Monday, 24 April 2017

GDPR, e-Privacy and beyond (part 2): the struggle over privacy and data protection continues

The European Union has traditionally aimed to set comparably high standards of privacy and personal data protection. Indeed, the protection of personal data constitutes a fundamental right, enshrined in Article 8 of the Charter of Fundamental Rights and in Article 16(1) of the Treaty on the Functioning of the European Union. This part of the picture is also closely linked to the protection of privacy set out in Article 7 of the Charter. Therefore, it is not surprising that the question of personal data was already addressed in 1995, in a dedicated instrument, while the importance of confidentiality and anonymity was consequently underlined in the first "e-directives": on e-privacy and on e-commerce. At the same time, processing of personal and non-personal data is an element of the freedom to conduct a business and its free flow is crucial from the point of view of the internal market and international trade. All of these dimensions are, of course, highly relevant to the European consumers and have gained even more prominence in the era of digitalisation. 

Last year brought several major developments in that regard, with General Data Protection Regulation as a top highlight. While the GDPR is certainly a quantum leap, it is by no means the only measure which had spurred heated debates. Let us summarise the state of play. 

GDPR and e-Privacy 

Five years after first consultations about the need for a legal reform of personal data protection framework in Europe had been launched, a new instrument - General Data Protection Regulation - was finally adopted on 27 April 2016 and will soon replace the existing Directive 95/46/EC. The regulation entered into force on 24 May 2016 and will become directly applicable in all Member States from 25 May 2018 (see also our earlier post on this topic here). 

One of the important novelties concerns the act's extraterritorial reach. Applicablity of the European regime will no longer depend on “the use of equipment” situated in a Member State, but rather on the context and effects of the processing of personal data. The content of the GDPR largely builds upon the existing Data Protection Directive. The instrument strengthens the conditions for a valid consent and defines an age threshold for the consent of a child. More emphasis in placed on the rights of data subjects such as the right to information and access to one’s personal data as well as to rectification and restriction of the processing. Article 22 reiterates the right not to be subject to a measure based on automated data processing and explicitly clarifies that this includes profiling. Furthermore, the GDPR introduces a widely cited right to be forgotten and an equally important right of data portability. Rights of data subjects are correlated with respective obligations of data controllers and data processors, in accordance with the newly formulated principles of data protection ‘by design’ and ‘by default’. 

Throughout 2016 preparatory works on the review of the Directive 2002/58/EC on privacy and electronic communications were also carried out in order to ensure the consistency of this sector-specific instrument with the overall framework enshrined in the GDPR. As we have already reported, the proposed e-Privacy Regulation was eventually tabled on 10 January 2017. 

Apart from the shift in the legal form (from a directive to a directly binding regulation), the proposal provides for a number of substantive changes. A major difference concerns the scope of the measure, which would be extended to all electronic communications providers, i.e. not only telcos, but also over-the-top players. Requirements relating, among others, to the confidentiality of electronic communications, would therefore also apply to providers of services such as voice over IP or instant messaging (Skype, Whatsapp, Messenger). The proposal also clearly refers to machine-to-machine communications - a circumstance which, together with a broad definition of personal data in the GDPR, has not been warmly welcomed by the tech companies. Other novelties include an updated approach to cookies and enhanced protection against spam. With respect to the former, the Commission eventually opted against the principle of 'privacy by default' - a reason for relief for the industry. Emphasis is now placed on the availability of privacy settings in the relevant software applications (such as internet browsers) and not on the ubiquitous pop-up windows. The reform should further ensure terminological consistency not only between the GDPR and the e-Privacy Regulation, but also with the updated telecom framework. In the proposed e-Privacy Regulation itself, the concept of ‘electronic communications data’ was introduced, covering both content data and metadata. As before, electronic communications which remain under protection may contain both personal and non-personal data, for example data related to a legal person. From the Commission’s perspective, the new framework should ideally apply from the same day as the GDPR. 

As for now, preparatory works at the Council appear to be at a very early stage. The responsible committee in the European Parliament is the Civil Liberty, Justice and Home Affairs (LIBE). Two weeks ago the committee held a hearing to discuss the proposal. The plenary vote on the committee’s report is expected in October. 

