CJEU rules on the right of withdrawal in the subscription economy (C‑565/22, Sofatutor)

We have all been there: signing up for an online service with a "free trial" option and an automatic extension of the contract, if the trial is not terminated on time. But how does such a free trial relate to the right to withdraw from the contract? Should the consumer have a right of withdrawal only when booking the free trial, or also at a later stage - when subscription is converted into a standard contract, and perhaps even later - when it is renewed? This was the question in case C‑565/22, Sofatutor, on which the Court of Justice decided last Thursday. 

Facts of the case

The case was brought by Verein für Konsumenteninformation (VKI), a consumer organisation, against Sofatutor, a provider of an online learning platform. The trader allowed consumers to test the platform free of charge for 30 days from signing up and terminate the contract at any time during that period. Pursuant to the standard terms, if the contract was not terminated on time, the paid subscription period started. Moreover, the contract was renewed again, if it was not terminated before the paid subscription period ended.

According to the VKI, Sofatutor violated the national provisions implementing Article 9(1) of Directive 2011/83/EU on consumer rights (CRD), in that it restricted the consumers' right of withdrawal. The organisation argued that the consumers have a right of withdrawal not only when they book a free trial, but also when a free subscription is converted into a paid one and when that paid subscription is renewed. Unsure which interpretation to follow, the Supreme Court of Austria decided to stay the proceedings and refer the question to the CJEU.

Judgment of the Court

Regrettably, the Court denied a higher level of consumer protection in the present case and failed to even recognize the issue. Despite increased attention devoted to the risks of renewable subscriptions (see e.g. C. Busch, Pay to Play...), the Court chose to brush off the differences between the sale of goods and the (long-term) provision of services. The judgment devoted considerable attention to the purpose of the right to withdraw, noting that it is "intended to offset the disadvantage for the consumer resulting from a distance contract by granting him or her an appropriate period for reflection during which he or she can examine and test the goods acquired" (para. 39). According to the Court, the same reasoning applies to the sale of goods and the performance of services (para. 41), although there was no explanation for that statement.

The finding that there are essentially no differences between the sale of goods and the (long-term) provision of services, as far as the right to withdraw is concerned, led the Court to narrow its focus to just one point in time, i.e. when the contact is first concluded. In particular, the ruling stressed the importance of providing consumer with all required information at this stage. Eventually, a direct link between mandatory disclosure and the purpose of the right of withdrawal was established (para. 47).

For the Court, if all relevant terms for the future relationship are clearly communicated at the time of contract conclusion, then there is nothing to justify a new right of withdrawal at a later point in time, or any related business obligations. In reaching this conclusion, the Court explicitly precluded a more protective national reading of the right to withdraw, such as that which apparently existed under Austrian law (paras. 24 and 38).

Concluding thoughts

My main critique of the Sofatutor judgment is its apparent ignorance of the real problems that consumers are facing in the subscription economy. This is especially the case for the contract renewal, which typically takes place quite a while after the initial contract was concluded. The Court may have acknowledged that the right of withdrawal is not well-suited to the present scenario and that attention should rather turn to the right of termination (not harmonised in the CRD). However, the judgment does not even suggest that there would be any protection need. Instead, it maintains the fictitious image of the consumer - a consumer whose protection needs are limited to sufficient disclosure at the time of contract conclusion, even in long-term contracts. 

If the Court wanted to innovate on the right of withdraw, the CRD arguably offers some openings for doing so. Most importantly, the purpose of the right does not need to be limited to inspecting the goods (and, in particular, services). Indeed, its purpose is already quite different for off-premises contracts (e.g. doorstep sales), where the consumer is being provided with a "cooling-off period". It is accepted that the consumer may in those cases be taken by surprise and not really be able to assess the pros and cons of entering into a contract. It seems plausible that a consumer, who enters into a long-term relationship is similarly unable to imagine him or herself a year or so from now. Perhaps it is the renewal that takes the consumer by surprise and could thus justify a new right of withdrawal.

What is clear following the Sofatutor judgment, is that de lege lata the right of withdrawal cannot be a solution to renewable subscriptions. Our attention must therefore turn to other legal options discussed in scholarship, such as reminders about auto-renewals. Possibly, it is also time to take a closer look at consumers' termination rights - under the UCTD and beyond.

On the right of withdrawal in credit agreements - the CJEU in C-50/22 Sogefinancement

Earlier this year in March, the CJEU delivered a judgment in C-50/22 Sogefinancement SAS that clarified the scope of Directive 2008/48/EC on consumer credits in regard to its rules on the right of withdrawal.

Article 14 of the Directive provides consumers with the standard European14 days right of  withdrawal. However, in order to make the withdrawal right more effective, national rules may provide for a period of time within which the loan should not be issued to the consumer. Pursuant to Article 14 para 7 the Directive's rules on right of withdrawal shall be without prejudice to any such national rules. 

In the present case, Sogefinancement concluded a consumer credit contract with the defendants. When a dispute arose in regard to the performance of the contract, the ruling national court raised on its own motion the fact that the loan was issued to the customer in breach of the Consumer Code - the funds had been given to the consumer before the 7 days national mandatory waiting period. The finance company appealed against this decision arguing that the matter of nullity should have not been raised by the court outside the national 5 year limitation period and that in fact that any action to nullify the contract should have been initiated by the parties and not the court. 

The CJEU reasoned that 'by allowing the Member States the option of adopting or maintaining provisions establishing a period of time during which the performance of the contract may not begin, the use of the words ‘without prejudice’ in Article 14(7) of Directive 2008/48 means that the full and imperative harmonisation effected by that directive as regards the consumer's right of withdrawal does not cover the arrangements for the start of performance of a credit agreement and, in particular, for making funds available to the borrower' (para 29)

It follows that, where 'Member States lay down, in exercise of the option conferred on them by Article 14(7) of Directive 2008/48, provisions laying down a period during which the performance of the credit agreement may not begin, the national procedural rules governing the raising by a court of its own motion of, and the penalty that it imposes for, a breach by the lender of such provisions fall within the retained competence of the Member States, without being regulated by that directive or falling within the scope of that directive' (para 32).

Services performed, no right to payment - CJEU in DC (C-97/22)

On May 17th, the CJEU issued a judgment in the German case DC (Rétractation après l’exécution du contrat) (C-97/22) interpreting Article 14 of the Consumer Rights Directive. Article 14 CRD determines consumers' obligations when they withdraw from a contract. This includes releasing consumers from their obligation to pay for the performance of services provided during the withdrawal period, if consumers were not pre-contractually, transparently informed about their obligation to pay in such circumstances, as well as about conditions for using their right of withdrawal (pursuant to Article 6(1)(h) and (j) CRD). 

By Jimmy Nilsson Masth on Unsplash

The consumer in the given case concluded an oral, off-premises contract for the renovation of the electrical installations in their house. There was no information provided on the right to withdrawal at that time. This became an issue when the contract was fully performed and the consumer did not pay the invoice for the provided services. The consumer claimed they did not have to pay, as they subsequently withdrew from the contract and Article 14(4)(a)(i) and (5) CRD released them from their obligation to pay due to the consumer not having received relevant pre-contractual information on their right of withdrawal. German courts posed a question whether CRD's rule that consumers should no bear any costs in such circumstances extends as far as to prevent traders and service providers from asking for any compensation for enhancing consumers' assets, 'in breach of the prohibition of unjust enrichment' (para 19).

