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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Product Liability Directive (Directive 85/374/EEC)

  1. INTRODUCTION

STRICT LIABILITY: Directive 85/374/EEC on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products, as amended by Directive 1999/34/EC (“the Directive”) creates a strict liability regime for the benefit of the person injured by a defective product. Under this Directive, it makes absolutely no difference whether the person legally responsible is at fault for the defective product. In other words, the injured party is relieved of the obligation to prove negligence. All he has to prove is the existence of a defect in the product, the damage caused to it, and the causal link between the two. Of course, in accordance with Article 13 of the Directive, any rights of the injured party arising from any contractual term or other rule of law are not affected by the existence of a right to compensation granted to him by the Directive. The Directive establishes a liability regime only for the issues it regulates.

SCOPE: Most European Directives aimed at protecting consumers apply where the purchaser of the goods is a consumer. The Directive, however, differs in this respect. The main differences with the Directives aimed at protecting consumers are that: First, for a person to have an enforceable right under the Directive, it is not necessary for him or her to be the purchaser of the defective product. Second, it is not required that either he or the purchaser acts as a consumer. Anyone who suffers damage from the defective product (both the purchaser and third parties) has a right to compensation. Hence the Directive refers to “injured party” and not to “buyer” or “consumer”. Thirdly, for the application of the Directive it does not matter whether the defective product itself is a consumer good since the damage it causes is damage to property of the injured party which is normally intended and used for private or consumer use. Damage to the defective product itself is excluded.

Precisely because damage caused by a defective product will usually be damage to consumer goods, in practice the Directive applies mainly where the injured party was acting as a consumer when purchasing the damaged goods. As mentioned above, the main exceptions are cases where the damage caused by the defective product is death or injury or damage to immovable property normally intended and used primarily for private use.

 

  1. DEFINITION OF DEFECTIVE PRODUCT

Article 6(1) of Directive 85/373/EEC defines a defective product as follows:

«a product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including a) the presentation of the product· b) the use to which it could reasonably be expected that the product would be put· c) the time when the product was put into circulation. »

SAFETY LEVEL EXPECTED: The sixth recital of the Directive states that the level of safety must be what the public at large has a right to expect.  Where, for example, the product is hot coffee, the public at large expects that if it is spilled on someone, it will cause minor burns and not third-degree burns. This level may differ from the level of security that the claimant himself actually expects. In Richardson v LRC Products Ltd a woman used a condom but during intercourse it broke resulting in her becoming pregnant. Although the Court accepted her testimony that she expected that the condom would not break, it dismissed her claim, stating that the level of safety that the public at large was entitled to expect from the condom was lower than what she expected. The decision maker of the level of safety the public at large is entitled to expect is the Court.

ACCEPTANCE OF DEFECT: Where the defect or the possibility of the existence of the defect is not known to the public at large, it is obviously not accepted by them. On the contrary, if it is known to the public at large, then the use of the product in itself implies acceptance of the defect or the possibility of its existence, as the case may be. Thus, in the Richardson case (above) it was decided that the public at large accepted the likelihood of a condom breaking during intercourse. Similarly, it is accepted by the public at large that a contraceptive pill is likely to cause cardiovascular disease if this is a known side effect  or that the possibility of toxic shock syndrome is an accepted risk among women who use tampons.

  • PRODUCT

According to the definitions in Directive 85/373/EEC, a product «means all movables, with the exception of primary agricultural products and game, even though incorporated into another movable or into an immovable.» It is also very important that electricity is also considered as a product, but services are not included, such as for example incorrect information contained in newspapers – even if the newspaper itself is a product. Also, as mentioned above, it is important that the definition of goods also includes goods that are incorporated into immovable property – contrary to the general principle of the law of sale of goods that such goods are considered to be appurtenances to land.

  • SAFETY

Under the Directive, a product is considered safe when it does not cause damage.

BURDEN OF PROOF: It is important to stress that the burden of proving that a product does not provide safety rests with the claimant. This is not always easy since often the nature of the product is so complex that the lack of safety can only be proven by expert testimony. It should be noted that, although the consumer must prove that there is a defect in the product, he is not required to specify what that defect is. Thus, if he simply proves that there is a defect in the electronics of his car without specifying it, he will succeed.

  • CIRCUMSTANCES TAKEN INTO ACCOUNT

Whether a product is considered defective is always judged in relation to the level of safety that the public at large is entitled to expect. According to the Article 6(1) a product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including:

«a) the presentation of the product·

b) the use to which it could reasonably be expected that the product would be put · and

c) the time when the product was put into circulation. »

ALL INCIDENTS: The phrase «taking all circumstances into account » in Article 6(1) of the Directive means that the above circumstances are the most important, but not the only ones.   The phrase «all the circumstances» means all the relevant circumstances. However, the Defendant cannot claim as a relevant circumstance the difficulty of avoiding the defect in the product at issue, as this would be contrary to the strict liability regime created by the Directive.

AVAILABILITY OF SAFER PRODUCTS: The existence of other similar products at the time the contested product is put into circulation which are safer than the contested product may be taken into account in deciding whether the contested product is defective. However, where such safer products are put on the market after the contested product, this does not in itself render the contested product defective.

EXISTENCE OF STANDARDS: Where there are formal quality standards, e.g. ISO standards, this is taken into account when considering whether a product is considered to provide safety. However, it should be noted that non-compliance with these does not always result in a product being considered as not providing safety – particularly where quality standards are not legally binding. In Tesco Stores v Connor Frederick Pollock a thirteen-month-old infant opened a bottle of dishwasher powder which he swallowed, resulting in him being poisoned. The action was brought against the manufacturer of the bottle on the basis that whilst the bottle was supposed to have a child-resistant lid, it was nevertheless easily opened. The testimony showed that the cap was the kind that had to be pushed and then turned to open, but it required significantly less force than similar caps that met the British Standard (“British Standard”) of caps. However, although less force was required than for similar lids meeting the British Standard lid, because this particular lid required more force than an ordinary lid, and more force than could be expected to be exerted by a thirteen month old infant, the English Court of Appeal dismissed the plaintiff’s appeal. The Court of Appeal stated that the public at large was entitled to expect that the lid would be more difficult to open than an ordinary lid and nothing more.

It is submitted that where official standards are binding on the producer, then non-compliance with them is in itself sufficient for the product to be considered as not providing safety.

Α. MANNER IN WHICH AND PURPOSES FOR WHICH IT WAS PUT INTO CIRCULATION

METHOD:  The way a product is put on the market affects the level of safety it provides. For example, when a particular product is placed on the market with other products it may be safe, whereas if it is placed on the market alone it may not provide the same high level of safety.

PURPOSE: The purpose for which a product is placed on the market has a very strong influence on the level of safety expected from it. If, for example, the purpose is to keep a patient alive, the level of safety expected is so enhanced that the concept of defectiveness includes the possibility of a defect occurring in the future. In the Boston Scientific Medizintechnik. case involving medical devices, namely cardiac pacemakers and implantable automatic defibrillators, it was established by the manufacturer that some products of the same group or production series as those implanted in the plaintiffs’ bodies could potentially malfunction in the future. However, the products themselves implanted in the plaintiffs’ bodies (‘the products at issue’) were not found to be so.

The fact that only some products from the same group or range of products as the contested products might have been defective in the future did not prevent it from being decided that all products of that group or range, including the contested products, were defective. The Court emphasised that, taking into account the purpose of these products and the vulnerable situation of the patients using them, their users are entitled to have particularly high safety requirements. It also stressed that any defect in these products would have an unusually high likelihood of harm to users. In these circumstances, it decided that even without proof of a defect in the products at issue, it could automatically be concluded that all products in the group or range of products were defective. Although this decision may at first sight appear to be strict, it should nevertheless not be surprising as it is essentially limited to its facts, since it concerned products which present a particularity with regard to the damage they would cause to their users if the defect were to manifest itself.

PURPOSE TO USE FUNCTION: It should be noted that the safety of a product is not judged in abstracto. It is the use made of the product in relation to the purpose for which it was placed on the market that is taken into account.

EXAMPLE: A, a teenager, bought toothpaste from P. The next day at school A hears that any toothpaste can be used to treat acne. So when he gets home, he smears the toothpaste on parts of his face where he had acne. The next day, he wakes up with severe dermatitis resulting in the need for expensive dermatological treatment. Since the purpose for which the toothpaste was marketed is not to treat acne, the toothpaste is not considered defective.

Β. PROVISION OF INSTRUCTIONS, WARNINGS OR STATEMENTS RELATING TO POSSESION, USE OR CONSUMPTION

In  Iman Abouzaid v Mothercare (UK) Ltd the claimant was helping his mother fit a cover to his little brother’s pram when an elastic strap was thrown off and a metal buckle at one end of the strap hit him in the eye injuring him. The English Court of Appeal ruled that the product was defective as its design allowed the risk to be created which actually materialized. The Court emphasized that the product was sold with a design that allowed the creation of a risk without instructing the user of the product not to stand in such a position so that the chances of the risk materializing were reduced. Thus, the public at large was entitled to expect a high level of safety, especially in view of the serious consequences of an eye injury.

LOSS OF INSTRUCTIONS OR WARNINGS: In Worsley v Tambrands Limited the Claimant bought a tampon whose packaging stated that the tampon was associated with a particular condition and so users had to carefully read the leaflet inside the packaging. The Claimant lost the amulet. When she contracted the condition, she argued to the Court that the warnings about the use of the product were incomplete and therefore the product was defective. Her claim was rejected as the product was accompanied by adequate warnings for its use and the fact that she lost them could not be a basis for the producer’s liability.

C. PERIOD OF RELEASE FOR CONSUMPTION

A product is considered to be put into circulation when its producer, in the course of his business, makes it available for supply to others.

(i)  PRODUCER

For the concept of “producer” see Section 3.1 below.

(ii) WHEN IT ENTERS INTO CIRCULATION

In the OByrne it was said that:

«…a product must be considered to have been put into circulation … when it has left the production process carried out by the producer and has entered a process of commercial circulation in the course of which it is offered, as such, to the public».

DIRECT SALE: On the basis of the above assumption, a product is therefore considered to be put into circulation when it leaves the production phase and enters “commercial circulation”. When the product is sold directly by the producer, it is considered to enter into commercial circulation when it becomes available to the buyer. This applies irrespective of whether the product has left the producer’s sphere of control. Thus, where a product can only be used within the producer’s premises, it is considered to have entered into circulation when it is used by the purchaser on those premises.

CHAIN OF DISTRIBUTION: As far as distribution chain cases are concerned, if a part of the distribution chain is closely linked to the producer, e.g. a subsidiary of the producer, then, in order to establish whether the product has passed from production to distribution, it is necessary to examine whether this part is also involved in the production process. In considering this issue, it is irrelevant whether it is a separate legal entity from the producer. What matters is whether the two entities are engaged in different production activities or whether one acts as a distributor for the other. In the first case, both entities are considered to be jointly the ‘producer‘ and therefore the delivery of the product from one entity to the other does not result in the product being considered to have been put into circulation. On the contrary, in the second case, once the product is given by the producing entity to the distributing entity, the product is considered to be put into circulation.

  • SAFETY OF NON-STANDART PRODUCTS

Where a product is produced as part of a product range or produced in a production line of products which are standardised, there is a possibility that due to a manufacturing error it may differ from the rest of the products in the range or production line. In this case, this product is considered to be non-standard. In the English authority A v National Blood Authority Judge Burton held that in order to determine whether the product in question is standardised it must be considered firstly whether the product differs from other products on the production line and secondly (assuming that it does differ) whether the difference is due to a manufacturing error. In the latter case, the product is considered to be non-standard. In all other cases, it is considered to be standardised (including, obviously, the case where the product does not differ from the others).

The fact that a product is non-standard does not automatically mean that it is considered defective. Based on the above decision, by far the most important factor to be taken into account for the purposes of the Directive to be considered defective is the acceptance of the manufacturing defect by the public at large compared to other similar products on the market. In other words, whether the public at large accepts the manufacturing defect and, despite its existence, is willing to use the (non-standard) product. In contrast to standardised products where knowledge of the possibility of a defect by the public at large always implies social acceptance, he same is not true for non-standardised products. In the case of non-standard products, the manufacturing defect may be known but not socially acceptable (e.g. because it significantly reduces the safety of the product). Obviously, however, if the possibility of a defect is not known to the public at large, it is impossible for it to be socially acceptable.

EXAMPLE: A, who is allergic to nuts, buys a sweet from P. The packaging of the sweet states in bold letters that the sweet may contain traces of nuts. After consuming the sweets, A develops allergies and needs treatment. This sweet is a non-standard product precisely because it contains traces of nuts (unlike the vast majority of P’s sweets). Since the public at large is aware of the risk of the sweet being defective, the question is whether they accept it. It is argued that in this case the manufacturing error is acceptable and thus the product is not considered defective.

  1. PERSONS RESPONSIBLE

GENERAL: The person liable under the Directive is regulated by Articles 3(1), 3(2) and Recital 2 of the Directive which, in addition to the liability of the producer, also regulate which of the professionals involved in the processes of manufacture and marketing of the product is liable. These are the importer and any supplier of the product involved at any stage in the distribution chain. The above-mentioned persons are mentioned in the legislation in a restrictive way and are liable as if they were the producer.

SERVICE PROVIDER: It should be noted that a service provider who uses a defective product supplied by another person as part of the services provided cannot be considered either a producer or a supplier of the product. The logic is that the Directive does not regulate the liability of such persons and the service provider is not part of the chain of manufacture and placing on the market of the product in question, as long as he does not buy it for resale. As a result, if a person is damaged by a product which was used in the context of services provided to him, he does not enjoy the protection of the Directive and thus, in addition to being unable to establish strict liability against his contractor, he cannot even compel him to disclose the identity of his producer or supplier.

  • PRODUCER

THE PRODUCER IS PRIMARILY RESPONSIBLE: Based on Article 1 of the Directive:

“The producer shall be liable for damage caused by a defect in his product”

Therefore, where the injured party proves that he has suffered damage caused by a defective product, the producer of the product is the primarily responsible for the defect.

CONCEPT OF PRODUCER: Under the Directive, the producer of the product is considered to be:

“…the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component and any person who, by putting his name, trademark or other distinguishing feature on the product presents himself as its producer.·”

INVOLVEMENT OF VARIOUS PERSONS: It is not always clear who the producer is. This is particularly the case where various legal or natural persons are involved in the production and/or distribution of the product. In such a case, only those persons involved up to the moment the product is considered to have been put into circulation are considered to be producers. As described above, a product is considered to be put into circulation when it leaves production and enters into commercial circulation.

Where the Claimant is aware of the existence of a parent company and a subsidiary and cannot know which of the two companies took the decision to put the product into circulation, it is advisable to bring an action against both to avoid the issue of limitation, on the one hand, and to force the Defendant companies to disclose which of the two took the decision, on the other hand.

ELECTRICITY: According to Decision C 691/21, an electricity distribution system operator is considered to be a “producer” since it transforms the voltage level of electricity for the purpose of distributing it to the final customer.

AFFIXATION OF A TRADEMARK AND OTHER DISTINCTIVE SIGN: It should be noted that in relation to the requirement in the Directive that a person who has affixed his name, trademark or any other distinctive sign to the product be regarded as the producer, this is self-explanatory and, in accordance with judgment C-264/21:

“…there is no requirement that the person who has affixed or allowed his name, trademark or other distinctive sign to the product must also appear in some other way as the producer of the product in order to be considered a ‘producer’.” 

  • IMPORTERS AND SUPPLIERS

IMPORTER: Under Article 3(2) of the Directive «any person who imports into the Community a product for sale, hire, leasing or any form of distribution in the course of his business is liable as if he were the producer of the product. It is noted that the importation of products is not limited to products imported from other Member States (“MS”) of the European Union, but also extends to products imported from third countries.

