New IACL conference announcement - February in Montpellier

If you have missed this week's first European conference of the International Association of Consumer Law, do not worry, you will have a chance to share your research and exchange ideas with colleagues in the field soon again. On 27 and 28 February 2025 at the University of Montpellier (France) we will reconvene at the European Congress of Consumer Law. This congress will be bilingual, with some sessions held in English and some in French language (which means that you do not need to speak French to join and participate). The conference will celebrate the work of Professor Jean Calais Auloy and have two themed sessions (devoted respectively to consumer information and to new consumption habits and unfair practices), as well as one session on all other issues of consumer protection. The call for papers is below. Send in your abstracts by October 25.

Insolvency protection for cancelled trips amidst Covid-19: CJEU in HDI GLobal and MS Amlin Isurance (C-771/22 and C-45/23)

The immediate impact of the pandemic might be on the wane, but the legal battlefield continues. In HDI Global and MS Amlin Insurance (Joined Cases C-771/22 and C-45/23), the CJEU analysed the implications of insolvency on consumers’ right to a refund after validly cancelling a package trip under the Package Travel Directive (Directive (EU) 2015/2302).

In both cases, the consumers booked package trips with their travel organisers and paid in full. Due to the spread of Covid-19, the consumers cancelled their bookings on the grounds of ‘unavoidable and extraordinary circumstances’ as per Art. 12(2) of the Directive, entitling them to a full refund. However, the organisers became insolvent before issuing the refunds. Though Article 17(1) of the Directive does mandate the provision of security for insolvency protection, its wording seems to require a causal link between the non-performance and the organiser’s insolvency for the consumer to benefit. Questions thus arise as to whether its coverage should extend to those consumers who cancelled their trips before the insolvency occurred. Art. 17(1) reads:

Member States shall ensure that organisers established in their territory provide security for the refund of all payments made by or on behalf of travellers insofar as the relevant services are not performed as a consequence of the organiser’s insolvency. […] (emphasis added)

The CJEU first reiterated the methods of interpreting EU law: ‘account must be taken not only of its wording, but also of its context, the objectives pursued by the rules of which it is part and, where appropriate, its origins.’ Moreover, ‘where the meaning of a provision of EU law is absolutely plain from its very wording, the Court cannot depart from that meaning’. (para 56) The CJEU then continued its reasoning in accordance with this formula.

Starting with the wording. The term ‘relevant services’ can only cover ‘travel services’, or it can indicate a broader scope, covering other services such as refunds (paras 58-59). Due to this ambiguity, the wording of Art. 17(1) does not provide an absolutely plain meaning (para 60). The CJEU thus further engaged with the provision’s context, objectives and origins.

• Contextual interpretation: The CJEU interpreted Art. 17(1) of the Directive within its broader context, considering other paragraphs of the same provision, related provisions and the recitals of the Directive. In particular, Art. 17(2) of the Directive requires the security to be effective and to cover reasonably foreseeable costs (para 64). In light of recitals 39 and 40, the CJEU states that any refund of payment is a foreseeable amount of payment which may be affected by the travel organiser’s insolvency (para 68). Otherwise, the effectiveness of consumers’ right to termination under Article 12(2) would be compromised, and consumers would be dissuaded from exercising their rights (paras 69-70). Lastly, Art. 5 of the Directive requires the travel organiser to inform the consumer that ‘if the organiser … becomes insolvent, payments will be refunded’. This information would be misleading if Art. 17(1) excludes consumers’ refund claims arising before insolvency (para 73).
• Teleological interpretation: One of the main objectives of the Directive is to ensure a high level of consumer protection in EU package travel policy (para 74). In this light, given that Directive 90/314, the predecessor of the current Package Travel Directive, did not exclude travellers’ refund claims from insolvency protection, a restrictive interpretation of Art. 17(1) would constitute a reduction in the level of consumer protection (para 79).
•  Historical interpretation: The CJEU consulted the legislative history of Art. 17(1) but did not find it helpful (para 80).

