Education as consumption? Private schooling as a consumer service contract: CJEU in St. Kliment Ohridski (C‑429/24)

In St. Kliment Ohridski Primary Private School (C‑429/24), the CJEU examined the applicability of the Consumer Rights Directive (CRD) to enrolment contracts between a parent and a privately funded school for the compulsory education of her children. Questions arose as to whether the parent and/or the children qualify as a ‘consumer’ under the CRD and whether the contract qualifies as a ‘service contract’. Moreover, as Bulgarian law mandates the same educational standards, including compulsory subjects, for both public and private schools, the CJEU was also asked whether, under Art. 27 CRD – which exempts consumers from paying for the unsolicited services – the parent or pupil may deny payment for compulsory subjects they did not request or for unsatisfactory education.

Regarding qualification, the CJEU relied on its previous case law under the Unfair Contract Terms Directive (see our previous comment here) and extended the ‘broad interpretation’ of the notion of ‘consumer’ to the CRD (para 38). In this case, the parent concluded the enrolment contracts solely to ensure her children’s education at a private school and not for any professional purpose (para 40). The fact that such education is compulsory under national law – and the contracts were thus concluded to satisfy a legal obligation – does not alter the qualification. The CJEU reiterated that ‘consumer’ is ‘an objective concept’, independent of the contract’s subject matter, including the reasons leading to that contract (here, to fulfil a legal obligation). Plus, the parent remains free to choose which private school to entrust (para 41). Therefore, the consumer status of the parent is confirmed. However, as the enrolment contracts were concluded between the parent alone and the private school, the children/pupils themselves are not covered by the concept of ‘consumer’ (para 42).

In light of such qualification, and given that Art. 2(6) CRD gives a broad definition of a ‘service contract’ that covers ‘all contracts which do not fall within the term “sales contract”’, the enrolment contracts should be characterised as a ‘service contract’ (paras 45-46). While not specified by the CJEU, the point here is also that such qualification applies to the enrolment contracts in their entirety and is not limited to components ‘not falling within the scope of compulsory education, such as the provision of meals, transport or extracurricular activities’ (see para 26).

Finally, the CJEU observed that the parent has concluded a contract for ‘a single overall service’ of the provision of full-time education in line with national education standards, ‘without it being possible to choose the subjects taught or to adjust the number of teaching hours’ (para 53). The provision of mandatory education is thus part of that overall service and does not constitute unsolicited service under Art. 27 CRD. As to the dissatisfaction with the quality of education, it is not covered by the CRD as stipulated by Art. 3(5) CRD and is thus left to national contract law.

This case is an interesting addition to the ever-expanding scope of European consumer law, extending beyond the traditional consumer to encompass travellers, homeowners and tenants, energy users, debtors, patients and, now, the parents of a pupil. As public services increasingly become privatised, the broad reach of consumer law serves an important welfare function by ensuring (minimum) protection across various aspects of individuals’ lives. 

Another broad interpretation of the notion of a consumer: the CJEU in case C-694/17

Yesterday the CJEU delivered its judgement in C-694/17 Pillar Securitisation Sàrl v Hildur Arnadottir that is yet another judgement interpreting the notion of a consumer. This time  it came under scrutiny under the Convention on jurisdiction and the recognition and enforcement of foreign judgments in civil and commercial matters (known as the Lugano II Convention) and Directive 2008/48/EC on Consumer Credit.

The facts

In March 2005, the defendant, who is a resident of Iceland, obtained a loan for more than 1 000 000 EUR from Kaupthing Bank Luxembourg (KBL) to buy shares in the Icelandic company Bakkavör Group hf of which she was an employee. The loan was supposed to be repaid in a single transfer by 1 March 2010. Guarantee was provided by the company itself, of which the defendant was one of the directors, who signed the guarantee. Subsequently, KBL was divided into two entities. One of those entities, Pillar Securitisation, claimed repayment of the loan, and when the defendant was unable to meet this request, Pillar Securitisation brought an action before the Luxembourg courts pursuant to a term of the loan agreement that conferred jurisdiction to those courts. 

