The lawyers behind the blog “Recent developments in European Consumer Law” have posted some interesting news on court cases defining unfairness etc.. See http://recent-ecl.blogspot.de/. Below are certain of their recent blog posts (by Candida Leone, Chantal Mak, Joasia Luzak, Bram Duivenvoorde)
Friday, 22 March 2013
Yesterday, the Court of Justice delivered an important and complex judgement on (unfair) general terms and conditions in a very special sector, namely that of gas supply.
The post which this decision originated is *very* long, so for less adventurous readers here is a synthesis of the decision's two main points:
1) providers which choose to supply gas under a "free market" regime can not automatically adopt the same contract terms that they are authorised to use under regulated tariff regime, since different market conditions demand (or can demand) different balancing exercised; even provisions of law, taken out of their original context, can lose their immunity under Directive 93/13;
2) in long-term services, it is normal that prices will be amended over time and that the provider reserves to do so; however,
a) to comply with European law in the field of gas supply, the conditions under which changes will take place need to be made clear in the contract;
b) customers must be given an effective right to terminate the contract if they do not want to accept price variations; in particular, the fact that they are contractually entitled to do so is not sufficient when factual conditions (not idiosyncratic to the consumer) make the termination impossible.
For hard core fans of unfair terms control, however, here is the unabriged version
As many will know, energy is very often (or used to be) supplied outside a pure freedom-of-contract regime, with universal service obligations and other special rules. In the case considered by the Court in
RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen e.V., however, the parties had concluded a "special contract", exempt from administrative tariff regulation. The provider, nonetheless, had chosen to reproduce in the contracts which it supplied to its customers some terms used in its regulated contracts- in particular, those on price increases.
The incorporated terms referred to the applicable (to non-special contracts) legislation, which "allowed the supplier to vary gas prices unilaterally without stating the grounds, conditions or scope of the variation, while ensuring, however, that customers would be informed of the variation and would if appropriate be free to terminate the contract." (par. 18)
In other words, from a formal point of view the contract made legal rules on standard tariff contracts applicable to non-standard tariff ones. From a substantive point of view, the terms allowed the provider to increase its prices with no restrictions, provided that the customers would be duly notified and authorised to terminate their subscription.
After a consumer organisation brought before German courts a request that the concerned consumers be reimbursed of the amounts paid as a consequence of four price increases implemented within 26 months, the terms just mentioned came to be investigated by the German Supreme Court in civil matters, the Bundesgerichtshof, which raised two questions:
1) whether the terms are subject to scrutiny under the Unfair Terms Directive (93/13 EEC);
2) whether, were the Directive applicable, terms which allow a supplier to change the price of the good/service without determining "the grounds, conditions and scope of a change"can still be considered fair if the customers are duly informed of the variation when it takes place and given a right to terminate the contract.
Both questions are extremely interesting in the context of unfair terms control.
As concerns question number one, Directive 93/13 excludes from its scope (art. 1(2)) all terms "which reflect mandatory statutory or regulatory provisions". We have seen that the terms included in the contract reproduced legal provisions, though not directly applicable to the contracts concerned. Should this operation guarantee immunity from control? According to the court, the answer is no.
The rule's underlying assumption is that "it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts." (par 28); on the other hand, when certain rules have been made applicable to one group of contracts, "[a]n intention of the parties to extend the application of those rules to a different contract cannot be equated to the establishment by the national legislature of a balance between all the rights and obligations of the parties to the contract" (par. 29), and does not deserve the same deference. Affirming this principle is necessary to avoid providing suppliers a "safe heaven" made of patchwork application of rules conceived for different domains than the one concerned (par. 31).
In this case, it was clear that German law had deliberately subjected "special" contracts to a different regime compared to standard tariffs, so the equilibria found in the latter context could not be simply transposed to the former (par. 37)
Coming to the second question, the Court first reaffirms that it is not within its competence to decide on the unfairness of specific terms.What it can do, though, is provide the referring court with guidelines to evaluate the terms in light of the concrete circumstances. In the context of gas supply, the evaluation has to take into account the high standards set by Directive 2003/55, which requires Member States to "adopt measures to ensure that those terms and conditions are fair and transparent, are stated in clear and comprehensible language and are notified to consumers before the contract is concluded, and that consumers receive transparent information on applicable prices and tariffs and on standard terms and conditions." (par. 45)
In particular, while the suppliers are not required by any legal rule to justify the adoption of a price increase, courts should ascertain two elements. The first concerns the agreement itself; concerned courts should check "whether the contract sets out in transparent fashion the reason for and method of the variation of the charges for the service to be provided, so that the consumer can foresee, on the basis of clear, intelligible criteria, the alterations that may be made to those charges" (par. 49).
