No loophole for airlines- ECJ says an electronic complaint is a complaint in writing

On 12^th April the ECJ judgement on the Finnair case was published on article 31 of the Montreal Convention, with the main question revolving around what qualifies as a complaint in writing.

This is important as a complaint in writing is a requirement for bringing an action against the carrier.

The Court followed the AG Opinion (you can find the blog post on the AG opinion here).

 

Facts

Ms Mäkelä-Dermedesiotis travelled from Malaga to Helsinki on a Finnair flight in 2010. Upon arrival she discovered that items were missing from her checked-in luggage. On the same day of the flight, Ms Mäkelä-Dermedesiotis contacted the customer service of Finnair to report the incident. In that phonecall, she identified the lost items and informed the Finnair representative of their value. The representative entered the information provided by Ms Mäkelä-Dermedesiotis into the Finnair electronic information system. Ms Mäkelä-Dermedesiotis had taken out insurance and received compensation for her loss and the insurance company, Fennia, was subrogated in her place in the claim against Finnair. Finnair argued that Ms Mäkelä-Dermedesiotis had not filed a written claim within the periods laid down in Article 31 of the Montreal Convention.

 

Judgement

The first question was used to establish whether the requirements for bringing an action against the carrier are both filing a complaint within a certain time limit and in writing. The Court answered that indeed art. 31(4) of the Montreal Convention is to be interpreted in conjunction with art. 31(2) and 31(3), meaning that the complaint must be made in writing within the period specified in art.31(2).

For the second and main question, the Court chooses to interpret the term ‘in writing’ in a broader way stating that it ‘must be interpreted as referring to any set of meaningful graphic signs, irrespective of whether they are handwritten, printed on paper, or recorded in electronic form’ (para 35). The court adopts this broad interpretation of a complaint in writing which allows it to catch up to technological developments, as electronic complaints are common practice, especially for air carriers.

A narrow interpretation that would exclude electronic complaints would place a disproportionate barrier to consumers seeking to complain, as highlighted by the Court (para 34). As the Court leaves the form of the complaint open it draws attention to another element, that of being able to identify the passenger which made the complaint. In essence, the Court moves away from the written requirement, as one that needs to be made on paper, to any medium, including an electronic one, which allows for retrieval of information and identification of the complainant.

The third question asks whether the requirement of writing is fulfilled when a representative of the carrier records the complaint in the carrier’s electronic system with the knowledge of the passenger. The court does not view it as problematic that the passenger may be assisted to file the complaint. However, it sets an additional requirement that the passenger should be able to review the complaint and amend it or supplement it within the deadline for filing a complaint. (para 47). Not only is there a positive answer to the third question, but the court places an additional obligation to air carriers, not specifically listed in the Montreal Convention.

Finally, the fourth question was whether art.31 of the Montreal Convention prescribed any other requirements except that of giving notice of the complaint. The Court decided that since the Montreal Convention specifies the time limit for the filing of the complaint as well as the form (in writing) and the consequences of failure to comply with these requirements, there is no other substantive requirement (para 53).

 

Conclusion

To sum up, this is a sensible judgement that protects the interests of consumers and showcases that the Court understands the realities of air travel, as experienced by passengers daily. It also sends out the message to air carrier companies that they cannot circumvent their obligations from the Montreal Convention on the basis of an anachronistic interpretation of the wording of the Convention.

AG Tanchev: Wild-cat strikes are extraordinary circumstances (joined cases Krüsemann)

When a large number of British Airways flights were cancelled in 2017 due to strikes of the company's personnel, the competent UK regulator advised disappointed passengers to claim compensation under the Air Passenger Rights regulation: while the point had never been expressly decided upon by the CJEU, it the restrictive way in which the concept of extraordinary circumstances had generally been applied by the court suggested that only strikes truly "external" to the airline would excuse them from paying compensation. 

The opinion issued today by AG Wahl in a number of joint cases Krüsemann brought against TUIfly suggests a different answer to this general question. 

In the case at stake, a wild-cat strike had taken place agains the carrier due to unpopular restructuring plans: without a strike being officially announced by the unions, much of the staff called in sick on a number of consecutive days, effectively disrupting the airline's operations. This is a rather specific case because, technically, strikes of this kind are not legal - which makes it harder to impute them to someone who, like the carrier, is not breaking the law. 