The first and second instance Luxembourg courts declared lack of  jurisdiction on the ground that the defendant should be regarded as a ‘consumer’ within the meaning of Article 15 of the Lugano II Convention, and that the jurisdiction clause should be removed from the contract pursuant to Article 17 of the Convention. The claimant finally turned to the Court of Cassation claiming that the lower courts erred in finding that the claimant acted for non-commercial purposes; that the courts misinterpreted Article 15 of the Lugano II Convention in finding that a loan for more than EUR 1 000 000 could have been taken out by a ‘consumer’ within the meaning of Article 15, and that in order to determine whether the loan agreement was a consumer loan, it must be determined whether that agreement is a ‘consumer credit agreement’ within the meaning of Directive 2008/48. The court stayed the process and referred the following question to the CJEU for preliminary ruling:

The question 

Should Article 15 of the Lugano II Convention be interpreted as meaning that, for the purposes of ascertaining whether a credit agreement is concluded by a ‘consumer’ within the meaning of Article 15 be determined whether the agreement falls within the scope of Directive 2008/48 in the sense that the total cost of credit in question does not exceed the ceiling set out in Article 2(2)(c) and whether it is relevant, that the national law transposing Directive 2008/48/EC does not provide for a higher ceiling.

The answer

Similar to Regulation 1215/2012 (Brussels Regulation), Article 15 of the Lugano II Convention provides an exemption in favor of consumer contracts, conferring jurisdiction on courts where consumers are domiciled. Thus, following the exemption, in the case at hand these would be the Icelandic courts.

In determining whether the claimant was a consumer the CJEU did not consider the purpose of the loan. Starting from the premise that the loan was taken by the claimant for her non-professional purposes (para. 24), the CJEU proceeded with discussing the relevance of the monetary limit of the transaction, and more broadly, the relevance of Directive 2008/48/EC in determining the character of the contract in question. 

The CJEU concluded that the monetary limit of 75 000 EUR that defines credit agreements for consumers within the meaning of Directive 2008/48/EC is not relevant in the present case and neither is the fact that there is no higher limit provided in the applicable national law (para. 48). The CJEU relied on the different purpose of the two instruments. While Directive 2008/48/EC aims to harmonize the substantive law on consumer credit to protect consumers and to facilitate the functioning of the internal market (para. 41), the Lugano II Convention only aims to settle the procedural matter of court jurisdiction in all consumer contracts. According to the CJEU, it would be unattainable to limit the scope of the Convention to only certain consumer credit contacts, especially that the text of the Convention does not impose any monetary limits on any contracts, including consumer credit.

Concluding thoughts

In this judgment the CJEU followed its established approach and observed the various EU legal instrument distinct from each other (see our earlier post here), primarily referring to their purpose. In the present case, it also resulted in accepting the broad notion of a consumer. While I would not argue with the arguments raised by the Advocate General and the CJEU on the unfair nature of having a distinctive approach to credit agreements of different value that may ultimately exclude very small loans from the scope of the Convention causing detriment to those vulnerable consumers that are most in need of this sort of protection; I am puzzled with the result of this judgment and find it unfortunately that the CJEU did not have a chance to tackle the question of whether the purpose of the loan was professional or non-professional. I would think that the amount of the loan and the fact that claimant was one of the directors of the company cast a shadow of doubt at their status as a consumer. Would you agree?

Are expert retail investors consumers? The Opinion of AG Tanchev in C-208/18

Last week AG Tanchev delivered his Opinion in case C-208/18 Jana Petruchová v FIBO Group Holdings Limited involving a very interesting question on the notion of consumer in complex financial transactions.