The CJEU very summarily confirms that indeed, in order to provide high level of consumer protection aimed at by the CRD, and considering the full harmonisation character of its provisions, the consumer may not be obliged to 'incur costs that are not expressly provided for by that directive.' (para 31). This conclusion also supports the 'fundamental importance which Directive 2011/83 ascribes to the pre-contractual information' (para 32).

The consequence of this judgment is that if service providers breach their pre-contractual information obligations, consumers benefit from this breach regardless whether consumers themselves act in good or bad faith. The CJEU is clear that service providers may not rely in such a case on the principle that any penalties should be proportionate (para 32). This judgment assigns then quite a far-reaching sanction to the breach of pre-contractual information duties. Of course, traders and service providers may easily protect themselves against these sanctions by fulfilling their information obligations. Still, it is curious to have the 'fundamental importance' of pre-contractual information obligations recognised at a time when the critique of their effectiveness as consumer protection measures is at its highest. Is it the Court's intention to try to revive them somewhat?

Right of withdrawal, leisure activities and intermediaries - CJEU in Eventim (C-96/21)

Earlier this year in C-96/21 CTS Eventim the CJEU delivered another interesting judgment on the interpretation of Directive 2011/83/EU on Consumer Rights (CRD). As with most cases on CRD, this case tackles the matter of the right of withdrawal by providing an interpretation of Article 16(l) that exempts  'services related to leisure activities if the contract provides for a specific date or period of performance' from the right of withdrawal. 

Facts

The consumer ordered tickets through an online booking platform operated by CTS Eventim, an intermediary selling concert tickets organized by third parties. The concert that was due to take place in Germany was cancelled because of German administrative restrictions amid the COVID-19 pandemic, with a possibility to be held at a later date. In accordance with German legislation, CTS Eventim, acting on behalf of the concert organizer, sent the consumer a voucher in the value of the ticket price. The consumer however asked CTS Eventim for reimbursement of the ticket price and costs incurred and thus, according to the referring court, implicitly asked to withdraw from the contract.

Question

The question referred to the CJEU was: Would a situation where the trader (an intermediary acting in its name and on behalf of the organizer of the leisure activity) does not directly provide the consumer with a service related to leisure activity but sells the consumer a right of access to such service fall under the exception of Article 16(l)?

Ruling

The CJEU noted that the contract for the transfer of a right falls within the concept of a ‘service contract’ under Article 2(6) CRD, and insofar as Article 16(l) covers all services provided in the leisure sector, due to the word ‘related’, the provision is not limited solely to services directly relating to the pursuit of leisure activity (para 38). The transfer of a right of access to a leisure activity constitutes, in itself, a service related to a leisure activity (para 39). In this regard, it is irrelevant that a service is provided by the intermediary and not by the organizer of a leisure activity itself (para 43). 

However, CJEU looked at the objective of Article 16(l), and referring to Recital 49 noted that the objective is to protect traders against the risk associated with the setting aside of some capacity which, if a right of withdrawal were exercised, the trader may find difficult to fill, inter alia, in the case of cultural or sporting events (para 44); and referred to its previous case-law where it was established that the aim of Article 16(l) is to protect the interest of the providers of certain services against disproportionately suffering from consequences of the right of withdrawal (para. 45). The CJEU concluded that as long as the risk falls on the organizer of the activity, the transfer of a right of access to that activity by an intermediary will constitute a service related to that activity. It is irrelevant whether, on the date on which the consumer invokes the right of withdrawal, it is possible for the trader to fill in the empty capacity, in particular by means of the resale of the ticket. ‘The application of Article 16(l) of Directive 2011/83 cannot depend on such an assessment of the circumstances of each case' (para 48).

The CJEU also considered the second part of the exemption and concluded that a contract for the transfer of a right of access to a leisure activity must be regarded as providing for a specific date or period of performance since that activity is scheduled to take place on a specific date or within a specific period (para 53).

The CJEU concluded that the exception from the right of withdrawal may be relied on against the consumer, if, first, the termination of the obligation to perform that contract vis-à-vis the consumer by means of withdrawal would place the risk linked to the setting aside of the capacity thus released on the organizer of the activity concerned and, second, the leisure activity to which that right gives access is scheduled to take place on a specific date or within a specific period.

Further thoughts

This case provides an important interpretation of the CRD in distance contracts concluded via intermediaries, given that the CRD is silent on regulating contracts concluded via intermediaries.

The CJEU provides a good explanation of the rationale for the exception. It is expected of traders, not of intermediaries, to fill in capacities that are created by the right of withdrawal, e.g. resell the ticket that is for a specific date to avoid loss. 

The CJEU also provides substantiated reasoning why the exception should apply in the same way when contracts are concluded directly with service providers and indirectly, with intermediaries. The rule does not change whether or not the ticket is sold by an intermediary or the direct service provider, as long as the risk is born by the direct service provider, in this case, the organiser of the concert. 

However, the present case does not give full guidance on how Article 16(l) CRD should apply in other, similar settings. The present case defines intermediaries as those acting in their own name but on behalf of their principal. Given the emphasis of the risk being on the organiser of the event, the same solution would probably apply with intermediaries acting in the name and on behalf of their principal. However, the situation is less clear when the risk is not on the direct service provider, the organiser of the event, but on the online seller who sells tickets via its website. This would occur in a situation when the tickets are bought for resell. Although in this case online sellers would probably not be classified as intermediaries in law, from a consumer's point of view, there may be confusion and the two kinds of sellers might be considered to both be intermediaries. For instance, consumers would consider Skyscanner an intermediary whereas it is a travel agent. We could argue that the regime should again be the same because the rationale for the exemption seems to be the inability of traders to fill in the capacities that are created by the right of withdrawal. For example, just like organisers, intermediaries might struggle to resell tickets for a particular date and as a result, suffer loss. Overall though, this interpretation cannot easily be deducted from the reasoning in the present case.

Since this case and the earlier Tiketa C-536/20 case, the case law seems to move in a direction of considering including intermediaries within the scope of CRD; in the next case on this topic, the CJEU should take the opportunity to express views on the classification of various (intermediary) sellers and the legal regime(s) applicable to them.

New clarifications on information rules in the Consumer Credit Directive: the CJEU in Volkswagen Bank

In September 2021 the CJEU delivered an important judgment on the interpretation of the creditor's duty to inform and the associated consumer's right of withdrawal in Directive 2008/48/EC. Unfortunately, the judgment took a while to be published in English, and therefore we only managed to create this note now. The judgment remains relevant, also in light of the new Proposal (on which we reported here), which contains equivalent provisions in Articles 21 and 26.

The judgment concerned C-33/20, C-155/20, and C-187/20 joined cases involving consumer credit and further shaped the content and application of Article 10(2) and Article 14(1) of the Directive.