AG Tanchev's opinion makes at points larger, at points smaller differentiations between regular and irregular industrial action.

On the one hand, the AG argues [at para 57] that 

the objectives of Regulation No 261/2004 point toward the inclusion of ‘strikes’ within the concept of ‘extraordinary circumstances’. This is buttressed by the case-law of the Court, detailed above, at least in the context of substantial absences affecting operational capacity, on the interpretation of ‘extraordinary circumstances’ to date. 

On the other hand, the following paragraph [58] states that 

 in a Union governed by the rule of law, so-called ‘wildcat strikes’ are not inherent in the normal exercise of the activity of the air carrier concerned. They are not akin to something that is intrinsically linked to the operating system of the aircraft, so that it is inherent in the normal exercise of an air carrier’s activity. I further take the view that informing the employees of a potential restructuring did not bring the wildcat strike within the control of TUIfly, given that a wildcat strike was not the inevitable consequence of this action.

This last paragraph seems particularly focussed on the illegal nature of the strike at hand, even though the last sentence could be generalised to legal strikes - of course it was not informing employees of the restructuring that led to the strike, but the intention to do so - and this would be no less true of a "regular" strike. 

He also notes in one of the footnotes (fn 35) to the opinion that 

the conclusion to the effect that a wildcat strike is an extraordinary circumstance is in conformity with a recent Commission proposal to amend Regulation No 261/2004 which provides a non-exhaustive list of circumstances considered as ‘extraordinary circumstances’ for the purposes of the regulation. This proposal includes ‘labour disputes at the operating air carrier or at essential service providers such as airports and Air Navigation Service Providers’.

Thus, according to AG Tanchev, it seems that all strikes would fall under the notion of extraordinary circumstances.

The impact of this conclusion on consumer rights, however, is mitigated by the answer he gives to another question raised in the preliminary ruling request: when the Regulation refers to extraordinary circumstances "which could not have been avoided even if all reasonable measures had been taken", does it intend that the circumstances as such could not have been avoided, or that their consequences could not be prevented?

AG Tanchev considers the latter to be the correct interpretation: the fact that a certain event cannot be avoided does not mean that it is impossible to prevent it, through appropriate arrangements, from causing delays or cancellations. It is for the national court invested with the question to determine whether, in the circumstances of a specific case, all reasonable measures have been taken in order to prevent the unforeseen circumstances from causing significant disruptions. 

The opinion seems destined to bring about quite some forehead-scratching. On the one hand, there are bits in it that will be welcome both on the side of the industry and on that of consumer advocates; on the other hand, by making much depend on national courts' appreciation of the circumstances of a specific case, it seems destined to increase uncertainty. It also seems likely that air carriers would use the case, if the opinion were taken up by the court, to oppose all requests a prima facie denial - and then see whether consumers are going to take their claim to court. 

It remains to be seen whether the Court will follow the AG on this path.

Behavioural study on transparency of online platforms - let's try this again

Aside the New Deal for consumers, parts of which we have already commented on (see POLITICO publishes draft Commission proposal on collective redress for European consumers), and which we will keep on discussing in the coming days further, the Commission has also published today an interesting behavioural study on the transparency of online platforms (executive summary may be found here, the whole final report - here). Admittedly, I have not yet read the 206 pages long final report fully, but having studied the executive summary and checked a thing or two in the final report, here are some of my thoughts on the study.

The study focused on the possibilities of improving transparency of online platforms (such as Airbnb or Amazon) due to their potential for 'posing significant risks to consumer protection and market competition'. However, out of the three examined areas (criteria for ranking and presentational features of search results; presenting identity of contractual parties; quality controls on consumer reviews and ratings) only the first one could be presented as more unique for online platforms than other websites. Generally, establishing the identity of a counterparty online (regardless of the use of a platform) and the quality of the controls they use (rankings, endorsements) is problematic for most internet users. The question then is whether the Commission intends to extrapolate the findings from the online platform study to other online websites and consumer protection whilst using them.

The geographical scope of the study was limited to 4 countries (Germany, Poland, Spain and the UK); some of the biggest European countries in terms of population and size. Can we expect the results to then be representative for the EU?

Further methodological evaluation of the study is probably best left to the experts, but I do wonder e.g. whether the names chosen for restaurants and hotels that were being compared have been consulted with communication specialists as to not biasing consumers at the get-go.

