Guarantee statements and subjective consumer satisfaction – CJEU in LACD (C-133/22)

On Thursday, the CJEU (in C-133/22) ruled on the precise meaning of "commercial guarantee" as defined by point 14 of Article 2 of the Consumer Rights Directive ("CRD").

The referring court (German Federal Court of Justice) specifically asked whether the provision must be interpreted as meaning that a "commercial guarantee" includes, as "any other requirements not related to conformity set out in the guarantee statement" (Art. 2), an undertaking made by the guarantor regarding "circumstances specific to the consumer, in particular his or her subjective attitude towards the item purchased (in this case, the consumer's personal satisfaction with the item purchased (...) without it being necessary that those personal circumstances relate to the condition or features of the item purchased" (ruling). 

Consumers, reading this case, will be interested in this question: Can an intelligibly worded guarantee cover reasons for dissatisfaction with the product which are exclusively subjective and only concern how the consumer feels about the product? 

Let's take a look at the facts of the case. LACD is a company which distributes sports and fitness products both via online merchants and retailers. On LACD products, consumers could find a tag defining a pretty wide "LACD Warranty". The tag stated: 

"Every LACD product comes with our lifetime guarantee. If you are not completely satisfied with any of our products, please return it to the specialist dealer from whom you purchased it. Alternatively, you can return it to "LACD" directly but remember to tell us where and when you bought it." 

BB Sport, a retailer of sport and fitness products, purchased two LACD t-shirts through a mystery shopper and upon reading the tag brought an action before the Regional Court of Munich seeking an injunction which would prohibit LACD form attaching those hangtags. BB Sport considered the tags not to meet the statutory requirements applicable to guarantee statements, as detailed under Article 443 and 479 of the BGB.  The provisions establish that: 

"the specific undertaking by the seller (...) set out in a statement (...) constitutes a guarantee in addition to the guarantee of conformity, the purpose of which is to reimburse the purchase price, to replace or repair the goods sold or to provide any other service in connection with those goods in they do not meet the specifications or any other requirements not related to conformity set out in that guarantee statement" (ruling). Such statement "must be worded in plain, intelligible terms" and must list "the elements which that statement must include" (ruling)

The first court dismissed the action, while the Higher Regional Court of Munich upheld the appeal. LACD brought an appeal before the Federal Court of justice, which referred to the CJEU with the question detailed above. 

The CJEU first observed that nothing, in the way Article 2 of the CRD is worded, excludes from its scope of application a guarantor's undertaking regarding the consumer's subjective and personal satisfaction with the product purchased. "Any other requirements" is a wide expression, as observed by the AG, and there is no need for those requirements to refer to an "objective consideration related to the features or properties of those goods". This interpretation is consistent with the objective of the CRD, which is aimed at providing a high level of consumer protection by ensuring consumers have all the information necessary to make a decision before purchasing. Consumers purchasing from LACD will know that they are guaranteed a high level of protection, also as regards their very personal dissatisfaction with a product.

The Court observes that, after all, in making this undertaking LACD is only using its right to conduct business, established by Article 16 of the Charter of Fundamental Rights of the European Union. 

Finally, the Judges rule that, because the statement provides guarantees related to the consumer's subjective satisfaction with the products, the failure to satisfy the expectation "cannot, by definition, be subject to objective verification" (ruling). A mere statement of the consumer must be considered sufficient. 

This ruling can certainly be regarded as ensuring a high level of consumer protection, allowing at the same time traders to offer a very wide guarantee and thus conduct their business as they think is best. Clearly, the wording of the statement must comply with clarity requirements and always be worded intelligibly and plainly. 

Alternative terms on performance, average consumers... tune in to CJEU in mBank (C-139/22)

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Today the CJEU decided another case on unfairness in mortgage loan agreements with an index-link to Swiss francs - in the Polish mBank case (C-139/22). The first part of the judgment is Poland-specific, as it refers to the validity and effect of a national register of unlawful terms, which Poland happens to have. This issue has already been considered in the previous Biuro case (see our comment on case C-119/15 here). The Court now reiterated that as long as the register is transparent, kept up to date, and the traders have an opportunity to question the applicability of the register in their particular case, national courts could benefit from such registers (paras 41-43). Hence, contested terms could be declared by national courts as unfair if their content has previously  been registered as unfair, provided that the court warns parties to the proceeding about this and gives the trader the opportunity to challenge this finding (para 45). 

