Public consultation – Feasibility study on a future initiative on European contract law

11.11.2011 — The European Commission has invited interested parties to submit feedback on the feasibility study from the Expert Group on a future initiative on European contract law. It is now up to the Commission to decide if, how and to what extent the study could serve as a starting point for the preparation of a political follow up initiative in the preparation of a possible future initiative on European contract law.

The Expert Group has delivered a text which consists of a complete set of contractual law rules covering issues which, at a practical level, are relevant in a contractual relationship in the internal market. The Norwegian Consumer Ombudsman (CO) has initially found it challenging to provide feedback on the individual articles drafted by the Expert Group, as requested by the Commission, since no further information about the policy option for the political follow-up initiative was provided in the consultation document. The nature of such feedback will naturally depend on what kind of legal instrument the text is envisaged to be, whether it is an instrument that should replace the Member States entire contract law, an optional instrument, or if the text is meant to be used as a source of inspiration for national and EU legislators.

Following Commissioner Reading’s Keynote speech at the Conference “Towards a European Contract Law” at the Catholic University of Leuven the 3 June 2011 and the European Parliament resolution of 8 June 2011 on policy options for progress towards a European Contract Law for consumers and businesses, it now seems natural to particularly focus on the policy option of an “optional instrument” as the preferred option for a political follow up initiative on European contract law.

The CO share the Commission’s goal of a well-functioning internal market for the benefit of both businesses and consumers, as previously emphasised in the CO’s comments to the public consultation on the Green Paper on a policy option for progress towards a European contract law for consumers and businesses1. However, I am still unconvinced of the underlying assumption in both the Green Paper and in the current consultation document that the differences in member states’ contract law is one of the key reasons why the internal market potential is not being fully achieved. This view is substantiated by the EUROBAROMETER 292 (2008) which demonstrates that there are other obstacles, such as a lack of internet access, lower confidence when consumers do not encounter the seller face-to-face, language difficulties, and a lack of information about cross-border trade, which are the greatest barriers preventing consumers from shopping cross border. In the EUROBAROMETER 292 (2008) 74% of business owners replied that uniform procedures will have little or no effect on increasing their cross-border trade, indicating that it is highly uncertain what effect such a possible future initiative on European contract law will have in relation to the aim of a more well-functioning internal market for businesses and consumers.

The Commission has in the consultation document illustrated the practical relevance of differences in national contract law by providing examples on how this could lead to problems for businesses and consumers. The CO would like to emphasise that there are many other factors then those provided in the Commissions examples that is determining when a consumer decides whether or not to shop cross-border.

If Mrs Korhonen in the example from the Commission was living in Norway and wanted to use her right of withdrawal after buying shoes on-line from France, she would have to pay approximately 35 Euros to return a two kg parcel to the company in France. Maybe the web shop only offers information in French and English, in which Mrs Korhonen is not very confident. Taken this into consideration she decides that she is better off to buying the shoes from the local shop. The example shows that there are other factors than differences in the Member States contract law preventing Mrs Korhonen from shopping on-line.

The CO cannot see that Commission in the consultation document has provided any further documentation or arguments that community measures in this field will lead to a better functioning internal market – with increased cross-border trade.

“Optional instrument”

As previously mentioned, at this stage it seems to be natural to draw attention to the possible option of an “optional instrument” as the policy option for a political follow-up initiative from the European Commission.

However, it is still unclear for the Consumer Ombudsman what such an option would entail for European consumers, for whom the instrument would be optional and what practical consequences such an instrument in the end would have for the European consumers.

It seems like – for an optional instrument to be able to solve trade problems caused by differences in national laws – the instrument would have to take priority over the Rome Regulation (EC) No. 593/2008. In Members States with a high level of consumer protection this would easily entail a reduced level of protection for consumers. A way to safeguard consumer confidence in the market is to ensure that consumers are granted the same protection in cross-border trade as they have according to domestic law. A significant amount of work has been invested in resolving this question at Community level with the Rome Regulation. Article 6.2 of the Regulation affirms that consumers cannot be deprived of any mandatory consumer protection that applies in the consumer’s home country. For an optional European legal instrument to be able to solve trade problems caused by differences in national law, the instrument will have to take priority to national mandatory legislation. To deviate from the protection consumers are provided through the Rome Regulation would weaken the consumers’ confidence that cross-border trade is adequately protected and thereby also reduce the consumer-confidence in the market as such.

Given the aim of reducing the obstacles caused by diverging laws, it seems as the instrument necessarily will have to be optional only for businesses, not for the consumers. Under such a system businesses could choose to which consumers they would want to sell their products to under the “optional instrument” and to whom they would sell to under domestic legislation, and thus be able to deliberately choose the instrument that provides less consumer protection in each particular case. This could easily lead to a reduction in level of protection many European consumers have under the Rome Regulation today. Many companies do already choose to sell cross-border to consumers in Member States with a high level of consumer protection legislation. It is difficult to imagine that these companies will continue selling their products under domestic legislation if they can get away with a less stringent “optional instrument”.