In any case, the overall finding of the study: that online transparency is clearly in the interests of consumers - is hardly surprising or new. I guess it is always good to receive a confirmation thereof though. The study suggest that to achieve greater transparency:

- criteria used to order search results should be apparent to consumers and it should be possible to re-order search results using a range of criteria;

- consumers' awareness of the identity of contractual parties and their understanding of legal implications should be raised;

- platforms should be encouraged to implement quality controls for improved authenticity and greater number of reviews.

Again, hardly groundbreaking suggestions. It would be more noteworthy if the Commission indicated specifically how these objectives could be achieved (should we not start finally talking e.g. about particular font sizes and information placement?). Moreover, these suggestions could be misused by online platforms and traders. E.g. it is relatively easy (technically speaking) to introduce a search criteria 'popularity' to a platform, but what does it signify? The amount of clicks on a particular link or the amount of transactions concluded with the given product/service provider? It the clicks counted, it would not be surprising if a particular product or service was 'popular' because it was listed first when the measurement started. There are ample opportunities then to still not provide transparent information to consumers even by following the Commission's recommendations.

Nihil novi from the CJEU in Uber France

In a judgment delivered yesterday the Court of Justice once again looked at the legal environment of Uber’s business model. Similarly to its earlier ruling (see our post CJEU gives Member States a green light to regulate Uber), the Court classified the services provided by Uber not as information society services, but rather as services in the field of transport and denied the applicability of the European framework on services liberalisation to the analysed context. 

Setting the scene

The background of Uber France was analogous to Uber Spain. Both cases referred to the UberPOP business model, i.e. the one in which the smartphone app provided by Uber Technologies Inc. is used to connect passengers with non-professional drivers (the situation is different in a yet another pending case concerning Uber Black). The differences were subtle: in Uber Spain, the case referred to the civil proceedings brought against Uber by a taxi drivers’ association based on general rules on unfair competition. By contrast, Uber France dealt with a private prosecution and a civil action brought against Uber by a specific taxi driver based on a newly introduced provision of French criminal law. On both occassions the provider of the contested smarthphone app sought to rely on EU law to protect its freedom to provide information society services across EU. Both times - in vain.

The legal dilemma in Uber France

The more specific question in the commented case was whether the aforesaid provision of French law - which prohibited and penalised the organisation of a system for putting customers in touch with persons who engage in the carriage of passengers in breach of applicable market access requirements - constituted "technical regulation" within the meaning of Directive 98/34/EC as amended by Directive 98/48/EC (later replaced by Directive 2015/1535). Relying on such an interpretation, Uber argued that the provision could not be enforced against it because it had not been notified to the European Commission.

Indeed, Article 8(1) of Directive 98/34/EC, as amended, required Member States to immediately communicate to the Commission any draft technical regulation including any "rules on services". Article 1(5) defined a rule on services as "requirement of a general nature relating to the taking-up and pursuit of [information society] service activities ..., in particular provisions concerning the service provider, the services and the recipient of services, excluding any rules which are not specifically aimed at [information society] services". The directive did not elaborate on the consequences of a failure to notify; however, according to the settled case law of the Court, such a failure renders the adopted technical regulation inapplicable and therefore unenforceable against individuals (see paras. 35-39 of Advocate-General's opinion).

Against this background the national court decided to stay the proceedings and ask the Court of Justice for an interpretation of Directive 98/34/EC, as amended.

Judgment of the Court

The judgment in Uber France does not come as a big surprise - indeed, the Court decided to follow its earlier line of reasoning as well as the argumentation of AG Szpunar (see also our post The Uber saga continues) and refused to provide the defendant with a helpful hand. The Court, once again, focused on the classification od services provided by Uber and found them to fall outside the scope of Directive 98/34/EC, as amended, and Directive 2006/123 on services in the internal market. Consequently, to the extent the national provision applied to services of this kind, the provision itself fell outside the scope of both liberalisation directives.

In this short entry I will not argue either in favour or against the classification made by the Court - the issue is by no means black-and-white and continues to divide the academic community. Instead, I will focus on the quality of legal reasoning in Uber France, of which, I believe, one could have expected more.