The second question was more interesting: What happens if the mortgage loan contract contains a term that is likely to be unfair, however, it also contains another term, which allows consumers to disregard the unfair term and follow a different path for contractual performance? In this case, the contract included a term that obliged consumers to reimburse a loan index-linked to Swiss francs 'exclusively in the national currency as converted according to a rate of exchange freely determined by the bank' (para 52). This term was previously determined as unfair by Polish courts. However, the contract also included a term that allowed consumers instead to reimburse the bank directly in Swiss francs. This would allow consumers to choose where to obtain Swiss francs from, avoiding the conversion rates set by mBank. According to the bank, consumers could have then avoided the detrimental effect of the first term, which, again pursuant to the bank. would not lead to unfairness. The Court rightly rejects this argumentation. Contrarily, it emphasises that a contract containing such a mechanism - two alternative terms referring to the same obligation, one of which is unfair and one of which is lawful - per definition should be considered unfair (para 55). The trader could be seen as counting on consumers' 'lack of information, failure to pay due attention or a lack of understanding', which would lead them to re-pay the loan in the way set out by the detrimental, unfair term, with the other term then only providing a mechanism to avoid liability by the trader (para 55).

Interestingly, the Court makes the above-finding fully aware of the average consumer standard that applies to the interpretation of the UCTD provisions. On its basis, we could expect that reasonably well-informed and circumspect consumers, who are to read and attempt to understand the contract and its consequences, should recognise the better of the two options for re-payment. And yet... the Court does not think so.

The average consumer is mentioned by the Court when giving the answer to the third question: Does the fact that one of the borrowers worked for the bank exclude them from the scope of protection of the UCTD? The answer is: No. As the concluded contract does not pertain to the employment relationship, the sole fact that it is concluded with the employer does not mean that it could change its non-commercial purpose (para 69). Further, even if the consumer in this case had insights into exchange rates of mBank, which were not available to consumers not working for this bank, this did not mean that their 'more specialised' knowledge should exclude them from the scope of protection of the UCTD. The CJEU reminds that we refer to the objective benchmark of an average consumer and their knowledge. Thus neither less nor more consumer knowledge in a given case will matter (para 66).

Double jeopardy in Volkswagen cases - CJEU in Volkswagen Group Italia and Volkswagen Aktiengesellschaft (C-27/22)

Last Thursday the CJEU adjudicated in the Volkswagen Group Italia and Volkswagen Aktiengesellschaft case (C-27/22 - see here). We have previously written about the Volkswagen scandal on the blog (see here) - that is, on the unfair commercial practice that Volkswagen engaged in by installing a defeat device in its cars, which led to marketing them as more environmentally-friendly in 2009. As our past blog posts mention, various national authorities were active in their investigation of Volkswagen's conduct. And here lies the problem that the CJEU tackled in this new case: Could different national procedures against Volkswagen (for the breach of consumer protection rules, esp. prohibition of unfair commercial practices) breach the principle of ne bis in idem? 

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Two national authorities' decisions were at stake here. The Italian authority (AGCM) imposed a fine of 5 million Euro on Volkswagen in August 2016 for the unfair marketing practices in Italy. This decision was promptly challenged in court by Volkswagen. Then, the German authority (Public Prosecutor's Office of Braunschweig) imposed a fine of 1 billion Euro for the 'negligent breach of the duty of supervision' in developing and installing relevant software worldwide. Volkswagen did not challenge this decision and paid the fine, which means it became final in June 2018. Part of the German decision indicated that the amount of 5 million Euro from the total fine would indeed penalise for the conduct mentioned in the Italian decision, whilst the rest of the fine aimed at taking away the economic advantage that Volkswagen derived from engaging in the unfair practice (para 19). This then led to Volkswagen claiming that the Italian authority's decision infringes the principle of ne bis in idem (embedded in Article 50 of the Charter of Fundamental Rights), as it would duplicate the penalty for the same acts against the same person when it became final. To be able to claim this, Volkswagen argued that administrative fines placed on it were of a criminal nature. 

The Court of Justice agreed that administrative fines for breach of unfair commercial practices may be of a criminal nature. What is necessary is that the penalty has a punitive aim and a high degree of severity (determined on the basis of its amount compared to maximum allowed penalty under relevant provisions) (paras 45, 53-54). If these criteria are fulfilled, the penalty should be seen as of a criminal nature, even if national law classifies it as an administrative penalty (para 48). The Court mentions that if the fine was merely trying to repair the damage (possibly take away the unfair advantage), then it would be unlikely that it had a punitive or deterrent character, which characterises criminal sanctions (para 49). However, e.g. the fact that there is a maximum amount that can be set as a fine suggests that it would not always allow for taking away the achieved unfair advantage (para 52).