In terms of Article 10, the judgment is fairly technical with answering very specific questions on the content of the credit agreement, adding to the already detailed content of Article 10. The CJEU in this judgment specifies for instance that the contract must state clearly that it is concluded for a fixed term and that the contract does not need to set out all the situations provided by national law in which the contracting parties can terminate the contract. Particularly interesting are two interpretations provided by the CJEU:

On Article 10(1)(l) under which credit agreements must state in a clear and concise way the applicable rate of late payment interest at the time of contract conclusion, the arrangements for adjusting the rate, and any charges payable at default, the question was, in what way should the rate of interest be indicated. In the issue at hand, the contract said that the rate of interest will be 'five percentage points above the relevant base rate'. While the relevant base rate is fairly easy to determine, the CJEU did not agree with this formulation, they reasoned that this is the formula provided for calculating the rate of interest. In order to fully inform consumers, the contract must state the rate of interest in a specific percentage, similar to how the borrowing rate and the annual percentage rate of charge must be presented. In addition to expressing the late payment interest in a percentage then, the contract must also specify the way in which this rate is adjusted, enabling an average, reasonably observant, and circumspect consumers to determine and understand the arrangements for varying the late payment interest. In order to achieve this, two conditions must be satisfied: first, the method of calculation must be set out in a way that is readily understood by an average consumer who does not have specialist knowledge in finance and which enables the average consumer to calculate the rate of late payment interest based on the information provided in the contract; second, although the CJEU seems to be of the opinion that a national base rate is a good benchmark, this is only so, if the contract set out the frequency with which the base rate may be varied, as determined by national provisions.

Another interesting aspect of the judgment was the CJEU developing interpretation of Article 14 on the right of withdrawal. The CJEU ruled that if the information is not dully included in the contract following Article 10 and was neither communicated at a later stage, there is no time limit for the consumer to exercise the right of withdrawal under the Directive nor can the Member States impose such limitation in national legislation. The CJEU's standpoint was that in that case, the consumer was unaware of the limitation of the right, and the consumer could not be held responsible for that lack of awareness. This is true even if the right of withdrawal was exercised following a considerably long period after the conclusion of the contract; the CJEU dismissed the possibility of the consumer being held liable for the abuse of this right under the circumstances.

Ali Express and European consumer law

Since 2010, AliExpress has been connecting consumers outside of China with Chinese sellers willing to ship their products to their countries. I have no direct experience to share, but a look at the reviews on various comparison websites suggests consumers appreciate the great variety of products offered for very low prices and complain about terms of service, quality and delivery failures. 

Some complaints must have reached the Dutch consumer authorities Autoriteit Consumenten en Markten, which launched a coordinated enforcement action aided by the Dutch consumer association and the European Commission. The result is a commitment by Ali Express to bring its offer in line with European consumer laws, in particular (quoting from the Authority's press release):

• The cooling-off period (the right of withdrawal);

  

  image from pixabay.com

• Legal guarantees: EU rules regarding guarantees must be indicated, and complied with;
• Extra costs: it must be indicated whether any taxes or other fees need to be paid, for example customs duties at the border;
• Sellers: information must be provided about the identity of the seller.
• Ranking: it must be indicated whether payments have been made in order for a seller to appear higher in the search results. 
• General terms and conditions: these no longer violate the relevant laws;
• Complaints: information must be provided about where consumers can turn to if they have any complaints or disputes (no longer the Court of First Instance in Hong Kong, but in the consumer’s own country).  

While many of these past violations are substantive, the enforcement action apparently framed them as a  series of misleading commercial practices - probably because this is the easiest way for an enforcement authority to intervene. 

The above does not necessarily mean that you should now go and fill your home with 1-eur plastic unicorns - emotional spending in the pandemic is still more of a current threat than being unable to litigate in Hong Kong over your shopping misfits -, but in case you do, know that EU consumer rights now ostensibly apply on AliExpress too (when your counterparts is a professional, etc etc). 

Have a great week!

(Non-)Existence of right of withdrawal must be unconditional – CJEU in C‑529/19

In Case C‑529/19 (here), the CJEU interpreted the Consumer Rights Directive, particularly the right of withdrawal and its exceptions (Article 16). In this case, the consumer bought a fitted kitchen from Möbel Kraft (a German furniture company) at a trade fair. Later, the consumer communicated to Möbel Kraft its wish to withdraw from the contract. Consequently, the consumer refused to accepted delivery of the kitchen. In response, Möbel Kraft sued for breach of contract. Möbel Kraft had not yet started to manufacture the kitchen parts at issue when the consumer withdrew from the contract.

While Article 9 of the Consumer Rights Directive gives consumer the right to withdraw from an off-premises or distance contract, Article 16 lists several situations where that right does not apply. One of those situations is when the consumer buys goods made to the consumer’s specifications or clearly personalized (Article 16(c)). Given Article 16(c), the referring court asked the CJEU whether the consumer’s right to withdraw from an off-premises contract is also excluded in case where goods are made according to the consumer’s specifications, but the seller has not yet begun to produce the goods and therefore does not incur in any (or few) costs in case of the consumer’s withdrawal.

The CJEU starts by clarifying that the contract in question can only be considered an off-premises contract if it was not concluded at the trade fair stand, which can be seen as ‘business premises’ according to Article 2(9) of the Consumer Rights Directive. Then, the CJEU states that there is nothing in the Consumer Rights Directive that indicates that the exception of Article 16(c) is dependent on the occurrence of any event after the conclusion of the off-premises contract (para 24). In fact, the CJEU states that this exception is inherent to the subject matter of such a contract. In other words, the application of this exception is independent from the stage of performance of the contract (or the stage of production of the products in question) (para 24). Consequently, the CJEU determines that the exception to the right of withdrawal in off-premises contracts where the consumer acquires personalized goods applies from the outset of the contract. The CJEU extracted this conclusion not only from the literal element of Article 16(c) but also from its systematic element, since Article 6(1)(h) and (k) of the Consumer Rights Directive impose a pre-contractual duty on the trader to inform the consumer of the existence or absence of a right of withdrawal (para 25). If the existence of a right of withdrawal would be dependent on a decision of the trader (namely when to start performing the contract), the goal of providing the mandated pre-contractual information would be frustrated (para 27). Finally, to allow the right of withdrawal to depend on the moment in time where the trader starts to produce the goods would be contrary to legal certainty (para 28).

With this decision, the CJEU establishes the inflexible character not only of the right of withdrawal but also of its exceptions. The CJEU’s decision opts for legal certainty over consumer protection considering that, in practice, this means that every time that a consumer acquires a personalized product she can never withdraw from that contract, regardless of the actual costs suffered by the business. Therefore, the CJEU directly contradicts national case law from, for example, the Bundesgerichtshof, which previously determined that the right of withdrawal is not excluded if the goods can be restored at a low cost to the condition they were in prior to the personalization.