Comment

The questions referred by the national court in the commented case revolve around the nuanced terminology used in Directive 98/34/EC, as amended, particulary the notion of a "rule on services". One problematic element of this term - the quality of not being "specifically aimed" at information society services - was already highlighted before. In the subsequent paragraph Article 1(5) provides for further interpretative elements, which the referring court seemed to consider relevant.

The Court of Justice, however, did not elaborate on any of these elements. It limited itself to rejecting the qualification of services provided by Uber as information society services, holding that the intermediation service provided by that company was "inherently linked" to the offer transport services and thus constituted a service in the field of transport. In doing so, it relied on two criteria: the fact that the drivers and passengers would not have been led to provide or use the transport services without the Uber app and - the criterion which I personally find more convincing - the fact that Uber exercised "decisive influence" over the conditions under which the relevant transport services were provided (para. 21). The Court went on to recall that services provided by Uber also fell outside the scope of Directive 2006/123 on services in the internal market, which does not apply to transport. Because the judgment is essentially limited to these insights it does not bring anything new beyond what we already know from Uber Spain.

The Court's self-restraint may be frustrating to the reader, who may be tempted to look for more clues that the judgment actually provides. What, in my view, does not follow from Uber France is that an existence of a business model which falls under the national provision while not qualifying as an information society service automatically disqualifies such a provision as being "specifically aimed" at information society services. Assessment of the detailed wording of Article 1(5) of Directive 98/34/EC, as amended, including references to the statement of reasons of national provisions as well as to an implicit or incidental effect of such provisions on information society services can still be relevant. But does this make any difference for the procedural situation of Uber? The judgment in Uber France does not really tell.

* The author carries out a research project on consumer protection in the collaborative economy, financed by the National Science Centre in Poland on the basis of decision no. DEC-2015/19/N/HS5/01557.

The Facebook-Cambridge Analytica fallout and user privacy

Dear readers, this time we need to refer to slightly less usual sources to report on some rather interesting developments concerning themes that have been often brought up on this platform. 

First, yesterday Facebook's CEO Mark Zuckerberg had the chance to exchange views for over five hours with a number of US representatives and said something interesting about privacy policies. In the most extensive coverage I could find on the issue, ie on Vice (!) he is reported to have responded to a question on data privacy and what the company intends to change going forward that 

“This  gets into an issue that we and others in the tech industry have found challenging which is that long privacy policies are very confusing,” Zuckerberg said. “One of the things we’ve struggled with over time is to make things as simple as possible so people can understand it. We don’t expect that most people will want to go through and read a full legal document.

While making disclosures more effective is certainly a theme which is dear to many of us, the conundrum which Facebook seems to struggle with would probably best be addressed by means of more stringent rules on what data can be shared by social media and other service providers, with whom, and for what purposes. According to the Vice piece, Facebook is also taking a number of other steps to improve its practices in data use and encourage whistleblowing on "abusive" advertising.

Meanwhile, quite appropriately it seems, the GDPR will enter into force next month! While previously much criticism had been raised by the industry about the new and somewhat more restrictive rules introduced by the regulation, Zuckerberg has recently announced that Facebook will - with adaptations - seek to comply with the regulation's standard across its worldwide operations (see coverage on Gizmodo). In the wake of the Cambridge Analytica scandal, it seems that somewhat more privacy protection is in fashion after all. 

POLITICO publishes draft Commission proposal on collective redress for European consumers

POLITICO, a well-known news website on European affairs, reports that it has obtained a draft proposal of the European Commission for a new Directive on representative actions for the protection of the collective interests of consumers, and repealing the Injunctions Directive (2009/22/EC; referred to as "ID"). Last year, the Commission already announced a 'New Deal for Consumers', including an EU-wide class action and collective redress; see our blog post here.

One of the drivers of this development has been the "the inquiry into emission measurements in the automotive sector", i.e. 'Dieselgate'; see our previous blogs here, here and here. Not all Member States provide for collective redress mechanisms tailored for mass harm situations, so not all consumers have access to effective redress opportunities. According to the Commission, the significant disparities among Member States require EU intervention, particularly in light of the cross-border implications; although the proposal applies to domestic infringements of EU law as well.

