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

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

Facts of the case

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

Exclusion of contract terms reflecting mandatory statutory or regulatory provisions

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

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

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

Concluding thought

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

The floor is lava - CJEU further on floor clauses in Ibercaja Banco (C-452/18)

Last week the CJEU has also provided us with the judgment in the Ibercaja Banco case (C-452/18) regarding a possibility of novation of a consumer credit contract containing possibly unfair terms, namely floor clauses. We have already explained in details the facts of the case and the AG Saugmandsgaard Øe's opinion (Free and informed consent required to accept an unfair term...), thus here we will only focus on the judgment itself and questions answered in it.

May the parties novate a contract term, which could possibly be unfair? 

Whilst Article 6(1) UCTD determines a non-binding effect of unfair contract terms on consumers, the consequence of unfairness is voidability, leaving an option to consumers to oppose to the annulment of an unfair term (para 25). Consumers may prefer to keep the unfair terms in force and as long as they do so in full awareness of the consequences of their decision, providing free and informed consent, their choice needs to be respected by national courts (para 27). By way of analogy, therefore, consumers may enter into a novation agreement the subject of which is a potentially unfair contract term - again provided they do so with a free and informed consent, which involves consumers' awareness of the non-binding character of an unfair term and consequences of waiving that effect (paras 28-29).

What terms are individually negotiated?

The CJEU informs further the Spanish courts that it is rather unlikely that new terms intended to amend potentially unfair contract terms in previous standardised contracts have been individually negotiated between parties, and therefore do not require unfairness assessment themselves (para 34). The national courts must ascertain whether such terms proposing novation of the previous contract have indeed been individually negotiated, which would mean consumers were able to influence their substance (para 35). What indicates that the term was likely not individually negotiated are the following facts: novation of contracts was part of a general policy of renegotiating mortgage loan agreements (para 36), consumers were not given a copy of the new terms in advance or allowed time to examine it after the meeting (para 37). Importantly, the bank may not rely on the handwritten signature by consumer attesting to having read and understood the term as proof of the term having been individually negotiated (para 38).

Transparency by providing information on past changes in the index

Once again the CJEU has a chance to highlight, with reference to the previous case law, the importance of the principle of transparency going beyond terms being simply formally and grammatically intelligible (paras 44-48). The Court reminds its previous assessment that although it cannot be demanded variable rate credit providers to inform consumers precisely on the exact values for the whole duration of the credit, as it is the specificity of a variable interest rate that it fluctuates, such providers should illustrate for consumers 'data relating to past changes in the index on the basis of which the rate is calculated' (para 53). This should then also clearly show to consumers how the application of floor clauses will prevent consumers from taking advantage of rates dropping below the 'floor' rate proposed to them (para 54). The CJEU is convinced that an average consumer having such information will understand the economic consequences of novating a credit agreement with a variable interest rate loan by adopting a new floor clause in it (as compared to not having floor clauses in it at all, as a result of their unfair character) (para 55). 

Comment

There is a problem with this assessment by the CJEU. This last point could be true only if the credit provider indeed clearly indicates to consumers the potential unfair character of the original floor clause and informs them of the consequences of finding such unfairness, as well as provides such illustrations of past changes to the index that are transparent to consumers. In its reasoning, however, the Court focuses again on what information needs to be given to consumers (on past changes in the index, although even there the CJEU does not specify that the examples provided to consumers have to show the practical applicability of floor clauses) rather than on how this information is to be provided (when will it be understandable?).