Online dating sites and the right of withdrawal - CJEU in PE Digital (C-641/19)

Yesterday, the CJEU issued a judgment - PE Digital (C-641/19) - regarding the interpretation of Articles 14(3) and 16(m) of the Consumer Rights Directive. Both these provisions regulate some aspects of the consumer's right of withdrawal. Article 14(3) CRD addresses the situation where a consumer explicitly requested the service provider to start performing a service during the cooling-off period. When the consumer then still decides to withdraw from a contract, this provision entitles the service provider to demand a part payment, 'in proportion to what has been provided'. Article 16(m) CRD specifically excludes the right of withdrawal from distance or off-premises contracts for the supply of digital content, not supplied on a tangible medium, where the performance of the contract begun during the cooling-off period upon consumer's explicit consent (following the consumer being informed about losing the right of withdrawal in such a case).

In PE Digital the issue arose from a contract concluded between a consumer and a German dating website - Parship - operated by PE Digital. This dating website allowed consumers to either enter into a free contract, with very limited opportunities to contact other persons on the site, or into a paid 'premium' contract for a period of 6, 12 or 24 months. The premium membership made it possible to contact any other premium member - ca 186000 users in Germany. The consumer in the case at hand concluded a 12 month membership contract for a high price of over 500 Euro, which was more than twice as high price as that which PE Digital charged other consumers for this contract duration (para 16). The consumer was informed about their right of withdrawal, but requested PE Digital to begin to supply the services during the cooling-off period. After 4 days, the consumer withdrawn from the contract and was charged almost 400 Euro for the provided services. The dispute arose from the consumer questioning this reimbursement.

The national court adjudicating the case asked the following questions:

1. Whether the proportional reimbursement awarded to consumers withdrawing from a partially performed contract should be calculated on the basis of how much time consumers have been bound to the contract or considering the value of the already performed services? (these were two questions answered jointly, see para 26)

2. On what basis should the national court examine whether the total contract price was excessive?

3. What consequences, if any, should be attached to the fact that under the concluded contract the consumer has received also, but not exclusively, digital content to which Article 16(m) CRD applies?

Proportional reimbursement 

The CJEU advises the national court that in general the proportional reimbursement should be calculated on a pro rata temporis base. This means that a consumer who was only bound by an agreement for 4 days out of a 1 year contract, could legitimately expect to recover the majority of the contract price he had paid. However, if the contract expressly stipulated that one or more services would not only be provided to consumers in full from the beginning of the performance of the contract, but also separately, which means that consumers were given a price to be paid for these services, separate from the total contract price, then the full price for such services could be seen as owed to the trader (para 32). Only when the consumers had the information that a particular service will be provided in full at the beginning of the contract's performance and knew its price, could they make an informed decision about asking the trader to start providing the services during the cooling-off period (knowing then of the reimbursement risk) (para 29). This was not the case with the dating site contract, as it did not specify a separate price e.g. for the personality test/report that would be delivered to a client upon the conclusion of the membership agreement.

Excessive price

Article 14(3) CRD specifies that if the contract price was excessive then the proportionate amount should be calculated on the basis of the market value of what has been provided to a consumer. Recital 50 further states that the market value should be identified by comparing the price of an equivalent service performed by other traders at the time of contract's conclusion (para 35). Therefore, the CJEU advises the national court to take into account both the price charged for the same services to other consumers by a given trader, but also the price charged by equivalent service providers (para 37).

Digital content

As part of the membership contract in the dating site, the consumer was issued with a personality report, which could classify according to the national court as digital content. Article 2(11) CRD defines digital content as 'data which are produced and supplied in digital form'. Recital 19 gives further examples of digital content to which the CRD applies. Article 16(m) CRD excludes the application of the right of withdrawal to contracts for the supply of digital content when the consumer has consented to the performance starting in the cooling-off period. As an exception, this provision requires strict interpretation (para 43). This leads the CJEU to decide that neither the provision of an online dating service to consumers, which allows them to 'create, process, store or access data in digital form and allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service', nor the generation of a personality report, could be perceived as supply of digital content that qualifies for the application of Article 16(m) CRD... Why though? The CJEU does not further expand its reasoning on this point. Is it because the provided digital content is a part of a bigger digital service? This might be, but it would be good to have this clarification as that would exclude the application of Article 16(m) CRD to most contracts for the supply of digital content that would be part of a relational contract.

CJEU in EIS (C‑266/19) – Reasonable expectation prevails over proportionality concerns in duties to inform

Case C‑266/19 (not yet available in English; in French here) concerns EIS and TO, who are competitors in the business of online sales of erotic products. The relevant claim was that EIS did not clearly inform consumers about its phone number in the right of withdrawal model form (annexed to the Consumer Rights Directive) and about the fact that consumers can use that phone number to exercise their right of withdrawal, even though EIS had one and mentioned it in a clear and legible manner on the bottom of its website. One interesting aspect about this case is that it is originally a competition law case that, in the referring court’s perspective, depends on an answer to a consumer law problem. Providing wrong or incomplete information on the right of withdrawal in consumer contracts (and therefore breaching consumer law) is considered to be unfair competition according to German law (para 21). So, even though there are no consumers directly involved in the dispute, the CJEU was called to interpret a provision of the Consumer Rights Directive.

The Consumer Rights Directive regulates the pre-contractual disclosure of available means of communication to consumers in several provisions. Article 6(1)(c) states that the trader must inform the consumer on means of communication ‘where available’. Article 6(1)(h) states that the trader must inform the consumer on the conditions, time limit and procedures for exercising the right of withdrawal (which, according to Article 6(4), can be done through the model form annexed to the Directive). The dispute, in this case, lied here: is a phone number used by a trader for professional purposes and shown in the homepage of the trader’s website considered an 'available' means of communication? Moreover, should Article 6(1)(c) and (h) and 6(4) – together with annex I point A – be interpreted as imposing a duty on the trader to explicitly inform the consumer on a phone number that can be used to exercise his right of withdrawal?

This case builds on Amazon EU (see our report on it here), where the CJEU interpreted partly the same provisions and established that an unconditional obligation to have a phone number available to consumers is not proportional, considering the economic context of some traders’ business model. Following the guidelines set out in Amazon EU, the CJEU clarified, in the present case, that the professional party who concludes a contract with a consumer via a website and that, logically, does not use a phone number for the process of concluding that contract (even though it has one available for other professional purposes), is not obliged to communicate it to the consumer in the context of the model form in annex I part A (para 36). However, interestingly, the CJEU established an exception to this rule. According to the CJEU, if the phone number is publicly displayed on the trader’s website in such a way that it would lead the average consumer to think that the trader uses that phone number to communicate with consumers in general, then it must be considered that that phone number is available within the meaning of Article 6(1)(c) (para 37). That is the case, for example, when the phone number is available on the trader’s website under the heading ‘contact’. Therefore, it must also be considered that a phone number is ‘available’ in the meaning of annex I part A and must be consequently included in the model instructions on the right of withdrawal (para 38). In this way, and even though the CJEU does not explicitly say it, it appears to have privileged the protection of the reasonable expectations of consumers over proportionality concerns.

