Foreign currency exchange transactions connected to foreign currency denominated loans are not investments

Judgment of the CJEU in C-312/14 Banif Plus Bank Zrt. v Márton Lantos and Mártonné Lantos delivered on 3 December 2015 

The Hungarian District Court of Ráckeve (Ráckevei Járásbíróság) in  referred an interesting question to the CJEU: can the foreign currency exchange transaction be legally separated from the underlying foreign currency denominated loan, and if so, what are the implications for the consumer?

As we have reported earlier, AG Jääskinen first of all considered that the reference for preliminary ruling is inadmissible. However, should the CJEU decide to proceed on the merits of the case, AG Jääskinen was of the opinion that the CJEU should answer the question negatively. The AG disagreed with the referring national court that the foreign currency exchange can be legally separated from the underlying loan contract and be considered a separate, derivative contract, a forward currency transaction. 

The CJEU did consider the request for preliminary ruling admissible (see paras. 35-42), and following AG Jääskinen's opinion, ruled that foreign currency exchange transactions connected to foreign currency denominated loans are not 'investment services or activities' within the meaning of Art. 4(1)(2) of MiFID (para. 76). Consequently, consumers of foreign currency loans are not considered to be investors and do not enjoy the protection guaranteed by Art. 19 MiFID (para. 75).

First, the CJEU rejected that the transaction in question is an investment service or activity listed in section A Annex I of MiFID, because it is incidental to the granting and repayment of the loan (para. 55), and serves no other purpose than to perform the credit contract.

Second, the CJEU rejected the argument that the transaction falls within the scope of 'dealing on own account' under Section A(3) of Annex I MIFID, because this means trading proprietary capital that results in contracts for one or more financial instruments (paras. 58-59). In the present case however the transaction did not result in concluding a contract for a financial instrument. Instead, it served to secure the granting and the repayment of the loan (para. 60-61). 

Third, according to the CJEU, the transaction cannot be considered to fall under Section B of Annex I MIFID, under which a grant of  loan or credit may constitute an ancillary service, because this includes only loans granted for the purpose of concluding one or more contracts for financial instruments, and this was not the case here (para. 63-68).

Finally, the CJEU rejected the argument that the foreign currency exchange transaction falls under any financial instrument listed in Section C of Annex I MIFID, particularly futures. Futures, such as forward currency transactions, are a type of derivative where two parties undertake to buy or to sell, on a subsequent date, an underlying asset at a price fixed at the time of contract conclusion (para. 69). The transaction in question however does not serves the purpose of a sale of a financial asset at a price which is fixed at the time of contract conclusion. In fact, according to the CJEU, there is no distinction between the loan agreement and the future currency sales transaction, since the latter serves the performance of the loan contract, that is, the payment of the capital and the scheduled repayments (paras. 70-71). In addition, the value of the currency (that is to be taken into account for the calculation of repayments) is not fixed in advance.It is rather determined on the basis of the sales price of the currency on the date of each monthly installment (para. 74).

Consequently, 'clauses of such a loan agreement relating to currency conversion accordingly do not constitute a financial instrument distinct from the operation which is the object of the agreement, but merely a term of the agreement which is an inseparable part of the performance.' (para. 72). This also means that in foreign currency denominated credit contracts consumers may be protected by Directive 1993/13 on unfair contract terms and by on Directive 2008/48 on consumer credit (paras. 48-49), but not by MiFID.

As we can see, the CJEU did conduct a more thorough analysis than AG Jääskinen (perhaps it also had more information to rely on), but it arrived to the same conclusion. The CJEU thoroughly analyzed whether the foreign currency transaction meets the requirements of MiFID and did some unpacking whether elements for a forward currency contract are met. It is now clear that foreign currency exchange transactions are not separate contracts for financial instruments, and consumers do not enjoy the protection MiFID guarantees for investors. The question is whether this is detrimental for consumers given that they do enjoy protection under Directive 1993/13 (allows for challenge of fairness of foreign currency exchange clauses) and Directive 2008/48 (provides for information requirements). 

German Parliament passes Act on consumer ADR

The German Parliament has passed its respective Act – Verbraucherstreitbeilegungsgesetz (VSBG) – implementing the requirements of the ADR-Directive with a slight implementation delay on 3 December 2015. Please access the relevant documents here.

In the next step the Act still needs to be approved by the Federal Council (Bundesrat). It is expected to enter into force by April.

Importantly, Germany is stricter than the Directive when it comes to forbidding ADR bodies that are close to traders or trade associations (§ 1(2) VSBG). It is in line with the Directive when it comes to such requirements as low/now costs for consumers (§ 23 VSGB stipulates the few instances in which consumers may be charged a fee). Consumers do not have to contract a lawyer to represent them before an ADR body. Where no special board exists, there will be a general board to collect the remaining cases (§ 29 VSBG). With the view to financing emphasis is put on the trader side. It is acknowledged that the outcome of an ADR procedure may differ from that of a court judgment ( § 16(1) III. VSBG). 

German small claims procedures in the civil courts are generally said to be working rather well compared with other European countries. The two systems can, therefore, be regarded as competitors. It remains to be seen how successful consumer ADR enforcement will be in Germany. As of now there is only a scattered ADR landscape. With the implementation it will be overarching: For every consumer problem access to an ADR is now guaranteed.

Commission's proposal on the Digital Single Market out

Yesterday, the European Commission published two proposals aimed at harmonising the rules on two aspect of digital economies: sales of goods and provision of so-called digital content. There will be chances to discuss the proposals more in detail in the weeks and months to come (in particular: to what extent can they still be considered as a legacy of the discarded common sales law proposal?). Curious readers, however, will find them on the website of DG justice, accompanied by a number of context documents as well as country factsheets. Exciting times!