Transatlantic dimension 

Further notheworthy developments refer to data transfers between the EU and the United States. This strand of the debate clearly shows that there is no single, universally recognised approach to data protection and privacy online. As seen from the efforts to ensure extraterritorial application of both GDPR and the proposed e-Privacy regulation, the European legislator would like to see its framework applied also where data of European citizens are processed outside the Union. A similar approach is observed with respect to cross-border data transfers. According to an established rule, dating back to the 1995 Data Protection Directive, personal data of the European citizens may only be transfered to third countries that ensure “an adequate level of protection”. In the United States, home country to the thriving tech industry, the European approach is often regarded as paternalistic. The importance of transatlantic data flows for the international trade forces European and American decision-makers to meet halfway. 

Until October 2015, transfers of personal data between the EU and the U.S. had been governed by the so-called Safe Harbour Decision. Following the Snowden revelations, the decision was, however, successfully challenged before the Court of Justice. In the widely cited Schrems case, the Court confirmed that the Commission's decision, and therefore the underlying agreement with its U.S. counterparts, failed to ensure that the level of personal data protection in the United States was “essentially equivalent” to the one guaranteed within the EU. After renegotiations a new agreement was reached and, in the decision of 12 July 2016, the European Commission reconfirmed the adequacy of the American framework. The so-called EU-U.S. Privacy Shield provides for a number of new safeguards, including the entirely new Ombudsperson mechanism, the functioning of which shall be monitored annually. 

As expected, a few months after the decision came into force, the Privacy Shield was challenged by privacy advocacy groups before the General Court. The Commission is naturally defending its compromise, but the stance taken by the new U.S. administration is not helping its case. Only last week the European Parliament adopted a resolution  voicing its concerns about new U.S. laws allowing National Security Agency to share diverse personal data with other agencies and criticising the rejection of the rules preventing unrestricted sharing of customers’ browsing data. While in the current resolution these issues are discussed only in the context of the Privacy Shield, one may wonder if similar concerns cannot be raised with respect to the Umbrella Agreement - another transatlantic agreement adopted last year, this time in the field of law enforcement. 

Have your say 

As seen from above, the wealth of issues and regulatory approaches to privacy and data protection as well as the pace of new developments are astonishing. Even where new rules have already been developed with all these needs and concerns in mind, they are likely to face criticism and require further modifications. Sceptics argue that the GDPR will be out-dated from day one. For what it's worth, European policy-makers appear to be aware that the struggles over privacy and data protection are bound continue. Most recently, the European Commission launched a series of public consultations as part of its Next Generation Internet Initiative. Over the coming weeks a number of questionnaires will be available online, allowing everyone to share their views. The first questionnaire, entitled “New technologies for disrupting the economy: business, employment and skills”, is available here. We invite our readers to have a say.

Friday, 7 April 2017

Liability and limitation periods - AG Szpunar in Ferenschild (C-133/16)

AG Szpunar issued his opinion today in the case Ferenschild (C-133/16) concerning interpretation of liability and limitation periods in the Consumer Sales Directive.

Mr Ferenschild bought a second-hand car (what else?) in Belgium, which inevitably concluded with him raising non-conformity claims. Somewhat less common is the fact that the non-conformity claim would in some Member States classify as a legal defect of the purchased goods, as the car could not be registered for 6 months after the delivery (and, therefore, could not be used for its normal purpose), due to its documents being used as a cover for a stolen vehicle. Mr Ferenschild claimed this non-conformity and as remedies demanded price reduction, as well as compensation for the replacement goods (renting another car prior to the registration) and damages resulting from this non-conformity. The preliminary question addresses the issue whether this claim has been raised timely. 


The Consumer Sales Directive in its article 5(1) introduces two deadlines: a two year period for the liability of the seller for the lack of conformity of the goods with the contract (first sentence) and a two year limitation period for raising such liability claims (second sentence). AG Szpunar distinguishes between these two periods and considers them independent of one another. The justifications to keep these periods separate are: linguistic (par. 65), structural and historical. The structural argument is based on the fact that the limitation period for raising the claim does not start running from the moment consumers find out about the lack of conformity of the goods. Instead, it starts running already from the moment of the delivery of goods, limiting sellers' exposure (par. 53-54). The historical argument looks into the inspiration for this provision - provisions in the CISG (par. 57-58) - as well as the original draft of the directive (par. 67-69).

