CJEU in Schottelius: a sales contract under Directive 99/44 is... a sales contract.

Back to school for students and us teachers, but also back to work for the CJEU. 

Last week, the Court had to decide on a case allegedly involving the Directive on Consumer Sales and Associated Guarantees of 1999 - Schottelius, or C-247/16. 

Under the Consumer Sales Directive, the seller of a defective good must perform a repair request within a "reasonable time", after which inaction on their side authorizes the purchaser to seek alternative remedies. Under general contract law, on the other hand, the creditor of an outstanding obligation usually first has to set a deadline for the debtor to comply. Failing that, they have no recourse against the debtor for any expenses they may have undergone as a result of the latter's failure to comply. 

In the case before the CJEU, the contract at stake concerned the renovation of a swimming pool- a contract that national private laws usually would identify as one of "services". The Directive, on the other hand, only applies to sales contracts. 

The referring court asked whether a general principle of European contract law should be deduced from the Directive, according to which in consumer contracts the setting of a term for performance is not required when the consumer is acting as the creditor. 

The Court of Justice answered that, even though the definition of "sales" under the Directive does not need to coincide with the various definitions given under national contract laws, and it even expressly seeks to deviate from those by including contracts that comprise the delivery and installation of certain goods (see article 1.4 of the Directive), a contract to carry out renovation works such as the one as stake in this case cannot fall under the remit of the Directive. 

Nice try from the referring court, though!

"We gave you an inch, please don't ask for a mile" - CJEU on the notion of 'distance' in Regulation 261/2004

With more than 20 preliminary references submitted and resolved to date one would think that the most contentious issues concerning the interpretation of Regulation No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights have already been addressed. Nothing could be more wrong, apparently. Last Thursday the CJEU delivered another interesting judgment on that matter - this time in case C-559/16 Bossen and Others. The case pertained to the calculation of a distance, which determines the amount of compensation due to passengers whose flights were delayed. 

Facts of the case

Factual circumstances of the case were pretty straightforward and involved a passenger booking a trip from Rome to Hamburg via Brussels. The flight was delayed by almost 4 hours meaning that the applicant was entitled to demand compensation analogous to the one which can be claimed by passengers of cancelled flights, in line with the earlier, pro-consumer case law of the CJEU (see cases Sturgeon and Nelson). The demand itself was not questioned by the air carrier - the bone of contention was rather the amount of the compensation due. This depended on the distance covered by the flight, which, pursuant to Article 7(4), should be calculated using the so-called great circle route method. What remained uncertain was whether, in the application of that method, account should be taken of the distance between the first point of departure and the final destination or whether the distance of each connecting flight should rather be considered.

Against this background, the national court decided to stay the proceedings and ask the CJEU whether the concept of ‘distance’ referred to in Article 7(1) of the regulation relates, in the case of air routes with connecting flights, only to the distance calculated between the first point of departure and the final destination on the basis of the ‘great circle’ method, regardless of the distance actually flown.

CJEU judgment

The Court of Justice decided to side with the air carriers this time and ruled that it is the distance between the first point of departure and the final destination that counts. Specific passenger itinerary, in particular the existence and the choice of particular connecting flights, should be irrelevant.

The ruling was supported by a rather concise reasoning. Further insights cannot also be drawn from the Advocate-General's opinion as the CJEU decided to proceed without one. According to the Court, in case of passengers whose flights were cancelled or delayed the damage which Regulation 261/2004 aims to remedy consists in depriving them of the opportunity to reorganise their travel arrangements freely. As a result "if, for one reason or another, they are absolutely required to reach their final destination at a particular time, they cannot avoid the loss of time inherent in the new situation, having no leeway in that regard" (para. 27). Understood in this way, the extent of the inconvenience suffered by a passenger concerned does not depend on the fact whether his final destination is reached by means of a direct flight or by a journey with connecting flights. Speaking more generally, the ruling appears to strike the right balance between the rights of passengers and interests of air carriers. The reasoning, however, begs the question why the distance covered by the flight is considered in the regulation at all. 

7-8 September - workshop Sustainable Consumption: Information Regulation, Consumer Behaviour, And the Rule of Law

Sanctioning EU-wide infringements: is there a need for an overhaul of the existing enforcement regime?