The draft proposal is a follow-up to the REFIT Fitness Check of EU Consumer and Marketing Law, which also covered the ID, and to Commission Recommendation 2013/396/EU. The Commission states its intention to further strengthen the redress and enforcement aspects of consumer protection (Article 114 TFEU and Article 38 EUCFR), through the establishment of a complementary EU framework supported by procedural rules on the national level. This should also facilitate access to justice (cf. Article 47 EUCFR); possible benefits of collective judicial actions are lower costs and more legal certainty. The proposal is meant as an additional procedural tool: it does not replace existing mechanisms, nor does it affect substantive rights.

The proposed Directive establishes "certain key aspects", but its lack of further detail is also its weakness. For example, it does not specify which divergences between Member States or gaps in the protection of collective consumer interests are most problematic. It does not make a clear distinction either between injunction orders, redress orders and declaratory decisions, nor does it address corresponding procedural complications and modalities.

The Commission does not explain why the ID needs to be improved and which specific elements need an update. It only observes that the key shortcomings of the ID are its limited scope, the limited effects of injunctions on redress for consumers and the costs and length of the procedure. The Commission therefore proposes to enlarge the scope of the future Directive to other horizontal and sector-specific EU instruments, e.g. in the field of financial services, energy, telecommunication, health or the environment. Consumers who have been harmed must be able to rely on a final decision in a representative action (Article 8 draft proposal). The proposal aims to improve the effectiveness of injunctions in terms of deterrence of unlawful practices, as well as fair and adequate compensation for consumers, but how exactly those goals are to be achieved is not elaborated. Moreover, the proposal aims to strike a balance between facilitating access to justice and ensuring adequate safeguards from abusive litigation (frivolous claims), but again modalities are not defined. The proposal works with 'qualified entities' that must satisfy certain criteria (Article 6 draft proposal), and it emphasises the importance of 'due procedural expediency'. However, how this is to be realized is left to the Member States.

In the Netherlands, for instance, a legislative proposal is pending for the introduction of a collective damages action. The ongoing discussion shows how difficult it is to find a balance between access to justice and effective redress on the one hand, and the prevention of abuse on the other; see here and here for more background information. The most controversial issues, such as the designation of a lead plaintiff, opt-in/opt-out possibilities and the calculation of damage, are not addressed in the Commission's draft proposal. 

It is expected that the Commission will announce its proposal (this draft or an amended version) in the next few months. It is far from certain that it will eventually result in a Directive. Whether it will be adopted or not, the proposal is likely to have an impact on the debate on collective redress.

An end to high banking transfer charges in the EU?

On 28^th March, the EU Commission put forward a Proposal for a Regulation that will reduce charges for bank transfers in the European Union outside the euro area. This initiative is aiming at making the banking union ever closer, especially in retail banking where there have been fewer actions compared to prudential regulation.

Thanks to Regulation 924/2009 fees for cross-border payments in euros between euro area members have been equalised. However, the situation in non- euro zone EU countries is very different with consumers often paying expensive fees even for the transfer of small amounts of money. As mentioned in the press release for the Proposal, consumers in some instances were called to pay as much as 24 euro charges for the transfer of 10 euros, making it highly detrimental to consumers.

The proposed Regulation amends Regulation 924/2009 and aims at removing this perceived barrier to the single market by extending its scope to non-euro area Member States. It must be noted that the proposed regulation only covers transactions in euros and not in other currencies. Regulation 924/2009 offered the possibility to extend the regulation to other currencies, yet only Sweden has made used of that rule. Therefore, the Commission decided this was the time to introduce this measure as now euro payments are cheaper than they were in the past.

The effect of the Proposal is two-fold, as it harmonises cross-border banking charges as well as improving transparency. According to the Proposal charges for cross-border payments in euros will be the same as charges for national (non-euro) payments. This means that the transfer fees will be significantly lower if not nonexistent. Consumer will not be the only ones to benefit, as also businesses will be able to be more competitive to businesses operating in the euro area.

As for transparency, at present consumers are not able to compare options, especially when paying with a card where they are offered the option to pay either in the local currency or in their home currency. The Proposal tackles this issue by obliging payment service providers to offer the full cost of both options to consumers prior to the initiation of a payment transaction. Furthermore, recognising the constant technological advances in the field, the European Banking Authority (EBA) will develop regulatory technical standards on how payment service providers are to fulfill their transparency obligations as well as being able to place caps on such conversion charges.

The Proposal has been positively received by consumer organisations, as reported in a euractiv article .Indeed this is a positive development for EU consumers and should it be voted in the Parliament as it will have a tangible effect on their everyday transactions making them easier and cheaper and making the banking union ever closer.