SUPPLIER: Similarly, Article 3(3) imposes liability on any person who has supplied a product to another person where it is impossible to determine the identity of the producer and the supplier has failed to inform the injured party within a reasonable time of the identity of the producer or the person who supplied the product.

It is clear that the above article covers cases where the injured party is unable to verify the identity of the producer. In such a case the injured party should within a reasonable time after the damage has been caused ask the supplier to disclose the identity of the producer. If the injured party fails to request such disclosure in accordance with the requirements of this Article, the injured party shall be precluded from taking action against the supplier. However, the injured party’s right to take action against the producer and/or importer shall remain intact.

The Directive gives the right to know the identity of the previous supplier or producer, not only to the injured party but also to any supplier of the product. In any event, where that right is exercised, the mere denial by the recipient of the request that he is not the producer does not constitute sufficient fulfilment of his obligation to disclose the identity of the producer or his own supplier. Indeed, the protection of the injured party has been extended by the European Court of Justice to impose a positive obligation on a supplier sued to disclose to the claimant, on his own initiative and with diligence, the identity of his supplier or producer.

  • JOINT AND SEVERAL LIABILITY

There are cases where more than one person may be liable under the Directive. Therefore, where two or more persons are liable, Article 5 of the Directive states that their liability is always joint and several. This Article will be particularly useful to importers who cannot avoid liability to the injured party in any way.

  1. DAMAGE
    • RECOVERABLE DAMAGE

According to Article 9 of the Directive, damage means:

“a) damage caused by death or personal injury·

  1. b) damage to, or destruction of, any item of property other than the defective product itself, with a lower threshold of 500 EUR, provided that the item of property:
  2. i) is of a type ordinarily intended for private use or consumption, and
  3. ii) was used by the injured person mainly for his own private use or consumption.”

SPECIFIC DAMAGES: In the Boston Scientific Medizintechnik case it was said that recoverable damages include all costs necessary to eliminate the harmful effects of the defect. In the two cases at issue, the company that manufactured cardiac pacemakers and implantable automatic defibrillators found defects in these products. In relation to the pacemakers, it recommended that doctors should consider changing them, which would involve surgery. In relation to defibrillators, he recommended that doctors simply turn off their magnetic switch. The Court of Justice of the European Communities ruled that the injured parties were entitled to all the relevant costs necessary to remedy in each case the defect and its harmful consequences. That is, if the surgical removal of the defibrillators and replacement with new ones was unnecessary because simply turning off the switch would have been sufficient to eliminate all the harmful effects of the defect, then the costs of future surgery would not be recoverable.

GENERAL DAMAGES: As regards non-material damage, the 9th recital of the Directive refers to it as “pretium doloris [pain and suffering] or other non-material damage“. The compensation of such damages is left entirely to the MS and is thus governed exclusively by the general principles of MS law.

  • NON- RECOVABLE LOSS

Damage to property intended for professional use is not covered by the Directive. The same applies to any damage caused by a nuclear accident, which is covered by international conventions ratified by the Member States and to products put into circulation before 30/07/1985. Furthermore, under Article 9(b) of the Directive, no compensation is awarded for damage to the defective product itself.

Based on the above article, it is clear that under the Directive, the following two losses are not recoverable. Firstly, damage to the defective product itself and secondly, damage caused to a product by a defective product which was part of it at the time it was supplied to the Claimant.

EXAMPLE: A buys from P an expensive mobile phone which is sold with a removable battery. Due to a defect in the battery, the mobile phone is destroyed. The damage to the phone is not recoverable since under section 9(b) the battery (defective product) was part of the phone (product) at the time the claimant acquired it.

Finally, under Article 9(b), no damages are awarded for damage to property where the amount of damages would not exceed €500. For the purposes of calculating this amount, interest shall not be taken into account. This limitation, however, does not deprive the injured party of the right to take legal action on the basis of general principles of law for breach of contract or negligence.

It is important to note that the minimum damage of €500 is a requirement only in respect of property damage. Conversely, there is no such limitation for loss due to death or personal injury. Thus, if the injured party due to an injury claims compensation for medical expenses below €500, he or she is entitled to compensation.

  • LIMITATION OF LIABILITY
    • LIMITATION OF LIABILITY EXCLUDED

ACT OR OMISSION OF A THIRD PARTY: Based on Article 8(1) of the Directive, “the liability of the producer shall not be reduced when the damage is caused both by a defect in product and by the act or omission of a third party.” This means that, where there is concurrent liability between a third party and a person liable under the Directive, the latter person will be liable in full, i.e. for all the damage suffered by the injured party. The liability of the third party, on the other hand, is not determined on the basis of the Directive but on the basis of the general principles of civil law and the principles of contributory negligence. It should be noted that the person liable under the Directive retains any rights against the third party (e.g. for contribution).

CONTRACTUAL CLAUSES: Furthermore, under Article 12 of the Directive, liability imposed under the Directive may not be limited or excluded against the injured party by a limitation or exclusion clause.

  • POSSIBILITY OF LIMITATION OF LIABILITY

The only way to limit or eliminate a person’s liability under the Directive is essentially the contributory negligence of the injured party or anyone acting under his or her responsibility. This is provided for in Article 8(2) of the Directive, which states that the liability of any person may be reduced or even eliminated where the damage is caused both by the defective product and by the fault of the injured party.

  1. CAUSATION

As mentioned above, according to Article 4 of the Directive, the injured party must prove that his damage is the result of the defect in the product. The causal link between the defect and the damage may be proved either directly or by excluding any other possibility that may have caused the damage, until the defect in the product remains the only possible cause of the damage (provided that the defect in the product is of such a nature that it may have caused the damage).

  1. DEFENCES

Article 7 of the Directive provides some defences to the producer. These are exhaustively listed and exempt the producer from any liability; they must therefore be interpreted restrictively by the courts. The defences are the following:

  • DID NOT PLACE THE PRODUCT INTO CIRCULATION

Article 7(a) states that it is a defence to the producer if he proves that “he did not put the product into circulation.” This defence takes two forms. The first is where the Defendant alleges that the product was not put into circulation at all. As we have seen, however, a product is deemed to have been put into circulation by its use even if it is only used within the producer’s premises. In Veedfald case, a medical liquid was manufactured in the pharmacy of a hospital for use on a patient who was being treated at another hospital. Both hospitals were owned by the same organisation which claimed that due to these circumstances, the liquid did not leave its sphere of control and thus had to be considered not to have been put into circulation. The Court of Justice of the European Communities rejected the argument, holding that the product was put into circulation. The reason for this was that the product could only be used within the producer’s premises. The second form of this defence is where the Defendant admits that the product was put into circulation but claims that this was done by another person and not by him. For the same reason, it is a defence where the defective product is used against the will of the manufacturer, e.g. before the manufacturing process has been completed.

  • SUBSEQUENT APPEARANCE OF A DEFECT

Under Article 7(b) it is a defence where the producer proves that “having regard to the circumstances, it is probable that the defect which caused the damage did not exist at the time when the product was put into circulation by him or that this defect came into being afterwards.” It is noted that the phrase “came into being afterwards” implies that the defect came into existence later  and does not include cases of latent defects, i.e. defects which existed from the outset but which appeared later. In Piper v JRI Manufacturing Limited the manufacturer of a hip prosthesis proved that when it put the product into circulation, that is, when it was delivered to the hospital where it was incorporated into the Claimant’s body, it was not defective. The manufacturer proved that it followed inspection and quality control procedures that would have identified the defect if it existed before it was delivered to the hospital. Thus, it proved the defence of the English provision corresponding to Article 7(b) of the Directive. The Court pointed out that all that was required for the manufacturer to establish this defence was that the product was not defective when it was put into circulation. It did not require the manufacturer to prove how the defect was subsequently caused, nor exactly when it was caused.

  • CONSTRUCTION FOR A PURPOSE OTHER THAN ECONOMIC OR PROFESSIONAL

Article 7(c) provides that it is a defence for any person to prove that “the product was neither manufactured by him for sale or any form of distribution for economic purpose nor manufactured or distributed by him in the course of his business

Where the manufacturer of the defective product manufactured it for any reason other than for a disinterested activity, he is deemed to have manufactured it for an economic and commercial purpose. Thus, in the Veedfald case it was immaterial that the defective medical fluid was manufactured by a public hospital and was intended for a patient who did not have to pay for it.

  • COMPLIANCE WITH LEGISLATION

Article 7(d) of the Directive states that it is a defence for the Supplier if it proves that “the defect is due to compliance of the product with mandatory regulations issued by the public authorities.  It is submitted that, the same applies where the producer has complied with mandatory safety standards.

  • LACK OF SCIENTIFIC OR TECHNICAL KNOWLEDGE WHEN THE PRODUCT WAS PLACED ON THE MARKET

Article 7(e) states that it is a defence if it is shown that “the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be discovered”. This defence is known as the (“development risks defence”). Indeed, it is the only one of the defences provided that the MSs could decide not to apply.

C-300/95 clarified what is meant by the phrase “scientific and technical knowledge at the time the product was placed on the market”. The Court of Justice of the European Communities said that this phrase does not only mean the practice and safety standards used in the industrial sector of the producer. According to the Court, the phrase includes the highest objective level of scientific and technical knowledge at the time the product in question was put on the market. The producer is presumed to have such knowledge, provided that it was available at the time the product was put on the market. The Court of Justice of the European Communities has in this judgment significantly limited the scope of this defence, since it can only succeed where the producer proves that even the highest level of knowledge would not have allowed the defect to be detected. On the other hand, however, the addition by the Court of Justice of the European Communities of the requirement that such knowledge be available, works in the opposite direction. For example, if there was a very high-level of knowledge which was the result of research which had not yet been published, then it would not be considered available, thus effectively reducing the burden of proof which the producer would have to bear in order to succeed in his defence.

The question then arises: what scientific and technical knowledge is considered to be available? There is no clear answer to this question. In Case C-300/95, for example, the Advocate General of the European Union, in paragraph 23 of his opinion, expressed the view that a Manchurian scientific review is not included in the information available (as long as it is not published in European countries). In the English Authority A v National Blood Authority however, Judge Burton J held that even a Manchurian scientific review can be considered available if the allegedly defective product is a product for which Manchuria is famous.

PROBABILITY OF A DEFECT OCCURRING: The fact that the producer knew or could have discovered the existence of a likelihood of the defect is sufficient to deprive him of the right to invoke that defence. This is the case where, for example, one of the products in a particular range is defective and the producer knows about it and continues to put the products in that range into circulation. In  A v National Blood Authority where the producer knew that for each container of blood there was a possibility of hepatitis C, it raised this defence saying that there was no test which proved the existence of hepatitis. Judge Burton J held that the defence, could not succeed where the manufacturer knew that there was a likelihood of the defect occurring, even if the existence of the defect itself could not be established when the product was put on the market. His reasoning was that the phrase “existence of a defect” in the Act was not limited to the existence of a defect in the particular product at issue but also included the risk of the defect occurring. Consequently, he decided that the provision of the Directive provides a defence only for defects that are actually unknown to the producer.

Although the wording of the Directive does not support Burton J’s decision in so far as it states that it is a defence that the fact that the defect could not be established (and not the probability of its occurrence) is a defence, the subsequent judgment of the European Court of Justice in Joined Cases C-503/13 and C-504/13  appears to support the above reasoning to some extent. It was decided that in some cases, even if only the probability of a defect in a product of the same group or range as the contested product is proven, this may be sufficient to consider the contested product as defective. It should be recalled, however, that the principle set out in Joined Cases C-503/13 and C-504/13 is not always applicable, but only in specific cases where the potential damage is very serious (e.g., to human health).

PHARMACEUTICAL PRODUCTS: The developing risks defence effectively exempts pharmaceutical manufacturers from any liability under the Directive, since usually, any defects in medicines appear either at the trial stage (when the medicine is not put on the market for this reason) or after a long period of time. In the latter case, it is very easy for the manufacturer to prove that he could not detect the defect when he put the medicinal product into circulation.

  1. DEADLINES

Article 10(1) of the Directive sets out the time limits within which the Member States must set time limits for bringing a claim for damages for loss suffered by the claimant as a result of a defective product.

  • THREE YEARS FROM THE DATE OF THE FINDING OF DAMAGE, DEFECT AND IDENTITY OF PRODUCER

Article 10(1) provides for the right of action of any person who is injured by a defective product:

“Member States shall provide in their legislation that a limitation period of three years shall apply to proceedings for the recovery of damages as provided for in this Directive. The limitation period shall begin to run from the day on which the plaintiff became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer.”

The three-year period begins when the injured party becomes aware or could reasonably have become aware of (1) the damage, (2) the defect and (3) the identity of the producer.

  • TEN YEARS SINCE THE CIRCULATION OF THE PRODUCT

Under Article 11 the injured party’s right to claim damages

“is extinguished upon the expiry of a period of 10 years from the date on which the producer put into circulation the actual product which caused the damage, unless the injured person has in the meantime instituted proceedings against the producer.”

PUT INTO CIRCULATION: A product is considered to be put into circulation when it leaves production and enters into commercial circulation. This question is important in order to determine when the limitation period starts to run. This issue has been dealt with above in Section 2.2.1. D.

REPLACEMENT OF THE DEFENDANT: Where the injured party brings an action against a company that is mistakenly held to be the producer but discovers the identity of the actual producer after the ten-year period has expired, the question arises: can it substitute the defendant company in the pending action with the actual producer? In  Aventis Pasteur , the European Court of Justice clarified that the replacement of the defendant after the expiry of the ten-year period circumvents the time limit and affects the legal certainty promoted by the Directive as well as the reasonable expectation of the actual producer that after the expiry of the time limit he will be relieved of any liability. The European Court of Justice also emphasised that subjective elements such as the injured party’s mistaken impression that the defendant was the producer or his intention to sue the actual producer can in no way be taken into account. Thus, it decided that after the ten-year period had elapsed, the wrong defendant could not be replaced by the real producer. There is the following exception to the above principle: In Aventis Pasteur it was clarified that in cases where the wrong defendant is a wholly owned subsidiary of the actual producer, then the national court must decide on the facts of the case whether it was in fact the parent company that put the product at issue on the market. If that is the case, then the national court may decide that the parent company can substitute its defendant subsidiary even after the time limit has expired.

In any case, as the European Court of Justice itself stated, the issues arising from the expiry of the time limit where the wrong person is initially sued as a producer are only of an academic nature, since under normal circumstances the injured party will only take action against the “wrong” person where the latter is a supplier who fails to inform him of the identity of his own supplier or the actual producer. As we have seen above, in this case the provisions of Article 3(3) of the Directive are triggered and the injured party’s claim is therefore considered to be in conformity with the law.

By George Charalambous and Evripides Hadjinestoros

Σχετικά Άρθρα

Directive 11 – Timeshare, Long-term Holiday Product, Resale and Exchange Contracts (Directive 2008/11/EC)
Power of the Court to extend the time for referring a matter to arbitration
Conciliation Rules of the Cyprus Center for Alternative Dispute Resolution
Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
George Charalambous Lawyer
George is a Lawyer and a graduate of the University of Birmingham with an LLM in international commercial law from King’s College, London. In 2016, George published the book «The Law on the Sale of Goods and Consumer Protection in Cyprus», which was published by Nomiki Vivliothiki. He has published books and articles in Cyprus and is mainly involved in banking law, consumer protection law, insolvency law, commercial law and cross-border cases. Since 2011 he is a licensed advocate by the Cyprus Bar Association.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Timeshare, Long-term Holiday Product, Resale and Exchange Contracts (Directive 2008/122/EC)

1. PURPOSE OF THE DIRECTIVE

Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts («Directive») is intended to contribute to the proper functioning of the internal market and to achieve a high level of consumer protection, by approximating the laws, regulations and administrative provisions of the Member States in respect of certain aspects of the marketing, sale and resale of timeshares and long-term holiday products as well as exchange contracts.