Unfairness of a novation agreement

The CJEU determines that when in order to resolve a dispute parties decide to conclude a novation agreement pursuant to which both parties wave their rights of action under the old contract, this may be perceived as constituting the main subject matter of the new novation agreement pursuant to Article 4(2) UCTD. Consequently, such a waiver could be exempt from the unfairness test, provided it was clear to consumers what rights they were waiving and what were the consequences of such a waiver (principle of transparency) (para 68). The CJEU leaves the assessment of transparency to the national court, but draws its attention to the fact that at the moment of novation, the unfairness of the floor clause was a possibility rather than certainty, and that there was also uncertainty as to the scope of potential reimbursement for consumers (paras 71-73). As such, the bank may not have been able to inform consumers as clearly as consumers could expect on the consequences of unfairness. The CJEU is adamant, further, that any waiver of consumer rights resulting from the newly signed novation agreement is invalid (paras 75-76), as these disputes have not yet arisen.

Blog comments option disabled

Dear readers,

As this year we have been flooded with spam comments more than ever before, we have decided to disable the 'comments' option on the blog for the moment (read: until Blogger installs a better spam filter). We are still happy to receive comments on our posts - please reach out to us either on our email addresses (check our listed bios) - or start a discussion with us on Twitter. Most blog contributors have their own Twitter accounts, but we also share information on all posts via my account @joasialuzak.

Best,

Joasia (in the name of all contributors)

The missing suitcase - CJEU in Vueling Airlines (C-86/19)

Last week the CJEU issued a judgment in the Vueling Airlines case (C-86/19) deciding on the liability of air carriers for lost or damaged checked in baggage. As a reminder to our readers, this area of air passenger rights is not regulated in Regulation No 261/2004, but rather in the Montreal Convention.

The checked in luggage of the passenger in the given case never arrived at the final destination, which led the passenger to claim the maximum amount of compensation provided in Article 22(2) of the Montreal Convention - 1131 of Special Drawing Rights (SDR) (which would currently amount to ca 1376 Euro) - to compensate them for both material and non-material damages. The air carrier acknowledges its liability but wants to limit its compensation to the passenger to EUR 250 for all suffered by passenger losses. The passenger did not indicate the contents of the baggage, its value or weight, nor provided receipts for items bought to replace the lost items. Instead the passenger relies on the fact that loss of baggage is the most serious ground for liability of air carrier in Article 22(2) Montreal Convention and, therefore, should be awarded by the maximum amount of compensation provided in it. The referring courts indicates the different practice of national courts in awarding compensation in such cases: some courts require evidence as to specific passenger losses, others do not. Therefore, the CJEU is asked for its guidance.

The CJEU confirms first that Articles 17(2) and 22(2) Montreal Convention read jointly indicate that the amount of compensation for the lost baggage is not a fixed sum payable automatically to the passenger, but rather indicates the maximum amount of compensation that the air carrier needs to be prepared to pay when they are liable (para 35). This is not a surprising interpretation, as the previous case law on the Convention was also clear in indicating that these provisions aim to set absolute limits to the air carrier's liability, absent passengers indicating separately and explicitly a higher value of their checked in luggage, rather than regulate it on a fixed level (see e.g. our previous comment on Walz judgment).

The second question was more interesting: How are national courts to determine the amount of payable compensation? The answer to it is not surprising either, however, but rather deeply rooted in the limitations of the EU Law in relation to procedural matters. The CJEU is only able to indicate that the Montreal Convention leaves it to the national rules of evidence to determine how passengers are to prove the suffered losses, with the caveat that the national procedural rules must comply with the principles of effectiveness and equivalence (para 44). Already in the previous case - Espada Sanchez and Others (see our previous comment here) - the CJEU has confirmed that the burden of proof as to the value of the baggage is on the passenger (para 37). The CJEU mentions that the passengers could e.g. be asked to present receipts for items purchased to replace lost luggage, documents confirming the harms suffered as the result of the loss (para 41). When the passenger does not produce any such documents, the courts could consider the weight of the luggage, whether it was lost on an outbound or return journey, but any such assessments need to be made in consideration of the case as a whole (para 42). As it is the air carrier who is likely to have the record of the weight of the luggage, the national court may require them to help with providing evidence thereof (para 43).