Changes allowed, within limits - CJEU judgment in case C-326/14 Verein für Konsumenteninformation v A1 Telekom

Yesterday, the Court of Justice of the EU handed down its judgment in the Austrian case of Verein für Konsumenteninformation v A1 Telekom Austria AG. The case concerns an action brought by the Austrian consumer association (VK) regarding standard terms used by A1 Telekom. VK submitted that these terms were not in line with EU consumer law, insofar as they stipulated that A1 Telekom's customers were not allowed to withdraw from their contracts in case charges were modified in accordance with an annual consumer price index made by the Austrian Institute for Statistics. 

As we reported earlier, Advocate General Cruz Villalón concluded that this type of price adjustment clause did not necessarily imply a modification of contractual conditions under the EU's Universal Service Directive, ‘in so far as the statement of the consideration payable by the subscriber as the ‘index-linked price’ is sufficiently foreseeable, transparent and legally certain to support the conclusion that there has been no change in the subscriber’s contractual position’. According to the Advocate General, the national court would have to assess whether these conditions were met.

The CJEU follows AG Cruz's Opinion and holds that:

'Article 20(2) of Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services (Universal Service Directive), as amended by Directive 2009/136/EC of the European Parliament and of the Council of 25 November 2009, must be interpreted as meaning that a change in charges for the provision of electronic communications networks or services, resulting from the operation of a price adjustment clause contained in the standard terms and conditions applied by an undertaking providing such services, the term providing that such a change applies in accordance with changes in an objective consumer price index compiled by a public institution, does not constitute a ‘modification to the contractual conditions’ within the meaning of that provision, which grants the subscriber the right to withdraw from the contract without penalty.'

The Netherlands helping other Europeans out with its collective action tool

In the context of consumer claims being lined up against VW, the Dutch WCAM - Collective Settlement Act - is attracting the attention of consumer lawyers Europe-wide. With the help of this instrument a consumer representative can negotiate an out-of court settlement with a company regarding widespread damage. Afterwards this settlement can be declared binding by the court.

Group litigation is a scarce phenomenon in Europe. Therefore, not only Austria but also Germany are discussing to litigate with the help of the WCAM in the Netherlands. Such a stretch is legally possible. Already in a previous case the WCAM has served without many Dutch citizens actually being affected by the harmful behaviour: see for details the Converium litigation in Dutch and English.

It remains to be seen if these moves give sufficient incentives to other European governments to reform the national systems for collective redress.

AG Sharpston in Radlinger v Finway: EU law requires ex officio control of respect of information requirements

Today, an interesting opinion has been released enriching the CJEU literature on unfair terms and credit contracts. In this case, the referring court had asked several questions concerning Czech procedural rules on insolvency proceedings as well as some questions concerning the interpretation of Directive 93/13 and Directive 2008/48 on consumer credit agreements.

The "procedural" questions more strictly related to directive 93/13 are answered in a way that corresponds to previous decisions by the ECJ. We will skip discussing them. The questions concerning the assessment of penalty clauses are very techincal, so it seems better to wait for the CJEU to answer them (in other words, it is not clear whether the AG actually answered the questions asked by the referring court). 

An interesting novelty attached to this case, however, concerns information duties. According to the Advocate General, courts must be able to assess ex officio whether the information requirements set out by the Consumer credit directive have been fulfilled. 

The advocate general invokes the well-known reglections which have led to the imposition of ex officio with regard to "certain provisions of EU consumer protection legislation" (para 52), since (as stated in Faber)

"there is a real risk that the consumer, particularly because of a lack of awareness, will not rely on the legal rule that is intended to protect him". 

The finding that the supplier has failed to meet its information duties might have important consequences for the consumer, for instance it might entail the application of a different interest rate- that is, if the national legislation provides for adequate remedies. When these remedies are not provided, however, a similar obligation seems to burden courts without helping consumers much. What do you think? 

Execution proceedings enriched with an unfairness test: AG Szpunar in Finanmadrid (C-49/14)

11 November 2015: AG Szpunar's opinion in case Finanmadrid (C-49/14)

Yesterday, in another Spanish case on unfair contract terms, where a consumer defaulted on his credit payments (this time for a motor vehicle instead of a house), AG Szpunar issued an opinion following the so far set line of judgements. 

In this case the order for payment was issued by secretario judicial (court's secretary), who (at the time) was not obliged pursuant to Spanish law to ex officio test for unfairness of a penalty clause in a credit contract. Since the consumer did not raise the issue of unfairness, only when the order for payment became final, in the execution proceedings, the court raised a question whether they should not be able to test for unfairness of the contractual provision, on which the order for payment is based. Pursuant to Spanish law this was not possible.

AG Szpunar, unsurprisingly, concludes that if Spanish law did not oblige the court's secretary to assess unfairness of his own motion, then such an obligation should bind judges in the execution proceedings (par. 98). Still, he considers that conducting of the unfairness test in the execution proceedings is undesirable, e.g. because these proceedings usually do not include investigation of facts, there is a possibility that the previous decision already became final (par. 54-58). However, if this test has not been conducted at an earlier stage of the judicial process, this may be the only solution left to Spanish courts to comply with the principle of effectiveness in applying consumer protection against unfair contract terms (par. 60). The preferred solution would be, however, to oblige the secretario judicial  (as an employee of the justice system) to conduct ex officio control of unfair contract terms - which is what the recent Spanish law reform aimed at (par. 50-51).

