Friday, 14 June 2019

ECJ in Orange Polska: Signing a contract in the presence of a courier is not an aggressive practice

On 12th June the CJEU issued its judgement on the Orange Polska case (C‑628/17) on the meaning of the aggressive practices provisions in the Unfair Commercial Practices Directive. This blog previously reported on the AG opinion on the case. The facts of the case will be summarised here, but they are analysed in greater detail in that post. 

The referring court asked whether the practice in question, where in order to conclude a telecommunication contract the consumer has to make the final decision in the presence of the courier employee who is handing him the contract terms, should be considered an aggressive practice with the use of undue influence, according to art. 8 and 9 UCPD.

The Court draws attention to the fact that the context of each individual case needs to be taken into account for determining the existence of a practice that uses harassment, coercion or undue influence (paras 30-31). This case-by-case factual analysis seems to be necessary only for aggressive practices, rather than all kinds of unfair practices.

The Court goes on to clarify that only undue influence is relevant in this particular case (para 32). However, the wording of articles 8 and 9 UCPD doe snot appear to demand identifying whether a practice is aggressive due to the use of harassment, coercion or undue influence.Making reference to point 45 of the AG Opinion the Court pointed out that undue influence is not necessarily impermissible influence but influence which, without prejudice to its lawfulness, actively entails, through the application of a certain degree of pressure, the forced conditioning of the consumer’s will.

Tne Court stated that the fact that the consumer was asked to sign a contract in the presence of a courier without having been sent the contract beforehand, but having had the chance to access it online, cannot be considered an aggressive practice (para 40) on its own.In assessing whether the consumer actually had a chance to receive information prior to the courier's visit, the quality of information plays an important role. The mode of communication is key as the information provided on a trader's website may be superior to that included in a phone conversation (para 42). Still, while more detailed information may be available on line, one could argue that over the phone, consumers may be able to focus on the the questions more relevant for them.

The Court is taking a restrictive view on what can amount to an aggressive practice, as it is pointed out that even if a consumer did not have the chance to access the information beforehand, that is not enough to classify it as an aggressive practice (para 43). Instead, the key criterion is the conduct of the trader. It is stated that conduct, such as the one in the case in question where the courier asks the consumer to take his final transactional decision without having time to study, at his convenience, the documents delivered to him by that courier, cannot constitute an aggressive commercial practice (para 45).

What is needed is something additional to the conduct above that would make the consumer feel uncomfortable and confuse his thinking in relation to the transactional decision at hand. Some examples of what might be considered aggressive includes:'the announcement that any delay in signing the contract or amendment would mean that the subsequent conclusion thereof would be possible only under less favourable conditions, or the fact that the consumer would risk having to pay contractual penalties or, in the event of the contract being amended, would risk the trader suspending the service'(para 48).

Another example was that of the courier informing the consumer that, if he refuses to sign or delays in signing the contract or amendment that has been delivered to him, he could receive an unfavourable assessment from his employer could also fall within that same category; an example similar to point 30 of Annex I of the UCPD, where a trader informs the consumer that if he does not buy the product, his job or livelihood will be in jeopardy.

Unfortunately, the opinion of the AG was not followed in this case and the Court was not daring enough in its interpretation of the aggressive practices provisions, as it was in Wind Tre, even though it was often cited in the judgement. Contrary to the AG opinion, the judgement does not engage at all with the average consumer standard. The judgement fails to provide a comprehensive mechanism for interpreting the provisions or indeed promote our understanding of what kind of pressure is the consumer expected to withstand. Instead, it repeats the phrasing of art.8 on making the consumer take a transactional decision he would not have taken otherwise. 

With this judgement the concept of aggressive practices is interpreted in a restrictive manner, in an effort to balance consumer protection with commercial realities, thus failing to make use of the potential of the provisions.




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Tuesday, 11 June 2019

On stowaway protection - AG Pitruzzella in Kanyeba (C-349/18 to C-351/18)

AG Pitruzzella published his opinion today in an usual referral asking for the interpretation of the provisions of the Unfair Contract Terms Directive as applicable to stowaways (travellers without a valid ticket). The odd-egg character of the Belgian case Kanyeba (joint cases C-349/18 to 351/18) concerns a possibility of there not being a consumer contract and the question of whether the UCTD could apply in administrative, non-contractual disputes.

There is a debate in Belgian law as to the character of the legal relationship between passengers who have not purchased a ticket for their journey and public transport providers. Some scholars argue that even if a traveller does not purchase a ticket, they enter into a contractual relationship with transport providers by walking into the 'travelers-only' zones (adhesion contracts). If this interpretation is followed, then when a stowaway is found and charged the price of the ticket plus any accompanying surcharges (increasing drastically if the ticket is not purchased at the moment of the ticket control), it would be possible to consider, e.g. whether the surcharges are based on fair terms and conditions, pursuant to the UCTD. Other scholars claim that it is a contractual relationship only when the traveller purchased a valid ticket for their journey. They recognise that in other cases a stowaway would not have had an opportunity to accept terms and conditions of the transport, and that the relationship would need to have been regulated by law rather than by contract. Interestingly, in the opinion the attention is drawn to the fact that in Belgian law the unfairness test may also be applied to either type of the legal relationship (para. 28). Regardless the answer as to the nature of the relationship between a stowaway and a transport provider, the UCTD might still apply in Belgium then.


AG Pitruzzella leaves it to national laws, and national courts, to determine the character of the legal relationship between stowaways and transport providers (paras. 40, 43). If the national law does not determine the matter, it is for the national court to establish. In the referred cases, it was clear that passengers had no intention of being bound by the transport contract, as they did not consent to its core conditions: the price (paras. 52-53). This should preclude the relationship as being determined as contractual, although AG Pitruzzella leaves the space for national courts to still do so (paras. 54-58). If the relationship is non-contractual, the UCTD normally would not apply (para. 60). This does not preclude Belgian law from extending the application of the UCTD to all relationships between consumers and traders, also non-contractual ones (para. 62).