CJEU on jurisdiction in Dieselgate disputes: C‑343/19, VKI v Volkswagen

Dear readers, 

as many of us prepare to enjoy some well-deserved holidays, we should not neglect to pay attention to a judgment by the Court of Justice from this week which can have important consequences on Dieselgate litigation. 

Since the scandal known as Dieselgate emerged a few years ago, several individuals, consumer organisations and law firms have started actions against Volkswagen to claim damages or other remedies in connection with the company's emissions fraud. While national courts are gradually also starting to render important decisions on the subject, this week the Court of Justice had to answer an important question: which national courts have jurisdiction to adjudicate on actions for damages brought by disappointed consumers?

image: pikist.com

Under article 7.2 of the so-called Brussels I regulation (n 1215/2012), a person domiciled in a Member State can be sued in a different member state, in tort cases, when this is the place where the "harmful event" has occurred or may occurred. 

In the case of Dieselgate claims, the referring Austrian court doubted what would have to be considered as the harmful event: is it the installation of a "defeat device" making the car's tracking of emissions unreliable, or is it, as claimed by the plaintiffs, the place where the defective vehicle has been purchased?

Recalling its earlier case-law, the CJEU (para 23) asserted that the concept of the "place where the harmful even occurred" covers both the place where the damage has occurred and the place where the damage-generating event took place.

The damage suffered by the buyers emerged immediately with the purchase of a vehicle whose value was lower than the price paid due to its defect and was not purely financial loss exactly because the vehicle was defective (para 35). For this reason, the damage emerging at the moment of purchasing the vehicle is suitable for establishing jurisdiction in the MS where the contract was concluded - in this case, Austria. 

According to the Court, this outcome does not undermine legal certainty as a manufacturer who sells in several Member States can expect to be sued in these MS and because, given the nature of the damage, courts of the state in which the contract has been concluded will be best placed to investigate the loss. Indeed, the CJEU observes, the possible loss of market price of the defeat vehicles depends very much on local market conditions, which means that courts of the MS where the original sale has been made can assess whether the consumer has suffered a loss of value. 

By taking away exceptions of jurisdiction, the CJEU has thus cleared one of the stumbling stones standing between consumers and effective remedies in this interesting saga. 

‘General terms and conditions’ means ‘general terms and conditions’ – provision of information in C‑380/19

Case C‑380/19 (available here) concerned DAÄB – a German cooperative bank – and the way that it provides mandatory information to consumers. According to Article 13 of the Alternative Dispute Resolution (ADR) Directive, traders are obliged to inform consumers about the ADR entity by which the trader is covered, when the trader commits to or is obliged to use those entities to resolve disputes with consumers. According to the same provision, traders are obliged to provide this information on their website ‘when one exists’. In addition, ‘if applicable’, this information must be included in the general terms and conditions of contracts between the trader and the consumer. The problem in this case revolved around the fact that DAÄB’s terms and conditions (available on its website) do not include information on its willingness or obligation to take part in a dispute resolution procedure. That information appears, however, in another tab on DAÄB’s website, as well as in another document that is sent to the consumer when a contract is concluded. This document lists the services and prices offered by DAÄB. Besides, although DAÄB operates a website, it does not conclude any contracts with consumers via that website. The referring court therefore questioned the meaning of the terms ‘when one exists’ and ‘if applicable’ present in Article 13 of the ADR Directive. The court asked the CJEU whether the trader must provide the information regarding ADR on its website even if it does not use it to conclude contracts and, if so, whether it is sufficient that the trader provides the relevant information somewhere else on the website rather than on the terms and conditions available.