One other interesting point: AG Szpunar refers to the relationship between art. 47 of the Charter and the principle of effectiveness. Currently, there is a lot uncertainty as this relationship and whether art. 47 of the Charter is supposed to complete the requirements following from the principle of effectiveness or whether maybe it will replace them and create a new test for effective judicial protection/remedy (par. 85). While AG Szpunar considers that art. 47 of the Charter requires effective remedies to be granted also through national procedural rules, he concludes that Spanish law in this case could not be seen as infringing art. 47 and that the level of protection granted in the UCTD reaches further than the level of protection of art. 47 (par. 89-90). This is an interesting point of view that the CJEU will most likely not delve into (since the question may be answered without any reference being made to the Charter), so it's good to take a note to AG Szpunar's arguments for anyone interested in the issue of a relationship between the Charter and EU private law.

Teaching Consumer Law 2016

The next Teaching Consumer Law conference takes place in Santa Fe, 20-21 May 2016 and is focused on "Teaching Consumer Law in Our Popular Culture and Social Media". Please see the save the date poster below.

VW scandal spurs development of collective claims in Germany

A number of group actions against VW have been instituted in many countries over the past weeks and months. In Germany, however, according to current law a consumer has to sue individually. Heiko Maas, Federal Minister of Justice and Consumer Protection, has been seeking to change the German legal landscape in this regard. In the context of the VW scandal he re-emphasized that legislative changes in Germany will be put on the table. A draft bill can be expected for the beginning of 2016. Rather than similar to US American collective actions, the German action will be designed in the form of a model case proceeding (Musterfeststellungsklage). This way identical or similar law suits can be bundled in a streamlined process. Once the questions at stake have been decided upon in a model order (Musterentscheid), the order binds the other courts before which individual cases were stayed. The findings of test case proceedings thus have a binding effect on the other claims, but the individual cases are kept separate.

No to national restrictions on EU-approved GMOs

Last week, on October 28, the European Parliament voted against a new draft law that would allow Member States to restrict or prohibit the sale and use of EU-approved GMO food or feed on its territory. The background of this decision is that once a GMO product has been approved by the EU, then it should be freely accessible and freely marketable across the EU. If Member States would get to decide on additional restrictions in trade in their own countries, this would not only hinder cross-border trade in the EU in these products, but also complicate and, in practice, reinstate border controls. Interestingly, the European Commission may not withdraw the proposal but instead direct it to the EU ministers' review next (Parliament rejects national GMO bans proposal).

ECJ in BBVA v Gabarro: personal notification of new rights, please!

In today's decision concerning the case of BBVA SA v Gabarro et al (case C-8/14)- another episode in the post-Aziz saga, the Court of Justice sets fairly high requirements for transitional rules including time limitations for the exercise of new rights. In doing so, it follows and specifies the opinion of AG Szpunar, which we had reported on earlier this year. 

The case concerns a provision in the 2013 Spanish law reinforcing the protection of mortgage debtors. With reference to cases in which enforcement proceedings were pending and no unfair terms control had been exerted under the pre-existing (consumer-unfriendly) procedural rules, the law granted consumers a one-month period to bring an action based on the claimed unfairness of a given contractual term. The period started to run with the publication of Law 1/2013.

Already the AG had concluded that, while the one-month limitation seemed proportionate to the needs to legal certainty and all in all did not appear excessively short, the moment at which the period started to run was problematic. The Court follows the same approach. It observed that under Spanish law consumers were informed of the fact that enforcement proceedings against them had been instituted and of their right to oppose enforcement within 10 days of the notification. The new law, however, did not provide for such a notification. As a consequence, consumers "could not reasonablt take advantage of a further opportunity to make an application objecting to enforcement", since "they were notified about it through the same procedural means used to convey the initial information"[para 38]. On light of that, the transitional provision was not such as to guarantee full enjoyment of that period and, therefore, the effective exercise of the new right" [para 39]. 

In other words, the court seems to suggest that such a time limit should only start running after the consumers are individually notified of the fact that an adopted law grants them a new right. While consumer-friendly and also respectful of legal certainty, following it might entail imposing a non-negligible burden on court offices. It is hard, however, to imagine a different solution. What do you think?

Save the date: 24 November - symposium on the new Package Travel Directive

New Package Travel Directive symposium: 24 November 2015 in Amsterdam

THE REGISTRATION IS NOW OPEN

With the European Parliament and the European Council finally reaching an agreement on the revision of the Package Travel Directive earlier this year, this symposium intends to evaluate the new rules, anticipate problems with their implementation into national laws, as well as discuss missed chances in the harmonisation of the travel sector contracts. Experts in this field will discuss, among other things, such issues as: the exclusion of individually arranged combined services by the consumer from the scope of the PTD, the difficulties of protecting travelling consumers in the P2P economy and in the digital age, continued lack of harmonisation of passenger law.

The symposium is organised by prof. Marco Loos (CSECL, University of Amsterdam) and dr Joasia Luzak (CSECL, University of Amsterdam). It will be divided into three sessions. The first session will be devoted to the scope of the new Directive, with as speakers: prof. Klaus Tonner (University of Rostock) and dr Stephan Keiler (University of Salzburg). In the second sessions, the missed opportunities regarding the application of the provisions of the Directive to modern, digital package travel contracts will be discussed by prof. Sophia Zheng Tang (Newcastle University) and dr Joasia Luzak (CSECL, University of Amsterdam). The last session will be devoted to the relationship between the new Directive and the European Contract Law, as well as the passenger acquis, with as speakers: prof. Marco Loos (CSECL, University of Amsterdam), dr Josep Maria Bech Serrat (University of Girona), Jens Karsten (bxl-law).