"Not sure if debt owns me or I own debt": assignment of consumer debts and default interest rates in Spain (Opinion of AG Wahl)

Of all preliminary rulings on the Unfair Contract Terms Directive (93/13/EEC) in the EUR-Lex database, more than one-third concern questions to the EU Court of Justice from Spanish (civil) courts. The first - Océano (C-240/98) - has become a landmark decision in consumer law. Yet the highest civil court in Spain, the Tribunal Supremo, had never referred a case to the CJEU until last year.

In February 2017, the TS made two preliminary references, one on terms allowing for accelerated payment (vencimiento anticipado; C-70/17) and one on clauses containing default interest rates (interés de demora; C-94/17) that are disproportionally high.

Yesterday Advocate General Wahl published his Opinion in the latter case, which has been joined with another Spanish case on the assignment and purchase of consumer debts (C-96/16).

The joined cases both pertain to (unsecured) consumer credit agreements. In C-94/17 (Escobedo Cortés), the consumers involved had started proceedings against Banco de Sabadell and alleged that a default interest of 25% was excessively high compared to the ordinary interest rate of 5,5%, and therefore unfair. In C-96/16, the default interests at issue were 18,50% respectively 23,70% versus ordinary interest rates of 8,50% respectively 11,20%. The bank in question, Banco Santander, had claimed accelerated payment and requested enforcement of the debt. It subsequently assigned the debt to a third party, which then asked to take over the bank's position in the enforcement proceedings. [N.B. It is becoming increasingly difficult to refer to the CJEU cases on the basis of party names; this case could be called Banco Santander II.] The referring court doubted whether the consumer-debtors should not have been given an opportunity to purchase the debt themselves, so that it would be extinguished. It also wondered whether the case law of the Tribunal Supremo on default interest clauses was compatible with EU law. According to this (national) case law, a default interest clause that exceeds the ordinary interest rate by more than 2 points is unfair and thus invalid. While the additional charge is eliminated, ordinary interest continues to accrue until the debt has been paid in full. 

AG Wahl divides his Opinion in three parts, regarding 1) the purchase and assignment of the debt, 2) the judge-made rule on the unfairness of default interest clauses, and 3) the consequences for, in particular, ordinary interest. 

"Not sure if debt owns me or I own debt..." 

As regards the first part, Wahl finds that the Directive is not applicable to an assignment between two professional parties, in this case: Banco Santander and a third party. Pursuant to the Annex (sub p) to the Directive, terms giving the trader the possibility of transferring his rights and obligations under the contract may be considered as unfair where they reduce the guarantees for the consumer, without her consent. In Wahl's view, however, the case did not concern a term in a consumer contract and besides, the assignment did not change the consumers' contractual position. Consumer protection may become an issue in the relation between the new creditor and the consumers involved, but it is not (yet) a problem now. This - again - shows the limits of what the Directive can do.

Still, the referring court's doubts reveal an underlying issue with the 'commodification' of consumer debts. A third party may acquire the debt for a fraction of its value and then make a profit at the expense of the consumer. From that perspective, the question whether the consumer should not be able to acquire the debt (instead of a commercial investor) is not so strange. Moreover, it is questionable whether the assignment does not have any impact on the consumer's position at all. There is no guarantee that the third party who has acquired the debt operates according to the same standards (duty of care) as the bank that provided the loan.  

A judge-made 'black list'? 

As regards the second part, Wahl observes that from the perspective of (full) effectiveness of the Directive, there is nothing wrong with a judge-made rule that certain clauses are automatically unfair, although that might distort the general contractual balance (in abstracto). In this respect, it is relevant that the '2-points rule' has been formulated with a reasonable interest percentage in mind.

Wahl emphasises that courts must still be able to take the specific circumstances of each individual case into account, but he only seems to have the situation in mind that the term is found to be unfair. Whereas clauses that do not exceed the maximum of 2 points can still be deemed unfair, it seems that courts cannot deviate from the rule when they find that a clause with more than 2 points could, in the circumstances of the case, be regarded as fair. This would go even further than a 'black lists' of unfair terms that are presumed to be unfair, compiled by the national legislator. It would come down to a judge-made 'black list' that does not leave much space for an assessment in concreto. 