It is important to differentiate between these two periods because the Directive allowed in its Article 7(1) for the Member States to facilitate contractual limitation of the period for the liability of the seller of second-hand goods. If these two periods can, therefore, be kept apart, as AG Szpunar suggests, then the Member States would only be able to allow parties to limit the period of liability of the seller for non-conforming goods to one year, but consumers could continue to raise such claims within two years from the moment of the delivery (par. 72). This is the interpretation that the AG Szpunar prefers in order to 'safeguard the minimum model of consumer protection guaranteed by EU law' (par. 104). This seems consistent with the general aim of the CSD to balance consumers' and sellers' interests (par. 81). The nature of second-hand goods suggests the need to narrow down the period for the liability of the seller for non-conforming goods (par. 98), but that should not then also impact consumers' legal remedies (par. 87, 92).

Other interesting comments from the opinion pertain to: CSD not introducing a clear distinction between liability for non-conforming with the contract goods and liability for hidden defects, with both classifying as non-conformity (par. 36); high probability of the CSD applying also to legal defects (par. 38-40).

Tuesday, 4 April 2017

Online sales platforms as consumer information providers - CJEU in Verband Sozialer Wettbewerb (C-146/16)

Misleading omissions are always problematic to define, as it needs first to be decided whether the information that is missing classifies as 'material information'. The case Verband Sozialer Wettbewerb (C-146/16) addressed the issue of misleading omissions, with an additional complication of information being provided within the sharing economy (understood as involving the use of online sales platforms).

DHL Paket has an online sales platform 'MeinPaket.de' (in the meantime it changed its name to de.allyouneed.com) facilitating conclusion of contracts between traders and purchasers, some of whom might be consumers. DHL Paket does not sell any of its own products there, which means that no sales contracts are concluded between them and consumers. In December 2012 DHL Paket took out an advertisement in a weekly newspaper Bild am Sonntag, in which advert they presented five different products available for purchase on their platform and mentioned providing access to over 5 million products and more than 2500 traders. Any person interested in the purchase of these five products could visit the online platform, enter the code corresponding to the product, as referred to in the advert. Only upon entering the product's code on the platform the consumer would be transported to a separate website, which would identify the trader selling this product. Under the heading 'Supplier information' further details of the trader, such as geographical address and the trading name, would be mentioned.

Competitors of DHL Paket complained that the identity of traders and their geographical address should be mentioned already in the advertisement, in order for it not to mislead consumers, on the basis of Article 7(4)(b) Unfair Commercial Practices Directive ("UCPD"). Therefore, they claimed that material information was missing from the advertisement and that the DHL Paket engaged in misleading omissions. One of the arising questions is, however, whether if the advertisement is printed but the product may only be purchased online, it would not suffice to provide this information on the website instead of in print, provided the printed advertisement refers to the website and it was easy to find this information on it. This would depend on whether consumers should receive material information pre-contractually (entering a website does not oblige consumers to conclude a contract) or prior to taking any transactional decision at all (entering a website counts as taking a transactional decision).

The CJEU confirms that an advertisement as mentioned above, clearly identifying the product and its price, should be seen as an invitation to purchase pursuant Article 2(i) UCPD (para 25). This means that it should contain all the material information necessary for consumers to make transactional decisions, provided, however, that there is space to present such information considering the medium used to give it to consumers, pursuant to Article 7(1) UCPD and previous CJEU's case Ving Sverige (paras 26-27). The CJEU confirms in this case that in the sharing economy sphere, where an online sales platform offers many products on sale by different traders and this is advertised in a print medium, there may be limitations of space within the meaning of Article 7(3) UCPD (para 29). In such a case thus, it may suffice for the online sales platform to refer to the website on which the material information will be provided to consumers, rather than to place this information already in the print advertisement (para 30). However, it is for the national court to determine whether the context of the invitation to purchase and the means of communication used for the advertisement justified this delay in providing material information to consumers. The CJEU confirms, however, the obligation of the online sales platform to provide information to consumers on the name and address of the supplier of individual products (para 31). Finally, the online sales platform needs to ensure that the material information on its websites is provided to consumers simply and quickly (para 32). This refers back to the transparency principle, adding a new requirement to the traditional ones, namely of 'quick' provision of information to consumers.


Saturday, 18 March 2017

Commission provides a bigger stick: social media companies to comply with EU consumer protection

This week the European Commission and EU consumer authorities met with representatives of social media companies (Facebook, Twitter, Google+) to discuss how they could adjust their practices in order to comply with EU consumer law. The main areas of concern, many times previously flagged by concerned consumers, authorities and scholars (see e.g. my article written together with M. Loos, "Wanted: a Bigger Stick. On Unfair Terms in Consumer Contracts with Online Service Providers") pertain to unfair terms and conditions used by these companies, as well as fraud and scams used to mislead consumers while they use social networks (The European Commission and Member States consumer authorities ask social media companies to comply with EU consumer rules).