The obligation to give notice in due time of the change (and the related termination right) is additional to the duty to correctly inform the consumer about the terms and conditions under which the service is provided and can in principle not compensate deficiencies in the transparency of the original agreement (par 51-52).
The other fundamental component of the evaluation is that "consumers [must] have the right to terminate the contract if the charges are in fact altered". In particular, "it is of fundamental importance [...] that the right of termination given to the consumer is not purely formal but can actually be exercised" (par. 54). This requires courts to take into account market conditions, termination costs and other possible factors which may hinder the realisation of the consumer's right to terminate.
... in other words, it seems to this author that the Court is implying that the terms might, indeed, be unfair. What do you, esteemed readers, think?
What seems sure is that the German Government (and, indeed, the gas company) will not be enthusiastic about this judgement. To this respect, it might not help that they both had asked the Court, should the terms be found not to "satisfy the requirements of European Union law" (par 56), postpone the effects of the judgement by 20 months to avoid the financial costs of a "retroactive" unfairness declaration. The Court denied the request by considering that the terms unfairness will not descend of its decision, but of the national court's findings. The hot potato is thus in the hands of the Bundesgerichtshof, but the impact of the case might go well beyond the German boundaries.
P.S. meanwhile, BEUC's twitter account announced the decision as a "milestone".
Posted by Candida Leone
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Yesterday, the European Commission announced an action plan to improve the enforcement of the Unfair Commercial Practices Directive (2005/29/EC). By doing so, the Commission aims to improve consumers' confidence to shop abroad.
The action plan is as follows:
• Strengthening the efficiency of the European consumer protection network and further promoting coordinated enforcement actions ("sweeps");
• Assisting Member States in effectively applying the Directive with guidance and sharing best practices;
• Developing enforcement indicators to detect shortcomings and failures that require further investigative and/or corrective action;
• Establishing regular thematic workshops between national enforcers and organising training for enforcers and the judiciary.
The European Commission also announced that particular attention will be paid to certain markets which are seen as particularly problematic. It concerns travel and transport, digital services, financial services and property markets. Moreover, stronger enforcement is promised in the field of environmental claims.
The action plan comes together with the Commission's report on the application of the Unfair Commercial Practices Directive.
Posted by Bram Duivenvoorde
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14 March 2013: CJEU judgment in case Česká Spořitelna (C-419/11)
The CJEU confirmed the view of AG Sharpston (see previous post discussing the opinion in this case) that if a natural personal has close professional links to a company, e.g., is its managing director or majority shareholder, such a person may not be regarded as a consumer when his activity is linked to that of the company, as well. In the given case the natural person was giving a promissory note to guarantee obligation of that company, so that the company could get a credit but still wanted to claim that he acted as a consumer (not in the name of the company). The CJEU did not accept that reasoning that if a person acts as a natural person it is automatically a consumer.
"The Court drew the conclusion from this that only contracts concluded outside and independently of any trade or professional activity or purpose, solely for the purpose of satisfying an individual’s own needs in terms of private consumption, are covered by the special rules laid down by the Convention to protect the consumer. Such protection is unwarranted in the case of contracts for the purpose of a trade or professional activity" (Par. 34)
If in such a situation the natural person is not a consumer, the special recognition and enforcement rules of Regulation No 44/2001 (Brussels I) do not apply to him.
Posted by J.A. (Joasia) Luzak
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Today, the Court of Justice of the EU handed down its judgment in Case C-514/11 Aziz v. Catalunyacaixa, concerning the assessment of standard terms in a loan agreement in the context of mortgage foreclosure proceedings, a very topical matter in Spain. For a summary of the facts of the case, the preliminary questions raised by the referring Spanish court, and the opinion of Advocate General Kokott, I refer to an earlier post on this blog. Given the legal and social significance of the judgment, a relatively extensive summary follows here:
The first preliminary question concerned the compliance of the Spanish system of levying execution on mortgaged property with the Unfair Terms Directive. In reply to this question, the CJEU holds:
'Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as precluding legislation of a Member State, such as that at issue in the main proceedings, which, while not providing in mortgage enforcement proceedings for grounds of objection based on the unfairness of a contractual term on which the right to seek enforcement is based, does not allow the court before which declaratory proceedings have been brought, which does have jurisdiction to assess whether such a term is unfair, to grant interim relief, including, in particular, the staying of those enforcement proceedings, where the grant of such relief is necessary to guarantee the full effectiveness of its final decision.'