The CJEU claimed that the terms used by the legislator are unambiguous: if the trader has a website, the information must be provided on that website (para 24). Besides, the information must not only be provided on the website but specifically in the terms and conditions when they are available (para 29). To support this conclusion, the CJEU invoked the terms used in other language versions of the ADR Directive (such as the Polish, Spanish, English, Portuguese, Dutch and Italian – para 24). Therefore, the duty to inform present in Article 13 is not correctly performed if the trader provides the relevant information somewhere on its website or in a separate document but not in the terms and conditions, like the case in question. Furthermore, the CJEU invoked the Consumer Rights Directive to raise a point regarding the moment in time when the information should be provided to the consumer. According to the CJEU, a joint interpretation of Article 13(2) of the ADR Directive and of Article 6(1)(t) of the Consumer Rights Directive dictates that it is not sufficient that the consumer receives the information regarding ADR simply at the time of the conclusion of the contract, regardless of whether it is in the general terms and conditions or in another document. To ensure a proper understanding of the information and to protect the free formation of consent, the consumer must be given this information ‘in good time before the contract is concluded’ (para 33).

While this is a short and straightforward case, it is interesting for several reasons. First, the CJEU once again showed that the different language versions are relevant in the interpretation of EU law (see also, for example, case Amazon EU). Second, the CJEU seems to assume a unified and rather formal notion of general terms and conditions. It seems that general terms and conditions in the sense of the ADR Directive are only those terms that are included in a document titled ‘general terms and conditions’. There are other possible interpretations, such as the one adopted by the Regional Court of Düsseldorf regarding this case, which considered that terms and conditions can consist of different documents, regardless of their designation. Finally, the CJEU introduced a discussion on the timing of the provision of information and it distinguished between information to be provided before the conclusion of the contract and information to be provided upon the conclusion of the contract. These two moments are often left undistinguished in practice.

How concerned are Europeans about their privacy?

Under the European Commission’s request, the European Union Agency for Fundamental Rights recently prepared a report about the Europeans’ perspective on their online privacy and personal data (here). This report is based on a survey where 35 000 Europeans were asked about their views on privacy and about their awareness of the GDPR. The survey is from pre-pandemic times (January-October 2019), but its conclusions are highly relevant in a time where several European countries consider using technology to track the spread of COVID-19. For example, the Netherlands will soon launch an app that will keep track of who the app holder was in contact with, so as to quickly notify them in case of a possible contact with a COVID-19 infected person (see more about this here).

The report showed some interesting results, particularly a difference between the level of trust in private and public bodies. While 23% of respondents claimed that they do not want to share any personal data with public bodies, 41% do not want to share personal data with private companies. The results also show that the willingness to share personal data depends on the specific data to be shared: for example, while 63% of willing-to-share respondents would share their home address with public bodies, a mere 7% would share their political views.

The report also touched upon another well-known issue: people do not read terms and conditions before agreeing to them. Surprisingly, in this study, 22% of respondents claim to always read terms and conditions (approx. one in five) and 44% claim to read them sometimes. This means that in total 66% of respondents read at least sometimes the terms and conditions of the products or services they acquire. While still far from ideal, these numbers are higher than those reported in other similar studies (see, for example, the study by the Behavioural Insights Team on which we reported here). More worrying is the percentage of respondents who read the terms and conditions but do not understand them (27%). There are, however, relevant differences between Member States: for example, while in Belgium 47% of respondents do not read terms and conditions, in Estonia that number drops to 22%.

Finally, there is a high number of respondents who are aware of both the GDPR and of their national data protection supervisory authority (around 70%). 60% of respondents are aware that they are legally entitled to access their personal data held by public administrations (although this number decreases to 51% regarding private companies). Moreover, most respondents stated that they are aware of privacy settings on their smartphones (72%), although the results are not as positive regarding the privacy settings of specific apps (31%).

Interest rate modifications are not separate contracts - CJEU in C-639/18 Sparkasse

On the 18th of June 2020 the CJEU delivered its judgement in C-639/18 KH v Sparkasse Südholstein on the interpretation of Art. 2(a) of Directive 2002/65/EC on Distance Marketing of Financial Services. Unfortunately, the CJEU did not follow AG Sharpston's consumer friendly opinion (on which we reported here).