Consequently, if the Italian and German procedures penalise Volkswagen on the basis of identical material facts, not just similar facts and regardless of the national legal qualification of these facts, Italian law would not be able to allow for maintaining of the proceedings (paras 66-67, 70). This would indeed infringe the principle of ne bis in idem. This would only be different if the following three conditions were satisfied (para 96): 1) duplication of proceedings would not excessively burden Volkswagen (interestingly, since the Italian fine amounts to only 0.5% of the German fine, CJEU would not consider awarding it alongside the German fine as an excessive burden - para 97); 2) there needs to be transparency and predictability of which acts or omissions could be subject to duplication of proceedings (could Volkswagen predict then that their practices could give rise to proceedings in various countries? - para 98); 3) proceedings should be duplicated within a proximate timeframe and coordinated (and it seems that the Italian authority did not engage in any attempts initiated by the German authority to coordinate these proceedings - paras 101-102).

Ex officio and package holidays - CJEU in RTG v Tuk Tuk travel SL (C-83/22)

 Dear readers,

do you remember when the Package Travel Directive (2015/2302) and package travel rules all of a sudden seemed very current, back at the heights of the pandemic, after having been mocked for years as the 2015 rules for 1980s holiday-making? Well, in a reminder that we all sit in our little bubbles :), it turns out consumers may not have noticed all the fuss in the legal community after all - but ex officio is there to make courts watch. 

Here's the story: yesterday the CJEU published its decision in RTG v TUK travel SL, which concerned a refund claim by a consumer who had planned and cancelled a trip to a faraway location in 2020. When trying to get his money back, the consumer was informed by the travel organiser that they would only be able to recover a very tiny sum. Subsequently, he sued for recovery claiming the contract was terminated due to force majeure, demanding ca 75% of the original sum - in acknowledgement of what the consumer thought were reasonable expenses incurred by the organiser. 

The national court seised with the case had its quandaries with the claim: on the one hand, the judge knew that the Package Travel Directive's article 12(2) entitled the consumer to a full reimbursement in cases like the one at hand; on the other hand, rules of Spanish civil procedure did not allow the court to modify the consumer's claim. The Court asked the parties to clarify - had the trader in fact informed the consumer, at the moment of concluding the contract, that he had a right to termination without consequences if the trip had to be cancelled? Apparently they had not. 

I will not discuss here the first question asked by the court, which rested on a misunderstanding of the text of the directive. The second question, however, in essence asked - to what extent are courts required to apply the Package Travel Directive ex officio? 

The CJEU gave a reasonably helpful answer to this question. In essence, national courts in similar situations will have to ex officio examine whether the rules in the Directive have been complied with, on the basis of the information available within the procedure. If the Court ascertains a violation - like, in this case, of article 12(2) - it will allow the consumer to amend their claim. Courts are not required or allowed, however, to go on and apply the remedy ex officio "rewriting" the consumer's claim without further ado. 

This is a somewhat systematically ambitious judgement to the extent that the CJEU (para 54-57) ventures into expressly translating previous case-law into a series of requirements without which ex officio cannot take place:

• the court must have a judgment pending about the specific contract at hand brought by one of the parties
• the involved provision (right to terminate) must be relevant to the object of the dispute as identified by the parties
• the court must have all the necessary elements available and
• the consumer must not have expressly objected to the application of the provision at hand. 

The first three requirements appear taken almost verbatim from the CJEU's previous decision in Lintner (C-511/17 - see our comment here), concerning unfair terms; the last one also seems to reflect case-law in the same area, and namely Dziubak (C-260/18 - see our comment here). 

Different to many ex officio cases, this case did not concern an absentee consumer - only one who had gone to court without a lawyer and maybe therefore (and because of the trader's failure to comply with consumer protection law) had not formulated their best possible claim. Also contrary to Duarte Hueros (C-32/12 - see our comment here), this consumer had in fact formulated a successful claim - but one that was not as advantageous as the one that he was allowed under consumer law. In this respect the decision is both far-reaching - it's not obvious that the consumer would have not received effective protection without ex officio, so the "public order" reason for control seems to feature prominently - and rather modest in not prescribing an outcome (which seems to make it less of a public order reasoning). In any case, this being Friday afternoon, I will say that it's not particularly easy to feel in this case for the trader who had actively tried to mislead the consumer as to his rights. Not nice of you, Tuk Tuk travel!