Finally, the CJEU also highlighted that secondary EU law must be interpreted consistently with primary EU law as a whole, including the principle of equal treatment (para 82). This principle requires that comparable situations must not be treated differently unless objectively justified (para 83). The situations involved are (1) travellers whose package travel cannot be performed due to insolvency and (2) travellers whose refund claims following termination cannot be fulfilled. These situations are comparable because in both cases travellers are exposed to the financial risks entailed by the organiser’s insolvency (para 87), and there appears to be no justification for treating them differently (para 89).

In conclusion, the CJEU ruled that the security under Art. 17(1) applies to a traveller who has terminated the contract before insolvency but has not received the refund. Consumers can rest assured – while your trips might not go as planned, your refunds are secure. This decision will surely be welcomed by consumer rights advocates. Insurers are not too exposed either, as the ‘reasonable foreseeability’ criterion still serves to protect their interests.

Hidden plane defects and cancelled flights - CJEU in C-385/23 (Finnair) and C-411/23 (D.)

This June the CJEU issued two judgments analysing the scope of the application of the 'extraordinary circumstances' exception to airlines' scope of liability for cancelled flights, where cancellation was a consequence of a hidden plane defect.  

In Finnair (C-385/23) a relatively new plane (5 months old) had a failure of a fuel gauge, which became evident during refuelling shortly before take-off. Due to flight safety concerns the flight was cancelled and passengers only flew the next day, arriving at their destination ca 20 hours late. Investigation of the defect showed that even though this plane was the first one to experience this defect, all other aircrafts of the same type suffered from this defect.

In D. (C-411/23) the carrier has received a notification of a hidden design defect in the engine from its manufacturer together with a list of restrictions on the future use of an aircraft. A few months later, the defect manifested and the engine had to be sent out for a repair. Due to a global engine shortage, engine replacement was not possible for almost a week in that plane. This meant that the passenger's flight was delayed by more than 3 hours, as an alternative aircraft had to be used to operate the flight.

Manufacturer reveals design defect after the technical failure occurred

Finnair's case is a relatively straightforward one. The CJEU confirms that the 'extraordinary circumstances' defence from Article 5(3) Regulation 261/2004 on air passenger rights applies also when the manufacturer of a plane discovers the existence of a hidden defect after that defect manifested and caused harm. The time of recognising a defect as a hidden one is irrelevant, thus this recognition does not have to precede the occurrence of a technical failure. While dealing with consequences of technical failures could normally be seen as falling within the normal exercise of airlines activity and within their control, the CJEU has previously recognised an exception for hidden manufacturing defects of planes (paras 30, 33-35).

Carrier's knowledge of the design defect before the technical failure occurred

Similarly, in D. the CJEU recalls previous case law on when technical failures may amount to 'extraordinary circumstances', i.e., when hidden design defects manifest themselves, as these are not inherent in airlines' normal activity and remain beyond their actual control (paras 34, 36-38). It then also stresses the irrelevance of the timeframe in which the manufacturer reveals the existence of a hidden defect to air carriers "since that defect existed at the time of the cancellation or long delay of the flight and the carrier had no means of control to correct it" (para 40).

This is an interesting conclusion, as we could have anticipated that if air carriers are informed about one of their aircrafts belonging to a class of planes with a hidden design defect, they would then have (some) control on the follow-up steps: repair or replacement. Taking remedial measures would also remain consistent with the objective of assuring a high level of flight safety (para 41). 

This brings us to the second part of Article 5(3) Regulation 261/2004 which only releases air carriers from their liability if they took 'reasonable measures' when extraordinary circumstances occurred, i.e. "conditions which are technically and economically viable for that carrier" (para 44). The CJEU leaves it to the national court to determine whether all reasonable measures have been taken by the carrier, both after the notification of a hidden defect and after this defect manifested itself (para 48). This could have included the airlines' capability (financial and technical) to have this engine repaired while replacing the grounded aircraft with a chartered one or by fitting a replacement engine in it (para 50). Alternatively, if this was viable, the airline could have arranged for a back-up fleet or aircraft and crew on standby (para 51). What the CJEU does not consider a reasonable measure is the airline resizing its operations just in case of a hypothetical occurrence of a defect (para 52).

7th Annual Consumer Law Scholars Conference - call for papers

The next CLSC conference will be held in Boston, March 6-7, 2025. Anyone interested in participating in the East Coast edition of this conference should keep busy this summer and send their abstract in by September 6. See for further details the conference website (click here).

