Unfair Contract Terms in European Law. A Study in Comparative and EC Law

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NEBBIA P., Unfair Contract Terms in European Law. A Study in Comparative and EC Law, Oxford and Portland, Oregon, Hart Publishing, 2007

Type Book
Abstract The book examines Directive 93/13 on Unfair Terms in Consumer Contracts and its implementation with a twofold aim: first, to understand the extent to which the Directive has influenced and will influence fundamental notions and principles of contract law in the domestic legal systems of the Member States; second, it examines the extent to which the domestic legal traditions of the Member States have influenced the process of drafting of the Directive and, more importantly, will affect the way that the Directive is interpreted and applied in national courts. The focus is mainly on English law (including the 2005 Unfair Terms in Contracts Bill) and on Italian law, but frequent references are made to the French and the German systems.

At the same time, the book has a broader, more 'European' concern, in that it aims to distill from the existing Community acquis and from the history and rationale of Directive 93/13 notions and concepts that could guide its interpretation. It is well known that Community law uses terminology which is peculiar to it, and that legal concepts do not necessarily have the same meaning in EC law and in the law of the various Member States: every provision of Community law must be placed in its context and interpreted in the light of its own objectives and rationale, and of the objectives and rationale of Community law as a whole. In this respect, this book aims to identify the contours and features of the emerging European legal tradition, and to assess the impact that this may have on the domestic traditions.

Link
Topics Consumer, Contract, Transparency

Notes

NEBBIA deals with DIRECTIVE 93/13/EEC on unfair terms in consumer contracts.


BRIEF OUTLINE OF THE DIRECTIVE (pp. 3-4). The Directive applies to all terms contained in contracts with consumers which have not been individually negotiated. The clauses of those contracts should satisfy the following requirement: they mustn't be contrary to the requirement of good faith; they mustn't cause a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer (art. 3). The time of conclusion of the contract is the moment to consider when assessing the unfairness of the contract, taking care also of all the circumstances surrounding the conclusion, including the nature of the goods or the services provided (art. 4(1)). Terms which are assessed to be unfair are not enforceable (art. 7). The fairness control doesn't apply to the main subject matter of the contract nor to the price/quality ratio, as long as they are in plain intelligible language (art. 4(2)).

A general transparency requirement is stated: terms offered to consumers are expressed in plain, intelligible language; where terms are subject to different interpretations, the one which is the most favorable to the consumer must prevail (art. 5 Directive 93/13/EEC).

Because of the difficulty to assess the unfair character of a term on the basis of the general definition of article 3, there is an Annex to the Directive 93/13/EEC, which contains an indicative and non-exhaustive list of unfair terms (p. 4: NEBBIA states that those clauses can be clustered in four categories: 1) terms giving a party the control of the terms of the contract or of the performance of the contract (i, j, k, l, m, p); 2) terms determining the duration of the contract (g, h); 3) terms restraining a party to have the same rights as the other (c, d, f, o); 4) exemption and limitation clauses (a, b, n, q)). Clauses J (terms that enable the provider to alter the contract unilaterally without a valid reason) and G (terms that enable the provider to terminate a contract of indeterminate duration without reasonable notice) may be particularly useful in the context of IoT products. However, pay attention to the fact that paragraph 2 letter (b) of the Annex states: “Subparagraph (j) is also without hindrance to terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract”.

A minimum level of harmonization by Member States is required. In fact, one of the Recitals states: Whereas, however, as they now stand, national laws allow only partial harmonization to be envisaged; whereas, in particular, only contractual terms which have not been individually negotiated are covered by this Directive; Whereas Member States should have the option, with due regard for the Treaty, to afford consumers a higher level of protection through national provisions that are more stringent than those of this Directive. Moreover, when a national court has asked to the CJEU to rule on the validity of a clause, the CJEU has “replied that the answer to the question whether a particular term in a contract is, or is not, unfair, lies with the national court: the jurisdiction of the court to interpret Community law does not extend to the interpretation of contractual terms at issue in a specific case before a national court” (pp. 169-170): the case at stake was CJEU, Kommunalbauten GmbH Baugesellschaft & Co KG v. Hofstetter, C-237/02, 1 April 2004.