We may find specific tips in the opinion of AG Pitruzzella on how to assess the unfairness of surcharges in such circumstances. Namely, as the unfairness test should consider all circumstances surrounding the conclusion of an agreement (or alternatively of the legal relationship between the parties), it seems crucial for national courts to balance private and public interests in stowaway cases. After all, surcharges are supposed to discourage illegal behaviour of a travel without a valid ticket and to protect traders' interests in easier enforcement of travel prices (paras. 63-64). If passengers consider such surcharges as being of a significant detriment to them and distorting the contractual balance, they could have protected themselves against them by a timely ticket purchase.

Saturday, 8 June 2019

Intransparency of transparency case law? CJEU in C-38/17 GT v HS

Last Wednesday the Court of Justice delivered a judgment in case C-38/17 GT v HS. On the face of it, the case seems like just another dispute concerning a credit agreement with potentially intransparent terms, specifically terms defining the applicable exchange rate for the loan denominated in foreign currency. On a closer look, a more peculiar picture emerges: the questions asked by the referring court seem to miss the harmonized EU rules, the Commission argues for inadmissibility, Advocate-General decides not to present a written opinion, and at the end of that messy process the Court issues a judgment which might raise at least several eyebrows (for a context see one of the earlier posts published on this blog Forward to the past...).

Facts of the case


The case involved a consumer who concluded a currency-denominated loan agreement and the precise amount of the loan in foreign currency was established only after the agreement had been concluded. Specifically, at the time of contract conclusion the amount of the loan was established on the basis of the sum required in Hungarian forints, applying the exchange rate in force at the time the funds were released. The relevant rate was communicated to the consumer approximately 1.5 month later. There is nothing in the case as to whether the consumer knew in advance about the way in which the exchange rate was to be calculated. In these roughly sketched circumstances, the referring court was wondering whether an array of EU rules and principles, including Articles 4(2) and 5 Directive 93/13 on unfair terms, can be read as obliging the trader to inform the consumer, in clear and intelligible language, before entering into an agreement, about core contractual terms, as a condition of validity of the agreement. The Court of Justice read the reference made by the national court as inquiring whether Articles 3(1), 4(2) and 6(1) of Directive 93/13 preclude the legislation of a Member State, as interpreted by the Supreme Court of that Member State, under which a loan agreement is not invalid where it is denominated in foreign currency and does not indicate the exchange rate applicable to the loan sum for the purpose of determining the definitive amount of the loan, but at the same time stipulates, in one of its terms, that that rate will be set by the lender in a separate document after the agreement has been concluded. In the process of reformulating the question the Court dropped a reference to Article 5 UCTD, which concerns the transparency of terms formulated in writing and establishes a rule that, in the case of doubts, interpretation most favourable to the consumer shall prevail.

Judgment of the Court

In its judgment the Court follows a sequence of steps: since we are talking about a core term, the first question is whether the relevant term is phrased in plain intelligible language in line with Article 4(2) UCTD. If it is, our job is done, no consequences can be drawn against such a term on the basis of the analysed directive. If it is not, we move to the second step and carry out a substantive assessment on the basis Article 3(1). If unfairness is established, the sanction of invalidity, as a matter of principle, only applies to the term in question. Only if the agreement cannot function without the relevant term it can be deemed invalid in its entirety.

Let us first focus on the assessment whether a term is phrased in "plain intelligible language". The Court first recalls some of it earlier case law highlighting that the transparency requirement cannot be reduced merely to the terms being "formally and grammatically intelligible" (see eg our earlier post on the Court's judgment in Andriciuc). Rather, due to the consumer's weaker position vis-à-vis the trader, the requirement must be understood in a broad sense. In particular, according to the Court, "the contract should indicate transparently and specifically how the mechanism to which the relevant term relates is to function and, where appropriate, the relationship between that mechanism and that provided for by other contractual terms", so that that consumer "is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him of entering into the contract".

Applied to the case at hand the requirement implies that "the mechanism for calculating the amount lent, expressed in foreign currency, and the exchange rate applicable must be indicated transparently, so that a reasonably well-informed and reasonably observant and circumspect consumer may evaluate, on the basis of clear, intelligible criteria, the economic consequences for him of entering into the agreement, including, in particular, the total cost of the loan" (para. 34). So far so good. Note, however, that the question is to be examined "in the light of all relevant facts" including promotional material and information provided to consumers during negotiations (para. 35). Surely, the contextual background seems important and indeed follows from the earlier case law, but what does it mean exactly in the case like the one at hand? Can information provided during negotiations make an otherwise intransparent term transparent? If so, how does this relate to Article 5 of the UCTD? The Court does not say. 

What may worry consumer advocates even more is the point in time, at which an appropriate level of transparency should be achieved. In particular, as noted by the Court in para. 36: the seller or supplier cannot be expected to have specified all the relevant details at the time the agreement was concluded. Again, it is not clear which "relevant details" can be skipped at the time of entering into a contract. Understandably, the exact exchange rate will often not be known in advance. But what about the way in which the exchange rate is to be calculated? 

Because the assessment is left to the national court, the Court then moves to the second stage, that is whether the relevant term can be considered unfair. In this respect, the focus of the Court remains on the wording of Article 3(1): whether, contrary to the requirement of good faith, a term causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer concerned. Also here the Court does not offer much of a clarification, besides noting that the assessment should consider "the nature of the goods or services" as well as, again, "the circumstances attending the conclusion of the agreement ... which could have been known to the seller or supplier at that time the agreement was concluded and ... could affect the future performance of the agreement (paras. 39 and 40). 