I recently read the news that the Commission announced taking steps towards fining Google, Twitter and Facebook for breaching EU consumer protection rules. The Commission has found that the standard terms and conditions of the three companies are continuously breaking EU consumer protection rules, for example by forcing European consumers to take their disputes to California courts (see the press release here). The Commission has warned the companies that sanctions will take place unless they bring their standard terms and conditions in compliance with EU consumer protection rules, the final deadline being now the end of September. However, although the breach affects consumers across the EU, the Commission is powerless in taking EU-wide action to protect every affected European consumer, and to defend the authority of EU consumer law. The Commission can only negotiate and exercise pressure by putting forward the prospect of being fined by Member States. However, final actions need to be taken by Member States and their respective authorities.

In spite of harmonizing substantive law, (public) enforcement of consumer law remains national. It is confined to national enforcement authorities, the Commission's role being simply in coordinating their activities via the Consumer Protection Cooperation (CPC) network. Consequently, EU wide infringements must also be addressed at national level. In the situation like the present one, the Commission cannot directly sanction businesses in breach of EU consumer law. Fines have to be ordered by national authorities. It makes me wonder whether this is the most effective and efficient way to enforce EU consumer Law? The one potentially huge fine is now sliced up on 28 slices, even if the aggregate amount of 28 fines would be higher than one single fine, the present solution requires considerable resources at Member States' level for conducting the enforcement procedure and for monitoring compliance with the sanctions. The slicing up the fines and the 28 independent enforcement procedures may undermine the preventive, deterrent effect of the sanction. The fact that the Commission negotiates with the companies but has actually no power to act may leave a confusing message as to the importance of EU consumer law. It looks like that harmonized substantive law rules fall apart at national level... Leaving aside aspects of effectiveness and efficiency, it looks like this approach may ultimately encroach on one of the  basic values on which the EU is founded upon, on the principle of the rule of law (Article 2 TFEU). It therefore begs the broader question as to whether there is a need to overhaul and improve the existing regime of the enforcement of consumer law by empowering the Commission to take enforcement actions against EU-wide infringements.

Even though there may be disagreements on the answer to the above question, and some may argue that enforcement of consumer law should stay national, it looks like that we may look ahead of some changes. According to the press release: 'EU lawmakers are currently negotiating a separate draft EU law that would give the Commission more power to directly sanction firms that violate consumer protection rules'.

Is there a need to reform European financial supervision for the benefit of consumers?

The European Commission has recently closed its public consultation on the Operation of the European Supervisory Authorities (see the feedback statement here).

The supervision of financial firms in the EU is subject to a complex, multi layered system consisting of national and EU supervisory authorities that has became even more complex after the creation of the Banking Union. For us here most important are the European Supervisory Authorities (ESAs). The ESAs, the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), the European Insurance and Occupational Pensions Authority (EIOPA) has been created in 2010 as a response to the financial crisis. Although they are primarily concerned with prudential supervision (ensuring that financial firms have enough capital to operate, that they are safely and soundly), consumer protection is also on the list of their objectives.

Consequently, the recently held consultation asked whether the current tasks and powers of the ESAs are sufficient to protect consumers and how they could be improved in this respect.

Many stakeholders found that the scope of ESAs' tasks and powers is adequate and should not be extended. Instead, they should use their existing powers more efficiently, and should be more aligned with the problems at national level. However, some stakeholders saw room for extending ESAs' powers, e.g. by giving ESAs more powers for consumer protect purposes, want to see more work in the financial innovation space, including on virtual currencies, or on financial education, cross-border protection, big data etc. Finally, some, like Better Finance, advocate for the overhaul of the current system of supervision by opting for a 'twin-peak' model instead of the current 'silo' approach. The argument is that the current ESAs prioritise prudential matters over consumer protection matters (see their press release here).

Learning from the experience of the UK, the twin peak model could be an interesting option. In the UK, the former Financial Services Authority, having both the mandates of prudential supervision and consumer protection, failed to properly balance its two limbs of supervision. Although it is said to have paid more attention to conduct matters, having too much to do resulted in a number of conduct failures causing significant detriment to consumers (PPI, payday loans, etc).  The creation of a separate consumer protection authority (the Financial Conduct Authority) has improved consumer protection standards and practice, and the approach so far seems to work well for the UK. However, we must admit, that although the solution of having only one supervisory authority for the entire EU financial market sounds appealing, it is a radical suggestion that requires, among others, substantial background research.

What do you think, is there a need for an EU Financial Consumer Protection Authority, and is it a viable solution?

E-commerce: consumer confidence grows significantly

Yesterday, the Commission published the 2017 edition of the Consumer Conditions Scoreboard. 