Furthermore, in my opinion, it is highly improbable that consumers will be able to assess different sets of regulations and determine which one provides them the best protection when entering into agreements with businesses, if the instrument at all would be optional to them. For consumers, the added value of such an instrument therefore seems limited and would in any case fail to solve any problems caused by diverging laws.

An optional instrument for businesses would most probably entail reduced consumer protection for many European consumers. The instrument seems furthermore to provide little benefit to the consumers, should the instrument be optional for them. The CO is therefore unconvinced of the suitability of introducing such an instrument in European Consumer Contract law.

The CO would again like to emphasise that we share the Commissions objective of a well-functioning internal market for the benefit of consumers and businesses in the European Economic Area. The work done by the Expert Group has drawn on high-quality expertise and resources. The work should therefore be used as a source of inspiration for legislators when developing new regulation. It is, however, important to leave the Member States with the necessary leeway in order to develop consumer protection regulation in line with the development of new market and products. Perhaps regulation will develop differently in the various countries due to geographical and cultural differences. Such differences may in turn inspire legislators in the further development of Community law as well, in the same way the work from the Expert Group already has been inspired by similarities in national law. On this note we welcome Commissioner Reading’s comments in her Keynote speech at the conference “Towards a European Contract Law” on the 3 June 2011 that national traditions needs to be respected and that she does not favour full harmonisation or a compulsory European Code in the field of contract law.

Unfair contract terms

The feasibility study contains in Chapter 8 provisions on unfair contract terms. The Consumer Ombudsman has in the previous consultation on the Consumer Rights Directive expressed major concerns about the effects of more harmonised rules regarding unfair contract terms2. This is in the CO’s opinion one of the most important areas where the natural development of rules in line with the developments in different products and markets is necessary to strike the best possible balance between business and consumer interests, and thereby ensuring a well-functioning internal market.

Given the goal of stimulating cross-border trade by reducing the obstacles caused by diverging laws, the CO consider it appropriate to reiterate our concern about the introduction of more harmonised rules in this area in spite of Commissioner Readings comments on the 3 June in Leuven. It is not clear from the proposal whether the provisions on unfair contract terms is meant to be strictly “inter partes” or if the provisions is meant to also regulate Consumer Protection Authorities possibilities to take measures against business’ unfair terms on the basis of public law.

In any case it seems to be reason to point out that the proposed threshold in Article 81 is higher than under current Norwegian law. Pursuant Article 81 a term shall be considered unfair if it “significantly disadvantages the consumer”. The Norwegian Supreme Court (case 2006-01867 A) has stated that according to the Marketing Control Act Section 9a one does not require a substantial imbalance for a term to be found unfair.

According to Article 77 in the feasibility study a contract terms which is unfair shall not be binding on the other party. In the Nordic countries, and presumably in many other Member States, terms deemed to be unfair according to public law is not necessarily deemed as unfair and not binding according to general contract law. Making unfair contract terms automatically not binding for consumers could in such a relation raise the threshold for what is to be deemed as unfair. The connection between these set of rules and the possible effect on Consumer Protection Authority’s means to take measures against unfair contract terms under public law is highly unclear.

The black list in Article 83 and the grey list in Article 84 contain express terms that either always are, or presumably are, unfair. One of the disadvantages of such lists is the uncertainty that arises on how terms similar to those listed but not covered by the list should be considered.

Given the target of reducing the obstacles caused by diverging laws to increase cross-border trade, the Consumer Ombudsman are concerned that more harmonised provision as proposed in Chapter 8 could be introduced and that the introduction of such provisions could weaken the CO and other consumer authorities’ possibility to negotiate properly balanced standard-form contracts and lessen the ability for the Consumer Ombudsman to reach balanced compromises when negotiating with businesses.

Summary

The Consumer Ombudsman disagrees with an assumption that the member states’ diverging laws are one of the key reasons why the internal market is not delivering on its full potential with regards to cross-border trade. The CO is furthermore unconvinced of the reasoning behind the need for introducing an optional instrument and the suitability of such an instrument. In addition, if more harmonised rules on unfair contract terms are introduced, the CO is concerned that an increased threshold for deeming a term unfair, the uncertainties in the application of such provisions and the introduction of a grey and black list potentially could have negative impacts on consumer protection authorities’ ability to combat unfair contract terms.

Regards
On behalf of the Consumer Ombudsman

Gry Nergård
Norwegian Consumer Ombudsman

25.11.2020

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