One size fits all? Average consumer in collective proceedings, CJEU in C‑450/22

 Dear readers, 

it is with genuine excitement (albeit with some delay) that I type out some thoughts in reaction to a very rich new decision by the CJEU, namely Caixabank and others of 4 July 2024 (C‑450/22).

This case is, shockingly but not incredibly, yet another instalment in the floor clauses saga that we have so often written about. It is especially salient, however, both in that it delivers additional insight in the relationship between the national and European dimensions of the story, and in that it decides important points of law in the still relatively underdeveloped area of collective proceedings. 

Our readers will remember the story: in 2013, the Spanish Tribunal Supremo (TS) declared that commonly used “clausolas suelo”, or “floor terms” which made sure that interest rates in variable interest rate mortgage contract would, counterintuitively, never change below a certain minimum rate – were unfair. The case subsequently reached the CJEU when the same TS tried to limit in time the effects of its judgement - which the CJEU (in its 2016 Gutiérrez Naranjo case) decided it was not the TS's call to make. Years later, the controversy is not over since affected consumers are still trying to recover unduly paid interests.

What was this specific preliminary ruling application about, though? The TS was invested with questions of law concerning a very large cease-and-desist cum damages lawsuit against, eventually, circa one hundred banks. The dispute followed declarations that floor terms included in many contracts were non-transparent and unfair under the Spanish rules implementing the Unfair Terms Directive. Spanish courts had previously found that this unfairness occurred, in particular, when the terms considered were presented in particularly misleading ways - hidden, framed by terms that looked like they reduced their impact, and so forth. The defending banks, however, questioned the rather wholesale application of the transparency test - was it not supposed, according to the UTD and CJEU case law, to be carried out having in mind the specific circumstances of each individual case? How could it be applied, in collective proceedings, to clauses in different contracts, offered to different customers, with different variations of the overall contract drafting?

This question was asked at two levels: first, as to whether in general the idea of collective proceedings for transparency did not clash with the possibility to assess on a case-by-case basis; second, whether in the specific case of this dispute, concerning contracts offered to very different segments of the consumer mortgage markets, it would not be misplaced to apply the same "average consumer" standard to assess all the concerned terms. Ex ante, the first question would have looked moot to an informed observer; the second seems to me less obvious, even though the Court seemed to find it relatively easy to answer. We will look at those questions in order. 

In the first question, the court had to consider whether transparency assessment under the UCTD could be carried out "in the context of a collective action brought against a large number of sellers or suppliers operating in the same economic sector, and concerning a very large number of contracts."

In answering this question, the Court acknowledged that in individual proceedings, assessing whether a term meets the transparency requirement requires considerations of the circumstances surrounding the conclusion of the individual contract. This specific feature of the assessment can obviously not be transposed to collective proceedings. The rest of the test, however, can be transposed. In this sense, national courts will have to assess

"in the light of the nature of the goods or services which are the subject matter of the contracts concerned, whether the average consumer, who is reasonably well informed and reasonably observant and circumspect, is in a position, at the time the contact is concluded, to understand the functioning of that term and to evaluate its potentially significant economic consequences. To that end, that court must take into account all the standard contractual and pre-contractual practices followed by each seller or supplier concerned, including, in particular, the drafting of the term in question and its position in the standard-form contracts used by each seller or supplier, the advertising employed for the types of contract concerned by the collective action, the dissemination of generalised pre-contractual offers aimed at consumers and any other circumstances which the court might consider relevant in order to exercise its power of review with regard to each of the defendants"

The national court, thus, will have to apply the average consumer test to a range of different practices and different actors. This can make the litigation complex, but, according to the Court, does not make collective proceedings non-viable as long as they meet the two requirements set in the directive's article 7(3), namely that they concern similar terms used or recommended by operators or associations of operators in the same sector. A different interpretation would plausibly undermine the whole construction of collective proceedings under the provision. 