The attendance in the symposium will be free of charge. Registration is necessary. The details about registration will follow shortly.

ECJ "Facebook" case: EU -US safe harbour agreement invalid

Just today, the European Court of Justice declared (Schrems v Data Protection Commissioner, C-362/14) that the 2000 Commission decision which allowed the transmission of EU citizen's data to the United States is invalid. The decision, according to the Court, failed to show that the Commision had actually considered whether the United States guaranteed a level of protection of fundamental rights "essentially equivalent" to the one afforded in the European legal order.

See more extensively the excellent coverage by the Guardian here and, here (with some speculations on what the decision entails.

PS the case was initiated by the same guy whose other actions we had talked about some time ago.

Enforcement by notary with no unfair terms control is ok, says ECJ

Yesterday, the Court of Justice delivered its judgment in another Hungarian unfair terms case, Erste Bank Hungary v Attila Sugár (C-32/14). 

In this case, the problem raised before the referring national court concerned an enforcement clause connected to a recognition of debt to be actioned by a notary. This allowed the creditor, a bank, to potentially obtain extra-judicial enforcement. The debtor, a consumer, claimed that the original loan agreement contained unfair terms and the notary should therefore refuse enforcement. When the notary declined to comply with the consumer's requests, the case was brought before a local court. 

The question before the Court of justice was, in essence, whether the Hungarian law establishing the possibility of "notarial enforcement" of a credit was in compliance with article 7 of the Unfair Terms Directive. The problematic feature of this procedure is that the notary has no competence to ascertain whether the agreement on which the credit is based contains unfair terms.   

The result, which will bring little satisfaction to consumer advocates, is that the Court found the Hungarian legislation, at least at face value, to be compatible with the Directive's requirement. This is not particularly surprising, considered that already in Kusionova the Court had argued that extra-judicial procedures are not necessarily problematic. Much rather, it must be reasonably possible for the consumer to find effective relief somewhere in the system. 

In the case at stake, it seemed that it would be possible for the consumer to oppose the enforcement before a court and that the latter court would be able to grant appropriate protection- including unfair terms scrutiny and interim relief. The court repeats, to this respect, its previous statement that the "effective protection" requirement cannot be stretched to make up fully for the consumer's "total inertia".  

The ECJ did acknowledge (para 54) that the involvement of a notary might present additional hurdles for the consumer: 

taking account of the particular confidence that, as a general rule, consumers place in notaries, in their capacity as impartial advisors, and the fact that documents drafted by them are not vitiated by illegality, there is a substantial risk that consumers will be less vigilant when those documents are drafted regarding the existence of unfair terms and the consequences of a simplified notarial enforcement procedure, such as that at issue in the main proceedings. Furthermore, where such a procedure has been initiated by the seller or supplier, the consumer may not have, without the intervention of a notary, all the relevant information enabling him to defend himself before the national courts in the context of that procedure.

According to the Court, however, the fact that the Hungaria law on notaries requires them to perform a preventive control on the acts they draft, and to assist both parties impartially, appear to be in principle "such as to contribute to compliance" with the Directive (para 58). 

Although the Court states that it is for national courts to verify that the position of notaries actually is such to contribute to preventing the use of unfair terms, there is no such nuance in the conclusions. To the contrary, the ruling expressly mentions that notaries can affix the enforcement clause "when no review... has been performed at any stage". Although the substance of the decision might be reasonable- after all, it is not the Court's task to cast doubts on the whole idea of extra-judicial enforcement- the ECJ reasoning, and the way it is not mirrored in the conclusions, seem wanting. Better luck next time? 

 

    

A different look at foreign currency loans? AG Jääskinen's Opinion in C-312/14 Banif Plus Bank Zrt v Márton Lantos and Mártonné Lantos

Opinion of Advocate General Jääskinen delivered on 17 September 2015

The Hungarian District Court of Ráckeve (Ráckevei Járásbíróság) in C-312/14 Banif Plus Bank Zrt. v Márton Lantos and Mártonné Lantos referred an interesting question to the CJEU: can the foreign currency exchange transaction be legally separated from the underlying foreign currency denominated loan, and if so, what are the implications for the consumer?

During 2008 when the majority of loans issued in Hungary were denominated in foreign currency, most notably in Swiss francs, the parties entered in a like loan contract for financing the purchase of a car. These contracts work in a way that the amount of the loan is agreed in a foreign currency (e.g. Swiss francs) but the loan is advanced and the repayments are due in the national currency (e.g. Hungarian forints). In Hungary this is due to Art. 231 of the Hungarian Civil Code of 1959 (that was in force at the time) that although allowed loans to be contracted in a foreign currency actual payments of any moneys owed had to be made in Hungarian forints, calculated based on the exchange rate applicable at the time and date of the payment. For this reason foreign currency loans concluded at the time contained a foreign currency exchange clause that set out the exchange rate (usually the banks buying or selling rate of exchange applicable at the date of exchange). Foreign currency loans thus shield banks from the currency risk of capital markets by transferring this risk on consumers in return for a favorable interest rate i.e. a (seemingly) cheaper loan. 

