject to prior authorisation or any other requirement having equivalent effect. Most importantly for the present case, the subsequent paragraph specifies that the principle mentioned above "shall be without prejudice to authorisation schemes which are not specifically and exclusively targeted at information society services". Focusing on the latter, AG Szpunar argued that a national provision, such as the one in the case at hand, which extends the requirement to obtain prior authorisation - with which providers of economically equivalent services already have to comply (cf. para. 74) - to the providers of information society services does not constitute an authorisation scheme specifically and exclusively targeted at providers of the second category of services. In order words, providers of information society services can, in such case, be subject to an authorisation scheme.

The arguments brought by the AG in support of this reasoning appear broadly convincing. According to the AG, while the EU legislature's aim in adopting the E-Commerce Directive was to encourage the development of information society services, its intention was not to enable economic operators to evade legal obligations solely because they operate 'online' (para. 25). The rationale for Article 4(2) of the E-Commerce Directive can thus be linked to the prevention of unequal treatment between information society services and similar services which do not fall within that concept. Indeed, with the growth of the digital economy, providers of information society services may enter markets in which 'traditional' service providers had previously played a central role. Following the AG, legislative or administrative action, which makes providers of such services subject to existing rules, does not amount to the creation of a new authorisation scheme specifically and exclusively targeting those services, but rather constitutes an adjustment of the existing scheme to take account of new circumstances (para. 69). 

While this generally seems well-founded, the focus of the AG on the extension of already existing rules is not entirely clear. In my view, such an emphasis should simply be linked to the circumstances of the case. Specifically, the fact that the analysed Romanian provisions were extended to cover information society services makes it potentially more difficult for the national legislator to argue that its action was not "specifically and exclusively" targeted at information society services. AG's focus on this context is thus meant to show that, even in those circumstances, conditions of Article 4(2) of the E-Commerce Directive can be fulfilled. The temporal/technical aspect (extension of already existing rules) is not crucial to the interpretation, however. Also newly adopted rules, targeted at providers of information society services and other services equivalent in economic terms, can potentially fall under Article 4(2). Seen through this lens, one can wonder whether the complex reasoning on the notion of information society service, initiated by the AG in Uber Spain opinion, was indeed necessary?

Finding 3: Also Services Directive applies to the case at hand

Having analysed the E-Commerce Directive, the Adovocate General moved to the discussion of other harmonised provisions, most notably of Directive 2006/123/EC on services in the internal market. Most notably, the AG found that the Services Directive also applies to the case at hand. According to the AG, the relation between the two directives is defined by the principle of lex specialis derogat legi generali, laid down in Article 3(1) of Services Directive. Pursuant to this provision, in the event of a conflict, the provisions of specific acts of EU law governing access to and the exercise of services in specific sectors take precedence over those of Directive 2006/123/EC. As argued by the AG, in the case at hand a conflict of this kind did not arise. Consequently, authorisation schemes, introduced in accordance with Article 4(2) of the E-Commerce Directive, should comply with the rules laid down in Articles 9 and 10 of the Services Directive.

The subsequent analysis of AG Szpunar essentially falls in line with the recent opinion of AG Bobek in Cali Apartments. In particular, a distinction is made between the benchmark for evaluating the need for establishing an authorisation scheme in the first place (Article 9) and more specific conditions of such a scheme (Article 10). According to AG Szpunar, the preliminary reference did not contain sufficient information to give extensive guidance on the two provisions in the analysed context. It is worth highlighting, however, that, in view of the AG, the requirement of consumer protection cannot be invoked as the valid objective of the scheme, as it is already satisfied by the obligations imposed on drivers (para. 97). To what extent such a broad-brush conclusion is indeed justified can be a subject of debate. By contrast, observation made in relation to the following provision, according to which an authorisation scheme is not based on criteria justified by an overriding reason relating to the public interest when the grant of authorisation is subject to requirements that are technologically unsuited to the applicant's intended service (para. 101), appears to be well-founded.

