Only natural persons can be consumers – CJEU in Condominio di Milano, via Meda (C-329/19)

On the 2^nd of April 2020, the CJEU decided on the Condominio di Milano case (here). The case concerned the concept of consumer under the Unfair Terms Directive, regarding a contract between Condominio Meda (a commonhold association) and Eurothermo SpA (an energy supplier). The dispute originated in the duty to pay interest for late payment in a contract for the supply of thermal energy. Article 6.3 of the terms and conditions of Eurothermo stated that, in the event of late payment, the debtor must pay ‘default interest at the rate of 9.25% from the expiry of the period for payment of the balance’. Condominio Meda claimed that it is a consumer in the sense of the Unfair Terms Directive and that Article 6.3 of the terms and conditions is unfair.

The national court highlighted the existence of pre-existing national case law from the Italian Supreme Court that determines that a commonhold association – as a form of co-ownership – is not a legal person but it is considered a ‘distinct subject of the law’. This means that, under Italian law, Condominio Meda is neither a natural person nor a legal person. The Italian Supreme Court has nonetheless previously applied consumer protection rules to contracts concluded by a commonhold association and a trader or supplier. Furthermore, the national court mentioned the CJEU’s previous decisions on the concept of consumer, which were exclusively based on the criterion of being (or not) a natural person. Therefore, the referring court asked whether the Unfair Terms Directive is applicable to this contract.

The CJEU started by analyzing whether a ‘distinct subject of the law’ that is not a consumer is covered by the Unfair Terms Directive. In fact, Article (2)(b) explicitly identifies a consumer with ‘a natural person’. According to past case law, the CJEU reiterated that ‘a person other than a natural person who concludes a contract with a seller or supplier’ cannot be considered a consumer (Cape and Idealservice MN RE, C‑541/99). Therefore, the contract concluded between the commonhold and the energy supplier is excluded from the scope of the Unfair Terms Directive (paragraph 29). This is a literal interpretation of Article 2(b), allowing for a well-defined and consistent notion of consumer.

Additionally, the CJEU extracted a second question from the national court’s request: is it contrary ‘to the spirit of the framework of consumer protection in the European Union’ for a national court to interpret the transposing legislation of the Unfair Terms Directive as covering contracts concluded between a commonhold (not a natural person) and a supplier? Given that the Unfair Terms Directive is a minimum harmonization Directive and that the Italian Supreme Court has developed a line of case law ‘which seeks to afford greater protection to consumers’, the answer is negative. Therefore, even though the contract in question is excluded by the scope of the Unfair Terms Directive, the Unfair Terms Directive does not preclude national case law from applying its transposing legislation to the contract in question. 

Airbnbing it? Likely not a consumer: CJEU in Milivojević (C-630/17)

Last Thursday the Court of Justice issued a judgment in the Croatian case Milivojević (C-630/17). Ms Milivojević concluded a credit agreement through an intermediary to obtain funds for the extension and renovation of her house, to create apartments to be let for tourists. Part of the loan might have, however, been used for private purposes. The credit was secured by the mortgage on the house and was supposed to be paid back from profits that Ms Milivojević would acquire by letting the apartments. The credit agreement was concluded with the Raiffeisenbank, which turned out to be considered a 'non-authorised lender' in Croatia, as it was established in another Member State and was not authorised to operate in Croatia by the Croatian National Bank. Contracts concluded with non-authorised lenders may be declared null and void in Croatia with retroactive effect, which is what Ms Milivojević applied for. 

 

The referring court had questions about the validity of its jurisdiction under the agreement, which stated that either the courts of the domicile of the debtor or of the registered seat of the bank were  competent in case of disputes. In the procedure the parties were disputing the place of conclusion of the agreement, which could determine jurisdiction - Raiffeisenbank claimed it was Austria, Ms Milivojević - Croatia. Moreover, the referring court wondered whether Ms Milivojević could be considered a consumer, which would grant her exclusive jurisdiction rights. Furthermore, the questions of the compliance of the Croatian law allowing to invalidate credit agreements concluded with non-authorised lenders established in other Member States than Croatia with retroactive effect was raised.

Consumer status

 

Having read the facts, most of us would immediately deny the status of a consumer to Ms Milivojević in this particular transaction. She is openly admitting to having taken out the loan for the purpose related to conducting a business activity - letting out parts of her house to tourists. In light of the Gruber case, demanding that the use for business purposes was merely negligible, this situation does not seem to qualify as a consumer transaction, even if in the process of renovation of her house from the acquired loan money Ms Milivojević would have also improved parts of the house, in which she herself had lived. 