The referring national court was of the opinion that the foreign currency exchange can be legally separated from the underlying loan contract and be considered a separate, derivative contract, a forward currency transaction. This is because at the time the loan was granted, the bank calculated the equivalent amount of Swiss francs of the amount that was advanced in Hungarian forints at the exchange rate previously determined in the contract, then it purchased from the client the equivalent amount of Swiss francs at the determined exchange rate for the equivalent amount of forints. Later, at each loan repayment, the bank sold the client Swiss francs for the equivalent amount of Hungarian forints at the determined exchange rate (para 15). This according to the Hungarian court gives to a loan contract a possible capital markets dimension opening the interpretation of the concepts of financial instrument and investment activity under the Directive 2004/39/EC on markets in financial instruments - MiFID (para. 16).

Although AG Jääskinen is of the opinion the reference is inadmissible because essential information is absent, information important for the CJEU and interested persons entitled to submit observations to form clear understanding.of the factual and legal context of the main proceedings (para. 21), the AG does give an analysis if the CJEU would nevertheless proceed on the merits of the case.

AG Jääskinen is of the opinion the transaction at hand is not a derivative contract or a forward currency transaction and therefore does not fall under the rules of MiFID (para. 40). Derivative instruments or contracts (see the explanation of derivatives here) are used by one party for protecting against ('hedging') the risk and for speculative purposes by the other party. They work in a way that the future price, rate or value of the underlying asset is fixed beforehand (para 41). This implies that the actual price of the underlying asset (here probably the currency) is different from the contracted future one. This circumstance creates in the derivative instrument an independent economic value from the underlying loan (para. 42). According to AG Jääskinen this is not the case in the present situation. There is no independent economic value because the actual price and the contracted one does not differ, the exchange rate fixed in the loan contract is later used for the currency conversion without creating any added economic value. It is in essence a liquidation of a foreign currency denominated debt in a national currency at the date of payment (para. 43). 

Therefore, AG Jääskinen is of the opinion that the loan expressed in a foreign currency that is advanced and repayable in a national currency at the actual rate on the day of the payment is neither in itself or does it contain a financial instrument or a financial service within the meaning of MiFID (para. 46).

This in turn means that consumers of foreign currency loans are not considered to be investors and do not enjoy the protection guaranteed by Art. 19 MiFID (para. 48-49).

Although the analysis has many valid points and was particularly difficult due to the scarcity of essential information and the complexity of the issue, I somehow do not find convincing that there was no forward currency transaction, even if the conclusion may be correct. AG Jääskinen is of the opinion that we do not have an added economic value because the actual price and the contracted one are not different due to the fixed exchange rate in the contract. However, the characteristic of this derivative contact is exactly fixing the exchange rate for the purchase or sale of currency at a future date (see here). I might be wrong, but I would have expected to see an explanation of what this 'fixing' or 'lock in' means. Does fixing means giving an exact value i.e. a fixed price or is it enough to determine the benchmark at the time of contract conclusion (e.g. the banks selling rate at the date of execution)? If the latter is the case then why is the transaction not a forward currency contract? Second, AG Jääskinen starts from the fundamental point that MiFID is aimed at protecting investors. However, in his opinion consumers of foreign currency loans are not investors in the sense of MiFID because an investor is 'somebody who invests or intends to invest his own or borrowed capital in a financial instrument with a view of gaining revenue, or at least protecting the value of his capital' (para 37). In the present case the client did not intend to invest any capital but to borrow money. While this is true, the point that I missed here is that consumers are often 'tricked' into buying financial services and products they do not need (recall the UK PPI scandal), so the very fact that they did not intended to invest should not deny their protection guaranteed by MiFID.

Thus in my opinion a more thorough analysis would be necessary to decide on the merits of the case, including unpacking whether elements for a forward currency contract are met and touching upon a question whether debtors can be investors within the meaning of MiFID.

We will eventually see whether the CJEU will proceed to decide on the merits of the case (recall that in AG Jääskinen's opinion the reference in not admissible), but if it decides to do so, do you agree with the AG's reasoning?

Compensation due by most technical defects - CJEU in van der Lans (C-257/14)

17 September 2015: CJEU judgment in case van der Lans (C-257/14)

Generally, airlines tend to perceive technical defects in air planes as extraordinary circumstances, which, pursuant to Regulation No 261/2004, release them from the obligation to pay compensation to air passengers whose flight has been delayed or cancelled as a result of such a defect. This practice continues despite the CJEU's judgment in case Wallentin-Hermann (C-549/07), where while the Court admitted that a technical defect could constitute an extraordinary circumstance that would only be possible if the defect could not have been prevented by regular maintenance, due diligence etc. or, more specifically, where it is: "not inherent in the normal exercise of the activity of the air carrier concerned and is beyond the actual control of that carrier on account of its nature or origin".

In the given case the flight of Ms van der Lans has been delayed for 29 hours due to a combination of two unexpected technical defects in the aircraft for which spare parts had to be flown over. KLM claimed that these defects affected engine parts that did not exceed their average lifetime and about which the manufacturer did not warn that could cause particular problems with certain use (para 39). The problems were thus not caused by either poor maintenance or lack of regular controls, which is how the airlines till now perceive a technical defect for which they would have to pay compensation to passengers. While the Court admits that such a technical defect could occur unexpectedly, it perceives it as a defect intrinsically connected to the airline's operating business (para 41). When could a technical defect then be seen as an extraordinary circumstance? "where it was revealed by the manufacturer of the aircraft comprising the fleet of the air carrier concerned, or by a competent authority, that those aircraft, although already in service, are affected by a hidden manufacturing defect which impinges on flight safety. The same would hold for damage to aircraft caused by acts of sabotage or terrorism" (para 38). It should then either not be limited to one aircraft (defect in a whole series of manufactured goods) or be completely out of the airline's control (terrorism). "Premature malfunction of certain components of an aircraft" (para 41) does not count as such as "air carriers are confronted as a matter of course with unexpected technical problems" (para 42). Repairing of such defects falls within the normal activity of air carriers and remains within their sphere of control. Airlines are also not allowed to refuse payment of compensation, believing that it's the manufacturer to blame. They may, however, redress their claims on the manufacturer.