Architects obligations under the CRD - CJEU in NK (C-208/19)

Yesterday, the CJEU issued a judgment in the case NK (C-208/19) regarding the scope of application of the Consumer Rights Directive. The contract was concluded off-premises in the given case between two consumers and NK - an architect and a businessman - for the design of a family house, which would then be built based on this design. The consumers were dissatisfied with the quality of the delivered design and decided to use their right of withdrawal from the contract, claiming that NK never notified them of their right of withdrawal, which meant they could use it within 12 months from the date of conclusion of the off-premises contract pursuant to the measures implementing the CRD in Austria. There was no doubt that the contract concluded in the case was B2C and was concluded off-premises. However, NK tried to claim that the type of the concluded contract excluded it either fully from the scope of application of CRD or from the applicability of the right of withdrawal, as regulated in it.

The first question that Austrian courts brought to the CJEU pertained to the scope of the exception provided for in Article 3(3)(f) CRD, which excludes from the applicability of the CRD contracts concluded for 'the construction of new buildings'. If, however, the contract for the design of a family house cannot be qualified as a contract for the construction of a new building, then the further question arises whether this contract could be perceived as a contract for the supply of goods made to consumer's specification, and thus to which the right of withdrawal does not apply, pursuant to Article 16(c) CRD.

Construction vs design of a new building

The CJEU does not consider a contract concluded for the supply of the design for a new building the same as the contract for the construction of a new building, explaining that the exception needs to be applied narrowly (para. 41). This means that design contracts fall within the scope of the CRD, as they would be performed a few stages before the construction of a new building can even occur and are too remote then to fall within the scope of the exception (para. 43). 

Design contract is not a contract for the supply of 'goods made to consumer's specification'

NK tried to further claim in this case that consumers did not have the right of withdrawal, as he has supplied them with personalised design plans, which should qualify as goods made to consumer's specification. Contracts for the supply of such personalised goods are excluded from the applicability of the right of withdrawal pursuant to Article 16(c) CRD. The CJEU emphasis, however, that pursuant to Article 2(3) and (4) CRD the notion of goods made to consumer's specification applies to non-prefabricated, tangible movable items made on the basis of an individual choice of the consumer. Whilst design plans for a building could be made based on instructions provided by consumers and could be provided to consumers in a tangible movable form, e.g. on paper (para. 58), the main object of the contract is for the architect to provide a service - an intellectual, design service - and the delivery of the design plans is only subsidiary to this (para. 59). This means that the exception from Article 16(c) CRD does not apply, but the service provider - the architect - could invoke the exception from Article 16(a) CRD. If the design service has been fully performed with the performance having begun with the consumer's prior express consent and acknowledgement of the fact that they will lose their right of withdrawal upon full performance of the service, the right of withdrawal does not apply. It is, however, unlikely that in the given case NK could invoke this exception, as the facts suggest that consumers were not informed about their right of withdrawal and have not expressly acknowledged relinquishing it (para. 64).

Spelling out the law - CJEU in Kreissparkasse (C-66/19)

On 26 March the CJEU published a judgment in a case Kreissparkasse (C-66/19), which was not accompanied by an opinion. The consumer in this case concluded a credit agreement secured by a mortgage. Four years after the conclusion of the contract, the consumer attempted to withdraw from the credit agreement, claiming that he has never received all the mandatory information from the credit provider and, therefore, the period to make use of his right of withdrawal has never started running. The contested matter was whether the mandatory information has indeed been provided and in a transparent enough manner, as the contract specified: "The borrower may withdraw from the contractual obligation, without having to provide any reasons, within 14 days and in writing (for example, by letter, fax or email). The period begins after conclusion of the agreement, but not before the borrower has received all mandatory information referred to in Paragraph 492(2) of the [BGB] (for example, information concerning the type of loan, information relating to the net loan amount, information concerning the contractual term). …". Should the consumer know from the above contractual provision when the right of withdrawal starts running (and runs out)? Would he need to check the legal provisions of the German Civil Code to determine what information the credit provider should give him and ensure that he has received them all (and when)?

The CJEU is not a fan of placing such obligations on consumers. Article 10(2) of the Consumer Credit Directive obliges credit providers to give consumers transparent information on the right of withdrawal, incl. the period during which the right might be exercised and the conditions under which it may be used. The CJEU emphasises that this means that the consumer should be given transparent information on how the period of withdrawal is to be calculated (para. 38). It is insufficient for fulfilling this objective for the credit provider only to refer to the national provisions implementing the Credit Consumer Directive, stating that the right of withdrawal starts from the moment of the conclusion of the contract or when the consumer receives all the mandatory information, if the latter occurs later. "Where an agreement concluded by a consumer refers to certain provisions of national law as regards information which must be provided pursuant to Article 10 of Directive 2008/48, the consumer is not in a position, on the basis of the agreement, to determine the scope of his or her contractual obligations, check whether all the required information, in accordance with that provision, is included in the contract that he or she has concluded, or a fortiori verify whether the period of withdrawal open to him or her has begun." (para. 44) 

In case law under the Unfair Contract Terms Directive the CJEU has already specified that the traders are required to inform consumers about the content of the legal provisions they are referring to in the contract (Invitel and RWE Vertrieb) (paras. 46-47). This judgment applies the same reasoning to information that needs to be provided under the CCD.

Consumers buying ‘discount cards’ for future transportation contracts have the right to withdraw - Case C‑583/18 (Verbraucherzentrale vs DB Vertrieb GmbH)

Case C‑583/18 (available in French here) deals with the Consumer Rights Directive, particularly with its scope of application and the exclusion of contracts for the transportation of passengers. The case originated in a dispute between the Verbraucherzentrale, the German consumer association, and DB Vertrieb GmbH, a company in the group of the railway company Deutsche Bahn. In this context, DB Vertrieb sells cards that allow passengers to have discounts on the price of their train tickets – either 25% (BahnCard25) or 50% (BahnCard50). These cards are sold online but no information about the right of withdrawal is given to consumers. DB Vertrieb GmbH argues that this omission is justified by the fact that there is no right of withdrawal in these ‘discount cards’ contracts, since they are excluded from the scope of application of the Consumer Rights Directive. Indeed, the Consumer Rights Directive excludes contracts for passenger transport services from its scope (Article 3(3)(k)). Consequently, the referring Court asked the CJEU whether the contract concluded between consumers and Deutsche Bahn can be considered a service contract under Article 2(6) of the Consumer Rights Directive and, if so, whether it can also be considered a contract for passenger transport service under Article 3(3)(k) in such a way that it would be excluded from the scope of the Directive.

The CJEU answered the first question in a straightforward and broad manner, in line with the broad definition of ‘service contract’ in the Consumer Rights Directive. The CJEU highlighted that Article 2(6) states that a service contract is ‘any contract other than a sales contract’ and, given that the contract in question does not involve the transfer of ownership of a good (Article 2(5)), it is not a sales contract. Not being a sales contract, it is a service contract. ‘Discount contracts’ are, therefore, considered service contracts under the Consumer Rights Directive.