Concluding thought

While the reference to the circumstances attending the conclusion of the agreement may, at the end of the day, work in consumer's advantage ("a contractual term which manifests itself only during the performance of the agreement term may give rise to an imbalance between the parties", para. 40), the judgment leaves more questions open than it answers. It is not clear, in particular, whether the Court retracts on its earlier judgment in VKI, where it found that "the unfairness of ... a term may result from a formulation that does not comply with the requirement of being drafted in plain and intelligible language set out in Article 5 of Directive 93/13" (para. 68). Does the resulting imbalance already relate to the consumer's uncertainty about the scope of his obligations? Or should it rather be established by looking at the relevant rights and duties and comparing them on the merits? 

Finally, we should not forget that all the rules we are talking about in here are minimum harmonisation rules. To recall, in Ahorros the Court made it clear that Member States may adopt national legislation which authorises a judicial review as to the unfairness of contractual terms which relate to the definition of the main subject-matter of the contract or to the adequacy of the price and remuneration, on the one hand, as against the services or goods to be supplied in exchange, on the other hand, even in the case where those terms are drafted in plain, intelligible language. The same is true for additional rules concerning bringing terms to consumers' attention (eg German rules on Einbeziehungskontrolle) or the consequences of intransparency (eg intransparency as a self-standing ground for invalidity). Of course, the judgment does not say otherwise - and let us not be fooled that it does. 

Tuesday, 4 June 2019

Return to sender - CJEU in Fülla (C-52/18) on bulky non-conforming goods

We have not yet had a chance to address the CJEU's judgment of 23 May in the case Fülla (C-52/18). As we have mentioned in the comment on the AG Wahl's opinion, Mr Fülla was convinced that a party tent he has ordered on the phone was not in conformity with this order. The trader was disputing this claim, but the main issue of the case was the lack of a proper communication between the parties as to where and on what conditions the goods could be brought into conformity to begin with. Mr Fülla demanded that the tent was brought into conformity at his place of residence and did not offer to return it. The trader expected the goods to be returned, but did not inform of this requirement the consumer nor offered to advance the postage costs for the return of the goods.

As it was mentioned in our previous comment, and following the opinion of AG Wahl, the CJEU also leaves the determination of the place, in which the goods should be brought into conformity, to the discretion of national laws (para. 46). After all, the place has not been specified in the Consumer Sales Directive, except for its provisions requiring that the determination of such a place enabled repair or replacement: free of charge, within a reasonable time and without significant inconvenience to the consumer (para. 32). Therefore, national courts have to take into account these three requirements, as well, in their interpretation of national laws in accordance with EU law (para. 47). The CJEU emphasises that consumers could experience some inconvenience when having to package and deliver goods to a place where they will be brought back into conformity. It just cannot be a significant inconvenience (para. 40). However, due to the character of certain goods (e.g. that are heavy or bulky) a need to send/transport them to a place other than their location with the consumer may automatically constitute a significant inconvenience (para. 43). It is worth to note that the CJEU is not overly concerned with the lack of harmonisation that such a solution would lead to, as the CSD is in any case a minimum harmonisation directive.

When a consumer sends the goods back to a trader, claiming that they are non-conforming, the question arises whether the trader needs to advance the costs of posting the goods back to him. The CJEU considers such an obligation too far-reaching and able to distort the balance of rights and obligations of both parties. The main argument here is that the goods may turn out not to be non-conforming and that advancing such postage costs could also slow down the process of bringing the goods back into conformity (para. 53). Therefore, in general, consumers may only expect that the postage costs will be reimbursed to them after the non-conformity is confirmed by the trader. However, the situation is different if the advance of postage costs would be necessary in order not to prevent the consumer from making use of their rights (para. 55). Therefore, in specific cases where the transport is costly, e.g., traders could be required to advance such costs. We may expect some disputes arising to determine when exactly such a significant inconvenience would arise.

Finally, the CJEU addresses the issue of the hierarchy of remedies. As a consumer may only then terminate the contract due to non-conformity if a trader was first given an opportunity to remedy that non-conformity, the question was whether in a given case this condition was fulfilled. After all, Mr Fülla did not deliver the tent to the trader's place of business. The CJEU answers this in the affirmative. As the consumer notified the trader of the non-conformity and of the fact that the repair/replacement could occur at his home, when the transport of goods was likely to cause a significant inconvenience to consumers, and the trader did not inform the consumer about his requirement for the place at which repair/replacement could occur - the consumer could terminate the contract on the basis of the non-conformity (para. 65).

Tuesday, 28 May 2019

Recent research reveals how consumers engage with crypto-assets

The Financial Conduct Authority, the UK's financial regulator/supervisor recently published an interesting report on how consumers behave in relation to crypto-assets: How and why consumers buy cryptoassets. To remind ourselves, crypto-assets are virtual, digital assets used for payment or investment purposes or both. This research fits well into the current EU efforts on regulating fintech services and products. We have reported earlier on the EU Commission's 2018 Action Plan on Fintech within which crypto-assets are of a special concern. More recently we have discussed ESMA's recommendation for a need for tailored regulation for the protection of consumers, buyers of crypto-assets.

The present research is focused on consumer behavior, on how consumers engage with crypto-assets. It is especially interesting to discover the profile of an 'average' fintech customer of crypto-assets and their ability to make informed decisions. The report answers questions such as why did consumers decide to buy crypto-assets, what sources of information they used to make their decisions, and how well in general they understand the market. As expected, this research seems to suggest crypto-assets are bought for investment purposes without fully understanding the risks involved in their decisions. 

The report is an interesting and easy read with plenty of direct testimonies from consumers, and  as such is highly recommended to our readers interested in consumer behavior and/or financial innovation.

In the future, it would be interesting to expand this research onto other areas of fintech services i.e. credit, insurance and payments to get a fuller picture of the fintech market structures and their consumers.

