News from EU consumer law in the UK: UKSC in Robertson v Swift

Although this blog usually deals with developments at the European level, sometimes it can be interesting to take a look at national practices affecting the implementation of European consumer law. 

In particular, this week the UK Supreme Court (hence, UKSC) released a judgement which signals the Court's intention to "take EU consumer law seriously" when it is called to fill in the gaps left by UK implementing legislation. 

In the case under discussion, Robertson (Appellant) v Swift (Respondent) [2014] UKSC 50, concerning a contract for the transportation of goods concluded between Dr Robinson, a private party seeking to move his furniture to his new home and Mr Swift, a professional mover, two questions had to be decided:

- first, whether the contract fell under the Cancellation of Contracts made in a Consumer’s Home Regulations 2008, entitling the consumer to a right of cancellation and to receiving the related notice;

- second, whether, lacking this notice, the consumer should still be entitled to cancellation within the term provided by the applicable legislation (7 days).

Previous instances had been dealing with the first question, concluding that, in light of Directive 85/577/EEC, that the Regulations sought to implement, the rules on doorstep sales should be applicable to the case- even though the negotiations had been initiated by the consumer and there had been more than one visit to his home, a circumstance that might have given Dr Robertson a better chance to consider whether he really wanted to take the offer. 

More interesting, however, is the second question. UK legislation had failed to provide a sanction for the violation of the duty to inform the consumer of his right to cancel a doorstep contract within a given time. In this context, the Court of Appeals had considered that the cancellation right could not be validly exercised. The UKSC, on the other hand, observed that it felt bound to interpret the national legislation in light of the original European directive; in this sense

"the court must not only keep faith with the wording of the Directive but must have closely in mind its purpose. Since the overall purpose of the Directive is to enhance consumer protection, that overarching principle must guide interpretation of the relevant national legislation. [para 22]"

In this regard, 

"The centrality of the right to cancel a contract as a feature of the protection which the Directive is designed to afford to the consumer was emphasised by CJEU [para 23] [...] 

The requirement to give notice of the right to cancel should not therefore be seen as a technical prerequisite to the arousal of the right but as a means of ensuring that the consumer is made aware that he is entitled to cancel the contract after a period of reflection. [para 24]"

As a consequence, 

"if the right to cancel could be effectively nullified by a failure (or refusal) of a trader to give written notice of the right to the consumer, this would create a considerable gap in the level of protection that the Directive sought to provide. [para 25]"

Interestingly, the UKSC observes that in this case the customer was well-educated, skilled and capable of negotiating and looking after his interests, but is "is clearly the intention of both the Directive and the regulations that those less well equipped than Dr Robertson should have what is considered to be the necessary protection. [para 26]"

Finally, the result thus reached by the Court is also consistent with what had been stated by the CJEU in Heininger (C-481/99). By adopting a "purposive construction" of the 2008 Regulations, the UKSC argues, it is possible to achieve such consistency. 

Inducement in doorstep selling contracts

In the last week's European news we could read about an action taken against Germany by the European Commission, urging Germany to stop infringing consumer protection in doorstep selling contracts. That caught my attention since Germany is known to actually try to go beyond the minimum level of harmonisation given in the Doorstep Selling Directive (85/577/EEC). This was one of the arguments raised against the introduction of the Consumer Rights Directive (2011/83/EU) with a maximum harmonisation character.

Apparently, while Germany gives some more rights to consumers concluding contracts in door-to-door situations, it also introduces one extra requirement for recognising that a contract was concluded 'at the doorstep'. Namely, consumers needed to be induced into entering into the contract. This is interesting, since this requirement actually reflects the economic rationale behind many provisions of the Doorstep Selling Directive. After all, it mainly aims at protecting consumers who were surprised by a salesman in situations they had not expected to have to negotiate a contract (i.e., outside business premises of the salesman when the consumer did not come out with an initiative to conclude a contract). It could be seen, therefore, that putting this requirement to paper should not infringe the consumer protection.