So far, so good. The next part of the answer, however, may prove a bit trickier in the future. The second question, the Court said, required essentially to consider whether the average consumer, "who is reasonably well informed and reasonably observant and circumspect" can be used as benchmark to assess the transparency of a term (or similar terms) used in multiple contracts "where those contracts are aimed at specific categories of consumers and that term has been used for a very long period of time during which the degree of awareness of that term was developing." (para 47)

In the case under consideration, the referring court had observed that the concerned contracts had been concluded, over a long period of time, by "consumers who had taken over mortgage loans concluded by real estate developers, consumers coming under social housing finance programmes or public housing access programmes according to certain age brackets, or consumers who had obtained loans under a special scheme on account of their profession" (para 51). 

According to the CJEU, however, it is "exactly the heterogeneity" of the public concerned that makes recourse to the "legal fiction" of the average consumer necessary in order to be able to assess the terms in collective proceedings. (para 52). In contrast, it is possible that different assessments concerning the transparency of a term at the time of concluding the contract could have to be made because of supervening events alerting the general public to the significance of certain terms - here, the floor clauses. National courts can take this into account, to the extent that such a change in perception could be documented on the basis of "concrete and objective evidence" rather than "inferred from the passage of time alone" (para 55).  The judgement recalls that, during oral proceedings, the objective event or matter of common knowledge could consist in the collapse in interest rates, characteristic of the 2000s, which led to the application of the floor clauses and therefore to consumers becoming aware of the economic effects of those clauses, or in the delivery of judgment No 241/2013 of the Tribunal Supremo (Supreme Court) of 9 May 2013, which found that those clauses were not transparent" were suggested as possible relevant moments - it is then for the referring court to ascertain whether such events would have led to a change "over time, in the level of attention and information of the average consumer at the time a mortgage loan agreement was concluded." (para 56). 

The follow-up of this case will be interesting to observe for at least two reasons: on the one hand, the question of what specific developments can be considered to have generated a change, in the degree of attentiveness, alertness or information, relevant to how an average consumer would have understood a certain clause requires a degree of fact-finding that is partially at odds with the abstracting ideal of the average consumer. It also leaves national courts, and potentially lower courts, considerable leeway – especially given the limited reviewability of matters of fact in many jurisdictions. 

 

Second, while instrumental to an overall logical conclusion here – safeguarding the Directive’s explicit indication that collective proceedings should not be confined to entirely homogeneous terms and contracts – the idea that the target consumer doesn’t matter for applying the average consumer test seems to contradict the spirit of the Unfair Commercial Practices directive, which the average consumer notion is ultimately borrowed from. In that context, namely, article 5(2) declares unfair a practice that is likely to affect the economic behaviour of the average consumer or “the average member of the group when a commercial practice is directed to a particular group of consumers” -the so-called “targeted consumer” benchmark. Why would the referring court not be expected or be able to consider these different targeted consumers? Besides being potentially at odds with the UCPD, this insistence on abstraction seems to contradict the Court’s insistence that national courts can distinguish between what average consumers would understand before a certain event and what they would understand thereafter: if empirics matter in this case, why not with reference to targeted consumers?

Don't know about you, but I will be taking this question with me into my holidays! Hopefully many interesting developments to comment on after the summer break. Stay tuned 

Online safety and "vulnerable" consumers: the new OFCOM's draft codes of practice

The English Office of Communications (OFCOM) has recently released its new draft "Children's safety online" codes of practice in line with the Online Safety Act (OSA) the main act providing for online safety in the UK, which became law in October 2023. 

OFCOM is responsible for enforcing the OSA. Its draft codes of conduct are meant to complement it and to suggest platforms (especially, social media) how to shape a safer environment, with a focus on underage consumers. Accordingly, the guidelines encourage platforms to be stricter in setting up adequate procedures for age-checking, to provide users with the due instruments to report harmful content, to remove it when necessary, and to clarify the systems used to monitor and moderate online content, particularly with respect to young people.

Platforms ought to take measures based on their size, the purpose of their services, and the risk of harm to children. Thus, the Online Safety Act adopts a risk-based approach, similar to the European Digital Services Act (Regulation EU, 2022/2065). The purpose is indeed the same: ensuring that online service providers implement procedures that are able to tackle the threats to online safety while safeguarding users’ privacy rights and freedom of expression. The two acts therefore cover issues such as content moderation, and other generative AI outputs, such as deep fakes. They both show the increasing attention placed by lawmakers on new forms of digital vulnerability, and how to address them.