Saturday, 25 May 2019

Early birds and credit costs' repayment - AG Hogan in Lexitor (C-383/18)

Last Thursday, on May 23rd, AG Hogan issued his opinion in the Polish case Lexitor (C-383/18) interpreting mainly Article 16 Consumer Credit Directive. Whilst many cases concerning consumer credit contracts are being referred to the CJEU on the basis of the Unfair Contract Terms Directive, this one relied purely on the framework of the CCD. Namely, consumers in this case decided to repay their credit early. Article 16 CCD regulates early repayment of a consumer credit (within the maximum harmonisation character of the directive). Its paragraph 1 obliges credit providers to reduce total credit costs of consumers in such a situation with 'such reduction consisting of the interest and the costs for the remaining duration of the contract'. The doubts in the case pertained to the interpretation of the notion 'remaining duration of the contract' in this provision. When the consumer credits were granted, credit providers charged consumers with a commission for granting these credits, the amount of which was independent from the duration of the contract. 

The question raised was, therefore, whether consumers paying off their credit early are entitled to the repayment of the part of the commission, proportional to the repayment period, or whether that commission, as a cost that does not depend on the duration of the credit agreement, is outside the scope of credit costs that should be reduced in such cases

Polish courts have differed in their interpretation of the repayment obligation resting on credit providers in such cases (para. 19). AG Hogan notes that there are four possible ways to interpret the phrase 'remaining duration of the contract' (see further on these various interpretations in paras 42-46) and argues that the most simple method of calculation of the reduction in credit costs should be applied, as this was demanded by Recital 39 (para. 52). Recital 39 CCD specifically states that 'the calculation method should be easy for creditors to apply'. AG Hogan advises the Court to recommend the Member States to apply one of the two interpretations (as either would be consistent pursuant to him with the objectives of the CCD) (paras 63-67): 
  • 'the total credit cost must be reduced in proportion to the remaining contract period' (para. 43), with the phrase only specifying the method of calculation of the reduction, or
  • 'the reduction to which the consumer would be entitled corresponds to the one-off or recurring payments not yet fallen due when the early repayment was made' (para. 46). 
Consequently, it would not matter for deciding whether a given fee or cost needs to be included in the reduction following an early credit repayment that it was labelled as not depended on the duration of the credit agreement by credit providers. AG Hogan also does not think that the reduction should be equivalent to the 'amount of expenses saved by the credit institution as a result of the early repayment' (para. 68).  Let us see what the CJEU decides in this case.

DSM directives published

Many of us have been waiting for this moment: on May 22 two Digital Single Market directives have been published in the Official Journal: Digital Content Directive (Directive 2019/770) and the new Consumer Sales Directive (Directive 2019/711). 
 
Time to update our frame of reference.

Wednesday, 22 May 2019

A consumer's preference for invalidity? AG Pitruzzella on the consequences of unfairness under the UCTD

Last week, AG Pitruzzella submitted an interesting Opinion on unfair terms in case C-260/198 (Dziubak) (the English version of this opinion is not yet available).

This case concerns a foreign currency-indexed loan undertaken by Polish consumers. The consumers claimed that the term establishing the conversion rate was unfair because it essentially allowed the bank to unilaterally determine the conversion rate. The competent Polish court agreed with the claim, raising the problem of what should happen to the contract given that the conversion mechanism determined the main interest rate. Should it be declared invalid?

There are two layers to this question, as correctly observed by the AG: first of all, it is to be ascertained whether the contract really cannot be upheld without the unfair term or a replacement thereof. Whether this was the case in Dziubak is something the referring court, the AG thinks, needs to ascertain in light of its national law. According to Pitruzzella, the Directive requires that this assessment be carried out objectively, ie without reference to the parties' will or preference, but also in light of the applicable national law. In this case, it would depend on Polish law whether the fact that the contract's "type" would change - from a foreign currency-indexed loan to a loan in Polish currency subject to a pretty low - would lead to invalidity of the agreement without the original clause.

Invalidity was the solution preferred by the consumers, while the bank claimed that, rather than invalidating the contract in its entirety, the court should set an exchange rate in accordance with general principles contained in the Polish Civil code, such as preserving the parties' intentions and customs.

In previous case-law, the AG says, the CJEU has repeatedly asserted that in principle unfair terms are never to be replaced, but exceptions can be made when the contract as a whole could become invalid as a result of removing the unfair term and the consumer would be worse off if the contract falls (see para 34 opinion).

The referring court had a number of questions as to the application of these principles to the case at stake: concerning the objective possibility of continuing the contract, is this to be assessed with reference to the moment of adjudicating, or to the moment of concluding the contract? And did the fact that the consumer in this case preferred invalidity over preservation make the "Kásler exception" inapplicable?

To the first question, the AG answers that the assessment must take place with reference to the moment of adjudication. This is, according to the opinion, in line with the Directive's aim to re-establish an effective balance between the parties and in line with the Kàsler requirements.

As concerns the relevance of the consumer's preference for invalidity, according to the AG this is enough to make the Kàsler rule inapplicable - as an exception, the requirements on which it is based must be applied strictly (para 66) and one of them failing no exception to the general rule can be made.

As to the feasibility of the solution preferred by the bank - integrating the contract by means of general rules - the AG takes an interesting approach in his reasoning: he says that the Kásler rule presupposes replacement of the unfair term with terms which enjoy a presumption of fairness under the directive's article 1, ie the somewhat obscure class of "statutory mandatory provisions" that, case-law adds, "apply to the contract when nothing else has been agreed between the parties". From a contract lawyer's perspective, this is essentially a non-sense combination - conflating mandatory and supplementary  (or "default") provisions. However, it is interesting that the AG elaborates on the Leitbild function: replacement, in his view, is only possible when the resulting rules express the legislator's view of what a fair balance of the parties' interests in a specific contract would be. The general principles possibly relevant to this case, however, do not satisfy this requirement. As a consequence, a judge's intervention in the contract according to these principles would represent an excessive interference with contractual autonomy. Such intervention would, furthermore, again go beyond the strict limits set in Kásler, which did not intend to allow for any sort of judicial discretion. (79)

The referring court finally also wants to know whether maintaining the unfair terms in place is an option when this is "objectively" to the consumer's advantage. The CJEU has stated in Pannon that such upholding of the clause is an option when the consumer chooses not to avail themselves of the invalidity - replacing the adjudicating court's assessment for this expression of the consumer's will is, according to the AG, not an option. This is arguably the lease surprising part of the opinion.