LEVEL OF HARMONISATION: Based on recitals 3 and 11, the Directive is a full harmonisation directive except where otherwise indicated in specific provisions (such as the effects of the right of withdrawal to relationships outside the scope of the Directive).

IMPERATIVE NATURE OF THE DIRECTIVE: According to Article 12, consumers may not waive their rights under the Directive. Also where the applicable law is that of a third country, consumers are subject to the protection of the MS where the property is situated or in the case of a contract not directly related to immovable property, in the Member State, the trader pursues commercial or professional activities in a Member State or, by any means, directs such activities to a Member State and the contract falls within the scope of such activities.

SCOPE: The Directive applies to trader-to-consumer transactions which relate to the marketing, sale and resale (a) of timeshares, (b) long-term holiday products as well as (c) exchange contracts.

THE THREE TYPES OF TRANSACTIONS: According to the interpretative provisions of the Directive, the three types of transactions covered, namely timeshare, long-term holiday products and exchange contracts, are interpreted as follows:

(a) Timeshare contract isa contract of a duration of more than one year under which a consumer, for consideration, acquires the right to use one or more overnight accommodation for more than one period of occupation”. Contracts for multiple reservations of accommodation (e.g. hotel rooms) in so far as multiple reservations do not imply rights and obligations beyond those arising from separate reservations cannot be considered as timeshares.

(b) Long-term holiday product is “a contract of a duration of more than one year under which a consumer, for consideration, acquires primarily the right to obtain discounts or other benefits in respect of accommodation, in isolation or together with travel or other services” . Long-term holiday product contracts should not be understood as covering ordinary loyalty schemes which provide discounts on future stays in the hotels of a hotel chain, since membership in the scheme is not obtained for consideration nor is the consideration paid by the consumer primarily for the purpose of obtaining discounts or other benefits in respect of accommodation.

(c) Exchange contract is a contract under which a consumer, for consideration, joins an exchange system which allows that consumer access to overnight accommodation or other services in exchange for granting to other persons temporary access to the benefits of the rights deriving from that consumer’s timeshare contract

In calculating the duration of a timeshare contract or a long-term holiday product contract, any provision in the contract allowing for tacit renewal or prolongation is taken into account.

As mentioned above, the Directive also covers cases of the resale of such contracts. Named as “resale contract”, there are contracts where “a trader, for consideration, assists a consumer to sell or buy a timeshare or a long-term holiday product”.

CONSUMER AND TRADER: A consumer is defined as a natural person who is acting for purposes which are outside that person’s trade, business, craft or profession. On the other hand, trader is defined as “a natural or legal person who is acting for purposes relating to that person’s trade, business, craft or profession and anyone acting in the name of or on behalf of a trader.

The Directive does not affect national legislation which:

“a)       provides for general contract law remedies.

b) relates to the registration of immovable or movable property and conveyance of immovable property

c) relates to conditions of establishment or authorisation regimes or licensing requirements and

d) relates to the determination of the legal nature of the rights which are the subject of the contracts covered by this Directive.”

2. SUBSTANTIVE PROVISIONS

2.1.   INFORMATION/OBLIGATIONS PRECEDING THE COLCLUSION OF THE CONTRACT

2.1.1.                INFORMATION IN ADVERTISING

According to article 3, each advertisement must indicate the possibility of obtaining the following information provided in Annexes I to IV and the source of the information :

a)       in the case of a timeshare contract: by means of the standard information form as set out in Annex I and information as listed in Part 3 of that form.

b) in the case of a long-term holiday product contract: by means of the standard information form as set out in Annex II and information as listed in Part 3 of that form;

c) in the case of a resale contract: by means of the standard information form as set out in Annex III and information as listed in Part 3 of that form.

d) in the case of an exchange contract: by means of the standard information form as set out in Annex IV and information as listed in Part 3 of that form.”

PROMOTION OR SALES EVENT: Where during an event for the promotion or sale of products the trader proposes contracts for timeshare, long-term holiday products, resale or exchange then the trader must clearly state in the invitation the commercial purpose and nature of the event. Also, the above information shall be available to the consumer at any time during the event.

Based on article 3(4) of the Directive, a timeshare or a long-term holiday product must not be marketed or sold as an investment.

2.1.2.                PRE – CONTRACTUAL INFORMATION

Article 4 of the Directive states that the trader must, provide the consumer, before the consumer is bound by any contract, the information (Annex I – IV) referred to in the immediately preceding section in a clear and comprehensible manner. The information must be provided, free of charge, by the trader on paper or on another durable medium which is easily accessible to the consumer. Also, the information must be drawn up in the language  of the Member State in which the consumer is resident or a national, at the choice of the consumer.

DURABLE MEDIUM: According to the interpretative provisions of the Directive, durable medium means any instrument which enables the consumer or the trader to store information addressed personally to him in a way which is accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored

Also, based on article 5(4), before the conclusion of the contract the trader must explicitly draw the consumer’s attention to the existence of the right of withdrawal, the length of the withdrawal period referred to in article 6, and the ban on advance payments during the withdrawal period referred to in article 9.

2.2.   OBLIGATIONS INHERENT IN THE CONTRACT AND INFORMATION  

Based on article 5(1), the timeshare, long-term holiday product, resale or exchange contract must be in writing, on paper or on another durable medium, and drawn up in the language or one of the languages of the MS in which the consumer is resident or a national, at the choice of the consumer, provided it is an official language of the Community.

The MSs where the consumer resides have the right, based on the same article, to additionally require:                                                                                                                                                                     

“a) in every instance, the contract be provided to the consumer in the language or one of the languages of that Member State, provided it is an official language of the Community;

b) in the case of a timeshare contract concerning one specific immovable property, the trader provides the consumer with a certified translation of the contract in the language or one of the languages of the Member State in which the property is situated, provided it is an official language of the Community.”

The MS where the trader carries out sales activities may also require the contract to be provided to the consumer in the language or one of the languages of that Member State, provided it is an official language of the Community.

NATURE OF THE INFORMATION: The information in Annexes I to IV form an integral part of the contract and should be included in the contract. Also this information must not be altered unless the parties expressly agree otherwise or the changes result from unusual and unforeseeable circumstances beyond the trader’s control, the consequences of which could not have been avoided even if all due care had been exercised. These changes must be communicated to the consumer on paper or on another durable medium easily accessible to him, before the contract is concluded and the contract must expressly mention such changes.

In addition to the information in Annexes I to IV, the contract shall include also the identity, place of residence and signature of each of the parties and the date and place of the conclusion of the contract.

INFORMATION ON THE RIGHT OF WITHDRAWAL: In relation to the notice of withdrawal, this must be signed separately by the consumer. The contract must include a separate standard withdrawal form, as set out in Annex V, intended to facilitate the exercise of the right of withdrawal in accordance with Article 6.

COPY OF THE CONTRACT: Finally, the consumer must receive a copy or copies of the contract at the time of its conclusion.

2.3.   WITHDRAWAL

Article 6 provides for the right of withdrawal. This article states that MSs must ensure that the consumer is given a period of 14 calendar days to withdraw from the timeshare, long-term holiday product, resale or exchange contract, without giving any reason. That time limit is calculated from the day of the conclusion of the contract or of any binding preliminary contract or from the day when the consumer receives the contract or any binding preliminary contract if it is later than the date of signature.

EXTENSION OF THE WITHDRAWAL PERIOD: If the consumer is not provided with a separate withdrawal form completed by the trader in writing on paper or other durable medium, then the withdrawal period expires after one year and 14 calendar days from the signing or receipt of the contract/pre-contract as the case may be.

In case the standard withdrawal form is provided but the information of Annexes I to IV is not provided in writing on paper or on another durable medium, then the period expires after 3 months and 14 calendar days from the signature or receipt of the contract/pre-contract, as the case may be.

Furthermore, the same article states that MSs must provide for appropriate penalties in accordance with article 15, in particular in the event that, on expiry of the withdrawal period, the trader has failed to comply with the information requirements set out in the Directive.

In the cases where the trader remedies the breach by providing the consumer with the information (either Annexes I to IV or the standard withdrawal form) then the 14-day withdrawal period starts from the day on which the consumer receives the form or information.

In relation to exchange contracts offered jointly and simultaneously with the timeshare contract to the consumer, then the withdrawal period is calculated as above and as applicable to the timeshare contract.

EXERCISE OF THE RIGHT: Under article 7, when the consumer notifies his intention to withdraw within the withdrawal period, either on the standard form or on paper or on another durable medium, he is deemed to have validly withdrawn from the contract.

EFFECT OF THE EXERCISE OF THE RIGHT: According to article 8, upon exercise of the right of withdrawal, the obligations of both parties cease to apply. The consumer is not liable for any expenses and is not liable for amounts corresponding to the services provided before the withdrawal.

ADVERTISEMENT: Article 9(1) expressly prohibits traders in timeshare, long-term holiday products and exchange contracts from charging any advance payment, provision of guarantees, reservation of money on accounts, explicit acknowledgement of debts or any other consideration to the trader or to any third party by the consumer before the end of the withdrawal period.

TERMINATION OF ANCILLARY CONTRACTS:  Based on Article 11, where the consumer exercises the right to withdraw from the timeshare or long-term holiday product contract, any exchange contract ancillary to it or any other ancillary contract is automatically terminated, at no cost to the consumer.

An “ancillary contract” is defined in the Directive as «a contract under which the consumer acquires services which are related to a timeshare contract or long-term holiday product contract and which are provided by the trader or a third party on the basis of an arrangement between that third party and the trader» .

Also, where the price is fully or partly covered by a credit granted to the consumer by the trader, or by a third party on the basis of an arrangement between the third party and the trade contract agreement, this is terminated, at no cost to the consumer, where the consumer exercises the right to withdraw from the timeshare, long-term holiday product, resale or exchange contract.

Of course, for the termination of ancillary contracts, the MSs are required to lay down more detailed rules.

2.4.   OTHER RELATED OBLIGATIONS/RIGHTS

SPECIAL PROVISIONS RELATING TO RESALE CONTRACTS: In relation to resale contracts, article 9(2) states that MSs must ensure that any advance payment, provision of guarantees, reservation of money on accounts, explicit acknowledgement of debt or any other consideration to the trader or to any third party by the consumer before the actual sale takes place or the resale contract is otherwise terminated, is prohibited.

SPECIFIC PROVISIONS RELATING TO LONG-TERM HOLIDAY PRODUCT CONTRACTS: Article 10 states that in cases of long-term holiday product contracts, payment must be made according to a staggered payment schedule.

Any payment of the price specified in the contract otherwise than in accordance with the staggered payment schedule is prohibited. The payments, including any membership fee, must be divided into yearly instalments, each of which must be of equal value. Also, the trader must send a written request for payment, on paper or on another durable medium, at least fourteen calendar days in advance of each due date.

Finally, on the basis of article 10(2) from the date of payment of the 2nd instalment, the consumer may terminate the contract without incurring any penalty, by giving notice to the trader within fourteen calendar days of receiving the request for payment of each instalment. This right does not affect rights to terminate the contract under existing national legislation – i.e., the consumer’s rights in relation to other infringements are not affected.

3. OBLIGATIONS OF MEMBER STATES

JUDICIAL AND ADMNISTRATIVE REDRESS: Article 13 states that MSs have an obligation to maintain that adequate and effective means exist to ensure compliance by traders with the Directive. The instruments include a right for various actors to have recourse to the courts or competent administrative bodies to ensure the application of national provisions. These bodies consist of public bodies and authorities or their representatives, consumer organisations with a legitimate interest in protecting consumers as well as professional organisations with a legitimate interest in taking such action.

The MSs also have to inform consumers about transposing the Directive and must encourage, where appropriate, traders and code owners to inform consumers of their codes of conduct. Code owner means any entity, including a trader or group of traders, which is responsible for the formulation and revision of a code of conduct and/or for monitoring compliance with the code by those who have undertaken to be bound by it.”. Code of conduct means “an agreement or set of rules not imposed by law, regulation or administrative provision of a Member State which defines the behaviour of traders who undertake to be bound by the code in relation to one or more particular commercial practices or business sectors”.

Also, MSs encourage the setting up or development of adequate and effective out-of-court complaints and redress procedures for the settlement of consumer disputes under this Directive and must, where appropriate, encourage traders and their branch organisations to inform consumers of the availability of such procedures .

PENALTIES: Article 15 states that MSs must provide for penalties in the event of a trader’s failure to comply with the national provisions.  The penalties must be effective, proportionate and dissuasive.

REPEAL: With the adoption of the Directive, Directive 94/47/EC has been repealed.

Σχετικά Άρθρα

Power of the Court to extend the time for referring a matter to arbitration
Conciliation Rules of the Cyprus Center for Alternative Dispute Resolution
Mediation Rules of the Cyprus Center for Alternative Dispute Resolution
Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Representative Actions for the Protection of the Collective Interests of Consumers (Directive (EU) 2020/1828)

1. PURPOSE OF THE DIRECTIVE

Collective redress has been a very important issue for the EU since the 1980s and has been in policy debates for at least the past 20 years.  Its scope is wide and it is not difficult to envisage situations where collective redress of consumers is not only mandatory as a matter of policy, but it is also necessary as a matter of logic as it allows consumers’ access to courts to low value claims: one doesn’t have to look further than the Diesel gate scandal to see the reasons that such redress is welcome. The idea of collective redress for consumers is simple: it prominently addresses situations where there is minor harm to many consumers thereby making it worthwhile to pursue the harm in a collective form rather than individually.

The Injunctions Directive (Directive 2009/22/EC on injunctions for the protection of consumer interests), enabled consumer organisations and public authorities to seek injunctions against traders when the latter were breaching EU Consumer law. Its scope was limited in the sense that only 12 consumer law directives were covered by its ambit and because only injunctive relief could be sought by it.

The New Deal for Consumers envisaged higher protection for consumers including collective redress mechanisms for compensation. This led to the implementation of Directive 2020/1828 which includes mechanisms for collective redress including “compensation, repair, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under Union or national law

Directive (EU) 2020/1828 OF THE EUROPEAN Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (“The Directive”) sets out rules to ensure that a representative action mechanism for the protection of the collective interests of consumers is available in all Member States (MS), while providing appropriate safeguards to avoid abusive litigation. The purpose of the Directive is twofold. Firstly, through the achievement of a high level of consumer protection, to contribute to the proper functioning of the internal market by approximating certain aspects of the laws, regulations and administrative provisions of the Member States concerning representative actions and secondly it aims to improve consumers’ access to justice.

The Directive covers representative actions that are brought on or after 25 June 2023. For representative actions filed before 25 June 2023, it is Directive 2009/22/EC that applies.

LEVEL OF HARMONISATION: The Directive is a full harmonisation directive and Member States (“MS”) may not derogate from its provisions except to the extent that they adopt procedural rules for the registration of representative actions. In this light, Article 1(2) of the Directive states that Member States may adopt or retain in force procedural means for the protection of the collective interests of consumers at national level.

The Directive covers actions on behalf of consumers but MSs are free if they wish to include additional areas of law as well as persons benefiting from it (such as small businesses). Under it, consumers may not bring proceedings alone for collective redress but only through a “qualified entity”.

The procedural law used for registration of representative actions is that provided under EU or national law.

SCOPE: According to Article 2(1) the Directive applies:

“…to representative actions brought against infringements by traders of the provisions of Union law referred to in Annex I, including such provisions as transposed into national law, that harm or may harm the collective interests of consumers. This Directive is without prejudice to the provisions of Union law referred to in Annex I. It applies to domestic and cross-border infringements, including where those infringements ceased before the representative action was brought or where those infringements ceased before the representative action was concluded.”