The Commission identifies, among others, the following as unfair/illegal terms :
  • Social media networks cannot deprive consumers of their right to go to court in their Member State of residence;
  • Social media networks cannot require consumers to waive mandatory rights, such as their right to withdraw from an on-line purchase;
  • Terms of services cannot limit or totally exclude the liability of Social media networks in connection with the performance of the service;
  • Sponsored content cannot be hidden, but should be identifiable as such;
  • Social media networks cannot unilaterally change terms and conditions without clearly informing consumers about the justification and without given them the possibility to cancel the contract, with adequate notice;
  • Terms of services cannot confer unlimited and discretionary power to social media operators on the removal of content.
  • Termination of a contract by the social media operator should be governed by clear rules and not decided unilaterally without a reason.

Furthermore, consumer authorities require 'a direct and standardised communication channel' so that they can signal to social media companies whenever they notice fraud (e.g. fake promotions) and scam practices (e.g. involving payment taken from consumers) misleading consumers. Content resulting from such practices should then be taken down and consumer authorities should be informed about the identity of traders who introduced such practices.

This request made of social media companies is a result of the action taken by the Consumer Protection Cooperation (CPC) Network of national consumer authorities, under the lead of French consumer authority (see common position of CPC Network here), which identifies as unfair contract terms many of the terms that M. Loos and me have analysed in our article.

Saturday, 4 March 2017

CJEU rules on the costs of after-sales helplines

Speaking of the recent cases on (comparatively) recent directives, last Thursday the Court of Justice also delivered its judgment in case C‑568/15 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main v comtech. Since the Court largely followed the opinion of Advocate-General Szpunar, on which we reported last year, it suffices to briefly summarise the judgment here and refer the interested readers to our earlier post

What was the issue?

The CJEU was asked to interpret the concept of "basic rate" contained in Article 21 of Directive 2011/83/EU on consumer rights. Pursuant to this provision:

Member States shall ensure that where the trader operates a telephone line for the purpose of contacting him by telephone in relation to the contract concluded, the consumer, when contacting the trader is not bound to pay more than the basic rate.

The German legislator did not implement this provision word by word, though. Paragraph 312a of the German Civil Code (Bürgerliches Gesetzbuch) rather stated that the charges paid by consumers for the use of after-sales helplines should not exceed "the charges for the mere use of the telecommunications service".

Thus, the national legislation did not seem to attach particular importance to the amount of costs borne by consumers, but only required that they do not exceed the cost of providing the relevant helpline, i.e. that traders do not derive profit thereof. The question arose whether this interpretation is consistent with the concept of "basic rate" laid down in the CRD.

What did the CJEU say?

The CJEU did not share this interpretation and opted for a more consumer-friendly approach linking the concept of basic rate with the cost of a standard call. The Court's reasoning was based on the following elements:

  1. the usual meaning of the word in everyday language (para. 20)
  2. the context in which the article occurs (paras. 21-27)
  3. the purposes of the rules of which it is part (paras. 28-31).

One can notice that, unlike the AG, the Court did not refer to the legislative history of the provision. The aforementioned considerations were, nevertheless, sufficient to arrive at the very same conclusion, expressed in the operative part of the judgment.

The Court thus ruled that:

"The concept of ‘basic rate’ referred to in Article 21 of Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council, must be interpreted as meaning that call charges relating to a contract concluded with a trader to a telephone helpline operated by the trader may not exceed the cost of a call to a standard geographic landline or mobile telephone line. Provided that that limit is respected, the fact that the relevant trader makes or does not make a profit through that telephone helpline is irrelevant."


Thursday, 16 February 2017

Extrajudicial procedures and effective consumer protection: CJEU in Margarit Panicello (C-503/15)

Today's judgment of the EU Court of Justice in Margarit Panicello (C-503/15) is part of a set of cases on the compatibility of extrajudicial procedures with (the effectiveness of) Directive 93/13/EEC on unfair terms in consumer contracts and Article 47 of the EU Charter of Fundamental Rights. The common feature seems to be that the CJEU does not consider extrajudicial procedures as such to be necessarily problematic, as long as there are judicial remedies available to consumers to contest enforcement. In Kušionová, for example, the possibility for the national court to adopt interim measures suggested that adequate and effective means existed as required by the Directive, read in conjunction with Article 47. In ERSTE Bank Hungary, it was deemed sufficient that consumers could bring legal proceedings against the disputed contract, including in the enforcement phase. By contrast, in Finanmadrid, the involvement of a Secretario Judicial (court registrar) instead of a judge, who could issue a binding and enforceable order for payment, was found to undermine the effectiveness of the protection intended by the Directive. 