Next to the observation that the share of consumers buying online has pretty much doubled over the last 10 years (from 29.7% in 2007 to 55% in 2017), the most striking finding is that consumer trust has increased quite dramatically since the 2015 edition. The study records a 12 points increase of trust vis à vis "national" retailers and 21 points(!) improvement when ordering cross-borders. 

copyright European Union

The study also checked whether consumers were aware of certain key rights (right to return a product bought at distance within 14 days without giving any reason; right to a replacement and/or the repair of faulty products;  right to neither pay nor return unsolicited products) that they enjoyed when shopping online. Only 12% of the surveyed consumers gave correct answers in respect of all three rights, showing 3 points improvement compared to 2015.

While the study also investigated complaints and dispute resolution and paid some attention to the issue of vulnerability, the results are less striking in these areas. 

The full report can be downloaded here and a factsheet can be downloaded under yesterday's press release.

Debt collection requires consumer protection, too - CJEU in Gelvora (C-357/16)

From previous European case law we already know that commercial practices directed at consumers have been broadly interpreted by the Court of Justice (see e.g. CHS Tour Services). In the most recent case - Gelvora (C-357/16) - which was decided last Thursday, July 20, the CJEU decided to encompass within this notion also services of debt collection agencies, which collect debts resulting from consumer credit agreements.

Gelvora is a private debt collection agency operating in Lithuania, which contracted with banks not consumers, to take over banks' claims from consumer credit contracts. Upon being assigned the debt, Gelvora would start recovery actions, sometimes in parallel with enforcement procedures following judicial decisions. Consumer debtors filed a complaint about unfair commercial practices of Gelvora with the Lithuanian consumer protection authority (Valstybinė vartotojų teisių apsaugos tarnyba). The CJEU was asked as to whether the UCPD could apply at all to such practices.

The CJEU reminds that to qualify certain commercial actions or omissions as a commercial practice, there is no need for a contractual relationship (para 20). The practice needs to be 'directly connected with the sale of a product', which covers also actions undertaken to obtain a payment for the product (para 21). In the given case, banks provide consumers with credit (a service) in exchange for consumers' repayment (together with interest) (para 22). Subsequently, Gelvora provides debt recovery activities  - which should be seen as a 'product' provided by debt collection agencies under Art. 2(c) Unfair Commercial Practices Directive (para 23). At the same time, these activities could be perceived as a commercial practice, as the activities of debt collection agencies may influence consumers' decision as to the payment of the product (para 25). It is irrelevant that the bank provided the original service (credit), as the debt collection activities form a part of after-sales commercial practices, that may be facilitated by third parties (para 26). The CJEU clearly emphasises also the danger of excluding such practices from the scope of application of the UCPD - as it could then be tempting for service providers to separate the recovery of payment phase from the provision of the service, avoiding the application of consumer protection (para 28).

Time limits for consumer claims under Consumer Sales Directive - CJEU in Ferenschild

Setting the scene

The European debate on consumer sales law has taken an interesting turn these days. Its legislative dimension appears to be fixated on the two digital proposals tabled in 2015: on online and other distance sales of goods and on the supply of digital content. By contrast, case law on the good old Consumer Sales Directive has become awkwardly dominated by disputes related to the sales of used cars (see e.g. the widely commented Wathelet case from last year). Of course, legal questions addressed in this context remain of much broader relevance. This was also the case in C-133/16 Ferenschild, on which the Court of Justice ruled this Thursday (see also our previous post on AG's opinion).

In the commented case the CJEU was called upon to provide its guidance on several procedural stipulations of Directive 1999/44/EC. As indicated above, the case involved a purchase of a second-hand car which did not work out quite as planned. The source of non-conformity was rather unusual: the vehicle itself worked well, but could not be registered directly after delivery since its documents had earlier been used as a cover for a stolen car. Nevertheless, the actual crux of the dispute lied in its specific timing: although the defect became apparent shortly after delivery, formal claim for compensation was only made over one year later. 

This would not have been an issue had we been dealing with a regular sale of brand new products. After all, Article 5(1) read in conjunction with Article 3(1) of Directive 1999/44/EC provides that the seller shall be liable for the lack of conformity which exists at the time the goods were delivered and which becomes apparent within two years from delivery. It further clarifies that the limitation period for claims arising from the lack of conformity, if laid down by national law, shall not expire within an analogous period of two years. 