Purpose of the Directive. The Directive is formally based on Article 114 TFEU (indeed, the Directive states “Having regard to the Treaty establishing the European Economic Community, and in particular Article 100 A contain unfair terms thereof”), and therefore it is aimed at reinforcing the internal market and ensuring an high level of consumer protection. The latter aim is the less controversial (indeed, the CJEU does not see the Directive as a measure of market integration, but simply as one of consumer protection: p. 171), as we can also infer from Recitals 8 and 9. Whereas the two Community programmes for a consumer protection and information policy underlined the importance of safeguarding consumers in the matter of unfair terms of contract; whereas this protection ought to be provided by laws and regulations which are either harmonized at Community level or adopted directly at that level; Whereas in accordance with the principle laid down under the heading 'Protection of the economic interests of the consumers', as stated in those programmes: 'acquirers of goods and services should be protected against the abuse of power by the seller or supplier, in particular against one-sided standard contracts and the unfair exclusion of essential rights in contracts'; Although measures based on art. 114 TFEU only have to ensure an high level of consumer protection, the CJEU has interpreted the Directive so as to ensure the highest level of consumer protection (p. 167).

Subjective scope of application (p. 69 ss.): consumers. The notion of consumer is not a uniform one in the EU law, but most of those directives that can be defined as “consumer directives” rely on a “'transaction definition', according to which the consumer is a natural person who, in transactions covered by the measure concerned, is acting for purposes which are not within his trade or profession” (the sole exclusion is the Package Directive) (p. 70). In the Directive on Unfair Terms in Consumer Contracts, consumers are indeed defined by art. 2 as “any natural person who […] is acting for purposes which are outside his trade, business and profession”.

In some cases, the status of the acquirer or the nature of the good make clear the applicability or non-applicability of the Directive, but there are also some grey areas (p. 69). To understand how to treat those grey zones, we need to interpret the definition of consumer: two are the possible approaches (p. 71): the function-based approach (the scope of protection is restricted to “purchases which are exclusively aimed at satisfying personal needs”); the competence-based approach (“a consumer is anyone who is in a position of technical inferiority compared to the counterpart”: “the fact that the good may be instrumental to the profession does not exclude that the status of consumer and protection should be extended to business whenever they are acting outside their field of competence”). The CJEU has adopted a function-based approach (p. 72).

The Directive doesn't say anything concerning the burden of proof: therefore probably usual rules apply, which means that “it is for the person wishing to rely on the protection offered by the Directive to show that he is acting as a consumer” (p. 74).

Objective scope of application (p. 115 ss.). The Directive applies to terms that have not been individually negotiated (art. 3): therefore, it applies not only to standard contracts, but to all terms that are imposed on the customer, even if they are drafted ad hoc to be used only in one transaction (p. 115): the fundamental criterion is therefore the impossibility for the consumer to influence the substance of the term (p. 118). Terms drafted in advance shall always be regarded as not individually negotiated (art. 3(2)), therefore the trader can't prove the opposite (p. 120); however, if terms drafted in advance have been modified, the trader can prove that a negotiation took place (the burden of proof is on him: art. 3(2)) (p. 120).

The fairness control doesn't apply to the main subject matter of the contract nor to the price/quality ratio, as long as they are in plain intelligible language (art. 4(2)): these are the core exclusions. If the language is not plain and intelligible, the fairness test can be applied also to these clauses. Recital 19 suggests that this provision has to be interpreted in a restrictive way (p. 124). Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; [[CC1::CC4::CC5::CC6::CC9::CC10::U1::The exemption concerning the price-quality ratio is limited to the ratio itself: in determining the fairness of other terms, this ration may may be taken into account, so an indirect control of the price is admitted (p. 124): so, for example, “a contract clause that gives rise to significant imbalance can in practice be held not to be unfair if the contract provides for a particularly advantageous price for the consumer. […] [D]eviations from the legitimate expectations of the consumer should be clearly stated and the price duly reduced” (pp. 124-125).]] [[CC10::U3::The scope of the subject matter exclusion is more difficult to determine: what is the main subject matter of the contract (see also Accommodating the Needs of iConsumers: Making Sure They Get Their Money's Worth of Digital Entertainment)? We should distinguish between exclusionary terms (“terms excluding or restricting liability for breach of obligations”) and definitional terms (“terms defining the contractual obligations”): “[o]bviously, only a term that defines the parties' obligations can possibly be a 'core term': a term excluding liability does not define the subject matter of the contract but rather restricts liability for a per-existing obligation” (p. 125, emphasis added).]]

Terms that reflect mandatory statutory or regulatory provisions or the provisions of international conventions are not subject to control (art. 1(2)): pay attention to the fact that “'mandatory' in this context does not reflect the traditional civil law distinction between binding ('imperative') and 'opt-out' (or default) provisions and covers both meanings”: this is because default provisions usually establish solutions considered by the legislator as the most equitable (p. 115).