Today's judgment in Margarit Panicello concerns the compatibility of Spanish procedural rules providing for an extrajudicial procedure for the recovery of unpaid legal fees - called 'jura de cuentas' - with Article 47 of the Charter. 

blog.legaler.com
Article 47 of the Charter safeguards the fundamental right to an effective remedy and a fair trial before a court of law for the violation of rights and freedoms guaranteed by EU law. As we have reported on this blog, Advocate General Kokott concluded that the procedural rules at issue were indeed contrary to Article 47 of the Charter as well as Directive 93/13/EEC (and Directive 2005/29/EC concerning unfair business-to-consumer commercial practices). Before coming to this conclusion, the AG extensively argued that the Secretario Judicial who had made the preliminary reference should be considered as a "court or tribunal" within the meaning of Article 267 TFEU (and Article 47 of the Charter). Her main arguments were that the procedure at issue was very similar to the order-for-payment procedure in Banco Español de Crédito and Finanmadrid. The Secretario Judicial adjudicates independently and autonomously on a legal dispute in inter partes proceedings, which result in a decision that can be enforced in the same way as judicial decisions. 

The CJEU, however, holds that the Secretario Judicial is not a "court or tribunal" for the purposes of Article 267 TFEU. Therefore, it has no jurisdiction to rule on the Secretario Judicial's request for a preliminary ruling. The CJEU suggests that it should be the court that can order the enforcement of the decision to refer a question to the CJEU. Although this outcome may be not so surprising, the CJEU's reasoning is more difficult to follow. The judgment contains several considerations that are hard to reconcile with the CJEU's substantive assessment in, in particular, Finanmadrid

The extrajudicial procedure at issue
Ms. Hernández Martínez (the client) had engaged the services of a lawyer, Mr. Margarit Panicello (the lawyer), to represent her in proceedings about the custody of her children. Unfortunately, after the proceedings had ended, a dispute arose over the amount owed by the client to the lawyer. It appeared that the lawyer had failed to inform the client of the estimated costs of his services. The lawyer brought an action against the client for the recovery of legal fees before the Secretario Judicial at the court seized of the matter those fees had been incurred in. The extrajudicial procedure at issue ('jura de cuentas') is intended to ensure the rapid determination of the enforceability of specific legal fees, when it can be demonstrated that the claim is well-founded.

The Secretario Judicial had doubts whether the applicable procedural rules are compatible with Directives 93/13 and 2005/29, and Article 47 of the Charter in so far as they (i) do not allow the Secretario Judicial to verify ex officio whether there were any unfair terms or unfair commercial practices, (ii) restrict the possibility for the client to produce evidence to contest the amount claimed by the lawyer, and (iii) result in a decision that may not subject to appeal but enables the lawyer to request enforcement immediately. During the 'jura de cuentas', it is not possible for the client either to lodge a suspensory objection based on the (alleged) existence of unfair contract terms. 

A "court or tribunal" within the meaning of Article 267 TFEU?
As mentioned above, the CJEU's conclusion is that the Secretario Judicial was not entitled to refer a request for a preliminary ruling. According to settled case law, the Court takes into account several factors when determining whether a certain body is a "court or tribunal" for the purposes of Article 267 TFEU:

- Is it a body established by law?
- Is it permanent?
- Are rules of law applied?


AG Kokott concluded that there was no question about these factors.

- Is the procedure inter partes?
The AG concluded that this was indeed the case: the 'jura de cuentas' becomes adversarial when the client opposes the claim. The CJEU does not find it necessary to examine the above-mentioned factors, because other criteria were not satisfied in its view. 

- Is it an independent body?
The CJEU finds that the Secretario Judicial satisfies the internal aspects of independence (i.e. objectivity and impartiality as regards the parties and their respective interests), but not the external aspects: the Secretario Judicial is a civil servant and answerable to the Minister of Justice. 
By contrast, the AG argued that, despite their status as civil servants rather than members of the judiciary, Secretarios Judiciales exclusively act in accordance with the competences conferred to them by law. Their employer may not exert any influence over ongoing proceedings or issue instructions in relation to specific cases. 