The facts

To remind us of the facts, KH concluded three contracts with her regional Sparkasse. These contracts were with a fixed interest rate for a fixed period of time after which they would switch to a variable rate in the absence of an agreement between the parties on a new fixed rate (for a newly fixed period). The original contracts were concluded at a branch, but the renegotiated agreement on the interest rates were concluded at a distance, thus KH claimed that Directive 2002/65/EC was applicable giving her a right of withdrawal, which KH intended to use.

The legal question

The legal questions thus arose, whether the newly reached agreements on interest rates were separate contracts (to which the Directive would apply), or as the bank claimed, just 'operations' or amendments of the initial contracts (to which the Directive would not apply). Hence, KH's right of withdrawal depended on the interpretation of Art. 2(a) of Directive, i.e. whether the transactions setting out the new interest rates where covered with the concept of a 'contract concerning financial services' and a contract 'concluded under an organized distance sale or service-provision scheme'.

The ruling

In interpreting the phrase 'contracts concerning financial services' the CJEU concluded that the present agreements on the alteration of the interest rates are not separate contracts, they are not 'contracts concerning financial services' within the meaning of the Art. 2(a) of the Directive because they do no more than to alter the originally agreed rate of interest without changing the duration or the amount of the loan.

In its analysis, the CJEU referred to Art. 2(b) of the Directive that defined the concept of 'financial service' as including, among others, contracts of credit. In determining more closely the essence of a credit contract, the CJEU referred to its previous case-law (C-249/16) that clarified that the characteristic obligation of the contract is the granting of the sum lent, whereas the borrowers obligation to repay the sum borrowed is 'merely a consequence of the performance of the the service by the lender'.

In discussing the argument that the newly agreed interest rates are just operations of the initial credit contract, the CJEU disagreed. Having regard to the examples given in Recital 17 (such as opening a bank account as an initial service agreement and withdrawing money from the account as its operation), an amendment that sets a new rate of interest as a result of a renegotiation of a clause in the initial contract (which provides for a variable, 'back-up' rate of interest) is neither an 'operation' of the initial agreement nor an addition to the elements of the initial agreement. 

The CJEU concluded that in order for a contract to qualify for a 'contract concerning financial services' under Art. 2(a) of the Directive it must be for a supply of 'such service' and this condition is not fulfilled here. These were only amendments of the rate of interest payable for the service that was previously agreed.

Finally, although the CJEU noted that one of the objectives of the Directive is to ensure a high level of consumer protection, in order to enhance consumer confidence in distance selling of financial services that would facilitate the free movement of financial services, according to the CJEU, 'such an objective does not necessarily require' that an agreement setting out the new interest rate is  considered as a new contract for financial services.

Given the above conclusion, the CJEU considered unnecessary to answer the other question asking for the interpretation of the meaning of a contract concluded 'under an organized distance sale or service-provision scheme run by the supplier.'

Our evaluation

This judgment deals with an important question in (long term) financial services contracts such as credit, insurance, investment and pensions, where the initial agreement is subject to later changes by way of amendments, ruling that the status of these later agreements are not separate contracts. 

This important and potentially far reaching conclusion (given that the Directive applies to all financial services) is not well supported with analysis. The key line of thinking in this judgement seems to be that the 'contract concerning financial services' must provide for a service, must be for a supply of a financial service, and anything short of this, would not be considered a separate contract. While this argument may have merits, there is very little engagement with what is meant by a 'service.'

One the other hand, one would have expected that there will be a much better analysis of the contractual aspect of the transaction, the meaning of the contract and its formation especially that this was the focus of AG Sharpston's opinion. Apart from the reference to one previous case-law there is no engagement with the meaning of contract and its essential elements. Examples of European solutions would have been useful and they might have lead to a different conclusion. For instance, Section 6:383 of the Hungarian Civil Code defines loan contract by reference to the obligations of the parties under which the creditor is obliged to provide the agreed sum of money, and the debtor is obliged to repay this sum with interest. Interest thus appears as named essential element of the contract and clearly one could argue that changing an essential element of the contract can only be done by way of a new contract?

