REFIT – fit for purpose ?

Dr. Petra Leupold, LL.M. (Head of VKI Academy)

The ongoing Fitness and Performance Check (REFIT), a process launched by the European Commission in January 2016 in order to make EU law simpler and to reduce regulatory costs, includes an examination, whether EU Consumer and Marketing legislation is „fit for purpose“, i.e. effective, efficient, coherent, relevant and up to date. With respect to the Consumer Law acquis, the Fitness Check covers six directives including core consumer law regulations such as the Unfair Contract Terms Directive (UCTD – 93/13/EEC), the Sales and Guarantees Directive (1999/44/EC), the Unfair Commercial Practices Directive (UCPD – 2005/29/EC) and the Injunctions Directive (2009/22/EC).[1]

The EU-Commission as well as EU-mandated external Consulting Agencies invited the European Consumer Protection Associations as key stakeholders to share their views on the current regulatory framework in a public consultation process.

Here is a brief summary and selection of the core issues adressed in the statements given on behalf of VKI:

• UCTD:

(1) Regarding the (high) level of consumer protection already provided by the Austrian law, an exhaustive black list of unfair contract terms as well as a maximum harmonisation in general would be counter-productive and cannot be supported. Both would entail a drastic lowering of existing standards of protection and thus undermine consumer trust. Moreover, a maximum harmonisation policy must be considered inappropriate, as it apparently runs counter to the unfairness test, under which the validity of a term can only be assessed in comparison with (the degree of deviation from) national law.

(2) The incorporation of ECJ case law on ex officio duties of national courts to determine the unfairness of terms and to assess the presence of unfair terms under the Directive should be implemented, thereby also codifying the already existing decisions issued by the ECJ.

(3) While it is undoubtedly important for consumers to have clarity about their contractual rights and obligations, transparency alone does not suffice. Rather, the availability of effective sanctions and remedies – not limited to, but esp in case of unfair contract terms – is crucial. The ECJ has added a real value for consumers through its case law on the effects of unfair terms, starting with its ruling in the Banesto-case[2], according to which an unfair term is invalid, meaning (not just avoidable or subject to amendments/modification but) void under all circumstances. Considering the intense and ongoing scholarly debate about the scope and precise consequences of those rulings – in Austria as well as in Germany in particular focusing on the allegedly fundamental yet highly sophisticated dogmatic distinction between „geltungserhaltender Reduktion“ and „ergänzender Vertragsauslegung“[3] – we recommend to adress these issues by explicitly transposing the case law into the directive[4].

(4) Under current (Austrian and German) law, the representative action by Consumer Protection Associations is (possibly yet disputedly[5]) limited to injunctive relief, that basically aims to prevent future violations. As part of an effective regime of collective remedies esp in the context of unfair contract terms and in light of the factual and legal barriers consumers are facing when pursuing their rights individually, it is highly advisable to additionally provide for a collective claim for removal of the unlawful consequences of an unfair contract term, i.e. to enable Consumer Associations as representative bodies to demand direct repayments to injured parties.

(5) An extension of the fairness rules to individually negotiated contract terms should be considered. The same is true for a possible extension of the directive to terms, which describe the main subject matter of the contract or relate to the adequacy of the price (the essentialia negotii). Recent decisions of the Austrian Supreme Court show that there are serious doctrinal as well as practical difficulties to clearly differentiate between and to define those categories, esp in case of intangible „goods“ such as banking, insurance or investment products. As a result, under current law there is a widely differing standard of protection solely based upon the arguably subtle issue of the availability of the unfairness test under § 879/3 ABGB esp with regard to the products and contracts mentioned above. This distiniction, however, often seems to be more or less artificial, lack substantial justification and therefore prima vista calls for a uniform application of the unfairness test.

• UCPD:

The Directive is an important instrument to stop traders from misleading consumers. However, when it comes to misleading green claims, it is not specific enough to effectively protect consumers. Also, the sector-specific legislation on energy labelling, car labelling and emission limit values for cars need urgent revision to give meaningful information to consumers, esp in light of the Volkswagen case. The latter again proves the need for an EU wide implementation of adequate collective redress mechanisms for mass damages. Furthermore, it is a significant flaw to the detriment of consumers, that the current directive does not oblige member states to implement an adequate framework for (individual) contract law remedies, and that there is no obligation for the member states to introduce a collective disgorgement claim (Gewinnabschöpfung) in order to effectively disincentivize efficient breach of law.