Finding 4: Notification requirements under Directive 2015/1535 do not apply

The last part of the opinion involved the interpretation of Directive 2015/1535 laying down a procedure for the provision of information in the field of technical regulations and of rules on information society services. The key question raised in this context was whether the national provisions at hand constituted technical regulation. Somewhat surprisingly, the AG did not refer in this part of the judgment to his previous argument concerning the consistent case law finding that provisions on authorisation schemes do not constitute technical regulations (cf. para. 72). The AG may thus himself recognize the weakness of this reasoning in relation to the rules on services (cf. recital 18 of Directive 98/48/EC, which introduced the notion). Still, after a rather brief reasoning, the AG similarly concludes that provisions at issue did not constitue technical regulations. Considering the rather expansive interpretation of the notification requirements in the prior case law, e.g. in VG Media and Airbnb Ireland, one can wonder whether this part of the opinion will indeed find support of the Court.

* 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.

CJEU in C‑738/19: limits to global assessment of term's fairness

Today 10 September, the Court of Justice decided a case concerning circumstances with a certain notoriety in the country it originates from - The Netherlands. The question stems from the complicated encounter between Airbnb and other forms of tourist rentals and regulated tenancy contracts: in other words, how vigorously can landlords of regulated rentals seek to use contract terms to prevent exploitation of low-price accommodation by the tenants?

The contract at stake in the main dispute contained a 5000 euro penalty in case the tenant did not use the apartment as main residence or sub-let it without the owner's approval. This is a common clause in Dutch "social" tenancy contracts. Remedies for the landlord under Dutch law, however, also include the possibility to claim disgorgement of any profit made by breaching an obligation - as a way of simplifying proof of damage for the claimant. 

This means that, in the case which made its way to the CJEU, a tenant found in breach of the contract's terms was first evicted and then asked to both pay the 5000 euro penalty and transfer to the former landlord any profit made from sub-letting the apartment. 

The referring court asked the CJEU whether, in assessing the penalty clause at stake under the unfair terms directive, account should be taken of other penalty clauses included in the contract, even though they were not cumulatively applicable to the breach under discussion. What seems clear, however, is that it was the combination between the penalty and Dutch law allowing for disgorgement of profit to keep the referring judges on the hedge. 

Contrary to what the Court seems to have assumed when opting to go forward without AG opinion, the question is not moot. It implies both answering a specific question raised by the Directive's annex: when is a penalty clause excessive? And more in general reflecting on what the Directive's Article 4 means by stating that all other terms in the contract must be taken into account when deciding whether a term (penalty clause or other) is unfair.  Can this be meant to include also the broad context of rules applicable to the contract?

The Court recalled, as to the first question, a number of previous decisions essentially trying to articulate when terms - and, especially - the consequences they dictate can be considered justified in relation to the breach they react to. 

It is the referring court's task, the CJEU observed, to establish whether a certain penalty clause is unfair - without adding much content, the CJEU seems sympathetic to the Dutch court's claim that a social housing contract justifies a high penalty fee for illicit sub-letting. 

Furthermore, the Court concludes that neither other penalty clauses in the contract must be considered - other terms count when there's a concrete chance of them exerting a cumulative effect - nor the possibility to demand disgorgement of profit next to the penalty. The latter not being a term, the CJEU places it beyond the scope of Directive 93/13. 

This argument, in particular, seems questionable: of course the Dutch tort law rules must be beyond the scope of the unfair terms control, but the Court has several times reaffirmed that the background rules applicable to the contract matter in assessing unfairness: they cannot be unfair on their own, but why would they not contribute to assessing the term's likely impact?

Besides, the Dutch rule seems to already go a long way to fulfil the main purposes of penalty clauses - discouragement of breach and facilitation of recovery for the claimant -, so would that not count in assessing both the need for and proportionality of the penalty? 

As difficult as it may be to have much sympathy for fraudulent tenants, the reasoning in this case does not really sit well with my understanding of penalty clauses - and unfair terms. Looking forward to hearing if someone has different thoughts!

Roam like at home default for all - CJEU in C-539/19

Dear readers, 

as you may have suspected already, the CJEU went back in session this past week and delivered a good number of judgments and opinions of interest to consumer law aficionados. While other cases may deserve complex scrutiny, hereby a short notice on a less complicated, but still somewhat impactful, decision: Verbraucherzentrale Bundesverband v Telefónica Germany.

The case concerns the interpretation of Regulation 2015/ which introduced "Roam like at home" (RLAH) as the rule within Europe, effectively ending roaming charges in the EU for most telecom customers. Unlike other companies, Telefonica Germany (OZ) had not immediately transferred all its customers to a RLAH regime on the day (15 June 2017) the regime was supposed to enter into effect. In particular, customers who, prior to that date, had acquired a special roaming package with the company were not automatically transferred: instead, they were asked to opt in for RLAH - lacking such express action, their previous contractual conditions were kept in place. 

