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).

Connection in EU insufficient for compensation of delayed flights - CJEU in Airhelp (C-451/20)

Today the CJEU issued a judgment in Airhelp case (C-451/20 - not yet in English) regarding interpretation of air passengers rights and Regulation 261/2004. You may check our previous post on the AG's opinion in this case here. The CJEU evaluated the applicability of the Regulation 261/2004 to the factual scenario presented by this case differently than the AG, which means that it found the operating air carrier not liable. 

A brief reminder: the case concerned connecting flights, with the original point of departure and the final destination in a third country. Consequently, the connecting factors to the EU and the applicability of Regulation 261/2004 were limited to: 1) Community-based operating air carrier (Austrian Airlines), and 2) connection taking place in Vienna.

AG Saugmandsgaard Øe considered the above two factors sufficient to apply Regulation 261/2004, preferring a pro-passenger, broad interpretation of the provisions of the Regulation, and warning against a possibility of different treatment for passengers on the same (delayed or cancelled) flight, depending on how their whole journey was planned. 

The CJEU interpreted provisions of Article 3 Regulation strictly finding that the place of the connection is neither the place of departure nor arrival mentioned in this provision (para 23) and that the connected flights covered by one reservation should be evaluated jointly (para 26). The CJEU highlights the need for consistent interpretation here, thus if connecting flights are treated jointly for the purposes of estimating passengers' rights to compensation, they should not be 'artificially' separated for the purposes of assessing when Regulation 261/2004 is applicable (para 28). 

Further, the CJEU considers the systematic incoherence of Article 3 Regulation 261/2004 that could follow if the interpretation preferred by AG Saugmandsgaard Øe was supported. It does not address, however, concerns as to potential unequal treatment of various passengers of the same flight, focusing instead on assuring legal certainty of these provisions.

The long arm of Regulation 261/2004 - AG Saugmandsgaard Øe in Airhelp (C-451/20)

On October 6 also AG Saugmandsgaard Øe issued his opinion in another case pertaining to the interpretation of the provisions of Regulation 261/2004 on air passenger rights - Airhelp (C-451/20). We have previously commented on other cases concerning connecting flights, covered by one reservation, as often a question arises of the applicability of Regulation 261/2004 to these flights. The previous judgments concerned however connected flights were at least one of them took place outside the EU. Here, the passenger booked a flight with Austrian Airlines from Moldavia to their final destination in Thailand via Vienna. Thus, the operating air carrier was a Community carrier and each of the two flights within the reservation either arrived at or departed from a European airport. The original port of departure and the final destination were, however, outside the EU. Should Regulation 261/2004 apply?

AG Saugmandsgaard Øe believes - yes. He uses the literal interpretation of Article 3(1) Regulation 261/2004 to note that there is no limitation in the wording of this provision, which would demand looking for a European connection only with the first point of departure and final point of destination if connected flights were involved (para 30). Importantly, he also indicates that a different method of interpretation would expose some passengers to unequal treatment, as whether they would be entitled to the protection of Regulation 261/2004 could depend on whether their flight was a single flight or bought together with other flights (para 34). AG Saugmandsgaard Øe looks into the past case law, as well, drawing a paralell to the need to assure a high level of air passengers' protection, which requires a broad interpretation of the provisions of Regulation 261/2004. Thus if in the previous cases the Regulation was found to be applicable even if one of the connecting flights would, on its own, not be covered by it, it should then also apply if the connecting flights, separately, would have been covered by it, but if they were assessed as a one unit, the Regulation would not be applied (para 51).

Generally, this reasoning is appealing as it indeed satisfies the purpose that the Regulation 261/2004 aims to achieve and again looks to protecting passengers against different treatment in comparable conditions (which seems to be the ratio behind many judgments in this area). It does further extend the obligations of the operating air carriers, however.

The second question posed is less controversial, as it asked whether operating air carriers are liable pursuant to Regulation 261/2004 to pay out compensation for a delay of a flight that was arranged as an alternative travel arrangement, to relief them from that compensatory duty - pursuant to Article 5(1)(c)(iii) Regulation 261/2004. As that provision requires that the alternative flight reaches the final destination within 2 hours from the originally planned arrival time, a delay in meeting this timeframe leads to the air carrier not complying with this whole provision - and therefore, the need to pay compensation to the inconvenienced air passengers (para 70).