Finally, there is no mention of power imbalances and the consumers' weaker position in negotiating with the bank, even in this case, where the consumer is likely to engage with the process (by contemplating options and accepting one option offered by the bank). It would have been useful to take into account the way in which these contracts (and their amendments) are concluded in practice.

In addition, the line of reasoning is also weakened by the CJEU's intention to give special status to these amendments (as they are nether separate contracts nor are they the operations of the initial service agreement) without clarifying the details of this special status and what it entails in terms of the rights and obligation of the parties.

Finally, it remains unclear why amendments to (long term) financial contracts are unimportant for the facilitation of a high level of consumer protection and the internal market in financial services. I would argue the contrary, it is indeed important to consider amendments as separate contracts to enhance consumer confidence in concluding (long term) financial contracts and to provide consumers with the protection guaranteed by the Directive, including the important right of withdrawal.

More consumer justice? EU-wide collective redress agreed on

One of the commonly recognised gaps in EU consumer protection was the lack of harmonised collective redress options for consumers. Only some Member States have introduced their own collective actions and the procedures differed, sometimes significantly, between countries. On June 22, the European Parliament and the Council have reached a long-awaited deal on the proposed Directive on representative actions for the protection of the collective interests of consumers (see our post on the draft proposal of April 2018 here), which also will repeal the Injunctions Directive.

The European Parliament notified in a press release (New rules allow EU consumers to defend their right collectively) on what was agreed with the Council:

• min of 1 representative action procedure for injunction and redress measures available per Member State (allowing both domestic and cross-border actions)
• qualified entities who will be entitled to launch actions for injunction and redress on behalf of groups of consumers are to be supported (also financially)
• qualified entities for cross-border actions will need to prove independent and non-profit character as well as 12 months of activity in protecting consumers' interests prior to their appointment as qualified entities; Member States may choose different criteria for qualifying entities for domestic actions
• 'loser pays principle' applies
• national law may allow courts or administrative authorities to dismiss manifestly unfounded cases at initial stages
• Commission is to assess whether to establish a European Ombudsman for collective redress (cross-border actions)
• aside general consumer law claims, the actions could be brought specifically in the following areas: data protection, financial services, travel and tourism, energy, telecommunications, environment and health, passenger rights

For those looking for the final text of the Directive - this deal still needs to be officially accepted by the Parliament and the Council (the procedure file is available here). When it actually is published and enters into force, Member States will have 2 years to transpose the measures. This part of the New Deal has by no means been an easy fix, but great progress has been made.

UPDATE: text available now here.

Deja vu: Creative interpretation of Regulation 261/2004 - CJEU in Transportes Aéreos Portugueses (C-74/19)

As we have previously reported (Violent passengers...), the CJEU was asked to consider the impact that an aggressive behaviour of one passenger might have on the performance of the obligations by the air carrier, when it results in a disruption of the flight. Unsurprisingly, the CJEU agreed today in the Transportes Aéreos Portugueses (C-74/19) case with the AG Pikamäe's opinion that such behaviour may entitle the air carrier to claim the occurrence of an extraordinary circumstance pursuant to Regulation 261/2004. 

The CJEU emphasised that international air carriage law intends to ensure safety of air travel and that unruly behaviour of passengers may endanger such safety (paras 39-40). Further, dealing with such unruly behaviour cannot be perceived as inherent in the normal exercise of the activity of operating air carriers (para. 41) and it is not under their control, as it is neither foreseeable nor likely to be feasible to be dealt with within limited means that the air crew has on board (para. 43). This means that both conditions for qualifying the unruly behaviour of passengers as an extraordinary circumstance have been fulfilled. This may be different only, following again on AG Pikamäe's opinion, where the air carrier had an opportunity to control this behaviour, either by anticipating it (spotting it before the flight and denying boarding to the passenger) or by not contributing to it (paras 45-47).