Is jurisdiction compulsory? 
The AG pointed out that once the lawyer initiates the 'jura de cuentas', the client automatically becomes party to the procedure. Thus, it is not voluntary for the client. The CJEU nevertheless finds that the 'mandatory' nature is lacking; the 'jura de cuentas' is purely ancillary and discretionary. It is only available if the original court proceedings have already ended. The lawyer can freely choose between this procedure and a judicial action for a declaration or an injunction to pay. The CJEU acknowledges that the Secretario Judicial's jurisdiction does not depend on the agreement of the parties, but considers that the procedure at issue is "placed on the periphery of the national court system" (par. 34). The 'jura de cuentas' does not preclude the commencement of a judicial action before a court of law, and it does not result in a decision with the force of res judicata. 

The AG made a distinction between 'procedural' res judicata and 'substantive' res judicata. The decision of the Secretario Judicial is not subject to appeal, but it is without prejudice to any subsequent proceedings on the substance of the matter. Thus, it lacks substantive res judicata.

- Judicial or administrative capacity?
- Decision of a judicial nature?
    The CJEU finds that the proceedings lack a clear judicial nature, and that the Secretario Judicial does not exercise a judicial function. The proceedings result in a decision that appears to be of an administrative nature, and that may still be amended in subsequent ordinary proceedings. 

    The CJEU adds that it is for the court with jurisdiction to order the enforcement of the decision to examine, if necessary of its own motion, whether there is any unfair contractual term in the contract between the lawyer and the client. 

    Compatibility with Directive 93/13/EEC and Article 47 of the Charter?
    The CJEU's findings, especially in respect of the last three factors mentioned above, would be difficult to follow if they were to be considered from the perspective of effective (judicial) protection. Of course, the question what constitutes a "court or tribunal" for the purposes of Article 267 TFEU is not the same as the question what level of judicial protection is required by Directive 93/13/EEC, read in conjunction with Article 47 of the Charter. However, today's judgment indicates that if a similar preliminary reference would be made by a court (instead of the Secretario Judicial), it is not unlikely that the 'jura de cuentas' will be found to be compatible with EU law.

    The main difference with Finanmadrid seems to be that the order-for-payment procedure at issue there resulted in a binding and enforceable instrument. The 'jura de cuentas', on the other hand, results in a decision lacking substantive res judicata. However, as AG Kokott observed, while judgments in interim relief proceedings also lack substantive res judicata, they are still of a judicial nature. Consumers might not even be able to tell the difference between the 'jura de cuentas' and ordinary proceedings. The 'jura de cuentas' may not be mandatory for the lawyer, it is certainly not voluntary for the client/consumer. Yet, like in Finanmadrid, the procedural initiative is shifted to the consumer, who must oppose the claim or the decision, otherwise it will be enforced. This is one of the elements of the 'jura de cuentas' - highlighted by AG Kokott - that could be problematic. Like in Finanmadrid, there is a risk that consumers will not file any objection. They may be forced to settle or to pay before the enforcement phase, which might pave the way for the payment of unfair claims. Thus, the mere existence of a possibility to oppose enforcement may not always be enough to ensure a truly effective remedy. Perhaps the CJEU should go a step further by holding that judicial review of potentially unfair contractual terms must take place before the enforcement phase, either by the Secretario Judicial or by an actual court. 

    First case on new ADR Directive - Menini and Rampanelli (C-75/16)

    AG Saugmandsgaard Øe issued the first opinion in a case concerning interpretation of the new ADR Directive (2013/11/EU) and its relation to the Mediation Directive (2008/52/EC).

    An Italian bank obtained a court order against two consumers for payment of a debt balance owed under a current account credit agreement. Consumers appealed against the payment order, claiming that the bank repeatedly gave them credit to invest in purchasing shares - shares in the bank itself or in other companies belonging to the same group - disregarding the consumers' modest income and presenting the investments as safe. Italian law requires consumers to engage in a mandatory mediation procedure before the appeal becomes admissible, which national provisions the Italian courts consider as compliant with the Mediation Directive but possibly contrary to the new ADR Directive.