This judgment significantly limits the options for the airlines to deny compensation to passengers of delayed or cancelled flights since most technical defects should fall under this category. So far, however, airlines managed to creatively interpret previous judgments and continue to ignore passenger rights. What impact this judgment may have will also depend on when the new Regulation will finally be adopted and what rules with regard to technical defects it will provide.

Misleading presentation of lenses as cosmetic products - CJEU in Colena (C-321/14)

3 September 2015: CJEU judgment in Colena (C-321/14)

Directive 1223/2009 on cosmetic products defines as such products that are either substances or mixtures of substances that are intended to come in contact with a part of the human body with a purpose to exclusive or mainly clean it, perfume it, change its appearance, protect it, keep it in good condition or correct body odors (Art. 2 par. 1). A German company promoted lenses that were to change the appearance of their users' eyes, without having any corrective function as to the visual deficiencies. On the outer packaging of these lenses an information was placed "cosmetic eye accessory, subject to the EU Cosmetics Directive". The CJEU decides, however, that presentation of a product as a cosmetic product does not influence its assessment as such. The above-described lenses do not fulfil any of the above-mentioned criteria from the definition of a cosmetic product (e.g. they are placed on the eye's cornea, which is not referred to on the exhaustive list of body parts with which cosmetic products come in contact with) and as such are excluded from having to comply with the rules of the Directive. However, national authorities may consider a practice of marketing a product as a cosmetic product even if it is not such, as a misleading commercial practice and proceed accordingly. (Par. 26)

Status of a person concluding linked contracts may differ per contract - CJEU in Costea (C-110/14)

3 September 2015: CJEU judgment in Costea (C-110/14)

As we have mentioned in our description of the AG Cruz Villalón's opinion to Costea (see To be or not to be...), an interesting issue arose in this case that could allow the Court to elaborate on the application of the notion of consumer in mixed-purpose contracts, where a natural party concludes a contract partly for purposes outside of his profession and partly for purposes relating to his profession. However, in its judgment issued yesterday the Court manages not to address this topic.

The most interesting paragraph of this judgment is par. 21 where the CJEU clarifies that "the concept of 'consumer' (...) is objective in nature and is distinct from the concrete knowledge the person in question may have, or from the information that person actually has". It is for the national court to determine, of course, based on all circumstances of a given case whether Mr Costea was acting for purposes outside of his legal profession. If a lawyer, like Mr Costea, concludes a contract that "does not relate to the activity of his firm, is not linked to the exercise of the lawyer's profession" then he could be seen as a weaker contractual party, i.e. a consumer. (Par. 26) This assessment may not be disputed by the lawyer-consumer displaying a high level of technical knowledge. (Par. 27) What should not be taken into account in this estimation is the fact that the loan contract concluded by Mr Costea was secured by a mortgage taken out by his law firm on the building, in which the law firm is located. (Par. 28) While determining the status of a person in the main agreement (credit contract), it is irrelevant what party concluded the ancillary agreement (mortgage). "In a case such as that at issue in the main proceedings, the categorisation, as a consumer or as a seller or supplier, of the lawyer in the context of his taking out a mortgage cannot, consequently, determine his status under the main credit agreement." (Par. 29) 

The CJEU takes a different approach to this case than the AG Cruz Villalón. The latter considered that even if the lawyer took out a loan for personal purposes, the fact that this loan was secured with a mortgage on his professional property and was concluded in a professional capacity, could have signified a mixed purpose contract. The CJEU distinguishes between the main and the ancillary contract and demands that the status of a person concluding these contracts was assessed separately. Linked contracts could, therefore, be concluded by the same party acting in two different capacities in each of them: personal and professional. This link between the contracts should, therefore, not influence the assessment of a status of a person in each of the contracts.

Survey on cross-border access to online content

The European Commission has published a new Flash Eurobarometer 411 with results of a survey on "Cross-border access to online content". The survey examines with what frequency EU citizens access the Internet (it's least used in Romania, Bulgaria and Portugal) and through what media (portable devices are generally more popular than desktop computers and unsurprisingly, the younger the respondent the more likely he is to use a smartphone to access the Internet) and if they do, then whether they also access digital content online, what types thereof (music and audio-video content is the most popular, while e-books remain quite unpopular - but that may also depend on fact that e-books are mostly mentioned as paid digital content, while music and audio-video content is offered accessed for free). The reasons for not accessing digital content online are also explored (no interest, other access means than digital more attractive, lack of knowledge). With regard to the cross-border options, the study checks the willingness of EU citizens to purchase online digital content in a different than their own language (the majority only accesses it if it's in their country's language), as well as whether they are willing to purchase such content from providers from other Member States and what problems they might have experienced with regard to such purchases (in only half of reported cases EU citizens had no problems accessing digital content generally meant for users of another country).