OFCOM’s choice to enact codes of conduct is in line with the European approach, too; in fact, the EU lawmaker has also emphasized the relevance of codes of conduct and soft laws in shaping a safer digital environment. The draft codes of conduct provide for transparency, placing on platforms the duty to make available to the public their risk-assessment findings, and providing systems to easily report illegal content. 

And the Agency has gone even further. Indeed, it has declared that it could even impose a ban on people under the age of 18 to access platforms that fail to comply with its guidelines. 

However, some questions arise from reading the new OFCOM document. Will the procedures for ascertaining the age of users lead to the collection of an excessive amount of personal data, violating the data minimization principle under the GDPR? Are OFCOM’s codes too restrictive if compared to the DSA, forcing platforms to adopt a “double standard” between users based in the UK, and those that are based in the rest of Europe? Is the Online Safety Act “technologically neutral” enough when differentiating platforms’ obligations on the basis of the content type or the most comprehensive approach adopted by the DSA, based on equal risk mitigation for all the illegal content, is to be preferred?

Despite these concerns, which undoubtedly will be further examined by many scholars and privacy advocates in the coming months, the guidelines seem promising for improving the online safety of English users, especially children. The true test will be their implementation and enforcement.

Transparency about online payments even if they are conditional - CJEU in Conny (C-400/22)

Last week, on May 30, the CJEU gave its judgment in the Conny case (C-400/22) elaborating on the requirement from Article 8 of the Consumer Rights Directive to clearly label an online obligation to pay on a website on a relevant button with the words 'order with obligation to pay' (or an equivalent of this).

Photo by Alice Pasqual on Unsplash

The facts of this case are interesting as it was a trader that tried to argue that the lack of clear wording on a website about an order with an obligation to pay should lead to the voidness of the concluded contract. The contract in case was a lease contract, concluded between a landlord and a tenant. Pursuant to German law, this lease contract had a ceiling on the rent that consumers had to pay and if this ceiling was exceeded, consumers could claim reimbursement of overpayments. Conny - a debt collection company - offered to collect the rent overpayments as an assignee of consumers rights. The contract between Conny and consumers was concluded online, via its website. Consumers had to approve T&Cs and click on a button to place the order, which button was not labelled with the required wording. The reason given for this was that the payment was conditional on Conny successfully securing the debt collection. Only at that time consumer would have had to pay a third of the annual rent saved, pursuant to T&Cs. The landlord used the lack of the proper labelling on Conny's website as an argument that the assignment of consumer rights was void and, that therefore, Conny could not have been successful in claiming repayment of rent from the landlord. 

Order with an obligation to pay - whether payment is conditional or unconditional

The CJEU clarifies, as expected, that the trader's obligation to transparently inform consumers concluding a contract through its website about an obligation to pay, just before a consumer binds themselves to this payment, does not change if the payment is dependent on satisfying a subsequent condition (para 56). This allows the consumer to explicitly acknowledge his consent to be bound by an online order with an obligation to pay (paras 43, 50). The CJEU points to the lack of distinction in the CRD between conditional and unconditional payments, as well as the duty to inform placed on traders when an order 'implies' an obligation to pay (paras 46-47). A different interpretation would have led to traders being able to explicitly inform consumers about their obligation to pay not at the ordering process, when consumers may still avoid the order and the subsequent payment obligation, but only at a time when the payment becomes due (para 52). Traders could then circumvent their duty to inform by placing in their T&Cs an objective condition, fulfilment of which would be required to lead to a payment obligation (para 53).

Sanction of voidability

An important clarification follows in paras 54-55 of the judgment. The CJEU emphasises the CRD's wording, which only states that a consumer is not bound by the contract in case the above-mentioned trader's duty has been breached. This does not need to indicate that a contract is void, but rather that a consumer has an opportunity to avoid it. This would make a significant difference in cases such as the one referred to the CJEU, when it is a trader who is trying to use an infringement of consumer protection rules as a 'weapon' against, ultimately, a consumer.

Delays in luggage loading a possible extraordinary circumstance - CJEU in Touristic Aviation Services (C-405/23)

On May 16, the CJEU issued a new judgment on air passenger rights when there is a long flight delay and an airline claims extraordinary circumstances, in the case Touristic Aviation Services (C-405/23).