Offering specific roaming packages tailoring to the needs of particular groups of consumers is allowed after 15 June 2017 under art 6e(3) of the regulation, providing that  roaming providers may offer, and roaming customers may deliberately choose, a roaming tariff other than the one offered under RLAH terms. 

In practice, Telefonica maintained that an invite to customers to opt in RLAH was enough to guarantee that staying with the alternative tariff was a deliberate choice as required by the provision; the Verbraucherzentrale disagreed and the CJEU concurred in such disagreement. 

The court considered the possible advantages and disadvantages of opt-in and opt-out for introducing RLAH and concluded that nothing - from the letter of the regulation to the intention of abolishing roaming charges - could be read to suggest an interpretation of deliberately not requiring RLAH to be the default option in case of consumer inaction. 

The fact that no AG opinion was submitted on this case suggests not many sleepless nights were required to reach this conclusion, which may or may not open a complicated file for Telefonica: since the original proceedings were an injunction against the company's implementation of the Regulation, it is unclear whether other remedies will be sought. 

Zotero database: Consumer Law Female Collective

Research shows that works of female scholars are less likely to be referred to than publications written by male authors (see e.g. on gender gap citations here). Is this the case in the field of consumer law studies, as well? These questions were raised in a conversation of my colleagues: Prof Vanessa Mak (University of Tilburg, the Netherlands) and Dr Christine Riefa (Brunel University, UK). They decided to organise an online meeting with a few other female scholars working in the field of European consumer law to discuss whether we could see any potential gender gaps, as well as brainstorm ideas on how to address them. This led to the beginning of the Consumer Law Female Collective this summer.

One of the ideas coming from the meeting was to create a database for female (at least co-)written scholarship and share it publicly. This should raise the awareness of female scholarship in this field, hopefully increasing the amount of citations to this body of work. I found some time over the past few weeks to set it up on Zotero, as it allows for an easy way to share it publicly. The database is open, which means all our readers can have access to it (although registration with Zotero will be necessary to do so). You may (and we hope you will) share this database with your students, colleagues, co-workers and anyone interested. We hope that this will help to diversify the curriculum for many consumer law classes, too.

 

We have introduced a detailed structure, hopefully allowing for an easy overview of sources, but the search function of the Zotero app facilitates an easy access, too. At the moment, we have over 100 sources in the database and many different sub-collections, but this is just the beginning. Therefore, dear readers, please feel free to send us suggestions what sources should further be added, what collections (sub-collections) you are still missing, etc. Our email address is: conlaw.fc[at]gmail.com When you are sending us your suggestions, please do so by giving us links to the publisher's websites for any journal articles, book chapters or books, as this facilitates adding these sources to Zotero. The main collections contain sources published in the English language but we are not opposed to the idea of creating sub-collections to sources written in other languages. The database is focused on European consumer law. With time we may, however, want to add sub-collections on other consumer legal systems.

We have now seven registered members of the Zotero Consumer Law Female Collective database group, with rights to add/edit the database, these are: Dr Andrea Fejos (University of Essex, UK), Dr Lorna Gillies (University of Strathclyde Glasgow, UK), Dr Joasia Luzak (University of Exeter, UK), Prof Vanessa Mak (University of Tilburg, the Netherlands), Dr Kristin Nemeth (Universität Innsbruck,  Austria), Prof Charlotte Pavillon (University of Groningen, the Netherlands), Dr Christine Riefa (Brunel University, UK). If you were interested in having the rights to edit the database, please let us know, as we may want to add a few members to the editorial group.

Quality of hotel accommodation - of some concern to airlines - CJEU in Niki Luftfahrt (C-530/19)

Another judgment issued today also elaborates further on the provisions of Regulation No 261/2004 - in the case Niki Luftfahrt (C-530/19). Here, the question was raised by an Austrian court as to the interpretation of Article 9(1), which provides passengers with the right to care from the air carriers when there are hindrances to the scheduled flight. This right to care includes an obligation for air carriers to offer passengers free of charge hotel accommodation, when an overnight stay or a stay additional to the one intended by the passenger becomes necessary.

The passenger's flight from Mallorca to Austria was cancelled and the passenger was rebooked for the following day. The air carrier offered accommodation free of charge to the passenger in a local hotel. The issue arose as to the quality of this accommodation. The passenger used a wheelchair, the front wheels of which got caught in a pathway of the accommodation, resulting in the passenger falling and becoming seriously injured. The passenger raised a claim for damages from the operating air carrier for the negligent behaviour of the hotel employees.