• Injunctions Directive:

(1) Injunctions might have a de facto deterring effect on other traders in the market, thus theoretically preventing future breaches of law – assuming, of course, that they are widely publicised. However, the greatest shortcoming of the Directive is, that the injunction decision has effect only inter partes, thus only serves to prevent a certain unlawful practice of a particular trader in the future. It cannot be used to provide redress for individual consumers. Therefore, it is crucial to create a (better) link between successful injunctions and redress possibilities for individuals, as well as the suspension of limitation periods.

(2) Esp when it comes to cross-border cases, the directive has not turned out to be an effective tool. Key barriers that should be adressed in the examination of the Directive are increased procedural obstacles and related high costs/risks, as well as practical and legal enforcement issues abroad.

• Enforcement and Collective Redress:

There are no rights without effective remedies. Enforcement is key. The majority of consumers will not pursue their rights in court individually: Litigation is expensive – often even economically irrational – and time-consuming, even more so in cross-border cases. As the current VW case illustrates, collective redress mechanisms are necessary to enable consumers/injured parties to obtain compensation for the harm suffered as a result of unlawful practices. The implementation of a mandatory group action mechanism on European level therefore is crucial to level the playing field and to guarantee effective access to justice. Alternative dispute resolution (ADR) mechanisms cannot substitute for true redress mechanisms, but are inherently designed only to act as a complementary instrument, since they afford a commitment of the trader to such proceedings, which obviously (see VW’s attitude towards European consumers so far) often is not the case.

What’s next?

The further timeframe set out by the EU-Commission includes a Consumer Summit dedicated to the Fitness Check on Oct 17. The final report on the results is scheduled to be published in the second quarter of 2017. However, the results of the public consultation will – according to the Commission – also feed into the currently ongoing legislative process on the Proposal for a new Directive on the online sales of tangible goods. In short:

Proposals for Directives on digital content and online sales of goods

The Commission sure enough has been far from being idle in the meantime. Following the failure of the ambitious proposal for a Common European Sales Law (CESL), an optional instrument in b2c contracts introducing a „28th regime“ of law aimed to remove contractual barriers to cross-border sales, the Commission – as part of its digital single market strategy – quickly issued two proposals for Directives on certain aspects concerning contracts for the supply of digital content (COM(2015)634 final) and contracts for the online and other distance sales of goods (COM(2015)635 final) in December 2015. It is no secret, that the Commission thereby seeks to introduce parts of the CESL through the backdoor after all, pursuing an alternative strategy of small steps, apparently betting on the self created need and hence sufficient political leverage to subsequently eliminate the then existing inconsistencies and fragmentation between online and offline purchases[6] by simply expanding the scope of the online purchases proposal to cover all sales channels.

This comment has no intention to go for the lowest hanging fruit by simply chiming in with – increasingly popular if not yet pervasive – „Directives‘-bashing“ tendencies; there is no doubt that with respect to consumer law it is the European legislator that has been and still continues to be the driving force. However, the fast track approach of the European Commission – once again – does seem questionable. Above all, it is key to take the time for a profound analysis of the existing regulatory framework and the implications for the coherence of (private) law as a whole. Last but not least: In favor of legal clarity, legal consistency and to eventually enable the development of a European canon of private law methodology it seems equally vital to approach the more technical process of drafting the legal texts with increased diligence in order to facilitate/ensure a correct interpretation of the rule.

To sum up: In terms of substance as well as legislative quality, it is for once clearly not (just) time that‘s of the essence.

[1] The most recent Consumer Rights Directive (CRD – 2011/83/EU), still hardly absorbed by the relevant parties involved, is subject to a separate evaluation, too.

[2] EuGH 14.6.2012, C-618/10 (Banco Espanol). Follow up decisions are – in chronological order – C-488/11 (Asbeek Brusse) VbR 2013/8; C-26/13 (Kásler) VbR 2014/72; and – most recently – C-482/13, C-484/13, C-485/13 und C-487/13 (Unicaja Banco SA, Caixabank SA) VbR 2015/30 (Kurz).

[3] See e.g. Geroldinger, Ergänzende Auslegung von Verbraucherverträgen trotz Verbots der geltungserhaltenden Reduktion? ÖBA 2013, 31 and Leupold/Ramharter, Die ergänzende Auslegung von Verbraucherverträgen im Lichte des Europarechts, ÖBA 2015, 16.

[4] Though the relevant passages in the current Directive – frankly – could hardly be imagined to be more plain.

[5] Recently for a „Folgenbeseitigungsanspruch“ of the respective associations de lege lata e.g. Rott, Der Folgenbeseitigungsanspruch der Verbraucherverbände, VbR 2016 (forthcoming in Nov), with reference to several German lower courts‘ decisions.

[6] The Sales and Guarantees Directive (1999/44/EC) would continue to apply to non-distance sales.