Spanish law is, thus, considered to infringe the Directive, in particular because it precludes the court that has jurisdiction to declare unfair a term of a loan agreement relating to immovable property from staying the mortgage enforcement proceedings initiated separately. The Court observes:
'59 It must therefore be held that such procedural rules impair the protection sought by the directive, in so far as they render it impossible for the court hearing the declaratory proceedings – before which the consumer has brought proceedings claiming that the contractual term on which the right to seek enforcement is based is unfair – to grant interim relief capable of staying or terminating the mortgage enforcement proceedings, where such relief is necessary to ensure the full effectiveness of its final decision (see, to that effect, Case C-432/05 Unibet 2007 ECR I-2271, paragraph 77).
60 As also observed by the Advocate General in point 50 of her Opinion, without that possibility, where, as in the main proceedings, enforcement in respect of the mortgaged immovable property took place before the judgment of the court in the declaratory proceedings declaring unfair the contractual term on which the mortgage is based and annulling the enforcement proceedings, that judgment would enable that consumer to obtain only subsequent protection of a purely compensatory nature, which would be incomplete and insufficient and would not constitute either an adequate or effective means of preventing the continued use of that term, contrary to Article 7(1) of Directive 93/13.'
The second preliminary question concerned the legal framework provide by the Directive for the assessment of specific terms in mortgage contracts. In reply to this question, the Court holds:
'Article 3(1) of Directive 93/13 must be interpreted as meaning that:
- the concept of "significant imbalance" to the detriment of the consumer must be assessed in the light of an analysis of the rules of national law applicable in the absence of any agreement between the parties, in order to determine whether, and if so to what extent, the contract places the consumer in a less favourable legal situation than that provided for by the national law in force. To that end, an assessment of the legal situation of that consumer having regard to the means at his disposal, under national law, to prevent continued use of unfair terms, should also be carried out;
- in order to assess whether the imbalance arises "contrary to the requirement of good faith", it must be determined whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to the term concerned in individual contract negotiations.
Article 3(3) of Directive 93/13 must be interpreted as meaning that the Annex to which that provision refers contains only an indicative and non-exhaustive list of terms which may be regarded as unfair.'
Concerning the assessment of the specific terms at stake in the Aziz case, the CJEU followed the Advocate General in giving specific guidelines to national courts regarding the factors that should be taken into account:
'73 In particular, with regard, first, to the term concerning acceleration, in long-term contracts, on account of events of default occurring within a limited specific period, it is for the referring court to assess in particular, as stated by the Advocate General in points 77 and 78 of her Opinion, whether the right of the seller or supplier to call in the totality of the loan is conditional upon the non-compliance by the consumer with an obligation which is of essential importance in the context of the contractual relationship in question, whether that right is provided for in cases in which such non-compliance is sufficiently serious in the light of the term and amount of the loan, whether that right derogates from the relevant applicable rules and whether national law provides for adequate and effective means enabling the consumer subject to such a term to remedy the effects of the loan being called in.
74 Second, regarding the term concerning the fixing of default interest, it should be recalled that, in the light of paragraph 1(e) of the Annex to the Directive, read in conjunction with Articles 3(1) and 4(1) of the directive, the national court must assess in particular, as stated by the Advocate General in points 85 to 87 of her Opinion, first, the rules of national law which would apply to the relationship between the parties, in the event of no agreement having been reached in the contract in question or in other consumer contracts of that type and, second, the rate of default interest laid down, compared with the statutory interest rate, in order to determine whether it is appropriate for securing the attainment of the objectives pursued by it in the Member State concerned and does not go beyond what is necessary to achieve them.
75 With regard, finally, to the term concerning the unilateral determination by the lender of the amount of the unpaid debt, linked to the possibility of initiating mortgage enforcement proceedings, it must be held that, taking into account paragraph 1(q) of the Annex to the directive and the criteria contained in Articles 3(1) and 4(1) thereof, the referring court must in particular assess whether and, if appropriate, to what extent, the term in question derogates from the rules applicable in the absence of agreement between the parties, so as to make it more difficult for the consumer, given the procedural means at his disposal, to take legal action and exercise rights of the defence.'
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28 February: CJEU judgment in case Banif Plus Bank (C-472/11)
In the given case the CJEU was asked to further interpret articles 6 and 7 of the Unfair Terms Directive by a Hungarian court.