The national courts were in disagreement whether the air carrier should bear responsibility for this consequential damage on the basis of Article 12 Regulation No 261/2004; whether for example the facts could classify this situation as a poor performance of obligations from Article 9(1), which could be seen as non-performance of this obligation (para 16). Overall, the national courts wanted to know how far the obligations of the air carrier stretch under this provision - only to the selection of the accommodation and offering it to passengers, or do they also cover performance of this service (which could make the air carrier liable for the conduct of the hotel employees) (para 17).

The Court's judgment essentially limits the liability of the air carriers to selecting the hotel accommodation and offering it to passengers. The air carrier does not have any responsibility to 'take care of the accommodation arrangements as such' (para 31). This is justified by the CJEU by the wording of Article 9(1)(b), which aims at taking away the burden from stranded passengers of finding accommodation and paying for it (para 24). This signifies, in fact, that the airline presents an option to passengers, but it will be the passengers who are contractual partners of the hotel (to that extent: para 28). Still, the CJEU highlights the air carriers obligations towards passengers with reduced mobility following from Article 9(3) and Recital 13 Regulation 261/2004. The air carrier should check whether the offered accommodation is capable of meeting reasonable expectations of passengers with reduced mobility and, where appropriate, notify the hotel of such needs of the passengers (para 29). Consistently, the CJEU further rejects the premise of the liability of air carriers for the damage that passengers experience in the accommodation due to the fault of the hotel employees (para 40). One interesting observation made is attention given to reiterate the rule that Regulation No 261/2004 does not allow for claims for individual compensation/damages, but only provides for standardised and immediate compensatory measures (paras 36-39).

Paragraph 29 of the judgment is the most relevant for consumer protection, as it does emphasise the need for the airlines to pay at least some attention to the quality of hotel accommodation they are offering to more vulnerable consumers. However, even if the airlines failed in performance of this obligation, paragraphs 36-39 clarify that passengers would not be able to claim full damages for the harm that they have suffered as a result.

Compensating passengers in national currencies - CJEU in Delfly (C-356/19)

The CJEU is back after the summer holidays and we are as well. One of the judgments issued today was in the Polish case Delfly (C-356/19), in which a Polish court asked for clarification of the provisions on the payment of compensation for cancelled/delayed flights pursuant to Regulation No 261/2004.

The consumer in this case had a flight delayed for more than 3 hours from a third country to Poland, which entitled her to 400 Euro compensation pursuant to Article 7(1) Regulation No 261/2004. The question raised in this case was whether the consumer could claim the amount of this compensation in another currency than Euro, namely in Polish zloty (PLN). Polish law - Article 358 Civil Code - specifies that for obligations denominated in foreign currency without an agreed conversion to PLN, the creditor may demand only payment in that foreign currency and it is up to the debtor to choose/agree to a payment in PLN instead. Polish procedural law prevents the consumer further from adjusting the claim that has already been made in PLN to the one expressed in EUR. Unsurprisingly, the air carrier used these legal provisions to reject the passengers' claim.

The CJEU is asked whether Polish law complies here with the provisions of Regulation No 261/2004 and the answer also does not come as a revelation: national law should not stand in the way of passengers claiming their compensation pursuant to Regulation No 261/2004 in national currencies of their place of residence, not just in Euro.

It is worth noting that Regulation No 261/2004 determines the compensation amounts in Article 7(1) Regulation 261/2004 in Euros, without further addressing a possibility of passengers making claims in other currencies, methods of conversion etc (para 20). This should not lead to a contrario reasoning, however, that without an express mention of claims calculated in other currencies such claims are prohibited (para 21). As the CJEU has many times observed Regulation intends to award a strong protection framework to air passengers and their rights should be interpreted broadly (paras 22-24). The CJEU is of the opinion that considering the standardised character of the compensation, and that it is supposed to apply to passengers irrespective of their nationality and place of residence, if it were limited to payment in Euro it could restrict the way this right was exercised (para 26) and it could lead to different treatment of passengers in comparable situations (para 30). The principle of equal treatment could be infringed if compensation could only be paid out in Euro, as only for some passengers that would be the currency of their place of residence. It is for the national law to determine how the conversion from Euro to national currency should take place (para 33).