In a given case, the flight was delayed by 3hrs and 49 min between Germany and Greece. The delay was a result of a perfect storm of various contributing circumstances: shortages of staff in both boarding the previous flight on this route as well as in loading the baggage on the plane, but also weather conditions worsening after the plane was ready for departure. At a glance, we could then say that at least some of these circumstances (weather) could qualify as extraordinary circumstances. The main issue in this case was whether the shortage of staff provided by the operator of the airport, rather than the airline, to load the luggage on the plane, could amount to an extraordinary circumstance. If yes, this would likely lead to a delay for which the airline was  not responsible, i.e.,  not exceeding 3 hours (not long enough for compensation under Regulation 261/2004). 

The CJEU's answer is not straightforward, unfortunately. There are two conditions that need to be met: the event not falling within the normal exercise of the airlines' activity and it remaining outside the airlines actual control (para 21). It refers to its previous case law on defects in refuelling systems at the airport as amounting to an extraordinary circumstance if the defect "is the result of a general failure", in that case in the refuelling system managed by the airport (para 23 - reference to case C-308/21, SATA International - Azores Airlines). The CJEU then advises the national court to check whether the shortage of staff for the baggage loading could amount to a general failure of baggage loading operations (para 24). What is missing here is an advice as to more precise parameters that would allow to lead to the demarcation of a general failure. Regarding the second requirement, whether the airline had control over the baggage loading operations could depend, per CJEU, on whether the airline could "exercise effective control over the operator of that airport" (para 27). Could this requirement potentially create a distinction between bigger and smaller airlines, as well as airlines who have their hubs at a given airport? Finally, the national court needs to examine whether the airline could have avoided this delay by taking all reasonable measures, which can e.g. mean using services of another baggage loading service provider (para 29). This again may depend on airlines' resources, leading to a further distinction between various airlines in avoiding having to pay compensation under Regulation 261/2004.

Overall, this judgment does not introduce more legal clarity by stating that a shortage of staff in luggage loading operations could constitute an extraordinary circumstance, but not being very directive on when this could occur.

New action by BEUC: Tamig Temu

We all like a good deal! However, those of us who know (a bit more) about consumer rights and consumer law are aware that cheap goods and services often come at a high price, by infringing our consumer rights.

TEMU, the online marketplace that has gained popularity in the EU, has recently came under the spotlight. This month, BEUC, The European Consumer Organisation, has taken a significant step by initiating an enforcement campaign against TEMU, named 'Taming Temu'. The campaign is a response to TEMU's violation of its consumer protection obligations under the Digital Services Act. The identified breaches include:

•   failing to provide sufficient traceability of the traders that sell on its platform and thereby to ensure that the products sold to EU consumers conform to EU law.
•   using manipulative practices such as dark patterns to get consumers, for example, to spend more than they might originally want to, or to complicate the process of closing down their account.
•   failing to provide transparency about how it recommends products to consumers.

BEUC filed a complaint with the European Commission, while 17 of BEUC’s members filed the same complaint with their competent national authorities. For a more efficient and effective enforcement action, BEUC asks the Digital Services Coordinators of each country (national authorities responsible for enforcing the EU’s Digital Services Act) to transfer the complaints to the Irish authority, TEMU’s country of registration. It would then be up to the Irish authority to take swift action to prevent further consumer harm.

Given the fast growth in the number of TEMU users, it is possible that the platform would pass the threshold of 45 million users per month, which would then classify it as a ‘very large online platform’ and grant the Commission competence to enforce the Digital Services Act.

Given that consumer law enforcement, especially against large platforms, was less effective in the past (see for instance our reports here and here), a concerted EU action is a welcome solution.

Blog team changes

Dear Readers, we wanted to update you on a few changes that have taken place in our merry blog team. After a few years of productive collaboration with Agnieszka Jabłonowska (Leiden University), she has decided earlier this year to give up this side project. It was a pleasure working with Agnieszka and we keep hope she may return to blog writing in the future. Since then, we have expanded our authors' team, thus you may shortly expect to see posts by new authors. Warm welcome to our three new contributors (in order of joining us): Marina Federico (Ca' Foscari University of Venice), Jie Ouyang (University of Groningen) and Dominik Dworniczak (EUI).