Consequences of unfairness

Lastly, Wahl recalls that national courts cannot revise the content of unfair terms. Unfair terms may be replaced by national statutory provisions only when the invalidity of the unfair term would require the court to annul the contract in its entirety, thereby exposing the consumer to disadvantageous consequences; see our earlier reports on Unicaja Banco and Caixabank and Kásler. In Unicaja, the CJEU held that a national provision laying down a threshold corresponding to the default interest rate equal to three times the statutory interest rate must be without prejudice to the court's assessment of the unfairness of a term setting default interest. Wahl adds that if such a term is deemed unfair, it is invalid and must be eliminated from the contract. This would neither require the contract to be annulled in its entirety, nor have disadvantageous consequences for the consumer; on the contrary. In that event, the term cannot be replaced by the statutory interest rate that would have applied by default if there had been no agreement. 

However, removing the default interest clause from the contract does not need to affect the ordinary interest rate in a separate clause, insofar as that clause is not unfair. The ordinary interest is meant as a compensation for the creditor who has provided the loan (a 'core term' according to Wahl), whereas the default interest intends to 'punish' the debtor for not fulfilling her payment obligations. Here, Wahl draws a comparison with a penalty clause. 

If AG Wahl's Opinion is followed, it seems that what the courts in first instance and in appeal had done in the case before the Tribunal Supremo (C-94/17) is incompatible with the Directive: they had diminished the default interest clause to three times the statutory interest rate. Instead, the default interest must cease to apply completely. That will probably deter credit institutions from using excessively high default interest rates in consumer contracts, but consumers must still pay ordinary interest. How this relates to the Tribunal Supremo's other preliminary reference on accelerated payment clauses - which is also relevant for the consumers in C-96/16, against whom enforcement proceedings are pending - remains to be seen. 

AG Opinion in Bankia: UCPD is not applicable in mortgage enforcement proceedings

Introduction

On the 20^th of March, AG Wahl published his opinion on the Bankia case. The case revolves around the application of Directive 2005/29/EC (The Unfair Commercial Practices Directive) to mortgage enforcement proceedings in Spain. The case is added to the growing case law of the application of consumer law to contracts and illuminates the aim and field of application of the UCPD according to the AG.

Facts of the case

The debtors, Juan Carlos Marí Merino, Juan Pérez Gavilán, María de la Concepción Marí Merino took out a loan, secured by a mortgage in 2006 with the following terms: 166.000 € capital, 25 years repayment and the value of the mortgage was set at 195.900€. In 2009, the loan capital was increased and the repayment term extended. Finally, in 2013, as the debtors were falling behind with payments for more than a year and their outstanding debt had reached 102.750 € there was a final modification of the loan terms. The repayment period was extended to 40 years and the mortgage asset was re-evaluated at 56.689 €, a value far lower than the 2006 one, due to the housing market crisis in Spain.

As the debtors continued to default on payments, the bank initiated mortgage enforcement proceedings in 2015. The bank requested an order for payment and if the debtors were unable to pay the mortgaged asset would be auctioned with a starting price of 57.684,90 €. The starting price for the auction was calculated according to the 2013 re-evaluation and the lower price meant it was unlikely the proceeds from the auction would suffice to cover the amount owed.

The debtors objected to the enforcement proceedings on two grounds. Firstly, arguing for the existence of unfair terms in their contract, as the aim of the modification of the loan terms was to get them to agree to a decreased evaluation of their property. Secondly, that according to the Spanish Code of Good Banking Practice they could be discharged of their debt due to their financial situation. Finally, they also asked for the enforcement proceedings to be stayed.

Questions

The following questions were referred to the Court:

(      1)    Must Directive 2005/29 be interpreted as meaning that national legislation such as that currently regulating Spanish mortgage enforcement — Article 695 et seq. in conjunction with Article 552(1) of the [Law of Civil Procedure] — which does not provide for the review by the courts, of their own motion or at the request of one of the parties, of unfair commercial practices, is contrary to Article 11 of that directive because that national legislation hinders or prevents review by the courts of contracts or acts which may contain unfair commercial practices?

(     2)    Must Directive 2005/29 be interpreted as meaning that national legislation such as the Spanish law which does not ensure actual compliance with the code of conduct if the party seeking enforcement of a debt decides not to apply that code (Articles 5 and 6 of Royal Decree-Law No 6 of 9 March 2012, read in conjunction with Article 15 thereof) is contrary to Article 11 of that directive?