 

The Court relies more on the recent Schrems judgment, but still concludes that

"Ms Milivojević can be considered to have concluded the agreement at issue as a consumer only if the link between that contract and the professional activity in the form of tourist accommodation services is so marginal and negligible that it appears clearly that that contract was concluded essentially for private purposes." (para. 93)

Retroactively invalidating (consumer) credit agreements

 

The CJEU states that EU law (specifically Article 56 TFEU on the freedom of the provision of services) precludes Croatian law allowing to invalidate credit contracts with non-authorised lenders, who are established in another Member State, from the date of conclusion of that agreement, even if it was concluded before the entry into force of that Croatian law. Whilst it may be necessary for national law to ensure that credit agreements concluded by weaker parties are legal and afford them sufficient protection, this objective may be achieved by less restrictive measures (see in particular further para 73-74 of the judgment).

Determining competent courts

Further, Croatian law is incompatible with EU law by providing for different jurisdiction rules than these set out in Regulation No 1215/2012 (Brussels I recast). See further on these issues: paras 80-84. Finally, there was a question whether exclusive jurisdiction of Article 24(1) Regulation 1215/2012 would apply in this case, as it applies to actions relating to rights in rem in immovable property. The CJEU decided that an action for a declaration of invalidity of a credit agreement and of the notarised deed relating to the creation of a mortgage taken out as a guarantee for the debt arising out of that agreement does not fall within that concept (see para 105). However, an action for the removal from the land register of the mortgage on a building - would be covered.

Unfair terms and the rights of co-debtors as consumers: Bocura v Bancpost (C-348-14)

In a decision published yesterday, the ECJ clarified and reaffirmed a few points concerning the relationship between the information duties established under the Consumer Credit Directive ("old" version, or 87/102) and the Unfair Terms Directive (93/13). 

It also made clear- which should not come as a surprise- that a natural person assuming the role of co-debtor within a consumer credit contract, for reasons not pertaining to her professional activity, should be considered a consumer under both directives. As a consequence, such co-debtor is entitled to receiving all the information that the Consumer Credit Directive requires lenders to provide to consumers.  

The interesting consequence is that, for the ends of assessing whether certain terms contained in a credit contracts should be considered as sufficiently clear and comprehensible, the co-debtor's position should also be taken into account. In particular, in order to assess whether the terms in that contract satisfied the transparency requirement irrespective of the fact that they did not mention certain elements that Directive 87/102 considers as essential information, the consideration of whether "the set of elements liable to have an incidence on the extent of her commitment" has been duly "communicated to the consumer" should, it seems, include the co-debtor's position. 

The decision is, as usual, available on the Court's website (currently only in French and Romanian).

Notification without naming the cause of non-conformity possible - CJEU in Faber (C-497/13)

4 June 2015: CJEU in Faber (C-497/13)

And important judgement has been issued today by the CJEU in the Dutch case Froukje Faber v Autobedrijf Hazet Ochten BV. Ms Faber bought a second-hand car from the Hazet garage. The contract was a pre-printed form entitled 'contract of sale to a private individual'. A few months after the purchase (26 Sep 2008) Mrs Froukje was driving her car with her daughter, on her way to a business meeting, when it burst into flames and was completely destroyed. It's in dispute between the parties whether immediately after the accident they discussed the matters of liability of the garage. A few months after the accident the garage contacted Mrs Faber and was told she was waiting for the police report on the fire. The police informed her that no technical report had been compiled. The vehicle was scrapped in May 2009, upon which event Ms Faber informed Hazet garage that she held them liable for her damage (purchase price of the car + value of items in the car). Since the car had been scrapped, investigation into the fire cause was no longer possible. In her claim against the company, Ms Faber raised the issue of non-conformity of the car, without, however, alluding to her status as a consumer. If she was seen as a consumer, she could have used the non-conformity presumption reversing the burden of proof as to the defect's cause when the defect materialised within 6 months from the delivery.

The Dutch court of appeals asked among other 1) whether it should investigate ex officio whether consumer protection granted by the Consumer Sales Directive should apply in this case to preserve effectiveness of these rules, 2) especially when the court did not have sufficient information to establish consumer status, 3) also on the appeal when the matter was left open in the proceedings of first instance. Moreover, 4) the Dutch court asks whether Art 5 (3) of CSD on the presumption of non-conformity within 6 months from delivery should be seen as equivalent in status to rules of public policy. Furthermore, 5) it is questioned whether Dutch law requiring consumer to notify the seller about non-conformity could be validly combined with a duty to present facts and evidence with regard to that non-conformity at the same time. Finally, 6) it is inquired what standard of proof should be placed on the consumer with regard to presenting facts and adducing evidence on non-conformity and its apparent character within six months of delivery. Should the consumer prove which defect caused the goods to malfunction or only that they malfunction?