European consumers are a step closer to resolving their disputes online

In 2013 the Commission adopted the ADR Directive and the ODR Regulation. These acts aimed at creating opportunities for European consumer to resolve their disputes out-of-court in a simple, fast and low cost manner, covering online and offline, domestic and cross-border disputes (see our summaries here). Online out-of-court dispute resolution is made possible by the ODR Regulation that foresees the establishment of the EU-wide online platform. The platform is to help consumers solve their disputes online that arise from online sales or service contracts by directing the dispute to the appropriate national ADR entity (established base on and/or complying with the requirements of the ADR Directive in Member States) and providing additional services such as translation. The ADR entities should already be in place (the latest from the 9 July 2015), and the ODR platform is to become operational on 9 January 2016. In order to ensure uniform conditions for the implementation of the ODR Regulation, the Commission has recently adopted an implementing act. The Commission Implementing Regulation 2015/1015 sets out the modalities for: 1) the electronic complaint form, 2) the exercise of the functions of the ODR platform and 3) the cooperation between the ODR contact points in Member States. With this act European consumers came a step closer to resolving their disputes online.

German BGH "limits and expands" consumer withdrawal rights with a view to mortgages

Late in 2013 the CJEU issued a judgment (Case C‑209/12) following upon a request for a preliminary ruling under Article 267 TFEU from the Bundesgerichtshof (Germany) in which it held that a national provision, under which a right of withdrawal lapses one year at the latest after payment of the first premium, where the policy-holder has not been informed about the right of cancellation, was contrary to EU law. Before 2008 it was standard procedure in Germany that an insuree would  receive the general conditions of assurance and consumer information only upon receipt of the policy document - hence after conclusion of the contract. Upon receipt of the policy documents consumers were granted a 2 weeks (later 1 month) withdrawal period. If the consumer never received the documents, the right of withdrawal was assumed to having lapsed after a year with the contract hence being valid. This judgment was to have effect for insurance contracts for the time period from 1994 to 2007 giving consumers that had not been correctly informed about their rights basically an "eternal right of withdrawal" that is financially far more favourable than a classical cancellation of such a contract. It puts the consumer in the position as if the contract had never been concluded.

Taking into consideration the CJEU judgment the BGH held that such damage payments may be limited given that the insuree has been profiting from the insurance coverage - thereby limiting the effect of the CJEU judgment to some extent. 

The Allianz, one large German insurance company, at the time did not expect a big impact of the judgment as it claimed to be able to prove that it had sent out the policy documents in time to all its customers. Few cases of consumers trying to withdraw their contracts upon the basis of not having received the policy document were, consequently, expected.

It has, however, generally become popular to withdraw insurance contracts due to formal errors of different kinds (German legislation on the formal requirements kept changing). In a recent judgment the BGH has, in line with the previous judgment, once more confirmed the possibility to limit damage payments because the consumer has benefitted from the insurance protection. At the same time the BGH, however, states explicitely that the consumer upon a successful withdrawal can claim back all the acquisition costs - typically a multiple of Euro 1000 - from the insurer. These may not be subtracted.

Towards more durability for consumer products

When you purchase a more expensive hand mixer for your cooking experiments, you expect it not only to whip and mix everything faster, easier and better, but also to last longer. Imagine then that the whisk breaks within a year of your purchase. Even though you have used your hand mixer often, you still feel like it should have survived longer. Do you then buy a new hand mixer or just try to replace the whisk? What if you cannot buy a separate accessory or if the hand mixer has already been replaced by newer models and old accessories are not on the market? This is when we would talk about a planned obsolescence of a product - when the producer intended the product to last only for a specific amount of time and designed it to e.g. break after this time. 

The European legislator generally encourages not only the increase in the products' durability but also transparency about the life span of the products and the availability of spare parts. The Waste Electrical & Electronic Equipment Directive (2012/19) sets, therefore, only minimum requirements and allows the Member States to adopt stricter ones. While the European Economic and Social Committee set up the Consultative Commission on Industrial Change (CCMI) that argues for the introduction of a ban on planned and built in obsolescence (see their publication: Towards more sustainable consumption...), no enforcement action at the European level has been taken yet and the rules on transparency have not been further specified either. Some Member States are, thus, adopting their own national rules to provide more consumer protection. For example, in France a new decree 2014-1482 obliges French producers to inform sellers, who then are to convey this information to consumers, about the durability of their products and the availability of the spare parts under a threat of fine of 15.000 euro (see French government tackles planned obsolescence). As of 2016 they would also have to provide a 2 year warranty for white goods, which would force them to repair or replace free of charge any defective products within two years from the original purchase date, since the consumers would enjoy a presumption that any non-conformity manifesting within the first 2 years from the purchase date was inherent in the product (Loi Consommation: consommation responsable). This effectively extends the minimum period for this presumption of 6 months (guaranteed by the implementation of the Consumer Sales Directive 1999/44) to two years.

Time limits determined by law not T&Cs in claims against airlines

The Air Passenger Rights Regulation (No 261/2004) in its Article 16 leaves it to the Member States to regulate the enforcement of passengers' claims against the airlines when they are denied boarding, their flights get cancelled or delayed and the airlines don't provide compensation and assistance of their own will. In a previous case the Court of Justice of the EU established that the Member States may set the time limits for bringing actions to court against the airlines, as long as these time limits facilitate effective protection (case C-139/11 Joan Cuadrench Moré). In the UK this time limit has been set at 6 years (by the Supreme Court ruling in Dawson v Thomson Airways from last year), but some airlines, such as Ryanair, introduced into their standard terms and conditions a provision limiting their liability to 2 years. In a recent ruling against Ryanair the Manchester County Court declared such a standard term and condition not applicable. While the airlines may be outraged by this ruling (Ryanair loses flight delay court case), it does not surprise that a standard term and condition may not change to the detriment of consumers a mandatory time limit.