Whether the Court will follow the conclusions, and the reasoning therein, is not obvious. As usual, we will keep you posted!  

Wednesday, 15 May 2019

AG Hogan in Kiss and CIB Bank (C-621/17)... not making transparency better

The questions on the application and effects of the prohibition of unfair contract terms in consumer credit contracts seem incessant. AG Hogan issued a long opinion today in the Hungarian case Kiss and CIB Bank (C-621/17). Mr Gyula Kiss concluded a credit agreement with three different rates stipulated in it: annual interest rate for the amount of loan set at 5.4%, annual management charges of 2.4% per year, and APRC of 8.47%. Moreover, he had to pay a sum of money as a disbursement commission. In his claims, Mr Kiss argues that the standard terms and conditions, which determine the disbursement commission and the management charges are unfair. He finds them unfair due to the fact that the contract does not list services, for which these amounts are supposed to be paid. He further considers that any bank's costs of processing and management of the loan have already been covered by the interest on the borrowed capital. The bank claims that they were under no obligation to list specific services they provided in exchange for these commissions/charges.


The national court filed this issue mainly under the scope of application and interpretation of the principle of transparency. The main question addressed to the CJEU thus inquires whether provisions of the UCTD, which prescribe transparent disclosures, demand not only to provide consumers with exact charges they would have to pay, method of their calculation and time for payment, but also with a list of specific services that will be provided in return for these charges.

AG Hogan continues in this opinion on his quest (started with the opinion in Lovasne Toth case - see our comment) to diminish the importance for consumer protection of the previous judgments of the CJEU. This time he undermines the position that the CJEU has expressed in RWE Vertrieb and Matei cases (previously, it was VKI v Amazon case). At this point it is important to note that the CJEU has not yet issued its judgment in Lovasne Toth, thus it remains to be seen whether AG Hogan may support his argument in Kiss v CIB Bank case by referring to his previous opinion. What are the main issues?

Divergent interpretation of transparency under Art. 4(2) and Art. 5 UCTD and separation from unfairness test under Art. 3(1) UCTD

Already in his previous opinion, AG Hogan did not seem to think much of the requirement expressed in Art. 5 UCTD to ensure that standard terms and conditions are provided in plain and intelligible language. The fact that he does not see the lack of transparency under this provision as resulting in the unfairness of a non-transparent term could be supported, as such a direct consequence is not provided by the UCTD (although it could be under national laws) (para. 59). However, many scholars discussing this provision have argued for such an application of the rule of contra proferentem, which would be most beneficial for consumer protection. This meant they favoured assigning such a meaning to a contested term, which would lead to the recognition of the term's unfairness, in case it were more beneficial to consumers to have the term removed from a contract. AG Hogan adopts a staunch interpretation approach perceiving the contra proferentem rule as requiring the adoption of a consumer-friendly meaning of the term, prior to any consideration of unfairness under Art. 3(1) UCTD, which would not allow the above interpretation technique to apply (para. 60).

Art. 5 UCTD only represents formal transparency

To make matters worse, AG Hogan confirms his previous conviction that Art. 5 UCTD does not require the principle of transparency to apply in both its formal and substantive character (para. 61). To remind our readers, formal transparency means that the term will be visible, attracts consumers' attention. Substantive transparency requires the term to be understandable, comprehensible to consumers (readers interested in the differences between formal and substantive transparency may read more about this topic in the forthcoming article by J.Luzak and M. Junuzović - check the Journal of European Consumer and Market Law (EuCML) 3/2019 next month!).

"In this context, the requirement for a term to be drafted in plain, intelligible language has to be understood as a general statement aimed at introducing the interpretative rule laid down in Article 5. What matters, therefore, is not how the consumer understands a term, but rather whether the latter is objectively ambiguous." (para. 61)

This obviously leads the AG to conclude that a bank does not need to list their services to make the consumer understand what they are paying for. However, we continue to hope that the CJEU does not support this diminished understanding of Art. 5 UCTD. 

Understanding economic consequences of a credit contract

What is more convincing in the opinion is the AG Hogan's reasoning that to understand the economic consequences of the concluded contract, so for substantive transparency to be complied with, consumers do not need to know exactly which services are covered by which part of the payment (para. 62). It should suffice that consumers know what the total payment is and what services consumers may expect overall. We may find a consumer-friendly application of the transparency test in para. 41, where AG Hogan states that in case different terms in a contract determine different payments, with different methods of calculation, then these terms should be: "grouped together in one place in the contract or, at least, their combined effect needs to be specified. Indeed, the consumer cannot be considered as being in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from the contract if the price to be paid is stated, for example, partly at the beginning of a very long contract, partly, in the middle and, partly at the end of it.". Moreover, AG Hogan draws attention to the fact that just a mention of the APRC does not signal transparency of the payments in credit contracts, as it is only illustrative (para. 44). Thus just providing consumers with the APRC does not inform them about economic consequences of a credit contract.

Core terms

AG Hogan leaves the assessment whether the clauses on management charges and the disbursement commission are core terms, which could only be tested for unfairness if they are non-transparent, to the discretion of national courts. This would according to him depend on the estimation whether services provided in return for these charges are services primarily provided under the contract (para. 33). This is interesting, as AG Hogan does not see any difficulty in the contract not specifying these services to properly inform consumers, as long as national courts may deduct what these services were (were supposed to be?) (para. 55).

Adequacy of payments - look to UCPD rather than UCTD?