ANNEX: The Annex contains 66 directives and regulations and articles of such directives and regulations for which a representative action may be registered. The Annex includes financial services, data protection, health, cosmetics, food, energy, product liability, provision of services and sale of goods. It is important to note at this stage that the use of the Directive can be extended to the registration of representative actions in relation to the General Data Protection Regulation (EU) 2016/679 regardless of the fact that there is a separate provision in the Regulation itself for consumer representation under Article 80(1) of that Regulation.

DEFINITION OF CONSUMER AND TRADER: The definitions of consumer and trader as used in the Directive are similar as those used in other Directives. In particular, consumer “means any natural person who acts for purposes which are outside that person’s trade, business, craft or profession” while “trader”means any natural person, or any legal person irrespective of whether privately or publicly owned, that acts, including through another person acting in that person’s name or on that person’s behalf, for purposes relating to that person’s trade, business, craft or profession”.

REPRESENTATIVE ACTION: A “representative action” is defined as an action for the protection of the collective interests of consumers that is brought by a qualified entity on behalf of consumers to seek an injunctive measure, a redress measure, or both.

There are two types of representative actions. Domestic and cross-border.

Domestic representative action means a representative action brought by a qualified entity in the Member State in which the qualified entity was designated. Cross-border representative action means a representative action brought by a qualified entity in a Member State other than that in which the qualified entity was designated.

COLLECTIVE INTERESTS OF CONSUMERS: Collective interests of consumers means the general interest of consumers and, in particular for the purposes of redress measures, the interests of a group of consumers.

REDRESS MEASURE: “Redress measures” are defined in the Directive as measures that require a trader to provide consumers concerned with remedies such as compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under Union or national law.

2. SUBSTANTIVE PROVISIONS

2.1.   REPRESENTATIVE ACTIONS

2.1.1.              Qualified criteria

QUALIFIED ENTITIES: Qualified entity under the Directive means any organisation or public body representing consumer interests which has been designated by a Member State as qualified to bring representative actions in accordance with this Directive.

In accordance with article 4(1) of the Directive,  Member States must ensure that representative actions are brought only by qualified entities . Such entities may be consumer organisations that represent members from more than one Member State.

QUALIFIED CRITERIA FOR CROSS-BORDER REPRESENTATIVE ACTIONS: Under the Directive there are specific criteria that apply to cross-border representative actions. In particular, according to Article 4(3), in order for such an entity to be able to bring cross-border representative actions, it must fulfil the following criteria:

«a)       it is a legal person that is constituted in accordance with the national law of the Member State of its designation and can demonstrate 12 months of actual public activity in the protection of consumer interests prior to its request for designation.

b) its statutory purpose demonstrates that it has a legitimate interest in protecting consumer interests as provided for in the provisions of Union law referred to in Annex I.

c) it has a non-profit-making character.

d) it is not the subject of insolvency proceedings and is not declared insolvent.

e) it is independent and not influenced by persons other than consumers, in particular by traders, who have an economic interest in the bringing of any representative action, including in the event of funding by third parties, and, to that end, has established procedures to prevent such influence as well as to prevent conflicts of interest between itself, its funding providers and the interests of consumers.

f) it makes publicly available in plain and intelligible language by any appropriate means, in particular on its website, information that demonstrates that the entity complies with the criteria listed in points (a) to (e) and information about the sources of its funding in general, its organisational, management and membership structure, its statutory purpose and its activities.”

QUALIFIED CRITERIA FOR DOMESTIC REPRESENTATIVE ACTIONS: With regard to the criteria applicable to domestic representative actions, there are no specific criteria that should be set, but generally, MSs have to ensure that the criteria they use to designate an entity as a qualified entity, are consistent with the objectives of this Directive in order to make the functioning of such representative actions effective and efficient  and, if they so wish, they may set the same criteria as those applicable to cross-border representative actions.

It should be noted that, notwithstanding Articles 4(3) and 4(4), MSs may also designate public bodies as legal entities for the purpose of pursuing representative actions.

Foreign and Domestic qualified entities may join forces and bypass the stricter requirements set by the Directive relating to approving a foreign entity (vis-a-vis a domestic entity). In this way, the domestic entity will act as the anchor claimant and “bypass the stricter requirements for foreign qualified entities

The criteria for designation as a cross-border qualified entity are considered as minimum harmonization.

AD HOC APPOINMENT: Article 4(6) provides for the case where someone may make an application for qualification to register, on an ad hoc basis, a specific domestic representative action. This article states that this is possible given that it meets the criteria for designation as a qualified entity under national law.

EXISTING QUALIFIED ENTITIES: According to Article 4(7), Member States may provide that public bodies already designated as qualified entities based on Directive 2009/22/EC are to remain designated as qualified entities for the purposes of the Directive.

2.1.2.              EXERCISE OF REPRESENTATIVE ACTIONS

According to Article 7(1), Member States ensure that representative actions as provided for by the Directive can be brought before their courts or administrative authorities by qualified entities since such cases are not manifestly unfounded. In the latter case, Member States must ensure that courts or administrative authorities are able to dismiss such cases at the earliest possible stage of the proceedings in accordance with national law.

Where a qualified entity will bring a representative action, they need to provide the court or administrative authority with sufficient information about the consumers concerned by the representative action.

The Directive states that Member States must ensure that qualified entities are entitled to seek at least (a) injunctive measures or (b) redress measures and this can be done in the context of a single representative action.

INJUCTIVE MEASURES: In relation to injuctive measures, Article 8(1) states that they are available in the form of:

“a)        a provisional measure to cease a practice or, where appropriate, to prohibit a practice, where that practice has been deemed to constitute an infringement …·

b) a definitive measure to cease a practice or, where appropriate, to prohibit a practice, where that practice has been found to constitute an infringement …”

With regard to definitive measures for ceasing/prohibiting a practice, it is stated that such a measure may include, if provided for in national law:

“a)       a measure establishing that the practice constitutes an infringement …· and b) an obligation to publish the decision on the measure in full or in part, in such form as the court or administrative authority considers appropriate, or an obligation to publish a corrective statement..”

Also, MSs may foresee that a qualified entity is only allowed to seek the injunctive measure applying for a definitive measure for ceasing/prohibiting a practice after it has entered into consultations with the trader concerned with the aim of having that trader cease the infringement. Where such provision is made, if the trader does not cease the infringement within two weeks of receiving a request for consultation, the qualified entity may immediately bring a representative action for an injunctive measure.

Note that the consumers concerned by a representative action must be entitled to benefit from the above measures but without being required to express their wish to be represented by that qualified entity. In fact, prior to the issuance of the injunctive measure, the qualified entity must not be required to prove:

«a)       actual loss or damage on the part of the individual consumers affected by the infringement; or

b) intent or negligence on the part of the trader. »

It is noted that in relation to representative actions concerning injunctions, it is provided that the MSs:

“…ensure that they are suspending or interrupting applicable limitation periods in respect of the consumers concerned by that representative action, so that those consumers are not prevented from subsequently bringing an action for redress measures concerning the alleged infringement …  because the applicable limitation periods expired during the representative action for those injunctive measures.

PROCEDURAL EXPEDIENCY: Regarding the speed of issuing injunctions, the Directive states that MSs must ensure that representative actions are dealt with speedily whereas, representative actions seeking an injunction to cease or, where appropriate, to prohibit a practice considered to constitute an infringement must, where appropriate, be dealt with by a summary procedure.

REDRESS MEASURES: A redress measure must require a trader to provide consumers concerned with remedies such as compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under Union or national law.

INCLUSION OF CONSUMERS IN REPRESENTATIVE ACTIONS: According to Article 9(2), MSs must lay down rules on how and at which stage of a representative action for redress measures the individual consumers concerned by that representative action are to be represented by the qualified entity in that representative action and whether they will be bound or not by the outcome of the representative action. The choice may be explicit or tacit and it may be made within an appropriate time limit after that representative action has been brought. Where a representative action concerning remedies and/or redress is pending, MSs must adopt rules to ensure that consumers are informed of the representative action in good time and by appropriate means so that they are given the opportunity to express or imply their wish to be represented in the representative action.

Where a redress measure does not specify individual consumers entitled to benefit from remedies provided by the redress measure, it must at least describe the group of consumers entitled to benefit from those remedies. Indeed, MSs must ensure that a redress measure enables consumers to benefit from the remedies provided by that redress measure without the need to bring a separate action.

DOUBLE COMPENSATION: In cases where consumers have expressly or implicitly expressed their wish to be represented in a representative action, MSs must ensure that such consumers cannot be represented (1) in other representative actions on the same subject matter and against the same trader, or (2) in individual actions on the same subject matter and against the same trader. MSs must also establish rules to ensure that consumers do not receive compensation in more than one action on the same subject matter against the same trader.

Where consumers do not have their habitual residence in the MS of the court or administrative authority before which a representative action is brought, they are obliged to express their wish to be represented in that representative action so that those consumers are bound by the outcome of that representative action.

ADDITIONAL MEASURES OF PROTECTION: It should be noted that the remedies provided by redress measures within a representative action are without prejudice to any additional remedies available to consumers under Union or national law which were not the subject of that representative action.

Article 9(7) of the Directive states that Member States must lay down or retain rules on time limits for individual consumers to benefit from redress measures. MSs may lay down rules on the destination of any outstanding redress funds that are not recovered within the established time limits.

Finally, it should be said that qualified entities are able to bring representative actions for a redress measure without it being necessary for a court or administrative authority to have previously established an infringement.

In relation to limitation periods, where there is an ongoing representative action requesting a redress measure and/or representative action, MSs must ensure that the applicable limitation periods are suspended or interrupted in respect of the consumers concerned by the representative action.

SPECIAL PROVISIONS FOR CROSS-BORDER ACTIONS: In accordance with Article 6(1), MSs must ensure that legal entities designated by another MS for the purpose of bringing cross-border representative actions may bring such actions before their courts or administrative authorities. In this sense, the Directive forces MSs to allow consumers to benefit from a representative action without the need to bring a separate individual action.

Also, MSs must ensure that where the alleged infringement of Union law affects or is likely to affect consumers in different MSs, the representative action can be brought before the court or administrative authority of a MS by several qualified entities from different MSs in order to protect the collective interests of consumers in different MSs.

INFORMATION FROM QUALIFIED ENTITIES: Regarding information to the public, Article 13(1) states that MSs must lay down rules ensuring that qualified entities provide information, in particular on their website, about:

“a)       the representative actions they have decided to bring before a court or administrative authority.

b) the status of the representative actions they have brought before a court or administrative authority; and

c) the outcomes of the representative actions referred to in points (a) and (b).”

Similarly, Article 13(4) states that legitimate operators should inform consumers about final decisions to reject, as inadmissible or unfounded, representative claims for remedies and/or redress.

Based on Article 13(5), Member States must ensure that the successful party can recover the costs related to providing information to consumers in the context of the representative action.

INFORMATION FROM TRADERS: According to Article 13(3) of the Directive, unless consumers are informed of the final decision or approved settlement by other means, the court or administrative authority must require the trader to inform the consumers concerned by the representative action, at the trader’s expense, of any final decision or approved settlement, by means appropriate to the circumstances of the case and within specified time limits, where appropriate, informing all consumers concerned individually. MSs may derogate from this obligation by adopting rules under which the trader will be required to provide such information to consumers only at the request of the qualified entity.

FINAL DECISIONS: According to Article 15 of the Directive, Member States shall ensure that the final decision of a court or administrative authority concerning the existence of an infringement harming collective interests of consumers can be used by all parties as evidence:

“…in the context of any other action before their national courts or administrative authorities to seek redress measures against the same trader for the same practice, in accordance with national law on evaluation of evidence.”

2.1.3.              Applicable Law

Recital 21 states that Regulation (EC) No 864/2007, Regulation (EC) No 593/2008 and Regulation (EU) No 1215/2012 of the European Parliament and of the Council should apply to the procedural mechanism for representative actions required by this Directive. Important guidance on the law applicable to representative actions is given in the judgment C-191/15 Verein für Konsumenteninformation κατά Amazon EU Sàrl. This case concerned the repealed Directive 2009/22/EC but it is also relevant in the Directive under consideration. It was decided that the applicable law for the assessment of a particular contractual term must always be determined by applying Regulation 593/2008 (Rome I), whether it is an individual action or a collective action. However, where it is a collective action which seeks to protect consumers’ interests against the use of unfair terms in general terms of sale, this is determined on the basis of Regulation 864/2007 (Rome 2).

This retains the system of international jurisdiction established in Regulation 1215/2012. In addition to automatic recognition of the standing of a qualified entity designated in one Member State to bring actions in other Member States, the directive envisages the promotion of cooperation between such entities to facilitate actions with cross-border implications. It also places an obligation on Member States to provide mechanisms to enable consumers habitually resident in one Member State to be represented in compensatory collective redress actions brought in another Member State.

2.1.4.              Funding of Representative Actions and Expenses

Α. FINANCING OF REPRESENTATIVE ACTIONS

Article 10 refers to the funding of representative actions for redress measures.  As stated by D. Fairgrieve και τον R. Salim:

Whilst the Directive recognises the importance of consumers being informed, the disparity in the level of guidance provided to Member States on the content of the information obligations on ongoing claims and final decisions/settlements risks consumers being unable to adequately make decisions/take actions with regards to such claims

Given that collective redress cases “tend to come with a particularly significant price tag” stemming from the complications of such actions, as the name suggests, “third party funding” is the case where third parties fund the collective redress procedure in return for a share of the recovered sums. Third-party funding has a number of advantages. Most importantly, it provides liquidity to pay fees and expenses to fund the litigation and furthermore, it reduces significantly the financial risk of the litigation.

OPTIONS FOR FUNDERS: The options for funders to obtain their return on investment seem to be the following:

  • The funder receives a part of the damages award (thereby consumers receive a deducted amount)
  • The funder receives a costs order against the defendants – something which is however limited by the Directive given that it “restricts adverse cost orders to costs that were necessary”.
  • The funder receives remuneration from funds that were not claimed by consumers under the time limit provided for by article 9(7) of the Directive.

THIRD PARTY FUNDING: In the event that such actions are funded by a third party, to the extent that this is, permitted by national law, the MSs must ensure that conflicts of interests are prevented and that funding by third parties that have an economic interest in the bringing or the outcome of the representative action for redress measures does not divert the representative action away from the protection of the collective interests of consumers.  MSs, on the basis of Article 10(2) of the Directive, should also ensure that:

“a)       the decisions of qualified entities in the context of a representative action, including decisions on settlement, are not unduly influenced by a third party in a manner that would be detrimental to the collective interests of the consumers concerned by the representative action.

b) the representative action is not brought against a defendant that is a competitor of the funding provider or against a defendant on which the funding provider is dependent.

In relation to article 10(2)(a), what constitutes “undue influence” is difficult to tell.

Regarding the courts and administrative authorities having jurisdiction in representative actions for redress measures, the following is derived from the Directive:

  1. That they will assess compliance in the event that justified doubts may arise as to such compliance. To this end, qualified entities must disclose to the court or administrative authority a financial overview that lists sources of funds used to support the representative action.
  2. Are empowered to take appropriate measures, such as requiring the qualified entity to refuse or make changes in respect of the relevant funding and, if necessary, rejecting the legal standing of the qualified entity in a specific representative action. If the legal standing of the qualified entity is rejected in a specific representative action, that rejection is not to affect the rights of the consumers concerned by that representative action.

B. EXPENSES

In accordance with Article 12(1), MSs must ensure that the unsuccessful party in a representative action for redress measures is required to pay the costs of the proceedings borne by the successful party, in accordance with conditions and exceptions provided for in national law applicable to court proceedings in general. It is noted that individual consumers concerned by a representative action for redress measures must not pay the costs of the proceedings, unless the expenses were caused as a result of their intentional or negligent conduct.