The dispute between the parties arose upon a conclusion of a credit agreement by Mr Csipai with Banif Plus Bank in 2006, which was to expire on 15 June 2012. One of the standard contract terms stated that in case the contract was terminated earlier due to consumer's breach of contractual obligations, the bank was allowed to claim not only the sum total of all outstanding installments, but also default interest, costs. The installments payable included not only the capital amount but also interest on the transaction and an insurance fee. When the consumer stopped paying his installments in February 2008, the bank terminated the contract and demanded payment of all sums mentioned in the contract. The Hungarian court who presided over the case informed the parties that he thought that the contractual provision was unfair and he asked the parties to comment on the matter. Not surprisingly, the consumer submitted that the bank's claims are excessive and that he only recognizes the claim with regards to the capital sum.
The Hungarian court asked the CJEU whether a national court which finds of its own motion that there is an unfair term in a contract could inform the parties about the grounds for invalidity of the term and to ask them to submit a statement in that regard. (Par. 17) The CJEU replies that for the effective protection of consumers against an unfair contract term the national court has to evaluate the unfairness of its own motion and does not need to wait for the consumer to ask for declaration of invalidity of that term. (Par. 28) However, to properly implement the EU law, the national court needs to make sure that the other party to the contract is given a proper possibility to defend itself (respecting the general principle of audi alteram partem), especially since the court resolves the dispute "on a ground that is has identified of its own motion". (Par. 29) This: "(...) also implies a right for the parties to be apprised of pleas in law raised by the court of its own motion, on which it intends to base its decision, and to discuss them". (Par. 30) This all means that if the court finds of its own motion a contract term unfair, he needs to inform both parties of its assessment and ask them to submit their opinion on the subject, allowing each of them also an "opportunity to challenge the vies of the other party". (Par. 31) This would also allow the consumer to express his free and informed consent to the contested term, if upon being informed of a possibility of its invalidity he decided to not have it disregarded. (Par. 35) Additionally, the CJEU decided that the "national court must, in order to determine whether the contractual term on which the claim brought before it is based may be unfair, take account of all of the other terms of the contract". (Par. 41)
Posted by J.A. (Joasia) Luzak at 20:11 No comments:
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What procedure should national judges follow when assessing the fairness of contract terms under the Unfair Terms Directive? In today's judgment in the Hungarian case Banif Plus Bank v Csipai, the Court of Justice of the EU holds the following:
'1. Articles 6(1) and 7(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that the national court which has found of its own motion that a contractual term is unfair is not obliged, in order to be able to draw the consequences arising from that finding, to wait for the consumer, who has been informed of his rights, to submit a statement requesting that that term be declared invalid. However, the principle of audi alteram partem, as a general rule, requires the national court which has found of its own motion that a contractual term is unfair to inform the parties to the dispute of that fact and to invite each of them to set out its views on that matter, with the opportunity to challenge the views of the other party, in accordance with the formal requirements laid down in that regard by the national rules of procedure.
2. The national court must, in order to determine whether the contractual term on which the claim brought before it is based may be unfair, take account of all of the other terms of the contract.'
Posted by Chantal Mak
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Thursday, 7 February 2013
To what extent can EU competition law contribute to the protection of consumer interests? Today's judgment in the Slovenská sporiteľňa case shows that the Court of Justice of the EU takes a cautious approach towards the possible extension of competition law measures beyond market-related concerns. The Court holds that:
'Article 101 TFEU [which establishes the nullity of agreements violating EU competition law; CM] must be interpreted as meaning that the fact that an undertaking that is adversely affected by an agreement whose object is the restriction of competition was allegedly operating illegally on the relevant market at the time when the agreement was concluded is of no relevance to the question whether the agreement constitutes an infringement of that provision. (...)'
This ruling is based on the consideration that:
'18 Article 101 TFEU is intended to protect not only the interests of competitors or consumers but also the structure of the market and thus competition as such (Joined Cases C‑501/06 P, C‑513/06 P, C‑515/06 P and C‑519/06 P GlaxoSmithKline Services and Others v Commission and Others [2009] ECR I‑9291, paragraph 63).
19 In that regard, it is apparent from the order for reference that the agreement entered into by the banks concerned specifically had as its object the restriction of competition and that none of the banks had challenged the legality of Akcenta’s business before they were investigated in the case giving rise to the main proceedings. The alleged illegality of Akcenta’s situation is therefore irrelevant for the purpose of determining whether the conditions for an infringement of the competition rules are met.'
The CJEU emphasises that 'it is for public authorities and not private undertakings or associations of undertakings to ensure compliance with statutory requirements' (para. 20). In this context, questions of institutional design arise: What institutions are in the best position to effectively enforce competition and consumer law? For further observations regarding some recent developments in this area, I refer to our colleagues on the ACELG blog - 'Integrate or separate: institutional design for the enforcement of competition law and consumer law'.
Posted by Chantal Mak |