Regarding the second question, the CJEU considered that a contract through which the consumer enjoys a price discount if and when concluding a future transportation contract is not a contract for passenger transport services as defined by Article 3(3)(k), since the contract in question does not have as a primary object the transportation of passengers.

Furthermore, the CJEU argued that the two contracts in question – the ‘discount card’ contract and the actual passenger transportation contract – are two different contracts, not legally connected to each other. In other words, the conclusion of the contract which gives the consumer a price discount in a future transportation contract does not mean that the consumer will necessarily conclude the transportation contract.

Finally, the CJEU considered that the existence of a right of withdrawal in the ‘discount card’ contract does not create any objective inconvenient for the transportation company. The CJEU based this argument on the rationale behind the exclusion of contracts for the transportation of passengers from the Consumer Rights Directive, explained in Recital 49. Recital 49 states that it would be inappropriate to give consumers the right to withdraw from service contracts where the conclusion of the contract leads the professional party to set aside the corresponding capacity which could not be filled or would be difficult to fill in case of withdrawal. In this case, the acquisition of ‘discount cards’ by consumers does not mean that Deutsche Bahn will alter its capacity (e.g. available seats on trains).

Therefore, Article 3(3)(k) must be interpreted as not including ‘discount cards’ contracts, which means that, in practice, the contract in question is covered by the Directive and by its provisions regarding the right of withdrawal.

‘Paying’ with personal data – what rights do consumers have?

The recently approved Directive on the modernization of consumer protection rules (available here) explicitly extended the scope of the Consumer Rights Directive to contracts where the consumer ‘pays’ with data, or contracts where the consumer provides personal data in exchange for a digital content product or a digital service. This extension means that consumers who ‘pay’ with their personal data have specific information rights stemming from Article 6 and the new Article 6a of the Consumer Rights Directive, such as the right to get information on the possibility of recourse to a complaint mechanism. Furthermore, these consumers are now entitled to the right to withdraw from the contract, even if they do not pay a monetary price. The advantage of this right when it comes to contracts where consumers ‘pay’ with data is evidently more limited than when consumers pays with money. Nevertheless, this is the latest move by the EU to better protect consumers’ personal data.

In fact, the Digital Content Directive (also recently approved and available here) was the first to 'innovate' in this area, by acknowledging the need for consumer protection in contracts where the consumer ‘pays’ with data. The Digital Content Directive extended the remedies already provided by the Consumer Sales Directive (applicable to the sale of goods and now replaced by the Sale of Goods Directive) to digital content contracts, both where the consumer pays a monetary price and where the consumer ‘pays’ with personal data. According to Article 14, in case of lack of conformity, consumers who provide their personal data in exchange for a digital content product or a digital service are entitled to have the product or service brought into conformity (for example, through an update). Furthermore, consumers are entitled to terminate the contract in case of any lack of conformity (regardless of how minor). In case of termination, the rights in the GDPR must be respected, particularly when it comes to the right to be forgotten (Article 17 GDPR) and the right to data portability (Article 20 GDPR).  

The increasing efforts by the EU to protect the consumer who ‘pays’ with data are an acknowledgement of the importance that similar data-based business models will play in the contracts of the future. However, the treatment of personal data as a contractual counter-performance is not uncontroversial. For example, although the (previous) European Data Protection Supervisor welcomed the protection of data subjects through consumer law, the EDPS also vocally opposed the treatment of data as a counter-performance. Nevertheless, given the increase in the number of contracts concluded in exchange of (personal) data (think of Spotify, Facebook and other similar platforms that provide digital services), it seems important to develop (and adjust) a general contract law framework applicable to these contracts. This must be done alongside – and not in opposition to – the data protection framework.

500 online businesses do not comply with consumer rights

Recently, the European Commission released the results of a screening (or ‘sweep’) of 481 retail e-shops (press release available here). The main finding was that more than 2/3 of the screened online businesses do not comply with EU consumer rights legislation (particularly the Consumer Rights Directive). This number means that consumers are not properly informed on their rights in 2 out of 3 shops.  

Article 6 of the Consumer Rights Directive establishes that in distance contracts consumers should be given a long list of information, including on the withdrawal right, on the legal guarantee and on the total price of the product. Furthermore – and most importantly -, this information must be given in a clear and comprehensible manner. However, according to the screening, more than 1/4 of the analyzed websites did not inform consumers about how to withdraw from a contract. This breaches Article 6(1)(h) of the Consumer Rights Directive. Furthermore, nearly 1/2 of the analyzed websites did not provide such information in a clear manner (particularly regarding the 14 days’ time limit). This breaches Article 6(1) of the Consumer Rights Directive. The failure to inform the consumer about the right to withdrawal is ‘punished’ by the Consumer Rights Directive with an extension of the period of withdrawal from 14 days to 14 days and 12 months (Article 10(1)).

The sweep also found a frequent breach of the pre-contractual duty to inform on the total price of the purchase. In fact, in over 1/5 of the consulted websites the price initially shown did not include additional charges such as delivery or postal charges. This breaches Article 6(1)(e) of the Consumer Rights Directive. Other findings show that over 1/3 of the analyzed businesses did not inform consumers about the 2-year legal guarantee to have a good repaired, replaced or reimbursed in case of a defect at the moment of delivery. This breaches Article 6(1)(l) of the Consumer Rights Directive.

The lack of adequate pre-contractual information is one of the biggest challenges faced by consumers, and one that the EU legislator has spent quite some time working on. Of course, one of the main problems of the information paradigm in EU consumer law is its lack of enforceability. Even though businesses often breach their duty to provide information in a clear way, it is (ironically) unclear what the legal and practical consequences for such a breach are. The Commission, however, promises an ‘in-depth investigation of the above-mentioned irregularities’ at national level and the subsequent request for traders to correct and improve the information they provide to consumers.

CJEU in Romano v DSL (C-143/18): sorry BGB, you can't sail around EU law implementation

Today, the CJEU published its decision in a case we had reported on a few months ago, Romano v DSL. In this case, two consumers had taken out a loan - renouncing their right of withdrawal (RoW) in order to obtain immediate performance. In such cases, the 2002 Directive on distance marketing of consumer financial services prescribes the extinction of the RoW when the creditor's performance has been entirely delivered, ie once the consumers have actually received the money. 

The Romanos claimed that, ten years after entering the contract, they should still be entitled to withdraw because they had not been given correct information. Given that German courts did not recognise withdrawal in distance financial services to deserve different treatment than other transactions and hence ignored the restriction, they should have been told that they were actually entitled to withdrawal even after having nominally renounced the possibility. 

According to the AG, the position maintained by German courts was untenable under the Directive. As a consequence, there was also no misinformation on the side of the lender, who had correctly notified the consumers that they were giving up their RoW.  The Court follows this reasoning, which  seems to trump the German courts' quest for systematic consistence in view of the integral application of  the concerned EU directive. Nice try for the claimants, but no belated Easter egg in this case.