The above article is somewhat limited in favour of the legal entities since the Directive states that Member States shall take measures aiming to ensure that the costs of the proceedings related to representative actions do not prevent qualified entities from effectively exercising their right to seek the measures referred to in Article 7. These measures may take the form of public funding, including structural support for qualified entities, limitation of applicable court or administrative fees, or access to legal aid.

With regard to consumers who are represented by a qualified entity, it is noted that MSs may establish rules under which they may require such consumers to pay a limited registration fee or similar charge in order to participate in a representative action involving redress measures.

2.1.5.              Settlements

According to Article 11(1) of the Directive, for the purpose of approving settlements, MSs must ensure that in a representative actions for redress measures:

“a)       the qualified entity and the trader may jointly propose to the court or administrative authority a settlement regarding redress for the consumers concerned; or

b) the court or administrative authority, after having consulted the qualified entity  and the trader, may invite the qualified entity and the trader to reach a settlement regarding redress within a reasonable time limit.”

Such settlements are subject to the control of the court or administrative authority which must assess whether to approve or reject such a settlement taking into account whether the settlement: (1) is contrary to provisions of national mandatory law, or (2) contains terms that cannot be enforced and whether (3) the rights and interests of all parties, and in particular those of the consumers concerned, are affected. Also, MSs may lay down rules to allow the court or administrative authority to refuse to approve a settlement on the grounds that the settlement is unfair.

When the settlement is approved, it is binding upon the qualified entity, the trader and the individual consumers concerned. provided that the MSs may lay down rules that give the individual consumers concerned by a representative action and by the subsequent settlement the possibility of accepting or refusing to be bound by settlements.

Redress obtained through an approved settlement, is without prejudice to any additional remedies available to consumers under Union or national law which were not the subject of that settlement.

REJECTION OF THE SETTLEMENT: If a settlement is not approved, the court or administrative authority continues to hear the relevant representative action.

DISCLOSURE OF EVIDENCE: Article 18 of the Directive states that the MSs shall:

“…ensure that, where a qualified entity has provided reasonably available evidence sufficient to support a representative action, and has indicated that additional evidence lies in the control of the defendant or a third party, if requested by that qualified entity, the court or administrative authority is able to order that such evidence be disclosed by the defendant or the third party in accordance with national procedural law, subject to the applicable Union and national rules on confidentiality and proportionality. Member States shall ensure that, if requested by the defendant, the court or administrative authority is also able to equally order the qualified entity or a third party to disclose relevant evidence, in accordance with national procedural law.”

3. INFORMATION AND OTHER OBLIGATIONS

ELECTRONIC DATABASES: According to Article 14(1), MSs may set up national electronic databases that are publicly accessible through websites and which provide information on qualified entities designated in advance for the purpose of bringing domestic and cross-border representative actions and general information on ongoing and concluded representative actions. Such electronic databases must be notified to the Commission. The Commission must in turn maintain an electronic database  which is accessible from:

“a)       the national contact points

b) courts and administrative authorities, if necessary under national law;

c) qualified entities designated by the Member States for the purpose of bringing domestic representative actions and cross-border representative actions; and

d) the Commission.”

PENALTIES:  According to article 19(1), MSs must lay down the rules on penalties applicable to the failure or refusal to comply with an injunctive measure, measures for the notification of evidence, and cases falling under Article 13(3). The penalties must be effective, proportionate, and dissuasive and shall, inter alia, take the form of fines.

COOPORATION BETWEEN QUALIFIED ENTITIES: According to Article 20(4), MSs and the Commission must support and facilitate cooperation between qualified entities and the exchange and dissemination of their best practices and experience as regards dealing with domestic infringements and cross-border infringements.

MONITORING AND EVALUATION: According to Article 23(1), the Commission must carry out an evaluation of the Directive and submit a report. The MSs have a corresponding obligation to provide the Commission with information on the number and type of representative actions completed, the type of infringements and the results of these representative actions.

REPEAL: Directive 2009/22/EC is repealed with effect from 25 June 2023.

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Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
0

ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Distance marketing of Financial Services to Consumers (Directive 2002/65/EC)

1. PURPOSE OF THE DIRECTIVE

Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC (the “Directive”) aims at approximating the laws, regulations and administrative provisions of the Member States concerning the distance marketing of consumer financial services.

Distance contract is any contract concerning financial services concluded between a supplier and a consumer under an organised distance sales or service-provision scheme run by the supplier, who, for the purpose of that contract, makes exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded.

LEVEL OF HARMONIZATION: The Directive is a maximum harmonisation Directive as explained in paragraph 13 of the preamble. It is important however to note that in relation to the information requirements which should be given to the consumer, the MS in accordance with article 4(2) may maintain or introduce more stringent provisions on prior information requirements when the provisions are in conformity with Community law.

IMPERATIVE NATURE OF THE PROVISIONS OF THE DIRECTIVE: In accordance with article 12 of the Directive, Consumers may not waive the rights conferred on them by this Directive. Also MSs must take the measures needed to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-member country as the law applicable to the contract, if this contract has a close link with the territory of one or more Member States.

SCOPE OF THE DIRECTIVE: In accordance with article 1 of the Directive, this applies to distance marketing of consumer financial services. In the case of contracts for financial services comprising an initial service agreement followed by successive operations or a series of separate operations of the same nature performed over time, the provisions of this Directive apply only to the initial agreement. In case there is no initial service agreement but the successive operations or the separate operations of the same nature performed over time are performed between the same contractual parties, then articles 3 and 4 apply only in relation to the first operation. Where, however, no operation of the same nature is performed for more than one year, the next operation will be deemed to be the first in a new series of operations and, accordingly, articles 3 and 4 shall apply.

2. SUBSTANTIVE PROVISIONS

2.1.              INFORMATION PRIOR TO THE CONCLUSION OF THE DISTANCE CONTRACT

In accordance with article 3, a Consumer, in good time before he is bound by any distance contract or offer, must be provided with information concerning the supplier, the financial service, the distance contract and the redress procedures (i.e. information relating to whether or not there is an out-of-court complaint and redress mechanism for the consumer that is party to the distance contract and, if so, the methods for having access to it etc). For example, in relation to the financial service, the consumer must be informed in relation to the description of the main characteristics of the financial service, the total price to be paid by the consumer to the supplier for the financial service including all related fees, charges and expenses, and all taxes paid via the supplier or, when an exact price cannot be indicated, the basis for the calculation of the price enabling the consumer to verify it. Where relevant notice indicating that the financial service is related to instruments involving special risks related to their specific features or the operations to be executed or whose price depends on fluctuations in the financial markets outside the supplier’s control and that historical performances are no indicators for future performances, notice of the possibility that other taxes and/or costs may exist that are not paid via the supplier or imposed by him, any limitations of the period for which the information provided is valid, the arrangements for payment and for performance and any specific additional cost for the consumer of using the means of distance communication, if such additional cost is charged.

In accordance with article 3(2), the above information must be provided in a clear and comprehensible manner in any way appropriate to the means of distance communication used, with due regard, in particular, to the principles of good faith in commercial transactions, and the principles governing the protection of those who are unable, pursuant to the legislation of the MSs, to give their consent, such as minors.

INFORMATION IN CASE OF VOICE TELEPHONY COMMUNICATIONS: In accordance with article 9(3), in cases of voice telephony communications information such as the identity of the  supplier and the commercial purpose of the call initiated by the supplier shall be made explicitly clear at the beginning of any conversation with the consumer as well as the identity of the person in contact with the consumer and his link with the supplier and a description of the main characteristics of the financial service. The existence or absence of a right of withdrawal in accordance with Article 6 and, where the right of withdrawal exists, its duration and the conditions for exercising it, including information on the amount which the consumer may be required to pay on the basis of Article 7(1). The supplier shall inform the consumer that other information is available on request and of what nature this information is. In any case the supplier shall provide the full information when he fulfils his obligations under Article 5.

Information on contractual obligations, to be communicated to the consumer during the pre-contractual phase, shall be in conformity with the contractual obligations which would result from the law presumed to be applicable to the distance contract if the latter were concluded.

2.2.    INFORMATION/RIGHTS CONNECTED WITH THE CONTRACT FORMATION

WITHDRAWAL: Articles 6 and 7 refer to the right of consumers to withdraw from a contract. In accordance with Article 6, the consumer has at his disposal 14 days to withdraw from the contract without any penalty and without having to provide reasons for such withdrawal. The period of 14 days is extended to 30 calendar days in the case of distance contracts relating to life insurance covered by Directive 90/619/EEC and personal pension operations. The period for withdrawal begins to run from the day of the conclusion of the distance contract (and in relation to life assurance, from the time when the consumer is informed that the distance contract has been concluded) or from the day on which the consumer receives the contractual terms and conditions and the information in accordance with Article 5, whichever took place last.

Member States, in addition to the right of withdrawal, may provide that the enforceability of contracts relating to investment services is suspended for the period during which the right of withdrawal is effective.

In accordance with article 6(2), the right of withdrawal does not apply in the following cases:

(a) financial services whose price depends on fluctuations in the financial market outside the suppliers control, which may occur during the withdrawal period, such as services related to:

– foreign exchange,

– money market instruments,

– transferable securities,

– units in collective investment undertakings,

– financial-futures contracts, including equivalent cash-settled instruments,

– forward interest-rate agreements (FRAs),

– interest-rate, currency and equity swaps,

– options to acquire or dispose of any instruments referred to in this point including equivalent cash-settled instruments. This category includes in particular options on currency and on interest rates;

(b) travel and baggage insurance policies or similar short-term insurance policies of less than one month’s duration;

(c) contracts whose performance has been fully completed by both parties at the consumer’s express request before the consumer exercises his right of withdrawal.

Also, article 6(3), states that MSs may provide that the right of withdrawal has no application in the following instances:

(a) any credit intended primarily for the purpose of acquiring or retaining property rights in land or in an existing or projected building, or for the purpose of renovating or improving a building, or

(b) any credit secured either by mortgage on immovable property or by a right related to immovable property, or

(c) declarations by consumers using the services of an official, provided that the official confirms that the consumer is guaranteed the rights under Article 5(1).

This paragraph shall be without prejudice to the right to a reflection time to the benefit of the consumers that are resident in those Member States where it exists, at the time of the adoption of this Directive.

Article 6(6) states that the deadline for sending a withdrawal notice by the consumer shall be deemed to have been observed if it is dispatched before the deadline expires.

It is important to note that if to a distance contract of a given financial service another distance contract has been attached concerning services provided by the supplier or by a third party on the basis of an agreement between the third party and the supplier, this additional distance contract shall be cancelled automatically, without any penalty, if the consumer exercises his right of withdrawal.

In the case of payment of the service provided before withdrawal, Article 7 applies. The said Article states that when the consumer exercises his right of withdrawal he may only be required to pay, without any undue delay, for the service actually provided by the supplier in accordance with the contract. The amount payable shall not exceed an amount which is in proportion to the extent of the service already provided in comparison with the full coverage of the contract.  In no case may such amount be construed as a penalty. Furthermore, the supplier may not require the consumer to pay any amount unless he can prove that the consumer was duly informed about the amount payable within the withdrawal period. However, the supplier may not require such payment if he has commenced the performance of the contract before the expiry of the withdrawal period without the consumer’s prior request.

In accordance with Article 7(4), the supplier shall, without any undue delay and no later than within 30 calendar days, return to the consumer any sums he has received from him in accordance with the distance contract, (except for amounts paid during the withdrawal period). Under Article 7(5), the consumer shall return to the supplier within 30 calendar days from the day that the consumer dispatches the notification of withdrawal, any sums and/or property he has received from the supplier.

PAYMENT BY CARD: By Article 8, the consumer may request the cancellation of a payment where fraudulent use has been made of his payment card in connection with distance contracts and in the event of such fraudulent use, to be re-credited with the sum paid or have them returned.

UNSOLICITED SERVICES: Except in the cases of implicit renewal of the distance contract, MSs must prohibit the supply of financial services to a consumer without a prior request on his part, when this supply includes a request for immediate or deferred payment. Also, a consumer is exempt from any obligation in the event of unsolicited supplies and the absence of a reply not constituting consent.

UNSOLICITED COMMUNICATIONS: Article 10 states that the use by a supplier of automated calling systems without human intervention (automatic calling machines) or fax machines, shall require the consumer’s prior consent. In the same way, if individual communications are allowed with the consumer through another means of distance communication, a prior consent of the consumers concerned must be obtained or they may be used only if the consumer has not expressed his manifest objection.

UNFAIR CONTRACT TERMS: In accordance with Article 15, any contractual term or condition providing that “the burden of proof of the respect by the supplier of all or part of the obligations incumbent on him pursuant to this Directive should lie with the consumer” shall be an unfair term.

3. OBLIGATIONS/RIGHTS OF MEMBER STATES

SANCTIONS:  Article 11 of the Directive, provides that MSs shall provide for appropriate sanctions in the event of the supplier’s failure to comply with national provisions adopted pursuant to this Directive. Also, MSs may, in case of breach of the above provisions, allow the consumer to cancel the contract at any time, free of charge and without penalty. These sanctions must be effective, proportional and dissuasive.

JUDICIAL AND ADMINISTRATIVE REDRESS: In accordance with Article 13, MSs ensure that adequate and effective means exist to ensure compliance with this Directive in the interests of consumers. The means include provisions whereby one or more bodies, as determined by national law, may take action in accordance with national law before the courts or competent administrative bodies to ensure that the national provisions for the implementation of the Directive. Such Bodies are public bodies or their representatives; consumer organisations having a legitimate interest in protecting consumers and professional organisations having a legitimate interest in acting.

It is important to note that in accordance with Article 13(3), MSs shall take the measures necessary to ensure that operators and suppliers of means of distance communication put an end to practices that have been declared to be contrary to this Directive, on the basis of a judicial decision, an administrative decision or a decision issued by a supervisory authority notified to them, where those operators or suppliers are in a position to do so.

OUT-OF-COURT REDRESS: Article 14 provides for the promotion of the setting up or development of adequate and effective out-of-court complaints and redress procedures for the settlement of consumer disputes concerning financial services provided at distance. They should also encourage the bodies responsible for out-of-court settlement of disputes to cooperate in the resolution of cross-border disputes concerning financial services provided at distance.

4. OTHER PROVISIONS

The Directive also provides for specific amendments. Based on articles 17, 18 and 19, Directive 90/619/EEC, Directive 97/7/EC and Directive 98/27/EC are amended respectively.

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Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Credit agreements for consumers relating to residential immovable property 

 (Directive 2014/17/EU)

1. PURPOSE OF THE DIRECTIVE

Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010  (“the Directive) aims, in accordance with article 1, to establish a common framework for certain aspects of the laws, regulations and administrative provisions of the Member States (“MS”) concerning agreements covering credit for consumers secured by a mortgage or otherwise relating to residential immovable property, including an obligation to carry out a creditworthiness assessment before granting a credit, as a basis for the development of effective underwriting standards in relation to residential immovable property in the MSs, and for certain prudential and supervisory requirements, including for the establishment and supervision of credit intermediaries, appointed representatives and non-credit institutions.

LEVEL OF HARMONIZATION: Based on article 2, the Directive is of minimum harmonization and does not prevent MSs from maintaining or adopting stricter provisions in order to protect consumers, provided that these provisions are consistent with their obligations under Union Law. However, MSs may not maintain or introduce provisions derogating from those in article 14(2) and Annex II Part A (to the extent that these relate to standardized pre-contractual information through the European Standard Information Sheet (ESIS)) and of article 17(1) – (5), (7) and (8) and of Annex I to the extent that they concern the common and consistent EU standard for the calculation of the APR.