The first three questions were easiest to predict the answer to. Consistent with its case law (Par. 42), the CJEU establishes the duty of national courts to ex officio determine whether the buyer could be classified as a consumer, even if the buyer did not rely on that status. This holds true when the court "has at its disposal the matters of law and of fact that are necessary for that purpose or may have them at its disposal simply by making a request for clarification" (Par. 48). It is for the national court to undertake necessary investigation as to these facts. (Par. 40)

Art. 5 (3) of the CSD changes the burden of proof with regard to the non-conformity, considering that it is usually easier for the professional to disprove the existence of the default at the moment of purchase. The CJEU declares this provision as of equal standing to national rules of public policy. (Par 56)

Dutch law used the option from the CSD and adopted the notification duty for the buyer within two months after the discovery of the lack of conformity. Some case law of the Dutch Supreme Court accepted also as valid notification delivered after this period of time, if circumstances of the case (difficulties in gathering evidence) justified this. It is the buyer who has the burden of proof that he fulfilled this notification duty.  (Par 59) The aim of the CSD was to encourage diligence of the buyer and increase the legal certainty for the seller, without imposing an obligation on the consumer to carry out a detailed inspection of the goods. (Par 61) "As is apparent from the wording of Article 5(2) of Directive 1999/44, read in the light of recital 19 in the preamble thereto, and from the purpose of that provision, the obligation thereby imposed on the consumer cannot go beyond that of informing the seller that a lack of conformity exists." (Par 62) Most interesting is the following paragraph 63 giving detailed instructions as to the requirements for the notification duty:

"As regards the content of that notification, the consumer cannot be required, at that stage, to furnish evidence that a lack of conformity actually adversely affects the goods that he has purchased. In view of his weak position vis-à-vis the seller as regards the information relating to the qualities of those goods and to the state in which they were sold, the consumer cannot, in addition, be required to state the precise cause of that lack of conformity. By contrast, in order for the notification to be of use to the seller, it must include a certain number of particulars — the degree of precision of which will necessarily vary depending on the specific circumstances of each case — relating to the nature of the goods in question, the wording of the contract of sale in respect of those goods and the way in which the alleged lack of conformity became apparent."

Dutch law may not, therefore, make it difficult for consumers to fulfil their notification duties by obliging them to provide excessive evidence with regard to the lack of conformity. What is then for the consumer to prove?

"In the first place, the consumer must allege and furnish evidence that the goods sold are not in conformity with the relevant contract in so far as, for example, they do not have the qualities agreed on in that contract or even are not fit for the purpose which that type of goods is normally expected to have. The consumer is required to prove only that the lack of conformity exists. He is not required to prove the cause of that lack of conformity or to establish that its origin is attributable to the seller.

In the second place, the consumer must prove that the lack of conformity in question became apparent, that is to say, became physically apparent, within six months of delivery of the goods." (Par. 70-71)

The seller would then need to prove that the cause or origin of that lack of conformity lies in circumstances that occurred after the delivery. (Par. 73)

Very important case for all aficionados of notification duties and evidence rules! I would think that in this case Ms Faber could then rest by stating that her car caught fire within 6 months from delivery and it would be the seller who would need to establish the cause of that fire as not resulting from a lack of conformity. This would eliminate the need for consumers to await the professional reports on the non-conformity potential origins, which often delay them in making notifications to the seller.

ECJ: Also lawyers have to abide the Unfair Terms Directive ...

Today, the ECJ delivered its decision in Case C‑537/13, Birutė Šiba v Arūnas Devėnas.

The case concerned a series of non-negotiated contracts concluded by the parties and concerning legal assistance to be provided in the context of a series of court proceedings concerning Ms Šiba's private life. 

Later on, some controversy arose regarding the fees to be paid for such assistance and the matter ended up in a series of court decisions. In challenging the Appelate Court's decision in cassation,

Ms Šiba (or, we guess, her new lawyer!) argued that the previous courts failed to take into account her consumer status, which would have required the contracts to be interpreted to her advantage. 

Hence the questions raised by the referring court, which the ECJ summarised as follows:

whether Directive 93/13 must be interpreted as applying to standard-form contracts for legal services, such as those at issue in the main proceedings, concluded by a lawyer with a natural person who is acting for purposes outside his trade, business or profession.