New rules on personalised pricing and fake reviews: EP and Council agree on the reform of consumer law

Two weeks ago we informed about the stage of the legislative process concerning the New Deal for Consumers, focusing on the proposal on better enforcement and modernisation of directives on unfair commercial practices (UCPD), unfair contract terms (UCTD), consumer rights (CRD) and price indication (PID). Earlier this week, the Council and the European Parliament reached a preliminary agreement on the proposal.

As we explained in the earlier post, separate positions of the EP and the Council on the commented file did not fundamentally differ. Short-term agreement on the proposal, therefore, does not come as a huge surprise (particularly in this heated period before European elections). Both positions rejected the original proposal of the Commission to impose limitations on consumers' right of withdrawal set out in the CRD. Aside from that, Council members did not particularly like further harmonisation of procedural rules, proposed by the Commission. Since respective proposals had not been particularly far-reaching in the first place, it was enough to further water them down a little bit to reach a compromise at the Council level (the situation is more complex with the second New Deal proposal, to be discussed in detail during the upcoming conference in Amsterdam). The EP did not fundamentally oppose.

On the enforcement side, besides restating that the level of penalties imposed on the trader should, where possible, consider penalties imposed for the same infringement in other Member States as well as clarifying the threshold of fines, which Member States should provide for in their legislation (at least 4% of the trader's annual turnover or 2 million EUR, if the information on turnover is not available), the agreed text essentially reflects the Council's position. More apparent deviations from it can be seen at the substantive level. Two particularly interesting points concern online reviews and personalised prices.

Online reviews

At the initiative of the EP, new provisions have been added to the UCPD to address the problem of fake online reviews. Specifically, the catalogue of information which should be considered as material under Article 7 has been extended to cover information "whether and how the trader ensures that the published reviews originate from consumers who have purchased or used the product". Consequently, if a trader provides access to consumer reviews of products and omits this kind of information, his practice might be qualified as a misleading omission.

On top of that, two additional points related to reviews have been included in the UCPD's black list. The list, set out in Annex I to the Directive, ennumerates commercial practices which are in all circumstances considered unfair (hence, without the need to verify other criteria, such as the impact on an average consumer). The new black-listed practices include:

23b. Stating that reviews of a product are submitted by consumers who have actually used or purchased the product without taking reasonable and proportionate steps to check that they originate from such consumers.

23c. Submitting or commissioning another legal or natural person to submit false consumer reviews or endorsements, or misrepresenting consumer reviews or social endorsements, in order to promote products.

All in all, the amendments on consumer reviews seem to be a step in the right direction. Article 7 essentially requires that information about potential origin of reviews is disclosed, while the black list lays down the consequences of disclosing it in a misleading way. Of course, one can wonder whether the black list is the right place for a provision whose substantive scope is not readily apparent. Thus, de lege ferenda, additional guidelines as to what "reasonable and appropriate steps" actually are would be advisable.

Black list cont'd

For the sake of comprehensiveness, two further amendments to the black list contained in the new text should be mentioned briefly.

Firstly, the compromise version features yet another new black-listed practice proposed by the EP, namely "reselling events tickets to consumers if the trader acquired them by using automated means to circumvent any imposed limit on the number of tickets that a person can buy or any other rules applicable to the purchase of tickets" (new point 23a). This seems to address a highly specific problem, which must have been brought to MEPs attention by respective stakeholder groups.

Secondly, the amendment about paid results in search engine rankings, which had already been proposed by the Commission, has been adjusted slightly. According to the current version (new point 11a) "providing search results in response to a consumer’s online search query without clearly disclosing any paid advertisement or payment specifically for achieving higher ranking of products within the search results" shall be considered unfair in all circumstances. At first glance this might seem like a step back from the earlier wording, which referred to direct and indirect payments. Note, however, that a reference to both types of payment can still be found in the preamble. 

Information duty on personalised pricing 

As regards the amendments to the CRD, a particularly interesting development concerns the scope of  traders' information duties. In this respect, a new point has been added to the list of information to be communicated to consumers in contracts concluded at a distance (Article 6), namely information "that the price was personalised on the basis of automated decision making" (where applicable, of course).

The origin of this amendment can be traced back to the IMCO report, yet its final scope does not fully reflect the original one. Firstly, the substantive scope of the duty has been narrowed down compared to EP's text. More specifically, the IMCO report referred to information "whether and how algorithms or automated decision making were used, to present offers or determine prices, including personalised pricing techniques". By contrast, the compromise text is limited to personalised pricing, and excludes other algorithmic techniques, such as dynamic pricing (recital 45). Furthermore, it only requires traders to disclose whether, and not how the price had been adjusted.

Secondly, and more favourably to consumers, in the compromise text the new rule is framed as one of general information duties for distance contracts, and not just a specific rule for contracts concluded via online marketplaces, as originally proposed by the EP. As a result, under new rules, consumers should at least get an overview of the application of personalised pricing across the digital market. This, of course, under the assumption that competent authorities will find a way of enforcing these rules.

Price information cont'd

The agreed text also includes another new provision about communication of prices, this time as regards price reductions. More specifically, under the newly introduced Article 6a of Price Indication Directive "any announcement of price reduction shall indicate the prior price applied by the trader for a determined period of time prior to the application of the price reduction". What is more, "prior price" is defined in the subsequent section as "the lowest price applied by the trader during a period of time which may not be shorter than one month prior to the application of the price reduction". Exceptions from this rule would only concern goods which are liable to deteriorate or expire rapidly and products which had been on the market for less than 30 days. How exactly this rule is to be interpreted, and especially how it would apply in the digital markets where prices can be changed dynamically, is a matter for a future reflection (on the application of the current rules, see e.g. our earlier post More transparency on hotel booking websites?). 

Final remarks on the level of harmonisation

Last but not least, several remarks about the level of harmonisation under amended rules are in place. The readers may recall that the original file proposed to change the level of harmonisation of Consumer Rights Directive from full to minimum in case of contracts concluded as a result of unsolicited visits at consumer's home and during excursions organised by a trader. This supposedly was a response to the calls from the Member States which sought to provide consumers in those circumstances with a higher level of protection. Ultimately, however, a different course of action has been chosen. Rather that changing the level of harmonisation, a few additional regulatory choices have been introduced to the CRD. Specifically, Member States would be able to extend the withdrawal period for these types of contracts from 14 to 30 days. Additionally, Member States would also be able to derogate from some of the exceptions from the right of withdrawal for these types of contracts. This, however, does not mean that the CRD in its entirely will now be based on the principle of full harmonisation. As readers may recall, already now Article 5(4) allows Member States to adopt or maintain additional pre-contractual information requirements for contracts other than distance or off-premises contracts. And finally, not to be missed, the newly introduced Article 6a(2) also introduces a minimum level of harmonisation with respect to disclosure duties for online marketplaces.