The situation can nevertheless be different with respect to contracts for the sale of second-hand goods. Article 7(2) of Directive 1999/44/EC allows Member States to provide, by way of derogation, that the seller and consumer may agree on a shorter time period for the liability of the seller arising from such contracts (although no less than one year). At the same time, the directive remains silent as to the duration of the limitation period which should apply in this situation. Since that question appeared to be of direct relevance to the unfortunate buyer in the case at hand, the referring court decided to stay the proceedings and seek guidance from the CJEU. 

The question referred can be summarised as follows (para. 32):

Must Article 5(1) and the second subparagraph of Article 7(1) of Directive 1999/44/EC be interpreted as precluding a rule of a Member State which allows the limitation period for action by the consumer to be shorter than two years from the time of delivery where the Member State has made use of the option given by the latter of those two provisions, and the seller and consumer have agreed on a period of liability of the seller of less than two years for the second-hand goods concerned?

Judgment of the Court

The Court largely followed the pro-consumer interpretation proposed by Advocate-General Szpunar earlier this year (see also our earlier post here), holding that a national rule, which would allow the limitation period afforded to consumers to be shortened as a consequence of the reduction of the period of liability of the seller to one year, is precluded by Article 7(1) of Directive 1999/44/EC.

In reaching that conclusion the CJEU relied on the following set of arguments. Firstly, it drew a distinction between two types of time limits referred to in Article 5(1), namely the period of liability of the seller and the limitation period (para. 33-35). The Court further emphasised the difference between aims pursued by both types of time limits as well as other factors which, in its view, supported the claim that duration of the limitation period was not contingent on that of the period of liability (such as the fact that the former does not necessarily commence at the time of delivery or that no reference to the first sentence of Article 5(1) is made in the second sentence of that provision). It then went on to discuss the wording on Article 7(1), read in conjunction with recital 16, and concluded that the derogation provided therein concerns only the period of liability of the seller and not the limitation period (para. 42-45). This interpretation was further supported by the fact that the second subparagraph of Article 7(1) constituted an exception to the rule expressed in its first part (on binding nature) and, as such, had to be interpreted strictly.

Concluding thought

By holding that the duration of the limitation period for action by the consumer should, in all cases, not be shorter than two years from delivery, the Court confirmed its strongly pro-consumer stance, which had already been visible in its earlier judgments - both on Consumer Sales Directive (Wathelet) and on Unfair Contract Terms Directive (from Aziz to Banco Primus). In the commented case, the Court relied heavily on the advice of the Advocate-General. However, as seen from the recent opinion in case C-598/15 Banco Santander (see also our post here), AGs are not always arguing in a similar vein. Therefore, even if the Court has so far remained largely consumer-friendly, and probably rightly so, one has to wonder if this pro-consumer direction is not going to reach its limit sometime soon. 

The Uber saga continues

Roughly two months ago we commented on the opinion of Advocate-General Szpunar in case C-434/15 Uber Spain. His conclusion that the popular ride-hailing platform should not be considered as an information society service, but rather as a transport service was very bad news for Uber. We also wrote that the same AG was currently drafting an opinion in a related case, C-320/16 Uber France, which left the provider of the (in)famous transport app with little grounds for optimism. The opinion was eventually published this Tuesday and, indeed, comes as no surprise.

Background of the case

The case deals with a specific provision of the French transport code, introduced in 2014. It 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. The provision was aimed as a new weapon for national authorities and private parties against providers of services such as UberPOP (part of the ride-hailing business model involving non-licensed private drivers). Soon after it came into force, the provision was put to test in the first proceedings.

Uber naturally fought back. It argued, among others, that the national provision invoked against it constituted a technical regulation within the meaning of Article 1(11) Directive 98/34/EC, as amended, and was therefore covered by the notification requirement laid down in Article 8(1) of that directive. According to the defendant, since no such communication had been made, the provision relied upon in the proceedings should be deemed inapplicable and hence unenforceable.

Two heavy blows from Advocate-General

"UberPOP not an information society service"

Advocate-General Szpunar was not convinced. He began the assessment by recalling his earlier opinion in Uber Spain, in particular the proposed guidelines as to how "composite services" (i.e. services consisting of a component provided by electronic means and a component not provided by such means) should be approached. What is more, he used the opportunity to make two additional points in support of his claim. First, he distinguished the type of activities pursued by Uber from the situation considered by the CJEU in case C-339/15 Vanderborght (see also our earlier blog post on that matter here). Furthermore, he drew a distinction between the case at hand and the legal relationship arising from a franchise contract. The AG concluded by reiterating his earlier view that services provided by Uber should not be classified as information society services, but rather as services in the field of transport.