The European Commission points out, however, that the requirement of 'inducement' has not been mentioned either in the Doorstep Selling Directive or in the Consumer Rights Directive. Its explicit addition makes it harder to claim consumer protection since it may be difficult to prove that the contract was concluded under inducement. And so, in some German court cases consumers were unable to prove that the doorstep-selling situation was decisive for the signing of the contract because of previous visits by the trader. (Commission stands up for consumer rights) I wonder whether the European Commission's decision would have been the same if the burden of proof was placed on the trader, that is if he had to prove that there was no inducement instead of consumers having to prove its existence.

Insurance contract linked to investment funds is just an insurance contract - CJEU in González Alonso case C-166/11

1 March 2012: CJEU judgment in the case C-166/11 (González Alonso)

The dispute in this case concerned a consumer concluding a life insurance contract outside the premises of the insurance company. The contract concluded provided consumer with life assurance offered in return for payment of a monthly premium. That monthly premium was to be invested, in varying proportions, in fixed-rate investments, variable-rate investments and financial investment products. The question asked to the CJEU was whether such a contract falls under the scope of the Doorstep Selling Directive. If it did, then the consumer could withdraw from a contract. If it didn't, then the consumer was bound by the contract he had concluded.

Insurance contracts are excluded from the scope of the application of the Doorstep Selling Directive (art. 3(2)(d)). However, the consumer claimed that in this case he had concluded a "unit-linked" contract (of contract linked to investment funds) that is not excluded from the scope of the application of the Directive. The CJEU decided, however, that:

"(...) contracts which are ‘unit-linked’ or ‘linked to investment funds’, such as that concluded by Mr González Alonso, are common in insurance law. Thus, the European Union legislature took the view that that type of contract falls within a class of life assurance, as is clear from Annex I, point III to the Life Assurance Directive, read in conjunction with Article 2(1)(a) of that directive." (Par. 29)

As a result, insurance contracts linked to investment funds should be seen as insurance contracts that are excluded from the scope of the application of the Doorstep Selling Directive. (Par. 31-32)

Are we there yet?... Adoption of Consumer Rights Directive. Finally!

The new EU Consumer Rights Directive has been formally adopted today by Member States in the EU's Council of Ministers. The works on this Directive were stormy and its scope has changed tremendously from the first draft that we had seen in October 2008. The agreement between the institutions of the EU was difficult to reach, but after many compromises had been made, the Directive became a reality. The final text is not published yet, but from the news (New EU rules on consumer rights to enter into force; Council approves new directive) it seems that the text had not changed since June 2011, i.e. the last amendments adopted by the European Parliament. Spain was the only country who voted against adoption of this Directive in the Council. The Directive will enter into force 20 days after its publication in the Official Journal. The Member States will have 2 years to implement it.

For top 10 benefits for consumers in the new Directive see here. More detailed analysis will follow on this blog as soon as we get the official text.

And then there were two...

EU Member States formally adopted today the latest draft of the proposal for Consumer Rights Directive (read: European Commission's press release). The legislation still has to be approved by the European Parliament and the vote is now scheduled for March 2011.

The latest draft of the proposal for the CRD aims at harmonization of TWO currently binding directives: Directive 97/7/EC on Distance Selling and Directive 85/577/EC on Doorstep Selling. Unfortunately, in the works on the CRD no consensus was reached on what the desirables provision of the regular consumer sales transactions should be. Also the unfair contract terms regulation was left out of the final draft. Still, the EU authorities are optimstic that the CRD will "give consumers more confidence when they shop online", "will strengthen both the Single Market's functioning and consumer rights", "will make it easier for consumers to shop cross-border, in particular on the Internet", "will make it less costly for traders to offer their products to consumers in other countries", "businesses will benefit from lower costs, a level playing field and more legal certainty".

There are indeed certain much need changes to the doorstep and distance selling that the CRD introduces, taking into account the current consumers' problems with these transactions (e.g. hidden charges, lack of right of withdrawal from online auctions, default pre-ticked boxes). However, despite the high words used by Viviane Reding, the EU's Justice Commissioner, still falls short of its original goal to fully harmonize consumer protection in the most important areas of consumer rights.