    First, the AG Saugmandsgaard Øe had to ascertain whether the dispute in this case would be covered by the scope of the ADR Directive, in general. Art. 2(2)(g) of this Directive excludes from its scope complaints and claims brought by a trader against consumers, as the purpose of the Directive is to grant consumers' access to ADR and not to traders. However, in the current case by lodging an appeal and raising claims of improper / invalid credit being given to them, consumers seem to be making new claims, additional to the ones brought by the trader previously, which is ultimately for the national courts to determine. This could qualify this situation as one where consumers' right to benefit from ADR procedures should be safeguarded and thus makes the CJEU competent to look into this case (paras. 41-42).

    The AG Saugmandsgaard Øe does not agree with the referring Italian court that in the given case there is necessarily a conflict between provisions of these two directives. However, if such a conflict existed then she concludes Mediation Directive's provisions would prevail, as Recital 19 of ADR Directive constitutes an express derogation, taking into account the already established framework specific for mediation in cross-border disputes (para. 63).

    An important observation regards the scope of uniformity of ADR procedures in the Member States. the AG Saugmandsgaard Øe observes that the ADR Directive is a minimum harmonisation measure that aims at establishing certain harmonised quality requirements for the evaluation of consumer complaints against traders. It does, however, not require harmonisation of the whole ADR procedure in all sectors thereof (para. 67). This means, that if in Italy there is a requirement of mandatory mediation for banking and other financial disputes, such a special requirement would not be per se incompatible with the ADR Directive. This assessment is not changed if one considers provisions of Art. 1 and Recital 49 of the ADR Directive, which seem to suggest that mediation should have a voluntary character for the consumer, at least. The AG Saugmandsgaard Øe refers to the interpretation of the voluntary nature of the mediation procedure as established under the Mediation Directive, which means that parties are in control of the procedure and can organise it how they want. This does not prevent Italian law from making such a procedure a pre-requirement to enter into judicial process (paras. 72-74). Moreover, if according to Mediation Directive the use of mediation could be made mandatory for cross-border disputes, but under ADR Directive this would have been prohibited for national disputes - this difference could not be easily justified (para. 77). In order, however, not to restrict consumers' access to judicial dispute resolution, the outcomes of such mandatory mediation procedures should not therefore be binding on the parties and allow for granting provisional measures, in accordance with the conditions previously set out for settlement procedures in Alassini and Others (paras. 82-86). 

    While the Italian mediation procedure seems to comply with the requirements set so far in EU consumer law for ADR procedures, it does also prescribe a mandatory use of legal services for consumers, which is expressly prohibited by Art. 8(b) of the ADR Directive (para. 89). Moreover, it requires that if parties withdraw from the mediation without valid grounds, they should be penalised. This again does not comply with consumer protection as set out  by the ADR Directive, which requires that withdrawal for consumers is free at any stage and can occur on purely subjective grounds (para. 94). In these two regards, it seems that the Italian law will need an adjustment (or flexible interpretation by national courts, e.g. acknowledging that valid grounds may include consumer dissatisfaction).

    Thursday, 9 February 2017

    Cláusulas suelo: the aftermath (Real Decreto-ley 1/2017)

    In the aftermath of the judgment of the EU Court of Justice on Spanish 'floor clauses' (cláusulas suelo) of 21 December 2016, reported by us here, the Spanish government has issued a 'Royal Decree' which establishes an extrajudicial mechanism for the swift resolution of disputes concerning these clauses: Real Decreto-ley 1/2017 (full text available here, in Spanish). According to the Decree, it is foreseeable that the CJEU's judgment will lead to an increase in claims of affected consumers, who demand repayment of the amounts overpaid by them on the basis of 'floor clauses' in their mortgage contracts. The Decree's aim is to facilitate consumers and credit institutions to settle any claims by reaching an agreement about the amount to be paid back. The Decree also seeks to prevent high costs for the administration of justice.

    Article 3 of the Decree obliges credit institutions to implement a (free) system for alternative dispute resolution, which is voluntary for consumers and allows them to file a request for repayment. The credit institution then must calculate the amount to be repaid and make an offer to the consumer within three months after the request has been filed. If this does not result in an agreement, the consumer may still go to court. This is not only the case if the consumer rejects the offer, but also if the credit institution rejects the consumer's request, or if the three-month period expires without an offer having been made or without the offered amount having been paid to the consumer. During the three-month period, however, neither party may bring a judicial action. Credit institutions must ensure that consumers are aware of the availability of this ADR system.

    In addition, Article 4 of the Decree stipulates that, in case court proceedings are initiated after the conclusion of the out-of-court procedure, the credit institution can only be ordered to pay costs if the consumer has rejected the offer and obtains a more favourable judgment in court. A similar rule applies if the credit institution commits itself to pay a certain amount before submitting a defence: it can only be ordered to pay costs if the judgment is more favourable.

