Tuesday, 7 June 2016

Extended legal effect of court rulings in unfair contract term cases – AG's opinion and the recent reform of Polish law

The curious case of Amazon EU was not the only one, in which Advocate-General Henrik Saugmandsgaard Øe presented his opinion last Friday. By giving his views on the case C-119/15 Biuro podróży Partner, he also put forward a solution to a long-standing dispute among the Polish legal scholars as to whether a judicial ruling, recognising particular standard contract terms as unfair, may have a binding force vis-à-vis traders, who were not parties to the proceedings. Whereas the legal framework in Poland has meanwhile undergone a substantial reform and no longer provides for the erga omnes effect of judgements in cases of unfair standard contract terms, the AG's opinion touches upon several highly relevant issues, which are certainly worth discussing.

Polish legal framework now and then

At the time the dispute arose, the Polish legal framework provided for the following mechanisms of reviewing unfair clauses included in B2C contracts as a result of an unilateral decision of the trader.
  • Individual control carried out in judicial proceedings by common courts, whose rulings are binding inter partes.
This type of review follows directly from the Art. 385(1) of the Civil Code, which states that provisions of B2C contracts which have not been agreed individually are not binding on the consumer if his rights and obligations are set forth in a way that is contrary to good practice, thereby grossly violating his interests. This principle does not apply to provisions setting forth the main performances of the parties, including price or remuneration, if they are worded clearly. The individual review mechanism has not been affected by the recent amendments to the Polish law.
  • Abstract control of standard contract terms carried out in judicial proceedings by the specialised Court of Competition and Consumer Protection (SOKiK) in Warsaw.
In this system, which has recently undergone a significant revision, an action for injunction could be brought to SOKiK by every person, who could have concluded the contract following an offer by the trader. The rulings of SOKiK were subsequently published in the register of unfair standard contract terms and from that moment on had an effect on the third parties, pursuant to Article 479[43] of the Code of Civil Procedure. What is more, inclusion of an unfair standard clause into the register could give rise to administrative control, addressed also at other traders. During the control the President of the Office of Competition and Consumer Protection (UOKiK) would verify if standard contract terms used by the investigated trader are identical or similar to the clauses contained in the register. Should that be the case, the President of UOKiK could impose sanctions on the trader concerned, including a fine of up to 10% of his revenue in the preceding year. Ambiguous wording of Article 479[43] was a source of continuous academic controversy. However, in practice the dominant interpretation was that judgements entered into the register are effective vis-à-vis all traders who include identical or similar clauses in their standard contract terms proposed to consumers (not only defendant in the case, based on which the entry was made).

On 5 August 2015 an Act Amending the Act on Competition and Consumer Protection was adopted, introducing a fundamental overhaul of the aforementioned system. As of 17 April 2016 abstract review is conducted by the President of UOKiK in an administrative procedure and is only binding on investigated traders. The President may still impose severe sanctions, but his decision can subsequently be appealed to SOKiK, which would also analyse the case on the merits. The register of unfair standard contract terms, which presently contains more than 6000 entries, will continue to exist until 2026 (for cases brought before SOKiK prior to the entry into force of the new Act). 

Request for a preliminary ruling

Given this highly disputed nature of the described mechanism, which had been present in the Polish legal system for more than a decade, it seems both regrettable and surprising, that the reference for a preliminary ruling of the CJEU came so late. The opportunity was finally seized by the Court of Appeal in Warsaw, which examined an appeal from the decision of the President of UOKiK imposing a fine of PLN 27 127 (approx. EUR 4 940) on a trader who – in his contracts with consumers – made use of standard clauses which were previously introduced in the register. The referring court requested the CJEU for clarification of two aspects. However, the AG Saugmandsgaard Øe not only limited himself to analysing one of them, but also decided to rephrase the question by adding an explicit reference to the Charter of Fundamental Rights. As a result, in his opinion the Advocate-General sought to establish whether:

Directive 93/13/EEC on unfair terms in consumer contracts, in conjunction with Articles 1 and 2 of Directive 2009/22/EC on injunctions for the protection of consumers’ interests, and Article 47 of the Charter of Fundamental Rights of the European Union should be interpreted as precluding a provision of national law, according to which the use of standard contract terms with content identical to that of terms which have been declared unlawful by a judicial decision having the force of law and which have been entered in the register of unlawful standard contract terms can be regarded, in relation to another undertaking which was not a party to the proceedings culminating in the entry in the register of unlawful standard contract terms, as an unlawful act forming the basis for imposing a fine in national administrative proceedings.