Moreover, if the unruly behaviour of the passenger on one flight affects passengers on subsequent flights (e.g. where the first flight was delayed in reaching its destination due to the need to disembark the aggressive passenger at a different airport and, therefore, its subsequent departure did not follow the intended schedule) and there is a direct causal link between these events, then the air carrier may invoke the extraordinary circumstance, which occurred during the first flight, as a reason not to have an obligation to compensate passengers on subsequent flights (paras 53-54).

Up to this point, the judgment was nothing if not expected. The answer to the third question posed to the CJEU is, however, surprising.

Ground-breaking interpretation of Article 5(3) Regulation 261/2004?

Article 5(3) Regulation 261/2004 allows operating air carriers to avoid the payment of the compensation under Article 7 Regulation 261/2004 to passengers of delayed or cancelled flights if there were extraordinary circumstances and the air carrier could not have avoided them even if it took 'all reasonable measures' to do so. Or at least this is how this provision has so far been interpreted. The CJEU has now decided that Article 5(3) Regulation actually states that the air carrier is only released of its compensation obligation if there were extraordinary circumstances that led to the delay or cancellation of the flight and the air carrier could not have avoided that delay or cancellation. The CJEU decided that this was indeed the meaning of the provision without either mentioning the different language versions of the Regulation (at least its Polish, German and Dutch texts clearly indicate the link between the need to take all reasonable measures to avoid extraordinary circumstances (plural) not the cancellation itself (singular)) or its legislative history. What is then the justification for this revolutionary interpretation of the provision? Just the need to ensure a high level of passenger protection (para. 58).

When we read para 57 of the judgment it still reiterates the previously expressed in case law sentiment that the air carrier is not required to take 'reasonable measures' that would not be 'appropriate to the situation'. Instead, the air carrier should use all its resources (staff, finances) without having to make 'intolerable sacrifices'. This was previously related to the air carriers need to avoid occurrance of extraordinary circumstances (see e.g. Eglitis and Ratnieks, para. 27 or Pešková and Peška paras 27-30), which could have also encompassed the need to minimise the risk of the delay, the damage to passengers (e.g. by putting some flexibility in their air schedule between departure/arrival times of aircrafts, which could have allowed for some delays due to extraordinary circumstances occurring). Now, in the following paragraph - 58 - the CJEU draws a link between the air carrier taking all these reasonable measures and providing consumers with rights under Article 8 of the Regulation (right to choose between reimbursement and re-routing), specifically the right to re-routing in a way that would prevent the delay or cancellation. Specifically, the CJEU concludes that if the air carrier does not offer to passengers a re-routing option, which is 'reasonable, satisfactory and timely', which would get passengers to their final destination without a delay, even if it involved seeking for alternative flights from other air carriers, then the air carrier failed in its obligation to take all reasonable measures to avoid a delay or cancellation of the flight, pursuant to Article 5(3) Regulation. And the latter means that the air carrier needs to pay compensation under Article 7 Regulation to these passengers (para. 61). 

Aside the lack of justification for the above-mentioned interpretative technique of Article 5(3), we could also question the use of Article 8 here, as the right to choose between reimbursement and re-routing arises when the passenger's flight has been delayed or cancelled, whilst the CJEU uses it here to argue for the need to avoid delay or cancellation.

I think we can safely anticipate the airlines questioning the reasoning of the CJEU in this judgment, as it is not less controversial than the Sturgeon case. The only saving grace for them is that they could still try to argue that e.g. trying to arrange alternative flights on other airlines for passengers of a delayed flight would ask of them 'intolerable sacrifices'. But this sounds like a heavy burden of proof to meet.