    The Decree has already been criticised for not being specific enough as to the substantive right to repayment. It only defines the general scope (Article 2), but leaves the question what constitutes an unfair term for lack of transparency open to interpretation. The methods of calculation of amounts and interests are left entirely for the credit institutions to decide. Therefore, the Decree may induce litigation when parties ask the courts for further guidance. Moreover, it is unclear to what extent consumers' right to effective judicial protection - safeguarded by Article 47 of the EU Charter of Fundamental Rights - is limited and whether such a limitation is justified (cf. Alassini, C-317/08). The regulation of costs in Article 4, in particular, could be problematic from the perspective of access to court. It might deter consumers to go to court and compel them to accept the credit institution's offer.

    In the next few months, we will see how effective the Degree will be in practice.

    Wednesday, 8 February 2017

    Can a hypermarket compare its prices with those of a supermarket? CJEU in C-562/15

    Today, on 8 February 2017, the Court of Justice delivered its judgment in case C-562/15 Carrefour Hypermarchés. The case dealt with an advertising campaign carried out by the French retailer back in 2012. The contested marketing strategy of Carrefour featured a series of TV spots in which the company compared the prices charged in its hypermarkets with the prices of its competitors. Importantly, the advertisement did not make clear that it did not apply to smaller shops from the Carrefour group and that the prices selected for comparison referred to competing supermarkets, not hypermarkets. 

    A competing retail chain, Intermarché, challenged the legality of this practice and obtained a favourable ruling in the court of first instance. Carrefour appealed. In these circumstances, the Court of Appeal in Paris decided to stay proceedings and ask the Court of Justice for clarification of Article 4(a) and (c) of Directive 2006/114/EC concerning misleading and comparative advertising. The provision in question lays down conditions under which comparative advertising is permitted. It requires, among others, that advertisement compares prices objectively and is not misleading within the meaning of Article 7 of Directive 2005/29/EC.

    CJEU judgment

    According to the Court, comparative advertising based on prices charged in shops having different formats and sizes is not in itself prohibited, but has to comply with conditions set out in Directive 2006/114/EC. 

    With regard to objectivity, the Court held that where the advertiser and competitors belong to retail chains which each have a range of shops of different sizes and formats and where the advertiser compares the prices charged in shops in its retail chain having larger sizes and formats with those identified in shops having smaller sizes and formats in competing retail chains, without that fact appearing in the advertising, the objectivity of the comparison may be distorted. [para 26]

    The Court went on to analyse whether such an advertisement is also liable to be misleading, meaning that it is capable of, firstly, deceiving the average consumer and, secondly, causing him to take a transactional decision that he would not have taken otherwise.

    In line with the opinion of Advocate-General Saugmandsgaard Øe, the Court held that advertising, such as the one described in the case at hand, is liable to both deceive the average consumer by giving him the impression that all shops forming part of competing retail chains have been considered in the comparison, and to influence his economic behaviour. This would not have been the case if consumers were informed, in the advertisement itself, that comparison was made between prices charged in shops of different sizes or formats [paras 36, 38].

    To conclude, the question posed in the title of this post should be answered in the affirmative. The analysed judgment does not go as far as to say that price comparisons are permitted only if the goods are sold in shops having the same format or size. Such an advertisement may, nevertheless, be classified as non-objective or misleading if conditions set out in Directive 2006/114/EC are not fulfilled. Main consideration for advertisers is thus to make sure that all relevant circumstances are duly disclosed.

    Modernising copyright: watching Netflix while abroad

    Yesterday, the Council and the Parliament have informally agreed on new rules that will allow subscribers to paid online content (online music, games, films and TV shows) in any Member State to access this content in another Member State - while they are temporarily visiting it (also when they travel for business, so this protection would be applicable not only to consumers). Readers of this blog who travel abroad have probably been frustrated by geo-blocking rules (set up to protect exclusive licensing) that often prevented accessing online content when abroad. Free of charge services would still be excluded from the scope of these new rules, which means that such service providers will have a choice whether to enable their customers to access their services cross-border (Accessing online films and TV while abroad: deal with Council). The intention is for these rules to start applying as of the beginning of 2018 (DSM: EU negotiators agree on new rules allowing Euorpeans to travel and enjoy online content services across borders).