Another controversial statement made by AG Hogan, questions the possibility to engage in unfairness test of adequacy of charges under the UCTD and refers consumers to look into UCPD instead. Consumers may of course only then require unfairness test of the adequacy of price when it was non-transparent, but that is what this case was trying to argue, thus this claim should not be so easily dismissed, in my opinion. AG Hogan draws our attention to the fact that consumers will bear the costs of such management charges either way (whether they will be disclosed separated or hidden within general interest rates) (para. 36) and that banks may structure their payments in a myriad of ways (para. 37). True, but that is one of the reasons why it is important to keep the payment structure transparent and that transparency may be missing, if consumers are not in state to easily compare offers as some banks decided to introduce separate management charges without telling them what these charges are for. Consumers will then not be able to check whether the same services are offered by other banks within other charges. Of course, I agree with AG Hogan that a misleading practices claim may be feasible then (para. 71), but in many national laws it still will not provide consumers with sufficient individual remedies thus availability of remedies under other rules may be useful.

Are credit providers required then to list services for which they charge payments?

Generally, AG Hogan seems to think it is a too far-reaching obligation. He distinguishes Matei case, where the CJEU considered that consumers will only then have understanding of a contract if they are informed why certain terms have been included in it, due to the question in that case whether the charge was provided in exchange of any additional service (para. 47). If it is possible to ascertain that some services are provided in exchange for a given charge, regardless whether the term establishing such a charge specifies these services or they could be inferred from other parts of a contract, the substantive transparency requirement would be fulfilled (see also paras. 49-53).

Tuesday, 14 May 2019

Strikes as extraordinary circumstances

To avoid paying compensation to passengers of cancelled flights pursuant to the Regulation 261/2004, airlines may try to claim that the cancellation resulted from extraordinary circumstances. Recital 14 enumerates strikes that affect the operation of an airline as an example of extraordinary circumstances. However, previous case law of the Court of Justice limited this exception to such strikes, which are not within the operating air carriers' control and do not consitute a part of their normal economic activity (see joined cases Krüsemann and our comment on them). Could a strike protesting the low wages paid by airlines to their employees be seen as remaining within the airline's control and falling under their normal economic activity? Ryanair seems to think so as they just paid out compensation to consumers that pursued their claims in German courts (see further Ryanair Recognizes Strikes As Reason For German Passenger Compensation). The article indicates that this may be a strategic decision from the airline to avoid a referral to the CJEU that would further specify the airlines' obligation in case of such strikes to pay compensation. This seems unlikely, as to date airlines seemed pretty keen to refer any cases, which could lead to divergent interpretations of their obligations towards passengers. What is more likely is that Ryanair did not have good arguments to present to support its claim that the strike resulted from an unreasonable position of trade unions and thus remained outside their control.

Friday, 10 May 2019

AG Szpunar: No residency-based discrimination for direct debit payments

On the 2nd of May, AG Szpunar published his Opinion on Case C-28/18 Verein für Konsumenteninformation v Deutsche Bahn AG. This is a case concerning payments within the SEPA area, so not on consumer protection legislation. Nevertheless, if the Court follows the AG opinion, this case can have a significant impact on the interests of consumers.

The opinion starts with setting the scene around residency requirements pointing out that while residency requirements are usually seen as discriminatory within the context of the internal market that view is limited to the relationship between public and private entities. In contrast to that, the position on residency requirements in the context of private relationships is a lot less clear. The nature of conditions placed in private relationships is at the centre of this case. 

The Verein für Konsumenteninformation is an Austrian Consumer organisation which brought an action against Deutsche Bahn, the German train company. Deutsche Bahn in its website offer customers 2 different modes of payment, namely credit card, instant bank transfer or under the single euro payments area (SEPA) direct debit scheme, the latter being limited to those customers with a residence in Germany.

The Verein für Konsumenteninformation argued in its action in front of Austrian courts that Deutsch Bahn breached article 9(2) of Regulation No 260/2012 on direct debit payments in euro by requiring that only German residents are able to participate in the scheme.

This case went up to the Oberster Gerichtohof, the Supreme Court of Austria, which referred the following question:

Must Article 9(2) of Regulation No 260/2012 be interpreted to mean that the payee is prohibited from making payment under the SEPA direct debit scheme dependent on the payer’s place of residence being in the Member State in which the payee also has his establishment (residence), if payment in a different way, for example with a credit card, is also allowed?'

Article 9(2) of Regulation No 260/2012 states that  ‘a payee accepting a credit transfer or using a direct debit to collect funds from a payer holding a payment account located within the Union is not to specify the Member State in which that payment account is to be located, provided that the payment account is reachable in accordance with Article 3 [of that regulation’.

The main objective of regulation No 260/2012 is to establish a Single European Payment Area (SEPA), yet in some parts of it, such as notably the article in question, it is concerned also with the relationship between payees and payers and offers protection to payers (para 29).

As the AG notes, the fact that most persons in the EU hold a bank account in the country where they reside is undisputed. Therefore, requiring a payer to be resident in a certain Member State is therefore tantamount to specifying in which Member State a payment account must be located (para 30)Pursuant to this, the AG found that Deutsche Bahn’s requirement breached art. 9(2) (para 31).

The AG continues to address whether the breach of art. 9(2), and the subsequent restriction to the freedom of payment can be justified. The AG rejects the argument put forward by Deutsch Bahn that there is a danger of abuse associated with direct debit payments, thus making credit checks and their practice necessary and justified. He states that while the reasoning of Deutsche Bahn may be sensible from a commercial point of view, there is no provision of justification in art. 9(2) or in any other part of the Regulation and the introduction of such a justification would be a matter for the legislator rather than the court (paras 45-46).

As the AG points out, the regulation does not require traders to offer direct debit payments. However, he argues, when they do, they should be non-discriminatory (para 49). However, attention should be paid to not make it more favourable for traders to offer fewer modes of payment in order to avoid adhering to additional requirements. 