No judicial fine-tuning of the scope of UCTD: CJEU departs from AG's opinion in Banca Transilvania

Earlier this year we reported on the interpretation of Directive 93/13/EEC on unfair contract terms (UCTD) proposed by the Advocate General Kokott in case C-81/19 Banca Transilvania. The questions referred in the case concerned, firstly, the exclusion from the scope of the UCTD of terms reflecting mandatory statutory provisions in Article 1(2) and, secondly, the conditional exclusion of core terms in Article 4(2) from the scope of fairness assessment. In both respects the Advocate-General proposed a pro-consumer reading, widening the scope of relevant assessment and elaborating on the competences of national courts to fill gaps in the contract. In the judgment issued last week, however, the Court of Justice  departed from the AG's opinion and limited its reply to the first question only.

Facts of the case

The case was brought by two Romanian consumers, who entered into a credit refinancing agreement, converting the original loan in Romanian leu into an agreement denominated in Swiss francs. Due to subsequent fluctuations in the CHF/RON exchange rate, the amount which they ultimately had to pay increased considerably. The claimants argued that the bank failed to provide them with adequate information on the exchange rate risk, which they found unreasonably disadvantageous. The bank responded that the contested term reflected the principle of monetary nominalism expressed in the Romanian Civil Code and, therefore, fell outside the scope of the unfairness test in line with Article 1(2) of the UCTD. Against this background, the referring court asked the CJEU whether a contractual term which reflects a supplementary rule of national law articulating a general principle (such as the principle of monetary nominalism) is subject to the provisions of the UCTD. In case of an affirmative answer, a further question was raised as regards the analysis of core terms under Article 4(2) of Directive 93/13 and the associated legal consequences to be drawn by national courts.

Exclusion of contract terms reflecting mandatory statutory or regulatory provisions

Pursuant to Article 1(2),  contractual terms which reflect mandatory statutory or regulatory provisions are not subject to the UCTD while recital 13 explicitly clarifies that this also extends to the rules "which, according to the law, shall apply between the contracting parties provided that no other arrangements have been established". One could assume that this definite formulation leaves no doubt about the scope of the exclusion. However, the provision has been interpreted differently by the Romanian courts, leading the referring court to wonder how far it indeed applies to supplementary provisions. 

For the Advocate General Kokott the reference constituted an opportunity to clarify the scope of the exclusion, paving the way to its judicial fine-tuning in a pro-consumer manner. The AG admitted that the exclusion in Article 1(2) covered contractual terms reflecting both mandatory and supplementary (default) rules, but proposed a qualification at a later stage. Specifically, according to the AG, the exclusion only applied to the provisions which were adopted specifically for the type of contract concerned or were applicable to the contract according to a legislative reference. This conclusion was justified by a teleological argument, following which it was only possible for the national legislature to "strike a balance" between the parties inasmuch as the specific arrangement between the parties was indeed envisaged by it. Consequently, following the opinion, if the provision was not intended to create a balance between consumers and sellers or suppliers, the trader should not be able to rely on Article 1(2). Having reached this conclusion, the AG moved to the analysis of the remaining questions.

The Court of Justice, however, did not see eye-to-eye with the reading of Article 1(2) proposed by the AG. Even though it stressed that the exclusion was to be interpreted strictly (para. 24), it did not agree with the consequences drawn by the AG from the previous case law explaining the rationale of analysed provision. In this regard, the Court reiterated that the exclusion "is justified by the fact that, in principle, it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts" (para. 26). Accordingly, it stressed, the fact that such a balance has been struck does not constitute a condition for the application of the exclusion in Article 1(2) of Directive 93/13, but the justification for such an exclusion (para. 27). Consequently, to establish whether the conditions for applying the exclusion are met, the national court has to determine whether the contractual term in question reflects mandatory provisions of national law that apply between contracting parties independently of their choice or provisions that are supplementary in nature and therefore apply by default. The Court did not elaborate on what it means to 'reflect' the relevant rules, as it previously did in Aqua Med (see our comment here). Rather, it merely referred to the findings of the national court, according to which the contested term did indeed reflect the provision of national law and confirmed that the supplementary nature of that provision was irrelevant for the application of Article 1(2).

Concluding thought

While the judgment of the Court may be seen as conducive to greater legal certainty it does not necessarily contribute to an increased consumer protection. The pro-consumer reading proposed by the AG was not entirely unfounded and seemed well-aligned with the rationale of the provision as well as the requirement to interpret the exceptions strictly and ensure a high level of consumer protection. While in the case at hand, the Court was not ready to expand the scope of fairness assessment under UCTD, the case is not entirely lost for the consumers. Firstly, national courts should continue to assess whether the analysed contract term indeed "reflects" the relevant national provision. Secondly, due to the minimum level of harmonisation introduced by the UCTD, Member States may decide to extend the scope of the fairness assessment, for example in the direction proposed by AG Kokott.

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).

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.