(     3)    Must Article 11 of Directive 2005/29 be interpreted as precluding Spanish national legislation which does not allow a consumer, during mortgage enforcement proceedings, to request compliance with a code of conduct, in particular as regards the giving of a property in payment and extinguishment of the debt — Point 3 of the Annex to Royal Decree-Law No 6 of 9 March 2012, Code of Good [Banking] Practice?’

The novelty of the case revolves around whether the UCPD can be applied to halt mortgage enforcement proceedings, in a similar way as the Unfair Contract Terms directive has been applied in the past. The the significance of the Opinion is on the enforcement of the UCPD as per art. 11 UCPD and whether it grants remedies to individual consumers.

Answer to question 1

AG Wahl provides a lengthy answer to the first question. He recognises the main tension of EU consumer law between a high level of consumer protection and encouraging cross-border trade as well as the broad scope of the UCPD (para 35, 38) According to art.11 (1) UCPD, Member States must ensure that ‘adequate and effective means’ exist for the enforcement of the Directive. Is effectiveness of enforcement achieved when unfair commercial practices cannot be reviewed in the context of mortgage enforcement proceedings? The Opinion points out that the UCPD does not provide a right to a contractual remedy for consumers against unfair commercial practices, instead focus is on providing penalties for traders. The Spanish law provides for declaratory proceedings to establish the existence of unfair commercial practices. The next step is to establish whether to satisfy the effectiveness test, declaratory procedure is not enough, and there is also the need to allow for mortgage enforcement proceedings to be stayed.

In the well-known Aziz case it was held that precluding the review of an unfair contract term in mortgage enforcement proceedings was contrary to EU law. The referring court and the Commission wish to draw a parallel between Aziz and Bankia arguing that the same reasoning should be followed and precluding consideration of unfair commercial practices in mortgage enforcement proceedings should be found contrary to EU law.(para 30) Yet, the AG is of another opinion, differentiating between Directive 93/13 (The Unfair Contract Terms Directive) and the UCPD. According to the Opinion, Directive 93/13 does offer a remedy to individual consumers, while Directive 2005/29 only provides for penalties for the trader and therefore cannot prevent the enforcement of the mortgage. Therefore, the lack of suspensory effect of the declaratory proceedings does not influence the effectiveness of the enforcement of the UCPD. (para 61) The AG allows for one exception, in the case where the unfairness of a commercial practice may play a role in assessing the unfairness of a contract term. However, as was found in Pereničová and Perenic, the unfair practice is only a factor for assessing the unfairness of a term. (para 64)

Consequently, the answer to the first question was that national legislation which does not provide for the review of unfair commercial practices during mortgage enforcement proceedings is not contrary to the UCPD.

Answer to questions 2 and 3

The second and third questions focus on codes of conduct and whether a code of conduct can be enforced using the UCPD. According to the AG Opinion, codes of conduct offer an additional means of control to that of the UCPD, and non-compliance with a code of conduct does not automatically amount to an unfair practice. (paras 74-75) In any case, same as for question 1, the AG found that any consequences from the breach of the code of conduct would be for the trader as the UCPD does not offer any individual contractual remedy for the consumer (para77).

Therefore, the answer to the second and third question was the national legislation which does not provide consumers with an individual contractual remedy in the case of breach of code of conduct, is not contrary to the UCPD.

Conclusion

The AG opinion may at first fight appear as one that reduces the level of protection for consumers; as consumers who are at risk of losing their homes as a result of mortgage enforcement proceedings cannot rely on the UCPD in the same way they can rely on the Unfair Contract Terms Directive. Yet the AG opinion accurately reflects the current state of the UCPD and as highlighted by the AG the main issue of the debtors was the re-evaluation of the property rather than the existence of an unfair practice (para 59). This does not mean that it would not be appropriate for consumers to have individual remedies against unfair practices, but rather that this is not the case at the moment. This issue has been highlighted in the Consumer and Marketing Law Fitness Check where one of the suggestions has been to amend the UCPD in order to provide contractual remedies for consumers. It remains to be seen whether the ECJ will follow the AG Opinion or whether they will decide that the UCPD should be considered in the context of mortgage enforcement proceedings, or whether a legislative intervention is the only way to resolve this problem.