IMPERATIVE NATURE OF THE DIRECTIVE: According to article 41, MSs ensure that consumers may not waive the rights conferred on them by national law transposing the Directive. Also, it is not possible to circumvent the Directive simply because the contracts are worded in a specific way so as to avoid the application of the Directive to them.

SCOPE OF APPLICATION: Based on article 3, the Directive applies to two types of contracts:

(a) credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on residential immovable property or secured by a right related to residential immovable property; and

(b) credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building.

Based on the above article, the Directive does not apply in the following cases:

(a)     Equity release credit agreements where the creditor:

(i)         contributes a lump sum, periodic payments or other forms of credit disbursement in return for a sum deriving from the future sale of a residential immovable property or a right relating to residential immovable property; and

(ii)        will not seek repayment of the credit until the occurrence of one or more specified life events of the consumer, as defined by MSs, unless the consumer breaches his contractual obligations which allows the creditor to terminate the credit agreement;

(b)        credit agreements where the credit is granted by an employer to his employees as a secondary activity where such a credit agreement is offered free of interest or at an APRC lower than those prevailing on the market and not offered to the public generally;

(c)        credit agreements where the credit is granted free of interest and without any other charges except those that recover costs directly related to the securing of the credit;

(d)        credit agreements in the form of an overdraft facility and where the credit has to be repaid within one month;

(e)        credit agreements which are the outcome of a settlement reached in court or before another statutory authority;

(f)         credit agreements which relate to the deferred payment, free of charge, of an existing debt and which do not fall within the scope of point (a) of paragraph 1.

 MSs also have the right not to apply specific articles of the Directive, or the Directive itself to certain contracts. These are analyzed in article 3(3) to 3(5) of the Directive.

2. SUBSTANTIAL PROVISIONS

2.1.      GENERAL OBLIGATIONS FOR CREDITORS, CREDIT INTERMEDIARIES AND APPOINTED REPRESENTATIVES

Based on article 7, MSs must require that when manufacturing credit products or granting, intermediating or providing advisory services on credit and, where appropriate, ancillary services to consumers or when executing a credit agreement, the creditor, credit intermediary or appointed representative acts honestly, fairly, transparently and professionally, taking account of the rights and interests of the consumers. Based on article 8, it is obliged to provide information to the consumer free of charge regarding compliance with the Directive. Finally, based on article 9, their staff must have an appropriate level of knowledge and activity to undertake, offer or grant credit agreements, carry out credit intermediation activities (i.e. credit brokerage) or provide consulting services.

2.2.    INFORMATION/OBLIGATIONS BEFORE THE CONTRACT IS CONCLUDED

ADVERTISEMENTS: Article 10 states that without prejudice to Directive 2005/29/EC, MSs shall require that any advertising and marketing communications concerning credit agreements are fair, clear and not misleading. In particular, article 10 prohibits wording that may create false expectations for a consumer regarding the availability or the cost of a credit.

By virtue of article 11, where an advertisement mentions an interest rate or figures relating to the cost of credit, it should include standardized information. The information is listed in article 11(2) and is the following:

(a)     the identity of the creditor or, where applicable, the credit intermediary or appointed representative;

(b)        where applicable, that the credit agreement will be secured by a mortgage or another comparable security commonly used in a Member State on residential immovable property or by a right related to residential immovable property;

(c)        the borrowing rate, indicating whether this is fixed or variable or a combination of both, together with particulars of any charges included in the total cost of the credit to the consumer;

(d)        the total amount of credit;

(e)        the APRC which shall be included in the advertisement at least as prominently as any interest rate;

(f)         where applicable, the duration of the credit agreement;

(g)        where applicable, the amount of the instalments;

(h)        where applicable, the total amount payable by the consumer;

(i)         where applicable, the number of instalments;

(j)         where applicable, a warning regarding the fact that possible fluctuations of the exchange rate could affect the amount payable by the consumer.

The above information (apart from that of article 11(2)(a), (b) and (j)) is disclosed by representative example. Where the granting of credit requires the conclusion of a contract relating to the additional service, and in particular the cost of that service, cannot be determined in advance, the obligation to conclude such a contract must be clearly, concisely and prominently stated, together with the APRC.

The above information must be legible or clearly audible, depending on the medium used for the advertisement.

TYING AND BUNDLING PRACTICES: Based on the interpretative provision, a bundling practice is the offering or the selling of a credit agreement in a package with other distinct financial products or services where the credit agreement is also made available to the consumer separately but not necessarily on the same terms or conditions as when offered bundled with the ancillary services. A tying practice is the offering or the selling of a credit agreement in a package with other distinct financial products or services where the credit agreement is not made available to the consumer separately. Under article 12, tying practices are prohibited except where the creditor can demonstrate that the tying products result in a clear advantage for consumers, taking due account of the availability and prices of the relevant products offered on the market.

Irrespective of the above, where the MSs allow it, creditors have the possibility to request from the consumer or a member of his family or a close relative to:

(a)     open or maintain a payment or a savings account, where the only purpose of such an account is to accumulate capital to repay the credit, to service the credit, to pool resources to obtain the credit, or to provide additional security for the creditor in the event of default;

(b)        purchase or keep an investment product or a private pension product, where such product which primarily offers the investor an income in retirement serves also to provide additional security for the creditor in the event of default or to accumulate capital to repay the credit, to service the credit or to pool resources to obtain the credit;

(c)        conclude a separate credit agreement in conjunction with a shared-equity credit agreement to obtain the credit.

Finally, MSs may allow creditors to require the consumer to hold a relevant insurance policy related to the credit agreement. In such cases, they must ensure that the creditor accepts the insurance policy from a supplier different to his preferred supplier where such policy has a level of guarantee equivalent to the one the creditor has proposed.

GENERAL INFORMATION: Based on article 13, creditors, tied credit intermediaries or their appointed representatives shall ensure that general information on credit agreements are provided. Such information shall be made available in a clear and comprehensible manner in writing, or on another durable medium or in electronic form. Some of the information is the identity, geographical address of the institution, the purposes for which the credit will be used, the possible duration of the credit agreements, a representative example of the total amount of the credit, a description of the terms directly related to early repayment, a general warning about with the possible consequences of breach of contract etc.

PRE-CONTRACTUAL INFORMATION: Based on article 14, the consumer should also be provided with personalized information necessary to compare credits available on the market, assess their impact and make an informed decision about entering into a credit agreement without undue delay and before the consumer is bound by any credit agreement or offer. This information is provided in writing or on another durable medium with the European Standardized Information Sheet (‘ESIS’). ESIS is included in Annex II.

Any offer binding on the creditor, must be provided in writing or on another durable medium and must be accompanied by the ESIS when no ESIS was previously provided to the consumer or where the characteristics of the offer are different from the information contained in the ESIS previously provided. Of course, MSs can require that the ESIS is provided before providing a binding offer.

In accordance with article 14(6) the time period during which the offer is binding for the creditor is at least 7 days. This period is called the study period during which the consumer may accept the contract, but the creditor may not withdraw its offer. The 7 days may also be a withdrawal period. That is to say, the MSs may elect that 7 days is the period during which the consumer can withdraw after accepting the contract.

Also MSs must specify a time period of at least seven days during which the consumer will have sufficient time to compare offers, assess their implications and make an informed decision.

Finally, based on article 14(11) MSs ensure that at least where no right of withdrawal exists the creditor or, where applicable, the credit intermediary or appointed representative provides the consumer with a copy of the draft credit agreement, at the time of the provision of an offer binding on the creditor. Where a right of withdrawal exists, MSs shall ensure that the creditor or, where applicable, the credit intermediary or appointed representative offers to provide the consumer with a copy of the draft credit agreement at the time of the provision of an offer binding on the creditor.

ADDITIONAL PROVISION OF INFORMATION BY CREDIT INTERMEDIARIES AND APPOINTED REPRESENTATIVES: In accordance with article 15, the credit intermediary or appointed representative must provide the consumer with at least additional information on paper or on another durable medium. Some of the information include the identity and the geographical address of the credit intermediary, the register in which he has been included, whether the credit intermediary offers advisory services, the fees etc.

Credit intermediaries who are not tied but who receive commission from one or more creditors must, at the consumer’s request, provide information on the variation in levels of commission payable by the different creditors providing the credit agreements being offered to the consumer. Where the credit intermediary charges a fee to the consumer and additionally receives commission from the creditor or a third party, the credit intermediary must explain to the consumer whether or not the commission will be offset against the fee, either in part or in full.

It is noted that the fees of the credit intermediary are included in the APRC calculation.

ADEQUATE EXPLANATIONS: Article 16 states that creditors, credit intermediaries or appointed representatives must provide adequate explanations to the consumer on the proposed credit agreements and any ancillary services, in order to place the consumer in a position enabling him to assess whether the proposed credit agreements and ancillary services are adapted to his needs and financial situation. Such explanations include the pre-contractual information, the essential characteristics of the products proposed, the specific effects the products proposed may have on the consumer, including the consequences of default in payment by the consumer, where ancillary services are bundled with a credit agreement, whether each component of the bundle can be terminated separately and the implications for the consumer of doing so.

ASSESSMENT OF CREDITWORTHINESS: Article 18 refers to the obligation of creditors to assess the creditworthiness of the consumer taking into account the factors that cause the verification of the prospect of the consumer to meet his obligations under the credit agreement. In the calculation of the creditworthiness, the fact that the value of the property intended for residence exceeds the amount of the credit should not be taken into account, except where the purpose of the credit agreement is the construction or renovation of the property intended for residence.

The creditor may not cancel or modify a credit agreement on the grounds that the assessment of the consumer’s creditworthiness was not carried out correctly, except where the consumer intentionally omitted or falsified information that he had to provide based on article 20.

The creditor should also inform the consumer that a database search is to be made and in case the credit application is rejected the consumer should be informed of the rejection and where applicable that it is based on automated data processing.

Finally, the creditor should only make the credit available to the consumer where the result of the creditworthiness assessment indicates that the obligations resulting from the credit agreement are likely to be met in the manner required under that agreement.

In relation to the assessment, this is carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which is necessary, sufficient and proportionate. The information must be obtained by the creditor from relevant internal or external sources, including the consumer, and including information provided to the credit intermediary or appointed representative during the credit application process. The information must be appropriately verified, including through reference to independently verifiable documentation when necessary.  The creditor is not allowed to terminate the credit agreement because incomplete information was provided unless the consumer concealed or falsified information.

The creditor, credit intermediaries or appointed representatives are also obliged to warn the consumer that if they are unable to perform a credit assessment because the consumer has chosen not to provide the information or verification required for the credit assessment, credit cannot be granted. This warning may be provided in a standardized form.

PROPERTY VALUATION: Under article 19, creditors should use specific standards when valuing property and must take appropriate measures to ensure that the standards are used when the valuation is carried out by a third party.

2.3.    APRC

The Annual Percentage Rate of Charge (APRC) is the total cost of credit to the consumer, expressed as an annual percentage of the total amount of credit, and equates, on an annual basis, to the present value of all future or existing commitments (drawdowns, repayments and charges) agreed by the creditor and the consumer.  The APRC must be calculated in accordance with the mathematical formula set out in Annex I. The rest of the article mentions the other principles for calculating the APRC. These are the following:

  • The costs of opening and maintaining a specific account, of using a means of payment for both transactions and drawdowns on that account and of other costs relating to payment transactions must be included in the total cost of credit to the consumer whenever the opening or maintaining of an account is obligatory in order to obtain the credit or to obtain it on the terms and conditions marketed.
  • The calculation of the APRC must be based on the assumption that the credit agreement is to remain valid for the period agreed and that the creditor and the consumer will fulfil their obligations under the terms in the credit agreement.
  • Where there are clauses allowing variations in the borrowing rate which are unquantifiable at the time of the calculation, then the APRC is calculated on the assumption that the borrowing rate and other charges will remain fixed in relation to the level set at the conclusion of the contract.
  • Where the credit agreement concerns a fixed borrowing rate in relation to the initial period of at least five years, at the end of which a negotiation on the borrowing rate takes place to agree on a new fixed rate, the calculation of the additional, illustrative APRC disclosed in the ESIS must cover only the initial fixed rate period, as at the end of the fixed borrowing rate period, the capital outstanding is repaid.
  • Where the credit agreement allows for variations in the borrowing rate, the consumer is informed of the possible impacts of variations on the amounts payable and on the APRC at least by means of the ESIS. This is be done by providing the consumer with an additional APRC which illustrates the possible risks linked to a significant increase in the borrowing rate. Where the borrowing rate is not capped, this information shall be accompanied by a warning highlighting that the total cost of the credit to the consumer, shown by the APRC, may change. (This rule does not apply where the previous rule applies).
  • Annex I contains other scenarios for how the APRC is calculated (e.g. If a credit agreement gives the consumer freedom of drawdown the total amount of credit shall be deemed to be drawn down immediately and in full.)

2.4.    OTHER OBLIGATIONS/ RIGHTS ASSOCIATED WITH THE CREDIT AGREEMENT

FOREIGN CURRENCY LOANS: Based on article 23, where the credit agreement is related to a foreign currency loan, then, at the time the contract is entered there is an obligation imposed on the creditor to provide for a right on the consumer to convert the credit agreement into an alternative currency provided that some conditions are satisfied or, alternatively that there are other arrangements which limit the foreign exchange risk to which the consumer is exposed under the credit agreement. Where the consumer has a right to convert the credit agreement into an alternative currency in accordance with paragraph 1(a), the MSs shall ensure that the exchange rate at which the conversion is carried out is the market exchange rate applicable on the day of application for conversion unless otherwise specified in the credit agreement.

Where a consumer has a foreign currency loan, the creditor must warn the consumer on a regular basis on paper or on another durable medium at least where the value of the total amount payable by the consumer which remains outstanding or of the regular instalments varies by more than 20% from what it would be if the exchange rate between the currency of the credit agreement and the currency of the Member State applicable at the time of the conclusion of the credit agreement were applied. The warning shall (a) inform the consumer of a rise in the total amount payable by the consumer, (b) set out where applicable the right to convert to an alternative currency and (c) the conditions for doing so and (d) explain any other applicable mechanism for limiting the exchange rate risk to which the consumer is exposed.

VARIABLE RATE CREDITS: Under article 24, where a credit agreement is a variable rate agreement, it must:

a)       any indexes or reference rates used to calculate the borrowing rate are clear, accessible, objective and verifiable by the parties to the credit agreement and the competent authorities; and

 b) historical records of indexes for calculating the borrowing rates are maintained either by the providers of these indexes or the creditors.

EARLY REPAYMENT: According to article 25 the consumer has a right to discharge fully or partially his obligations under a credit agreement prior to the expiry of that agreement. In such cases, the consumer shall be entitled to a reduction in the total cost of the credit to the consumer, such reduction consisting of the interest and the costs for the remaining duration of the contract. This is not an absolute rule since the MSs may provide for time limits on the exercise of the right as well as for the right of the creditor to claim compensation for its loss.

Where a consumer seeks to discharge his obligations under a credit agreement prior to the expiry of the agreement, the creditor must provide the consumer without delay after receipt of the request, on paper or on another durable medium, with the information necessary to consider that option. That information shall at least quantify the implications for the consumer of discharging his obligations prior to the expiry of the credit agreement and clearly set out any assumptions used. Any assumptions used shall be reasonable and justifiable.

FLEXIBLE AND RELIABLE: A right granted to creditors can be found in article 26. Under this article, MSs ensure that the claim against the security is enforceable by or on behalf of creditors.

INFORMATION CORNCERNING CHANGES IN THE BORROWING RATE: In accordance with article 27, the creditor must inform the consumer of any change in the borrowing rate in writing or on another durable medium before the new rate comes into force. This shall include at least the following information: the amount of the payments to be made after the new borrowing rate takes effect and, in cases where the number or frequency of the payments changes, particulars thereof.