The facts

On 2 October 2014 the claimant, a resident of Ostrava, Czech Republic entered into a contract (a 'Framework Agreement') with the defendant, FIBO Group Holdings Ltd, a brokerage company established in Limassol, Cyprus. The purpose of the Framework Agreement was to enable the claimant to make transactions on the FOREX market by placing orders for the purchase and sale of the base currency which would be executed by the defendant. To that end, the Framework Agreement enabled the conclusion of individual contracts for difference (CfD's) between the claimant  and the defendant. With the CfD’s the claimant bought and sold the base currency (in the present case USD) and made profit on the difference in the exchange rates applicable to the sale and purchase of the base currency in relation to the quote currency (here JPY).

On 3 October 2014 the claimant entered into a CfD with the defendant. At 15:30:00 she placed an order to buy a certain amount of USD.  The trading system promptly informed her that the up-to-date exchange rate that she accepted and confirmed the order to buy. However, long queues of orders built up in FIBO’s trading system as a result of a jump in the rate of the USD against quote currencies. Consequently, the required amount of USD was purchased later, at 15:30:16, at a slightly less favorable exchange rate and for a higher price. At 15:48:11 on the same day, the claimant instructed the defendant to sell the purchased amount of USD making a gross profit in the equivalent of USD 4 081.33. However, had the claimant’s order to purchase the base currency been executed in a timely manner, not with a delay of 16 seconds, she would have made a profit of USD 13 009.23 that is three times higher of what she actually achieved.

On 12 October 2015 the claimant sued the defendant for unjust enrichment, lodging the claim before the Regional Court, Ostrava; contrary to the Framework Agreement that provided for the jurisdiction of Cypriot courts. The court enforced the jurisdiction clause, and rejected the applicability of Article 17(1) of Brussels Regulation that would enable the claimant as a consumer to bring her claim in a Czech court. This was because, according to the court, the claimant did not enter into the CfD at issue in order to meet her private needs, she had the knowledge and the expertise required to conclude CfD's, and she had been warned that CfD's were not an appropriate instrument for ‘retail clients’ within the meaning of Directive 2004/39. In any event, the view of the court was that  Article 17(1) of the Brussels Regulation had to be interpreted in the same manner as Article 6(1) of he Rome I Regulation, and that consequently financial instruments were excluded from the scope of Brussels Regulation. The appellate court confirmed the lower court's decision, but the Czech Supreme Court disagreed, and turned to the CJEU.

The question

The Supreme Court asked the CJEU whether a natural person who engages in trade on the FOREX market must be regarded as a consumer within the meaning of Article 17(1) of the Brussels Regulation or whether, by reason of the knowledge and expertise required to engage in that trade, the complex and atypical nature of the contract at issue, and of the risks involved, that person cannot be considered a consumer.

The answer 

In delivering his option, AG Tanchev first of all clarified that although Art. 17(1) the Brussels Regulation provides a special jurisdiction for consumer disputes, it does not define the notion of a consumer. The provision only provides that a person, the ‘consumer’, must conclude a contract ‘for a purpose which can be regarded as being outside his/her trade or profession’ (para. 35). Following the CJEU's settled case law, AG Tanchev explained that  Article 17(1) of Brussels Regulation should be interpreted independently by reference principally to the general scheme and objectives of that Regulation, rather than by reference to other, related EU legislation (para. 36, see also parts E and D of the Opinion). Finally, AG Tanchev highlighted that the notion of a consumer must be strictly construed, taking into account the nature and objective of the kind of the contract rather than the subjective position of the consumer in the contract under scrutiny (para. 37).

Looking at the only requirement of Art. 17(1) of Brussels Regulation, the purpose of the contract that must be non-professional, AG Tanchev is immediately inclined to say that the claimant in question is a consumers, given that at the time of conclusion of the Framework Agreement and of the CfD at
issue, the claimant was a university student and although she was also working part time, the CfD was not concluded within her (part-time) profession. This was not disputed between the parties. However, before he would have made his final recommendation, AG Tanchev carefully scrutinized the arguments raised by the Czech courts and the elements of the question referred to for preliminary ruling.