 The Court concluded that the Directive is applicable, as no specific characteristic of the legal profession requires that contracts between lawyers and "client-consumers" (para 23) are exempted from unfair terms control. Except when such characteristics suggest otherwise, "[it] is [...] by reference to the capacity of the contracting parties, according to whether or not they are acting for purposes relating to their trade, business or profession, that the directive defines the contracts to which it applies" (para 21).

The lawyer herself renounces to this line of argument when she decides to "use standard terms which do not reflect mandatory statutory or regulatory provisions within the meaning of Article 1(2) of Directive 93/13" (para 27).

In particular, although the fact is not clearly spelled out in the decision, it seems likely that Mr Devėnas had argued that the confidential nature of the lawyer-client relationship stands against the disclosure of contracts for legal advice before a court (see para 31). The Court finds this defence ulikely to have a meaning, since "contractual terms which have not been individually negotiated, in particular those which are drafted for general use, do not contain, as such, personal information relating to lawyers’ clients, disclosure of which might undermine the confidentiality of the legal profession." (ibidem). Should such terms be specific to a particular client, there would be reason to consider them as negotiated terms- which would in turn make them exempt from control.

As such, however, the terms are generally subject to scrutiny.

This new decision joins Asbeek Brusse in expanding the reach of Directive 93/13 beyond its more straightforward domain of application- consumer sales and commercial services- into less explored domains. It will be interesting to see whether the ECJ's stance will influence consumer's attitudes to contracts for legal assistance- especially considered that this would require lawyers to challenge the terms adopted by some of their colleagues...

The image(s) of the 'consumer' in EU law - Oxford conference 27-28 March

This semester, I got the opportunity to do some teaching in the UK. The English legal system offers many interesting topics of study, especially when coming from a civil law background. For those of you who might sometimes feel a bit lost when studying the many different legal conceptions of 'the consumer' in the EU, the following conference (which will take place in Oxford on 27 and 28 March) may offer a nice possibility to explore these differences:

'The Image(s) of the ‘Consumer’ in EU Law:  Legislation, Free Movement and Competition Law

Organisers: Professor Stephen Weatherill & Dr Dorota Leczykiewicz

The purpose of the conference is to discuss the concepts of ‘consumer welfare’, ‘consumer protection’ and ‘consumer interest’ in different contexts of EU law: legislation, free movement and competition law. The theme of the conference is inspired by the persisting questions about how many visions of the consumer there are in EU law, and whether they are consistent and sincere, or merely instrumental to the achievement of other goals. We are all ‘consumers’ and we are all different: are the different types of ‘consumer’ we find scattered across EU law (empowered, confident, alert, information-seeking, victim of unfairness, vulnerable) apt reflection of rich diversity or do they create a troublingly chaotic landscape? Discussing these questions seems particularly timely a few years after the Treaty of Lisbon, which reformed Union objectives to include a ‘social market economy’, and the Charter which elevated ‘consumer protection’ to the status of a fundamental right. Our aim is to encourage discussion of the consumer-related considerations in different contexts of EU law – both where the EU sets the rules and where EU law checks the validity of public and private practices at national level - and encourage reflection on whether there are and whether there should be common assumptions, principles and trends running through different parts of EU law. The ambition is to explore the image or images of the ‘consumer’ as a bridging concept which connects the distinct strands of analysis in EU law, and against whose background shared approaches, but also mutual planned or unplanned incoherencies, could be assessed.

Conference papers will consider how consumers are implicated in the decision as to whether the EU has a competence to legislate under Article 114 TFEU, in particular in connection with the constitutional limits which the Court of Justice imposes on the use of this competence conferring provision, and how the consumer interest is interpreted in existing legislation, as well as how it has been defined in recent preparatory documents and in the Commission’s policy statements. While the Commission focuses mainly on ‘empowering’ consumers through free movement law and through EU legislative intervention the contributors will be encouraged to discuss how to incorporate other goals beyond ‘empowerment’ within EU consumer policy. Other papers will look at the extent to which the consumer interest is the rationale behind EU free movement law, and how consumer preferences and habits are broken down by EU law’s insistence on ensuring access of foreign products and services to markets of the Member States, as well as at the use by the Court of Justice of the EU of the consumer protection justification in the context of Articles 34 and 56 TFEU. Papers on EU competition law will undoubtedly focus on the 2004 Commission Guidelines on the application of Article 101 TFEU, where protection of competition has been expressed as ‘a means of enhancing consumer welfare’. We also wish to approach the question of consumer protection from a private law perspective and, hopefully, explore the potential role of consumer interest in the creation of common European contract law.'

More information is available on the website of the University of Oxford.