ARREARS AND FORECLOSURE: According to article 28, creditors must provide for a reasonable grace period before initiating foreclosure proceedings.

2.5.    ADVISORY SERVICES

According to article 22 the creditor, credit intermediary or appointed representative explicitly inform the consumer, in the context of a given transaction, whether advisory services are being or can be provided to the consumer. An advisory service is the provision of personal recommendations to a consumer in respect of one or more transactions relating to credit agreements and constitutes a separate activity from the granting of a credit and from the credit intermediation activities.

INFORMATION PRIOR TO THE PROVISION OF ADVISORY SERVICES: Before the provision of advisory services or, where applicable, the conclusion of a contract for the provision of advisory services, the creditor, credit intermediary or appointed representative must provide the consumer information whether the recommendation will be based on considering only their own product range, or a wide range of products from across the market so that the consumer can understand the basis on which the recommendation is made as well as the fee payable by the consumer for the advisory services or, where the amount cannot be ascertained at the time of disclosure, the method used for its calculation. This information must be provided in writing or on another durable medium.

Article 22(3) provides additional principles to be followed in the case of consultancy services. These are the competence and knowledge of staff, the obligations of professional conduct in the provision of credit and the following requirements:

a)       creditors, credit intermediaries or appointed representatives obtain the necessary information regarding the consumer’s personal and financial situation, his preferences and objectives so as to enable the recommendation of suitable credit agreements. Such an assessment shall be based on information that is up to date at that moment in time and shall take into account reasonable assumptions as to risks to the consumer’s situation over the term of the proposed credit agreement;

b) creditors, tied credit intermediaries or appointed representatives of tied credit intermediaries consider a sufficiently large number of credit agreements in their product range and recommend a suitable credit agreements or several suitable credit agreements from among their product range for the consumer’s needs, financial situation and personal circumstances;

c) non-tied credit intermediaries or appointed representatives of non-tied credit intermediaries consider a sufficiently large number of credit agreements available on the market and recommend a suitable credit agreement or several suitable credit agreements available on the market for the consumer’s needs, financial situation and personal circumstances;

d) creditors, credit intermediaries or appointed representatives act in the best interests of the consumer by:

i) informing themselves about the consumer’s needs and circumstances; and

ii) recommending suitable credit agreements in accordance with points (a), (b) and (c); and

e) creditors, credit intermediaries or appointed representatives give the consumer a record on paper or on another durable medium of the recommendation provided

3. OBLIGATIONS/OPTIONS OF MSs

COMPETENT AUTHORITIES: Based on article 5 of the Directive, MSs must designate the national competent authorities empowered to ensure the application and enforcement of this Directive and must ensure that they are granted investigating and enforcement powers and adequate resources necessary for the efficient and effective performance of their duties. The authorities referred to in the first subparagraph shall be either public authorities or bodies recognised by national law or by public authorities expressly empowered for that purpose by national law. Creditors, credit intermediaries or appointed representatives are excluded from acting as competent authorities.

FINANCIAL EDUCATION: Based on article 6, MSs must promote measures that support the education of consumers in relation to responsible borrowing and debt management.

CONDITIONS APPLICABLE TO CREDITORS, CREDIT INTERMEDIARIES AND APPOINTED REPRESENTATIVESIn accordance with article 7 of the Directive, the MSs require that when manufacturing credit products or granting, intermediating or providing advisory services on credit and, where appropriate, ancillary services to consumers or when executing a credit agreement, the creditor, credit intermediary or appointed representative acts honestly, fairly, transparently and professionally, taking account of the rights and interests of the consumers and also ensure that the manner in which creditors remunerate their staff and credit intermediaries and the manner in which credit intermediaries remunerate their staff and appointed representatives do not impede compliance with the obligation. Also, MSs must ensure that where creditors, credit intermediaries or appointed representatives provide advisory services the remuneration structure of the staff involved does not prejudice their ability to act in the consumer’s best interest and in particular is not contingent on sales targets. In order to achieve that goal, MSs may in addition ban commissions paid by the creditor to the credit intermediary. Finally, they may prohibit or impose restrictions on payments from a consumer to a creditor or credit intermediary prior to the conclusion of a credit agreement.

PROVISION OF INFORMATION FREE OF CHARGE: As already mentioned and based on article 8, MSs must ensure that, when information is provided to consumers in compliance with the requirements set out in this Directive, such information is provided without charge to the consumer.

KNOWLEDGE AND COMPETENCE REQUIREMENTS FOR EMPLOYEES: In accordance with article 9, MSs must ensure that creditors, credit intermediaries and appointed representatives require their staff to possess and to keep up-to-date an appropriate level of knowledge and competence in relation to the manufacturing, the offering or granting of credit agreements, the carrying out of credit intermediation activities or the provision of advisory services. In case that the conclusion of a credit agreement includes an ancillary service, appropriate knowledge and competence in relation to that ancillary service is required. This article also refers to the obligations of MSs in cases where a credit institution/credit intermediary provides services in the territory of one or more MSs.

MSs also have the obligation to require that all information obligations and practices of creditors, credit intermediaries and appointed representatives are fulfilled.

ASSESSMENT OF CREDITWORTHINESS: With regard to the assessment of the consumer’s creditworthiness, MSs must ensure that credit intermediaries or appointed representatives accurately submit the necessary information obtained from the consumer to the relevant creditor to enable the creditworthiness assessment to be carried out. They must also ensure that creditors specify in a clear and straightforward way at the pre-contractual phase the necessary information and independently verifiable evidence that the consumer needs to provide and the timeframe` within which the consumer needs to provide the information.

PROPERTY VALUATION: In relation to the valuation of real estate, the MSs must ensure that reliable standards are established. Also, national authorities are responsible for regulating independent appraisers who carry out property valuations and they must ensure that they comply with the national rules in place.

MSs must ensure that internal and external appraisers conducting property valuations are professionally competent and sufficiently independent from the credit underwriting process so that they can provide an impartial and objective valuation.

DATABASE ACCESS: Based on article 21, each MS must ensure access for all creditors from all MSs to databases used in that Member State for assessing the creditworthiness of consumers and for the sole purpose of monitoring consumers’ compliance with the credit obligations over the life of the credit agreement.

ADVISORY SERVICES: The MSs must establish the standards of the advisory services referred to above. Under article 21(4), MSs may prohibit the use of the terms “advice” and “adviser” or similar terms but if they do not prohibit them they must impose the following conditions on the use of the terms “independent advice” or “independent adviser”:

a)       creditors, credit intermediaries or appointed representatives shall consider a sufficiently large number of credit agreements available on the market; and

b) creditors, credit intermediaries or appointed representatives shall not be remunerated for those advisory services by one or more creditors.

Also, MSs may provide for an obligation for creditors, credit intermediaries and appointed representatives to warn a consumer when, considering the consumer’s financial situation, a credit agreement may induce a specific risk for the consumer. Furthermore, MSs must ensure that advisory services are only provided by creditors, credit intermediaries or appointed representatives. (With some exceptions)

FLEXIBLE AND RELIABLE MARKETS: Article 26 states that MSs must have appropriate mechanisms in place to ensure that the claim against the security is enforceable by or on behalf of creditors. MSs must ensure that creditors keep appropriate records concerning the types of immovable property accepted as a security as well as the related mortgage underwriting policies used. Also, they must take the necessary measures to ensure appropriate statistical monitoring of the residential property market.

ARREARS AND FORECLOSURE: With regard to default interest and foreclosure and in accordance with article 28(2), MSs may require that, where the creditor is permitted to define and impose charges on the consumer arising from the default, those charges are no greater than is necessary to compensate the creditor for costs it has incurred as a result of the default.

Based on article 28(3) MSs may allow creditors to impose additional charges on the consumer in the event of default. In that case MSs must place a cap on those charges.  Furthermore, MSs must not prevent the parties to a credit agreement from expressly agreeing that return or transfer to the creditor of the security or proceeds from the sale of the security is sufficient to repay the credit.

Finally, where the price obtained for the immovable property affects the amount owed by the consumer, MSs must have procedures or measures to enable the best efforts price for the foreclosed immovable property to be obtained. Where after foreclosure proceedings outstanding debt remains, MSs must ensure that measures to facilitate repayment in order to protect consumers are put in place.

SANCTIONS: Article 38 refers to the sanctions which MSs may impose. Specifically, MSs must lay down the rules on sanctions applicable to infringements of the national provisions adopted on the basis of the Directive and must take all measures necessary to ensure that they are implemented. Those sanctions must be effective, proportionate and dissuasive. In this regard, it is important to mention article 38(2). According to this:

«MSs shall provide that the competent authority may disclose to the public any administrative sanction that will be imposed for infringement of the measures adopted in the transposition of this Directive, unless such disclosure would seriously jeopardise the financial markets or cause disproportionate damage to the parties involved.»

4. OTHER RELEVANT PROVISIONS

REQUIREMENTS FOR ESTABLISHMENT AND SUPERVISION OF CREDIT INTERMEDIARIES AND APPOINTED REPRESENTATIVES: Article 29 refers to the obligations of credit intermediaries to obtain a licence to carry out their activities and the related obligations of MSs to license them. Article 30 refers to the obligations of credit intermediaries affiliated to a single credit institution.  Article 31 refers to the right of MSs to allow credit intermediaries to appoint appointed representatives.

Article 32 refers to the freedom of establishment and provision of services of credit intermediaries in other MSs  and Articles 33 and 34 refer to the manner of withdrawal of the authorisation of credit intermediaries and the supervision of credit intermediaries and appointed representatives.

LICENSING AND SUPERVISION OF NON-CREDIT INSTITUTIONS: Under Article 35, MSs must ensure that non-credit institutions are subject to an appropriate admission process including registration and supervision by a competent authority.

COOPERATION BETWEEN COMPETENT AUTHORITIES OF DIFFERENT MSS: Articles 36 and 37 refer to cooperation between competent authorities in different MS and the resolution of disputes between such authorities.

AMENDMENTS OF OTHER DIRECTIVES AND REGULATIONS: It is noted that articles 46 to 48 of the Directive amend Directives 2008/48/EC, 2013/36/EU and Regulation (EU) No 1093/2010.

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Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Credit agreements for consumers (Directive 2008/48/ EC)

1. PURPOSE OF THE DIRECTIVE

Directive 2008/48/ΕΚ of the European Parliament and of the Council of 23rd April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC The Directive») aims at  harmonising certain aspects of the laws, regulations and administrative provisions of the Member States concerning agreements covering credit for consumers. A credit agreement is an agreement whereby a creditor grants or promises to grant to a consumer credit in the form of a deferred payment, loan or other similar financial accommodation.

HARMONISATION LEVEL: According to article 22, the Directive is a maximum harmonisation directive. However, based on paragraph 10 of the preamble of the Directive, Member States (“MSs”) may apply provisions of this Directive to areas not covered by its scope. Therefore, based on case C-602/10, a national measure is permissible irrespective whether it includes in its substantive scope consumer credit contracts whose object is the granting of consumer credit secured by immovable property[1] (see below Article 2(2)(a)).

SCOPE OF APPLICATION: The Directive applies to credit contracts with the exception of contracts concluded for the continuous provision of services or for the supply of goods of the same type, according to which the consumer pays in installments the price for the said services or goods during their provision (article 3). Also, based on article 2(2), it does not apply in the following cases:

«(a) credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on immovable property or secured by a right related to immovable property;

 

(b) credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building;

 

(c) credit agreements involving a total amount of credit less than EUR 200 or more than EUR 75 000;

 

(d) hiring or leasing agreements where an obligation to purchase the object of the agreement is not laid down either by the agreement itself or by any separate agreement; such an obligation shall be deemed to exist if it is so decided unilaterally by the creditor;

 

(e) credit agreements in the form of an overdraft facility and where the credit has to be repaid within one month;

 

(f) credit agreements where the credit is granted free of interest and without any other charges and credit agreements under the terms of which the credit has to be repaid within three months and only insignificant charges are payable;

 

(g) credit agreements where the credit is granted by an employer to his employees as a secondary activity free of interest or at annual percentage rates of charge lower than those prevailing on the market and which are not offered to the public generally;

 

(h) credit agreements which are concluded with investment firms as defined in Article 4(1) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (9) or with credit institutions as defined in Article 4 of Directive 2006/48/EC for the purposes of allowing an investor to carry out a transaction relating to one or more of the instruments listed in Section C of Annex I to Directive 2004/39/EC, where the investment firm or credit institution granting the credit is involved in such transaction;

 

(i) credit agreements which are the outcome of a settlement reached in court or before another statutory authority;

 

(j) credit agreements which relate to the deferred payment, free of charge, of an existing debt;

 

It is important to mention that according to the decision C-127/15, where a debt collection agency intervenes to collect the existing debt, and the agency requires the consumer to repay the total amount of the specific credit and to pay interest or costs that are not was foreseen in the original agreement on the basis of which the credit in question was granted, does not fall within the exemption of Article 2(2)(j) of the Directive – i.e. it is covered by the Directive.[2]

(k) credit agreements upon the conclusion of which the consumer is requested to deposit an item as security in the creditor’s safe-keeping and where the liability of the consumer is strictly limited to that pledged item;

 

(l) credit agreements which relate to loans granted to a restricted public under a statutory provision with a general interest purpose, and at lower interest rates than those prevailing on the market or free of interest or on other terms which are more favourable to the consumer than those prevailing on the market and at interest rates not higher than those prevailing on the market.»

 

There are also specific credit agreements where specific provisions of the Directive apply. These specific credit agreements are as follows:

  • Credit agreements in the form of overdraft facility. Such a credit agreement is an explicit credit agreement whereby a creditor provides a consumer with funds in excess of the current balance of the consumer’s current account.[3]
  • Credit agreements in the form of overruning. Such a credit agreement is where there is a tacit acceptance of overdraft whereby the creditor makes available to a consumer funds in excess of the current balance of the consumer’s current account or the agreed overdraft facility.[4]

The MSs have the right to exclude or limit the validity of the Directive to specific credit agreements which are concluded by an organization which is established for the mutual benefit of its members, does not generate profits for persons other than its members, fulfils a social purpose by virtue of internal legislation, receives and manages the savings of its members and provides them with credit and provides credit based on a total annual effective interest rate that is lower than those prevailing in the market or subject to a ceiling determined by national law and whose members can only be the persons residing or working in a particular area or the employees and retired former employees of a particular employer, or persons who meet other criteria defined by national law as a basis for the existence of a common link between the members.

 

2. SUBSTANTIAL PROVISIONS

2.1.   INFORMATION/LIABILITIES PRELIMINARY TO THE CONCLUSION OF THE CREDIT AGREEMENT

2.1.1.                INFORMATION IN ADVERTISING

Based on Article 4, any advertisement concerning credit agreements which indicates an interest rate or any figures relating to the cost of the credit to the consumer shall include standard information. The information in question is as follows:

«(a) the borrowing rate, fixed or variable or both, together with particulars of any charges included in the total cost of the credit to the consumer;

 

(b) the total amount of credit;

 

(c)    the annual percentage rate of charge; in the case of a credit agreement of the kind referred to in Article 2(3), Member States may decide that the annual percentage rate of charge need not be provided;

 

(d) if applicable, the duration of the credit agreement;

 

(e)  in the case of a credit in the form of deferred payment for a specific good or service, the cash price and the amount of any advance payment; and

 

(f)  if applicable, the total amount payable by the consumer and the amount of the instalments»

 

TOTAL AMOUNT OF CREDIT: Based on the Directive (article 3(l)) the total amount of credit  means the ceiling or the total sums made available under a credit agreement. According to case C-377/14, the total amount of credit may not include any of the amounts intended to meet the commitments entered into under the relevant credit agreement, such as administrative costs, interest, commissions, and any other type of fee payable by the consumer. The irregular inclusion, in the total amount of the credit, of amounts that are incidental to the total cost of the credit for the consumer will necessarily result in the determination of the APR at a lower level, given that its calculation depends on the total amount of the credit. Therefore, the total amount of credit and the amount that the consumer actually withdraws constitute the amounts made available to the consumer, with the result that the amounts used by the creditor to cover the costs associated with the relevant credit are excluded and which in fact are never made available to that consumer. [5]

EXCEPTION: In cases where the national legislation requires that the advertisement mentions the APR, then it is not necessary to provide any other information.