Relevance of knowledge and expertise
AG Tanchev discarded the relevance of knowledge and expertise for defining the notion of a consumer within the meaning of Art. 17(1) of Brussels Regulation. First of all, accepting that CfD transactions require special knowledge will make these a commercial transaction, would effectively exclude these types of contracts from the scope of the Regulation, and this would be contrary to the intention of the Regulation that does not provide for the exemption of any financial contracts/instruments. Secondly, it is also irrelevant that the claimant had some previous experience with CfD's as the Regulation does not require evidence of no prior knowledge and experience in the field. It only requires that a contract is concluded outside the person's trade or profession (paras 43-45). Finally, taking into account the claimant's level of knowledge and information would give priority to the claimant's subjective situation as opposed to the nature and objective of the contract (para 46). This approach would be contrary to the CJEU's established case-law in interpreting the notion of a consumer (referring here primarily to Schrems and Costea).


Relevance of the value of transaction
AG Tanchev also rejected the argument that the high values involved in the transaction make them a commercial transaction rather than a consumer contract. According to the AG Tanchev, in the absence of any specific threshold in the Regulation, this approach would be contrary to legal certainty, making the applicability of the Regulation subject to a variable and not precisely defined factor (para. 51)

Relevance of the amounts of profit made by the transaction 
AG Tanchev discredited the argument that a person should not be considered a consumer if the profit made on the FOREX market accounts for the greatest part of the person's income. According to the AG, it would be contrary to equal treatment if persons achieving the same profit would enjoy different classification (and hence protection) depending on amount of profit relative to their income (para. 52).

Relevance of the consumers involvement 
AG Tanchev also discredited the argument that the claimant should not be considered a consumer because she actively placed orders on the Forex market. Art. 17(1) of Brussels Regulation does not require that the consumer acts in any special way, it neither requires the consumer to stay passive nor to be active (para. 53).

Relevance of the risks involved in the transaction

Finally, AG Tanchev also rejected the importance attached to the risks involved in the transaction, primarily because risks are inherent in the conclusion of CfDs. Therefore, should classification as a
consumer be denied on account of the risks taken, CfDs would systematically fall outside the scope of Article 17(1) of the Brussels Regulation, and this would be contrary to the express provisions of the Regulation that only exempts certain type of transport contracts from its scope (para. 56). On the contrary, the high risks involved in the transaction justify the protection of Brussels Regulation to persons dealing with CfDs (para 57).

Relevance of the number and frequency of transactions 
Finally, the AG considered the relevance of the number and frequency of the transactions executed. Although recognizing that a person carrying out financial transactions regularly over an extended period of time and for significant amounts of money would classify those transactions as a (secondary) profession (para. 58), referring to interpretations of national courts AG Tanchev finally rejected the relevance of this criteria. Reliance on individual circumstances would lead to uncertain outcomes, and would also be inconsistent with the CJEU's approach to look at  nature and objective of the contract rather than the subjective situation of a person in question (paras. 59-63).

Concluding thoughts

This is an interesting case that once again raised the problem of delimiting consumers from non-consumers, now in the context of Brussels Regulation. Taking a 'black letter' approach to interpreting Art. 17(1) of Brussels Regulation, AG Tanchev provided a protective view to the notion of the consumer. However, given his approach of looking at the Regulation isolated from other EU legal instruments, the entire system of protection that comes with the notion of a consumer in EU law might not have been triggered. In fact, taking this approach, could we end up in classifying an individual under one act as a consumer and under another EU  legislation as a business, and would this be a problem? Secondly, do you agree with AG Tanchev's approach in not limiting the scope of the notion of a consumer? Should wealthy consumers likely to engage financial advisers and/or knowledgeable consumers who are able to make prudent decisions deserve the special EU consumer protection regime? More generally, we could also ask whether certain categories of consumers such as high-net-worth individuals need this protection, whether the many protective rules of EU consumer law, primary those on information provision slow down their business, especially their financial dealings? What do you think?