Better enforcement of consumer rights in the car rental sector

Following a large number of complaints received by European Consumer Centers in regard to cross-border car rental services, national enforcement authorities from the Consumer Protection Cooperation Network (CPC Network) joined efforts with the EU Commission to improve the protection of consumers in this sector. With the help of the EU trade association Leaseurope, they have reached an agreement with the five major car rental companies (Avis-Budget, Enterprise, Europcar, Hertz and Sixt) representing more than 65% of the EU car rental market, on the 13th of July 2015.

The five major companies promised to respect EU rules on consumer rights, unfair commercial practices and unfair terms. The pledge is to be implemented gradually by the end of 2015.

Key benefits include:

• more transparency on applicable optional and mandatory charges when booking online, 
• better information on available insurance products at the stage of booking,
• improved and more transparent fuel and vehicle inspection policies,
• improved practices for additional charges such as payment for damages.

The agreement definitely sounds good, but some issues remain to be addressed in the future:

• renter's liability for damages to the car caused by others,
• practices of brokers and intermediaries,
• insurance offered as part of car rental packages,
• the language of the contract when bookings are made in another Member State.

See for more information the UK Competition and Markets Authority's (CPC Network coordinator) report: 'Short-term car rental in the European Union'.

Press digest

Air passengers

While the Regulation 261/2004 on air passenger rights is still under review, BBC reported recently on the investigation conducted in the UK by the consumer group Which?. Pursuant to their data between June 2014 and May 2015, ca 900.000 people could be eligible for a compensation for a delayed flight but only ca 38% of them claimed this compensation. Many passengers still don't know about their rights and are not informed about them by the airline. Even worse, airlines often discourage passengers from making this claim by arguing that the delay was beyond their control and therefore an extraordinary circumstance. The process of how to claim this compensation is also often complex. Our advice: see whether any of the online flight claim services operates in your country (such as euclaim, flightclaimservice, flightright). (Delayed airline passengers 'missing out on millions in compensation')

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Taping client financial consultations

UK financial advisers were worried that they would have to tape meetings with their clients in order to be able to prove that they were acting in clients' best interests. While MIFID II only demands recordings of phone and electronic communications to be made and store, it also recommends such measures for face-to-face meetings. The Financial Conduct Authority, however, does not expect such far-reaching measures to be taken by financial advisers. (FCA will not demand advisers tape client meetings)

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Mobile phone operators in Ireland breach CRD information duties on the right of withdrawal

The Competition and Consumer Protection Commission in Ireland is taking enforcement action against various mobile phone providers (Vodafone, Eircom, Meteor, Three and UPC) for not providing with sufficient and accurate information on how to withdraw from their contract, in accordance with the Consumer Rights Directive. The service providers are asked to update this information and to inform their most recent consumers of their right to withdraw from the contract. (Mobile operator avoids penalty; Consumer watchdog takes action against Vodafone; Action taken against Eircom, Meteor, Three and UPC)

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Price discrimination based on nationality in Disneyland Paris

The European Commission has received complaints about Disneyland Paris charging different prices for consumers depending on their nationality. According to the complaints British and German consumers would pay more than French consumers. Generally, it could be considered price discrimination if for the same service people pay more because of their nationality or country of residence, unless Disneyland Paris could justify the need for this price variation. (Disneyland Paris is being investigated for allegedly charging British and German visitors more than the French)

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European Commission vs Hollywood

The European Commission has started an antitrust procedure against Sky UK and six major US film studios: Disney, NBCUniversal, Paramount Pictures, Sony, Twentieth Century Fox and Warner Bros. These six studios have placed contractual restrictions on Sky UK pursuant to which Sky UK may only make their pay-TV services available in the UK and Ireland and not to EU consumers located elsewhere. Since due to these contractual provisions Sky UK cannot choose its clientele based on commercial reasons, incl. national copyright laws, these rules may amount to anti-competitive agreements, prohibited in the EU. US movie studios tend to, however, choose a broadcaster to license for their products in a single Member State and limit their options to share these services cross-border. Considering the increase in the demand for cross-border services in the EU, incl. (online) pay-TV services, these restrictions may be stifling competition. (Commission sends Statement of Objections on cross-border provision of pay-TV services available in UK and Ireland)

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Uber at the ECJ

On July 20 it was announced that a Spanish court referred to the ECJ for an estimation of the legal character of Uber, and more specifically UberPop services. Uber is one of the examples of the sharing economy companies that enables peer-to-peer transactions through an online P2P platform. There are a lot of uncertainties as to the legal position of the online P2P platform, its rights and obligations and its liability. Can it be seen as merely an (electronic) intermediary in a transaction between two peers or could it be seen as a service provider, etc.? In more and more European countries Uber's operations are questioned (and even banned) under national laws, since the courts do not see the activity of Uber as limited to only providing intermediation services. (EU court to classify Uber: taxi or information company?)

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Ban of a chemical in imported textiles

Over 10 years ago the use of nonylphenol ethoxylates (NPE) in textile manufacture in Europe was banned. This toxic substance is used as a cleaning, dyeing and rinsing agent in textile production, however, when it degrades in the environment it ends up in the bodies of fish, disrupting their hormones. Despite the ban, the negative effect of NPE's degradation did not disappear, since imported textiles contained it and when washed released it into the environment. The Council has now voted unanimously on extending this ban to imports of clothing and other products (to become effective 5 years after the adoption of the new rule). (EU countries agree textile chemical ban)