Overall, this is a welcome and well-written opinion that, if followed in the judgement, can produce tangible benefits for consumers in the EU, facilitating cross-border payments in the internal market. Still the views expressed in the Opinion can have an impact going beyond payments and beyond consumers to further a broader debate on the role and indeed the obligations of private actors in respecting the fundamental freedoms of the EU.

Wednesday, 8 May 2019

Crossing Paths: AG Bobek on jurisdiction in consumer cases under Regulation 1215/2012 and Directive 93/13

Yesterday, Advocate-General Bobek published his Opinion in a case where the Brussels I Regulation (Recast) and the Unfair Contract Terms Directive cross paths (C-347/18 Salvoni v Fiermonte). The case concerns the question what happens if a national court fails to check - ex officio - whether the rules on jurisdiction over consumer contracts have been observed in a cross-border dispute and the court issues an order for payment, even if there are indications that the consumer involved lives abroad? Once the order becomes final, can judicial review still take place in the country of origin before the order is enforced in another Member State?

When the defendant is a consumer, only the courts in the Member State where the consumer is domiciled have jurisdiction under the Brussels I Regulation (Article 18). In the case at hand, the consumer involved - Ms Fiermonte - appeared to live in Hamburg, Germany, which would mean that the Italian court where the order-for-payment procedure was brought did not have jurisdiction. In so far as Ms Fiermonte did not enter an appearance, the court should have declared of its own motion that it had no jurisdiction (Article 28). And if she did appear in court, she should have been informed of her right to contest jurisdiction (Article 26(2) of the Regulation).

Source: e-justice.europa.eu
The court in Milan nevertheless issued an order for payment against Ms Fiermonte, who did not oppose it. The court was subsequently requested to issue a so-called 'Article 53 Certificate'. Under the Regulation such a Certificate is necessary for cross-border enforcement (i.e. in Germany) to demonstrate that the order is enforceable in the country of origin (i.e. in Italy). The court then concluded that it should have verified its jurisdiction.
It found - ex officio - that the order in question was based on a legal relationship between a consumer and a professional. Thus, the order was issued in breach of the jurisdiction rules in the Regulation. The court asked the CJEU whether it should rectify this in the course of the Certificate-procedure. In this respect, it referred to the CJEU's case law on effective consumer protection under the UCTD and pointed out that the automatic issue of the Certificate might deprive Ms Fiermonte of an effective remedy as guaranteed by Article 47 of the EU Charter of Fundamental Rights.

Before we discuss AG Bobek's Opinion, let us briefly recall that in the context of the UCTD, the CJEU has repeatedly held - e.g. in Océano, Pénzügyi Lízing, and most recently Aqua Med - that costs or distance may deter consumers from taking legal action or exercising their rights of the defence. This would be the case where proceedings are brought before a court which is very far away from the consumer's place of residence (see Aqua Med, para 54). If this is already the case in domestic disputes, it applies all the more strongly in cross-border disputes. Moreover, the CJEU has held that rules conferring final and binding effect (res judicata force) on a decision must still meet the requirements of equivalence and effectiveness; see e.g. Finanmadrid. For instance, short time-periods to oppose an order for payment or to challenge its enforcement are problematic, also from the perspective of Article 47 Charter; see e.g. Profi Credit Polska.

Against this background, the referring court's question whether it should review the order and/or inform the consumer of the possibility to challenge its enforcement in Germany is not so strange. In addition, it was unclear whether the documents were properly served and thus, whether Ms Fiermonte had had an actual opportunity to oppose the order for payment. In a domestic situation, it would therefore be questionable whether the requirements of effectiveness and Article 47 Charter are complied with. The court responsible for the enforcement may operate as a last resort.

However, AG Bobek makes a strict separation between the CJEU's case law on the UCTD and the system of the Regulation. In his view, judicial review (ex officio) in the course of the Certificate-procedure is neither permitted nor required by EU law. It would run against the logic and spirit of the Regulation, which is aimed at the rapid and efficient enforcement of judgements abroad. The court must issue the Certificate automatically when the formal conditions are satisfied. It cannot re-evaluate the underlying judgment on points of substance and jurisdiction. This would compromise the Regulation's effectiveness.

Whereas AG Bobek's view is understandable in light of the Regulation's framework, his explanation of the distinction between the Regulation and the UCTD seems a bit artificial. On the one hand, he states that the Regulation lays down rules of a procedural nature, which are not as result-oriented and far-reaching as the (substantive) provisions of the UCTD. Yet, the rationale of the CJEU's case law on the UCTD is that consumers must be enabled to exercise their rights and that, because of their weaker (procedural) position in terms of knowledge and financial means, courts fulfil a compensatory role.
On the other hand, Bobek submits that the Regulation recognises that consumers are worthy of specific protection as defendants and that it contains additional procedural guarantees for that reason. Doesn't this mean that courts should play a role in enabling consumers to exercise their rights under the Regulation as well? It might be true that Ms Fiermonte can make an application for refusal of enforcement of the order in Germany on the grounds of lack of jurisdiction or the absence of due service of documents, but this depends on her initiative (Articles 45 and 46 of the Regulation). To what extent will it be taken into account that Ms Fiermonte is a consumer who might not be aware of her rights or not be able to pay lawyer's fees? (Ironically, the case was about unpaid lawyer's fees.) Shouldn't she at least be informed of her defence possibilities?
Bobek observes that it would be strange for the court to issue a Certificate for enforcement of the order while simultaneously pointing out its allegedly erroneous nature. This would be contrary to the principle of legal certainty. It would also undermine the principle of fair trial if the court would take on the role of the defendant's legal counsel.

Still, one cannot help but wonder why "an extra layer of protection for consumers" as proposed by the referring court could not "be ‘read into’ the provisions of Regulation No 1215/2012". That would be a true crossing of paths.