"Either way, national provision at issue not a technical regulation"

The Advocate-General did not stop here, however. He went on to argue that the question of whether the contested provision of French law constituted a technical regulation could be resolved irrespectively of the classification of the UberPOP service. And, not surprisingly, also that line of reasoning was not very helpful to Uber.

The assessment focused on the wording of Article 1(5) of Directive 98/34/EC, as amended (on a side note, the act was recently repealed and replaced by Directive 2015/1535). The analysed provision defined "rules on services" as requirements of a general nature relating to the taking-up and pursuit of the activities of information society service providers, excluding any rules which are not specifically aimed at those services. It also clarified that "a rule shall not be considered to be specifically aimed at information society services if it affects such services only in an implicit or incidental manner".

The analysis started well for Uber. The Advocate-General agreed with the defendant that the contested national provision was "principally directed at systems for connecting the two parties by electronic means", thus rejecting arguments of the French government to the contrary. However, he went on to argue that - since the prohibition in question was limited to the organisation of a system for putting customers in touch with persons providing transport services illegally - the impact of that prohibition on information society services was merely incidental. 

In one of the most illustrative parts of the opinion the AG submitted: 

"If every national provision that prohibited or punished intermediation in illegal activities had to be regarded as a technical regulation merely because the intermediation most likely takes place by electronic means, then a great number of internal rules in the Member States, written and unwritten, would have to be notified as technical regulations. That would lead to an unwarranted extension of the obligation to notify without that really contributing to the attainment of the objectives of the notification procedure, the purpose of which is to prevent the adoption by the Member States of measures that are incompatible with the internal market and to enable economic operators to make more of the advantages inherent in the internal market. Instead of that, an excessive notification obligation, with the penalty of regulations that have not been notified being inapplicable, would facilitate circumvention of the law and engender legal uncertainty, including in relationships between individuals." (para. 31)

Concluding remark

The commented opinion deals with a delicate interface of regulation and innovation and is bound to attract mixed responses. One may wonder, for instance, how national provisions like the one at issue should be assessed in the light of Article 15 of Directive 2000/31/EC on electronic commerce and whether some sort of notification mechanism would not be desired to ensure compliance with this norm. The question would, of course, be devoid of meaning if the Court were to follow the AG's understanding of the nature of Uber's activity in the first place. In this respect the Advocate-General appears to share the view that the company, which he classifies as a transport company, should be distinguished from the "genuine sharing economy". Last but not least, it is worth noting that some of the criteria referred to by the AG in support of this claim overlap with the indicative benchmarks formulated by the Commission in its collaborative economy communication (particularly references to the level of control or influence exerted by the platform provider). Quite ironically, however, the Commission itself had reportedly been pleading - at least in Uber Spain - against the proposed line of reasoning. This shows that the matter remains highly controversial and its eventual resolution is far from clear. The doubts should be allayed by the end of this year.

* 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.

Pricing of flights - CJEU in Air Berlin (C-290/16)

CJEU issued a judgment today in the area of air travel, following on its previous decisions in cases ebookers.com (see our post here) and Vueling Airlines (see our post here). The judgment Air Berlin (C-290/16) first clarifies that airlines are obliged to indicate to air passengers prices of taxes, airport charges and other fees and surcharges separately from the price of the air fare. Air Berlin was shown to have had indicated as the price component of the final price a tax amount that had been much lower than the taxes the airline had to pay in reality. This could be misleading for consumers, as the remaining amount of the tax would be added to the final price, and could be seen as part of the air fare. The CJEU perceives Article 23(1) and (3) of the Regulation 1008/2008 on common rules for the operation of air services in the Community as requiring such a separate indication of air fares from taxes etc., in order to guarantee price transparency.

Furthermore, the CJEU in this judgment confirms that the Unfair Contract Terms Directive is also applicable to the area of air travel. The German consumer organisation argued that the flat-rate handling fee of 25 Euro that was charged by the airline also in cases when the passenger did not take the flight or cancelled their booking was clearly detrimental and could be considered unfair. The airline objected to this assessment by invoking the pricing freedom of air services in the EU. While the principle of pricing freedom indeed applies in this area, that does not mean, pursuant to the CJEU, that terms of contracts of carriage by air could be excluded from the unfairness control.