Today the Court of Justice has delivered a truly remarkable judgment that I am eager to share with readers of this blog (available here, even though for now only in French and Latvian). The decision concerned a contract concluded between "A", a professional in the business of offering career development services for sports talents, and "C", then 17 and represented by his parents to the ends of concluding the contract.
According to the contract, concluded on 14 January 2009 for a period of fifteen (15) years, A would offer a wide range of services in support of C's development as - hopefully, professional - basketball player. In return, C would pay A 10% of all the net revenue he was to earn for the duration of the contract, plus VAT, as long as such income would pass the threshold of 1500 euros per month.
A bit over a decade into the contract, A sued C for failing to fulfil their obligations under the contract, with a claim amounting to over 1,6 million euro - 10% of what the player had earned from sport clubs until that point in time. [We are not sure how this was calculated, but A would likely know since accounting services were included in the contract]
Latvian tribunals, which were competent to adjudicate on the dispute, were not keen to grant A's claim: the demand was rejected in first and second instance on ground that the term was unfair under Latvian consumer law; A took the case to the Latvian Supreme Court, which in turn raised *twelve* preliminary questions for the CJEU. Luckily, not all questions have to be answered and not were equally challenging, so the analysis here will be limited to the most salient points. All have to be seen to pertain to the Unfair Terms Directive - from the definition of consumer under that directive to the scope of minimum harmonisation.
Consumer contract?
First: was the "career development services" contract a consumer contract? The referring court noticed (see para 31) that across different jurisdictions different stances were noticeable concerning similar cases, with a court in France having concluded that a young talent concluding a comparable contract had to be considered a consumer, while an earlier German case has excluded the applicability of consumer law to the type of services at hand.
The Court of Justice answered that, to the extent that the minor at hand was not a professional player at the time of concluding the contract, they should be considered consumers - and hence enjoy consumer protection. The fact that the player later engaged in professional sports does not change this conclusion as the party's quality as consumer must be, for the purposes of unfair terms rules, ascertained only with reference to the moment that the contract was concluded. The fact that the contract concerned the player's "eventual professional career" doesn't change this conclusion either.
While the Court recalls its previous decision in Costea, other decisions concerning the notion of consumer when "bordering" professional activities, such as Gruber, were not discussed. This means, however, that it is difficult to immediately assess the reach of the judgment: will this "generous" take also cover adults who engage comparable services in the hope to undertake a professional activity that they have not engaged in yet, or is this interpretation limited to the case of minors who have not engaged yet in the relevant professional activity? AG Rantos' reasoning in his opinion, as reported on in Joasia Luzak's overview of last month, seems to suggest a broad applicability (which may go against the common assumptions in several member states!).
"Price" term exempted from control?
Having established that the Directive was applicable to the contract under consideration, the CJEU had to consider whether the term was actually subject to the unfairness test. This was contentious since article 4(2) of the Directive famously dictates that the test shall not concern "the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration". A claimed that the term should then not be subject to judicial control. The CJEU agreed as to the applicability of the exception - in line with the second part of article 4(2) then, the national courts would only be able to assess the term's unfairness if the term did not comply with the requirement of transparency - being "in clear and intelligible language".
In this respect, the CJEU seemed to suggest that the term may not comply with the transparency requirement: it is however for the national court to ascertain whether the term was sufficiently clear that the consumer could understand its impact on their legal and economic position. In this respect, the Court considers that both the information provided to the consumer (and their representatives!) at the time of concluding the contract and, interestingly, the term spelling out what services A would provide against the agreed remuneration should be seen as relevant to the assessment. Furthermore, since Latvia had not yet explicitly implemented the exemption of article 4(2) by January 2009, it is possible that on the basis of minimum harmonisation the term would still be open to scrutiny even if transparent. The Court then proceeds to answer questions that would be relevant in case the term can be subject to control.
Is the term unfair?
As we know, it is for national courts to decide whether a specific term is unfair; the CJEU, however, can provide parameters to support the national courts, which they have done in a number of cases. In this specific case, the Court adopts a reasoning which is in some way new - at least to the extent that it seems to establish a hierarchy or order of reasoning between the two prongs of the unfairness test - that the term causes a significant imbalance contrary to good faith. While these two elements (good faith and significant imbalance) are often considered as hardly distinguishable, the Court here suggests that one should "at first" consider the possible violation of the principle of good faith, and "second" ascertain the eventual existence of a significant imbalance. This is not unheard of, as the references in the decisions show, but it is usually not regarded as more than a style clause.
In assessing whether the term is unfair, thus, the CJEU asserts, the national court should consider on the one hand whether the professional, dealing in honest and reasonable way, could expect the consumer to accept the term in individual negotiations, while on the other hand considering national default rules to ascertain whether the clause created a significant imbalance in the rights and obligations of the parties (compared to their rights in case nothing had been agreed). In doing so, and this is genuinely new, it can consider "fair market practices" around the pricing of similar services at the time of the contract's conclusion, or "the obligations that a reasonably informed consumer could expect to incur" (see para 84). The Court takes these additional criteria from the AG's opinion and it will be interesting so see whether this reference to market practices will prove to be incidental (it is after all a rather niche subject!) or take hold.
Fundamental rights?
Finally, the Latvian Supreme Court wanted to know whether fundamental rights should be considered in assessing the term - in particular the right to property (art 17 EUCFR) and the requirement for public authorities and private entities to pay the highest attention to the "best interest of the child" when taking decisions concerning minors (art 24 EUCFR). In this sense, the CJEU first observes that the Charter is applicable (see para 99) to the questions at issue since they fall within the MS's implementation of EU law (on this, the Court has been holding that this applicability is in no way affected by minimum harmonisation, which we won't be again questioning now). Setting aside with no further ado the relevance of article 17, the Court focusses on article 24: indeed, national courts should take it into account when making decisions concerning the unfairness of terms included in contracts concluded by (at the time of conclusion) minors. This is in line with fairly established idea on the indirect horizontal application of fundamental rights. At the same time, the CJEU seems cautious to avoid over-protective applications: consideration of the best interest of the child, the Court explain, does not exclude that the national court could consider the fact that the parents, concluding the contract on the child's behalf, were familiar with the environment of professional sports, or the fact that C was already 17 at the moment of concluding the contract (see para 103).
Hence to conclude: C was a consumer; the clause is in principle exempted but may be open to control either because lacking transparency or because Latvian law did not incorporate the exemption at the time the contract was concluded; if the national court does assess the clause, they should consider national default rules, good market practices of the time as well as the best interest of the child, but also consider that supposedly competent parents acted as representatives. Also, not discussed here because not at all surprising, if the term would be found unfair the national court would not be able to proceed to mitigation of the due sum - which opens to the usual drama around consequences since the contract would then likely be invalid.
What will happen once the case is back with the Latvian courts then? Readers who have access to Latvian sources - do reach out to let me know! This case has all the ingredients of an instant classic.