Sometimes when you gotta pay, you gotta pay - ECJ in Friz (C-215/08)

15 April 2010: ECJ case C-215/08 Friz

The ECJ was busy today as to cases concerning consumer law and gave a judgment also in the Friz case (C-215/08) concerning interpretation of the provisions of the Doorstep Selling Directive 85/577/EEC.

Mr von der Heyden in 1991, in Germany, entered into a doorstep transaction joining a closed-end real property fund (what is that? hey, I did not know that one either - the answer may be found on Wikipedia, as usual) as a partner in exchange for a capital investment. The object of the fund was the repair, modernisation and management of a property in Berlin. In 2002 Mr von der Heyden terminated without notice his membership in that fund making use of the fact that he never received a notice with information on his right of withdrawal, which meant that the time to withdraw from that contract has not started to run yet. Friz, as a manager of the real property fund, claimed from Mr von der Heyden payment of the difference between the value of the initial investment paid by the latter at the date he entered that partnership and his share of the losses which had been incurred by that partnership at the date the membership was cancelled. German case law allowed for such a claim.

The first question addressed to ECJ was whether this contract could be governed by the Doorstep Selling Directive taken into account that its Article 3 (2) excludes its application with regard to contracts concluded 'for the construction, sale and rental of immovable property or contracts concerning other rights relating to immovable property'.

The ECJ decided that this type of contracts are indeed covered by the scope of the Doorstep Selling Directive. Firstly, the ECJ reminded that 'derogations from the rules of EU law for the protection of consumers must be interpreted srictly'. (Par. 32) The contract concluded by Mr von der Heyden concerned his entry into a real property fund by means of acquisition of holdings in a partnership in exchange for a capital investment which should not be seen as transaction concerning rights relating to immovable property within the meaning of Article 3 (2) of the Doorstep Selling Directive. (Par. 33)

Secondly, the ECJ was asked whether national case law may provide for a claim for the consumer against a partnership, that he entered in a doorstep transaction and subsequently withdrew his membership from, to his severance balance, calculated on the basis of the value of his interest at the date of his retirement from membership, and may therefore get back less than the value of his capital contribution or have to participate in the losses of that fund.

The ECJ first reminds that the protection of consumers provided for in the Doorstep Selling Directive has certain limits and is not absolute. (Par. 44) 'Notification of the cancellation has the effect, both for the consumer and for the trader, of the restoration of the status quo ante (...) However, the fact remains that there is nothing in the Directive to preclude the consumer, in certain specific cases, from having obligations to the trader and, depending on circumstances, from having to bear certain consequences resulting from the exercise of his right of cancellation'. (Par. 45) And therefore, the ECJ decided that German case law's rule could be in accordance with the provisions of the Doorstep Selling Directive. '(...) that rule is intended to ensure, in accordance with the general principles of civil law, a satisfactory balance and a fair division of the risks among the various interested parties' (Par. 48) Moreover: 'such a rule offers the consumer cancelling his membership of a closed-end real property fund established in the form of a partnership the opportunity to recover his holding, while taking on a proportion of the risks inherent to any capital investment of the type at issue in the main proceedings. Secondly, it also enables the other partners or third party creditors (...) not to have to bear the financial consequences of the cancellation of that membership, which moreover occurred following the signature of a contract to which they were not party'. (Par. 49)

Decision:

1. Doorstep Selling Directive applies to a contract for an entry to a closed-end real property fund established in the form of a partnership when the principal purpose of joining is not to become a member of that partnership, but is a means of capital investment.

2. Doorstep Selling Directive does not preclude a national law which, in the event of cancellation of membership of a closed-end real property fund, entered into following a doorstep transaction, the consumer has a claim against that partnership, to his severance balance, calculated on the basis of the value of his interest at the date of his retirement from membership of that fund, and may therefore get back less than the value of his capital contribution or have to participate in the losses of that fund.