Advocate-General's opinion

The Advocate-General heavily criticised the analysed system of abstract review, concluding that it is not only incompatible with the Directive 93/13/EEC, but also disproportionately restricts a trader's right to be heard and is questionable in the light of several other fundamental rights. The following arguments were raised:
  • Although the Directive 93/13/EEC introduces a minimum harmonisation level, this does not mean that national legislators are absolutely free to introduce more restrictive laws. Pursuant to Article 8 of the Directive more stringent provisions adopted or retained by Member States have to be compatible with the Treaty (paras. 41-42).
  • Pursuant to Article 4(1) of the Directive, unfairness of a contractual term shall be assessed by referring to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent. Therefore contractual terms should always be analysed in a broader context and on a case-by-case basis (paras. 46-49).
  • Furthermore, according to the AG, the term "adopt provisions" refers to statutes and administrative provisions adopted in a legislative process, and does not include black lists developed by the courts. Such a system would, in his view, be difficult to reconcile with the principle of legality laid down in Article 49 of the Charter (paras. 54-56). Intransparent character of the register, resulting from the rapidly growing number of entries, makes it also questionable in view of the principle of legal certainty (para. 57)
  • According to Article 3 of the Directive, where a seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him. From the wording of this provision the Advocate-General concludes that Directive 93/13/EEC establishes a right of the defendant to prove that the provision was negotiated individually. Moreover, this right should be viewed as a part of a much broader fundamental right to be heard, guaranteed in Article 47 of the Charter. In the case at hand, the trader was unable to present his arguments in the course of both administrative and judicial proceedings, as the latter did not require to court to examine the case on the merits. Such limitation of the right to be heard cannot be described as proportionate (paras. 64-71).
  • Finally, the Advocate-General noted that a parallel cannot be drawn from the CJEU judgement in case C‑472/10 Invitel as the latter only refers to an extended effect that a judgement may have on behalf of third parties and not against third parties. In other words, the Invitel judgement only confirms that a system in which unfair clause used in contracts by a particular trader and which a national court has ruled to be invalid has no legal effect in any consumer contract concluded by that seller or supplier, is compatible with the EU law. AG Saugmandsgaard Øe also pointed to the following passage of AG's Trstenjak opinion in the Invitel case: "the erga omnes effect of the judgment against [the defendant] does not apply indiscriminately to every other seller or supplier using a similar term but not involved in the proceedings that led to the finding that the term in question was not binding. If that were the case, serious doubts would arise from the point of view of procedural law and fundamental rights" and fully supported this view (paras. 80-83). He also did not identify any provisions in Directive 2009/02 which would support an opposite conclusion (para. 88).

Concluding remarks

In his opinion in case C-119/15 the Advocate-General Saugmandsgaard Øe discussed a number of highly relevant issues, such as the scope of Member States' procedural autonomy and the extended legal effect of judicial rulings. He also invoked the Charter of Fundamental Rights of his own motion and presented a fairly detailed interpretation of the right to be heard. On the one hand, the conclusion reached by the AG seems justified – the Polish abstract review mechanism was indeed open to criticism, not least because of the register's intransparency. On the other hand, one may wonder if the argumentation of the Advocate-General does not go too far. As the analysed factual background refers to a system, which was not only unique in Europe, but is also no longer in force, the question may arise whether the case C-119/15 provides a proper basis for such fundamental considerations. It is questionable whether judicially developed lists of unfair standard terms can generally be considered as irreconcilable with the principle of legality (any common lawyers reading this post?). Having this in mind, it will be very interesting to see how this intriguing issue is handled by the Court of Justice.

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