Sealed without a reason - CJEU in slewo (C-681/17)

The CJEU upheld today the opinion of AG Saugmandsgaard Øe (If it can be cleaned, it can be returned?...) in the case slewo (C-681/17). Therefore, the CJEU decided that goods such as a mattress, which is covered by a protective film that would be removed by consumers when they try on this mattress upon its delivery, are not exempt from being sold with the right of withdrawal. Article 16(e) Consumer Rights Directive does not apply as these goods cannot be seen as 'sealed goods which are not suitable for return due to health protection or hygiene reasons and which have been unsealed by the consumer after delivery'. The CJEU emphasises the need to interpret exceptions to the right of withdrawal in CRD strictly (para 34). Pursuant to the objective of the exception from Art. 16(e) CRD it aims to protect sellers from consumers returning goods that have been compromised by breaking a seal to an extent that it would be unsafe to resell such goods. A mattress does not classify as such a good, as it can be reused or resold, the CJEU gives here an example of a hotel where many people would use the same mattress and of a possibility to deep-clean mattresses (para 42). Just like the AG, the Court compares the mattress to clothing - that may come in contact with human body while being tried on (paras 43-45). Finally, the Court reminds that any unfairness towards traders should be removed by them being able to hold consumers liable for the diminished value of the goods (para 47).

By narrowly interpreting exceptions to the right of withdrawal, the CJEU increases consumer protection with this judgment. However, I could understand the frustration of traders with it. Cleaning of products does not come for free and not all stains are easily removed. The possibility to claim compensation from consumers for the diminished value of the goods is only an option when the consumer went beyond the scope of just testing the goods during the cooling-off period. On more than one occassion I have received clothing ordered online, which had make-up stains on it - clearly from consumers who tried this product on previously (within the scope of testing the product). Of course, similarly stained clothing can be found also in offline stores, as consumers may try clothes on in fitting rooms, whilst wearing make-up, deodorant etc. The difference for traders is that they may prevent consumers from trying on clothes in their stores, e.g. by not providing fitting rooms. When the clothes (or similar goods, like mattresses) are, however, purchased online, their means of protection were to try to seal the goods and thus deny consumers the right of withdrawal. This method is, however, no longer viable.

New Deal for Consumers - update on the legislative process

In the course of last years we reported multiple times on the "fitness check" of EU consumer law undertaken by the European Commission and the follow-up legislative actions marketed as the "New Deal for Consumers" (see e.g. New Deal for Consumers: proposals on online transparency).  To recall, the package of proposed reforms consisted, on the one hand, of amendments to the four consumer law directives: Directive 93/13/EEC (unfair terms), Directive 98/6/EC (price indication), Directive 2005/29/EC (unfair business-to-consumer commercial practices; UCPD) and Directive 2011/83/EU (consumer rights; CRD) and, on the other hand, of a proposed directive on representative actions, replacing Directive 2009/22/EC (injunctions). Earlier this month the Council presented its position on the former proposal, introducing some amendments to Commission's original text. The position will now form the basis for the upcoming negotiations with the European Parliament. It is foreseen that the amending directive could still be adopted in this term of the EP, together with the regulation on fairness and transparency in platform-to-business relations (P2B regulation), on which an inter-institutional compromise has already been reached (for a background see Beyond B2C...).

Sanctions and remedies

The declared objectives of reforming the four consumer law directives are improved enforcement of consumer rights and modernisation of existing rules, taking into account the outcomes of the fitness check exercise. As regards the former, the Council's compromise text shows that Member States are not quite willing to limit their procedural autonomy in the name of enhanced consumer protection. Many of the Commission's proposals on particular remedies available to consumers or specific criteria for imposing penalties were watered down, leaving Member States with a broader leeway. For example, in all four amended directives a clear statement was made that the list of criteria to be considered when imposing a penalty is merely an non-exhaustive and indicative one. Additionally, some criteria proposed by the Commission, for example the intentional or negligent character of the infringement, were altogether removed.

Right to withdraw

A controversial aspect of the originally proposed amendments to the Consumer Rights Directive concerned limitations to the consumers' right of withdrawal. According to the Commission, certain elements of this framework, such as trader's obligation to accepts returned goods even if the consumer had used these goods more than necessary to inspect them or to reimburse the price paid by the consumer even before receiving the goods back, were disproportionately burdensome for the trader. The Council, however, rejected the respective proposals and considered traders' rights to sue for damages to be sufficient. Similarly, whenever, for the sake of consistency, the Commission proposed to leave out an information duty, the Council rather opted for the duty to be repeated (see e.g. the proposed amendments to Article 7(3) and Article(8) of the CRD).  

Digital market

Many of the proposed amendments, especially the ones to the CRD and UCPD, were designed for digital markets. Following the original proposal, the Council text seeks to extend the scope of the Consumer Rights Directive to cover also contracts under which the trader supplies a digital service to the consumer, in exchange for which the consumer provides personal data. Data-related consequences of a consumer's withdrawal from the contract were also specified in the proposed Article 13(5) of the CRD. Moreover, the Council text maintains an additional information duty imposed on the providers of online marketplaces, which were slightly redefined as "services which allow consumers to conclude distance contracts with other trader or consumers using software, including a website, part of a website or an application that is operated by or on behalf of the trader" (Article 2(19)). The scope of specific information duties of such providers was elaborated on as well. Under the Council's text it would cover not only information about the status of consumer's counterparty (trader or not) and information that consumer law does not apply to C2C transactions, but also information about the allocation of contractual obligations in three-party settings (where applicable). A more general information duty imposed on the providers of online marketplaces would further concern the main parameters determining ranking of offers presented to consumers as a result of search queries and the relative importance of those parameters as opposed to other main parameters. The Council text further specifies that this information should be provided "in a specific section of the online interface that is directly and easily accessible from the page where the offers are presented". Such a clarification is certainly well-intended, although not as technologically neutral as the remaining parts of the reform. This is somewhat surprising because, on other occasions, the Council explicitly takes account of services in which offers are not presented on the "pages", such as voice operated shopping assistants. Overall, this minor inconsistency does not seem to result in a protection gap. Transparency about ranking parameters seems to be one of the most extensively covered topics in the whole reform, also forming part of the proposed Article 7(4b) of the UCPD and in Article 5 of the proposed P2B regulation. Additionally, the provisions of the CRD on online marketplaces are meant to introduce only a minimum level of harmonisation, which means that Member States can potentially impose further requirements, including those specifically addressing voice assistants.

Concluding thought

Less than one year after the New Deal for Consumers was presented by the Commission, the proposed reform of four consumer protection directive appears to gradually take its final shape (in contrast to the second file on representative actions). In January the IMCO committee adopted the report on the proposal and the European Parliament decided to enter into negotiations with the Council on the basis of that report. The most important aspect of the report seems to be the lack of support for any of the proposed changes to the right of withdrawal - a subject which the Council appears to also see this way. Negotiations may be a bit more difficult with respect to the EP's proposed additions to the list of commercial practices prohibited in all circumstances (Annex I to the UCPD) as well as further details for transparency on online marketplaces, including issues such as personalised pricing and collection of consumer reviews.

All in all, the texts proposed by both the Council and the European Parliament are more consumer-friendly than the original proposal of the Commission. This will surely be welcomed by consumer organisations, which have criticised the proposal for its insufficient level of ambition. The question remains to what extent further-reaching and more forward-looking proposals of the European Parliament will be reflected in the final draft.