Monday, 6 May 2019

Unlike Uber, Airbnb provides information society services, AG says


Last Tuesday Advocate-General Szpunar delivered his opinion in case C-390/18 Airbnb Ireland. The case does not directly relate to consumer law, but remains highly relevant to consumer protection. Most notably, it provides an opportunity for the AG and the Court to refine the criteria for distinguishing different types of services provided in the platform economy and, consequently, the scope of Member States' regulatory discretion.

Airbnb Ireland is a direct follow-up to the two earlier Uber cases, both of which we have reported on extensively on this blog (see eg CJEU gives Member States a green light to regulate Uber, Nihil novi from the CJEU in Uber France). To recall, the Court of Justice found, back then, that services provided by Uber – an operator of a popular ride-hailing app – did not qualify as information society services, but rather constituted services in the field of transport. This meant, among others, that Uber could not rely on the freedom of movement established in Directive 2000/31/EC on electronic commerce. Or, in other words, that Member States enjoyed a wider margin of discretion when it comes to regulating Uber and similar service providers.

Setting the scene

The questions asked in C-390/18 Airbnb Ireland were very similar to those asked in C-434/15 Uber Spain. Essentially, the controversy was whether the provisions of French law, requiring a person who engages in the mediation and management of real property to hold a professional license (among other requirements), could be applied to a service provider, established in another Member State, who enables hosts to be connected with guests via an online platform. To reply to this question it needed to be established, as a first step, whether services provided by Airbnb qualified as information society services within the meaning of Directive 2000/31/EC. Contrary to the Uber case, Advocate-General Szpunar responded to this question in the affirmative.

It is worth highlighting that it was also AG Szpunar who advised the Court in Uber cases. Szpunar’s finding that the business model of Airbnb falls within the scope of the E-Commerce Directive does not contradict his earlier argumentation (which was largely followed by the Court). Rather he elaborates on the previously established framework and applies it to a new factual setting.

Key points of the opinion 

What I particularly like about AG's opinion is the attempt to structure the assessment of composite services under free movement law. Services of this kind – provided partially by electronic means and partially not – without doubt form an intrinsic part of the platform economy. In particular, the Advocate-General tries to elaborate on the criteria set forth in the previous cases: C-108/09 Ker Optika  and the aforementioned Uber cases (C-434/15 Uber Spain and C-320/16 Uber France).

Essentially, the AG argues, there is one major question to be asked with respect to composite services: whether or not services provided by electronic means are inseparably linked with services 'having material content'. Both types of services are not inseparably linked when the former do not lose their economic interest and continue to be independent of the latter (and, so it seems, vice versa, cf. paras. 46 and 59). If it is clear that services are not inseparably linked, then the component provided by electronic means falls under Directive 2000/31/EC, while the other component does not. When both services are inseparably linked Directive 2000/31/EC does not apply. However, some services may prima facie appear to be separable, but still require an additional assessment to make sure this is indeed the case.

It is in this second group of cases when the Uber case law kicks in. As the AG recalls in para. 49 of the opinion, the Court concluded in Uber that the company, in addition to an intermediation service consisting in connecting drivers with passengers through an app, simultaneously offered urban transport services, which it rendered accessible, in particular, through software tools … and whose general operation it organised. According to the Advocate-General, in doing so, the Court developed two criteria for establishing inseparability of composite services. These relate to the fact that the service provider, firstly, offers services having material content (eg transport services) and, secondly, exercises decisive influence on the conditions under which such services are provided.

Expressed in this way, the two criteria may not seem logically connected. First, it is required that the platform provider himself offers services 'having material content' and then, additionally, that he exerts a decisive influence on the conditions under which such services are provided (by himself?). Further parts of the Airbnb opinion, however, explain this in a more convincing way. Here are some of the most relevant takeaways:

  • The criterion of 'offering services having material content' essentially means creating a new offer. It was fulfilled in Uber because, arguably, non-professional drivers would not be led to provide transport services and passengers would not use the services provided by those drivers without the relevant application (para. 51).
  • The fulfillment of that criterion, in any case, is only an indication that a service provided by electronic means is inseparably linked with a services having material content (being a subject of the new offer; para. 65). Most importantly, the fact that it is not fulfilled (i.e. that no fundamentally new offer is created) does not yet mean that services provided by electronic means are separable from services having material content (and therefore fall under E-Commerce Directive).
  • Thus, overall, the second criterion - decisive influence over the conditions of the supply of services having material content - is (nomen omen) decisive for assessing the nature of services provided by an operator of online platform (para. 67). This, in turn, should be assessed by looking at the key parameters of underlying services, which may vary from market to market. In urban transport such parameters included price, availability, quality and safety. In short-term accommodation rental, elements related to location and standard of accommodation appear to be most relevant from AG's perspective. Price can also play a role, although not as important as in the urban transport market (para. 71).

Following a more detailed examination, the Advocate-General concluded that Airbnb did not exert decisive influence over the conditions of the supply of short-term accommodation services. Consequently, these services could be separated from services provided electronically by Airbnb. A similar conclusion was reached with respect to additional services provided by Airbnb, such as photography, insurance and guarantee, which – according to the AG – were only ancillary to the intermediation service provided by electronic means (para. 82).

Concluding thought

All in all, in view of the AG, a service consisting in connecting, via an electronic platform, potential guests with hosts offering short-term accommodation, in a situation where the provider of that service does not exercise control over the essential procedures of the provision of those services, constitutes an information society service within the meaning of Directive 2000/31/EC. This does not mean that no additional requirements, related in particular to consumer protection, can be imposed on a provider of such services by the Member State other than the Member State of service provider's establishment. The relevant restrictions, however, must comply with substantive and procedural criteria laid down in Article 3(4) of E-Commerce Directive. So, at least, the Advocate-General – the judgment of the Court still lies ahead.