However, where there is a mandatory additional service related to the credit agreement (i.e. insurance) the cost of which cannot be determined in advance, then the fact that the additional service is mandatory should be stated.

2.1.2.                PRE-CONTRACTUAL INFORMATION

Article 5 refers to the obligation of the creditor/credit intermediary to provide the consumer in good time and before he is bound by any credit agreement with the standardized European Consumer Credit Information. This information is referred to in Annex II and includes information related to the identity and contact details of the creditor/credit broker, key features of the credit product, the cost of the credit, other important legal aspects and finally, additional information in the case of marketing financial services from distance. Additional detailed reference to the said information is made in article 5(1) of the Directive.

In the case of voice telephony communications, the description of the main characteristics of the financial service includes part of the information referred to in Article 5(1).

With regard to contracts concluded at the consumer’s request using a means of distance communication, which does not allow the provision of the information provided for in Article 5(1), (such as voice telephony), the creditor provides the consumer the complete pre-contractual information based on the form for the “standardized European Consumer Credit Information” immediately after the conclusion of the credit agreement.

The consumer should be given a free copy of the draft credit agreement whenever he requests it.

Based on Article 5(5)  in the case of a credit agreement under which payments made by the consumer do not give rise to an immediate corresponding amortisation of the total amount of credit, but are used to constitute capital during periods and under conditions laid down in the credit agreement or in an ancillary agreement, the pre-contractual information required under article 5(1) shall include a clear and concise statement that such credit agreements do not provide for a guarantee of repayment of the total amount of credit drawn down under the credit agreement, unless such a guarantee is given.

With respect to specific credit agreements (such as credit agreements with overdraft facilities) MSs may provide the information referred to in Annex III instead of that in Annex II. Article 6 states what this information is.

EXEMPTIONS FROM THE PRE-CONTRACTUAL INFORMATION REQUIREMENTS: Article 7 states that, Articles 5 and 6 shall not apply to suppliers of goods or services acting as credit intermediaries in an ancillary capacity. This is without prejudice to the creditor’s obligation to ensure that the consumer receives the pre-contractual information referred to in those Articles.

Whether a person is considered a credit intermediary in the context of an ancillary capacity has been explained in case C-127/15. In that case, it was mentioned that based on Article 3(f) of the Directive, the credit intermediary is a natural or legal person who does not act as a creditor and who, in the context of his commercial, business or professional activity and for remuneration which may be monetary or have any other agreed form of financial consideration, proposes or offers credit agreements to consumers, assists consumers by undertaking preparatory work for entering into credit agreements, or concludes credit agreements with consumers on behalf of the creditor. The intermediary in question is subject to the obligations to provide information to consumers provided for in articles 5 and 6 of the Directive. However, according to Article 7, suppliers of goods or services who act as credit intermediaries in an ancillary capacity are not subject to this obligation. That is, where their activity (the provision of credit) is not the main purpose of their commercial, business or professional activities then they have no obligation to provide information.

In cases where a debt collection agency acting on behalf of a creditor to conclude a credit agreement payable in instalments for an overdue amount, under which the consumer undertakes to repay the total amount of the credit and to pay interest and costs, must be classified as a credit intermediary except if the provision of that service is not the main purpose of its trade, business or professional activities. But it is for the national Court to ascertain (on the basis of all the facts of the case) whether the particular agency acts as a credit broker in general or in the context of an ancillary activity.[6]

 

2.1.3.                OBLIGATION TO ASSESS THE CREDITWORTHINESS OF THE CONSUMER

Based on Article 8 of the Directive, Member States ensure that, before the conclusion of the credit agreement, the creditor assesses the consumer’s creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database. They must also ensure that if the parties agree to change the total amount of credit after the conclusion of the credit agreement, the creditor updates the financial information at its disposal concerning the consumer and assesses the consumer’s creditworthiness before any significant increase in the total amount of credit.

It is noted that the above article allows creditors to rely only on the information provided by the consumer to check his creditworthiness, given that this is sufficient and that simple statements are accompanied by supporting documents. In addition, the creditor is under no obligation to carry out systematic checks of the information provided by the consumer.[7]

 

2.2.   BURDEN OF PROOF

The burden of proving the fulfillment of the obligations imposed by articles 5 and 8 of the Directive was examined in case C-499/13. In that case, it was decided that the provisions of the Directive are opposed to a national provision according to which the consumer bears the burden of proof of the non-fulfillment of the obligations imposed by articles 5 and 8. Nor is it possible to have a standard term of the contract which states that the consumer accepts that the creditor has properly fulfilled its pre-contractual obligations and in that way shift the burden of proof to the consumer.[8]

 

2.3.   INFORMATION OBLIGATIONS ASSOCIATED WITH THE CREDIT AGREEMENT

INFORMATION INCLUDED IN THE CREDIT AGREEMENT: Article 10 of the Directive states that credit agreements shall be drawn up on paper or on another durable medium and all parties shall receive a copy. The credit agreement does not need to be drawn up in a single document if it is drawn up in writing or on another durable medium.[9]

DURABLE MEDIUM: The reference to a “durable medium” is a reference to a medium which should ensure the consumer, in a manner analogous to a document, that he will be in possession of the required information to be able to view, if such need is presented, his rights. Critical elements, in this regard, are that the consumer can store the information addressed to him personally, ensure that its content will not be altered, and that it can be both accessed for as long as needed and reproduced exactly as they have.[10] A key question is whether the medium is a medium resistant to time. If it is, then it is more likely to be considered as a durable medium than not. Therefore, some websites can be characterized as time-resistant media.[11] Such are the cases when the website provides the user with the possibility to store information addressed to him personally, in such a way that he can then consult it for a period of time proportional to the purpose it serves, as well as reproduce it exactly as it is. In addition, in order for a website to be considered a “time-resistant medium” within the meaning of this provision, any possibility of unilateral modification of its content by the payment service provider or by any other professional entrusted with the management of the website must be excluded.[12]

Based on the article 10(2), the credit agreement specify in a clear and concise manner:

«(a) the type of credit;

 

(b) the identities and geographical addresses of the contracting parties as well as, if applicable, the identity and geographical address of the credit intermediary involved;

 

(c) the duration of the credit agreement;

 

(d) the total amount of credit and the conditions governing the drawdown;

 

(e) in case of a credit in the form of deferred payment for a specific good or service or in the case of linked credit agreements, that good or service and its cash price;

 

(f) the borrowing rate, the conditions governing the application of that rate and, where available, any index or reference rate applicable to the initial borrowing rate, as well as the periods, conditions and procedures for changing the borrowing rate and, if different borrowing rates apply in different circumstances, the abovementioned information in respect of all the applicable rates;

 

(g) the annual percentage rate of charge and the total amount payable by the consumer, calculated at the time the credit agreement is concluded; all the assumptions used in order to calculate that rate shall be mentioned;

 

(h) the amount, number and frequency of payments to be made by the consumer and, where appropriate, the order in which payments will be allocated to different outstanding balances charged at different borrowing rates for the purposes of reimbursement;

 

According to case C-42/15, this article has the meaning that the credit agreement is not required to specify each payment that the consumer must make by mentioning a specific date, as long as the terms of this agreement make it possible for the consumer to easily specify and with certainty the dates of payments.[13]

(i) where capital amortisation of a credit agreement with a fixed duration is involved, the right of the consumer to receive, on request and free of charge, at any time throughout the duration of the credit agreement, a statement of account in the form of an amortisation table.

 

 The amortisation table shall indicate the payments owing and the periods and conditions relating to the payment of such amounts; the table shall contain a breakdown of each repayment showing capital amortisation, the interest calculated on the basis of the borrowing rate and, where applicable, any additional costs; where the interest rate is not fixed or the additional costs may be changed under the credit agreement, the amortisation table shall indicate, clearly and concisely, that the data contained in the table will remain valid only until such time as the borrowing rate or the additional costs are changed in accordance with the credit agreement;

It is noted that the credit agreement which has a fixed duration and on the basis of which the capital is repaid by installments, is not required to specify exactly, in the form of an amortisation table, the part of each installment intended for the repayment of the capital. In fact, in case such obligation was imposed by national legislation, this would be considered as contrary to the provisions of the Directive.[14]

Based on Article 10(3), the above statement of account is provided whenever the consumer requests it, free of charge during the credit agreement.

(j) if charges and interest are to be paid without capital amortisation, a statement showing the periods and conditions for the payment of the interest and of any associated recurrent and non-recurrent charges;
 (k) where applicable, the charges for maintaining one or several accounts recording both payment transactions and drawdowns, unless the opening of an account is optional, together with the charges for using a means of payment for both payment transactions and drawdowns, and any other charges deriving from the credit agreement and the conditions under which those charges may be changed;

 

(l) the interest rate applicable in the case of late payments as applicable at the time of the conclusion of the credit agreement and the arrangements for its adjustment and, where applicable, any charges payable for default;

 

(m) a warning regarding the consequences of missing payments;

 

(n) where applicable, a statement, that notarial fees will be payable;

 

(o) the sureties and insurance required, if any;

 

(p) the existence or absence of a right of withdrawal, the period during which that right may be exercised and other conditions governing the exercise thereof, including information concerning the obligation of the consumer to pay the capital drawn down and the interest in accordance with Article 14(3)(b) and the amount of interest payable per day;

 

(q) information concerning the rights resulting from Article 15 as well as the conditions for the exercise of those rights;

 

(r) the right of early repayment, the procedure for early repayment, as well as, where applicable, information concerning the creditor’s right to compensation and the way in which that compensation will be determined;

 

(s) the procedure to be followed in exercising the right of termination of the credit agreement;

 

(t) whether or not there is an out-of-court complaint and redress mechanism for the consumer and, if so, the methods for having access to it;

 

(u) where applicable, other contractual terms and conditions;

 

(v) where applicable, the name and address of the competent supervisory authority.»

 

Where the credit agreement provides for an overdraft facility the information specified is less. This is contained in article 10(5) of the Directive.

INFORMATION CONCERNING THE BORROWING RATE : Based on the article 11, the consumer must be informed of any change in the borrowing rate, on paper or another durable medium, before the change enters into force. The information must state the amount of the payments to be made after the entry into force of the new borrowing rate and information about the change. But it is acceptable that parties may agree in the credit agreement that the information referred to in article 11(1) is to be given to the consumer periodically in cases where the change in the borrowing rate is caused by a change in a reference rate, where the new reference rate is made publicly available by appropriate means and  is also kept available in the premises of the creditor.

RIGHTS IN CONNECTION WITH CREDIT AGREEMENTS IN THE FORM OF AN OVERDRAFT FACILITY: Where a credit agreement provides for an overdraft facility, the consumer shall be kept regularly informed by means of a statement of account, on paper or on another durable medium for specific information such as the precise period to which the statement of account relates, the amounts of drawdowns, the balance from the previous statement, the new balance, the borrowing rate applied etc. Again, in such contracts, the consumer must be be informed on paper or another durable medium of increases in the borrowing rate, or in any charges payable, before the change in question enters into force (article 12).

RIGHTS IN OPEN-ENDED CREDIT AGREEMENTS: Article 13 refers to open-ended credit agreements. In such cases the consumer may effect standard termination of an open-end credit agreement free of charge at any time unless the parties have agreed on a period of notice. Such a period may not exceed one month. The creditor may effect standard termination of an open-end credit agreement by giving the consumer at least two months’ notice drawn up on paper or on another durable medium. If agreed in the credit agreement, the creditor may, for objectively justified reasons, terminate the consumer’s right to draw down on an open-end credit agreement.

RIGHT OF WITHDRAWAL: Article 14 refers to the 14-day right of withdrawal of the consumer from the credit agreement. The period starts from the day of the conclusion of the contract or receipt of the terms of the contract and the information according to article 10.

If the consumer exercises his right of withdrawal, in order to give effect to the withdrawal before the expiry of the deadline, he must notify this to the creditor in line with the information given by the creditor pursuant to Article 10(2)(p) by means which can be proven in accordance with national law. The deadline is deemed to have been met if the notification, is on a paper or on another durable medium that is available and accessible to the creditor, is dispatched before the deadline expires; and pay to the creditor the capital and the interest accrued thereon from the date the credit was drawn down until the date the capital is repaid, without any undue delay and no later than 30 calendar days after the despatch by him to the creditor, of notification of the withdrawal. The interest is calculated on the basis of the agreed borrowing rate. The creditor is not be entitled to any other compensation from the consumer in the event of withdrawal, except compensation for any non-returnable charges paid by the creditor to any public administrative body.

The MSs may set a deadline during which the execution of the contract cannot begin.

Ιt is noted that if an ancillary service relating to the credit agreement is provided by the creditor or by a third party on the basis of an agreement between the third party and the creditor, the consumer is no longer be bound by the ancillary service contract if the consumer exercises his right of withdrawal from the credit agreement in accordance with that Article. The same applies in relation to linked credit agreements – that is, based on Article 15, where the consumer has exercised a right of withdrawal, based on Community law, concerning a contract for the supply of goods or services, he is no longer bound by a linked credit agreement.

CONSUMER RIGHTS IN RELATION TO LINKED CREDIT AGREEMENTS: Based on Article 15(2), where the goods or services covered by a linked credit agreement are not supplied, or are supplied only in part, or are not in conformity with the contract for the supply thereof, the consumer shall have the right to pursue remedies against the creditor if the consumer has pursued his remedies against the supplier but has failed to obtain the satisfaction to which he is entitled according to the law or the contract for the supply of goods or services.

RIGHT OF EARLY REPAYMENT: According to Article 16, the consumer is entitled at any time to discharge fully or partially his obligations under a credit agreement. In such cases, he is entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the contract.

In such a case the creditor is entitled to compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed. Such compensation may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. If the period does not exceed one year, the compensation may not exceed 0,5% of the amount of credit repaid early. In no case shall the compensation exceed the interest that would be due from early repayment until the due date. In cases where the creditor requests compensation beyond his actual loss, the consumer may request a corresponding reduction.

In the following cases, compensation for early repayment is not allowed:

«a) if the repayment has been made under an insurance contract intended to provide a credit repayment guarantee;

 

(b) in the case of overdraft facilities; or

 

(c) if the repayment falls within a period for which the borrowing rate is not fixed.»

 

ASSIGNMENT OF RIGHTSBased on Article 17, in the event of an assignment to a third party, of the creditor’s rights under a credit agreement or the agreement itself, the consumer shall be entitled to plead against the assignee any defence which was available to him against the original creditor, including set-off where the latter is permitted in the Member State concerned.

Finally, it should be mentioned that based on Article 17(2), the consumer must be informed of the assignment referred to except where the original creditor, by agreement with the assignee, continues to service the credit vis-à-vis the consumer.

OVERRUNNING: In relation to current account opening contracts, if there is a possibility of overruning, the contract must also contain the borrowing rate, the conditions governing the application of that rate and any index or reference rate applied to the original borrowing rate, the charges applicable from the time of the conclusion of the credit agreement and, as the case may be, the conditions under which these charges can be changed. This information is regularly provided in writing or on another durable medium.

In the event of a significant overrunning exceeding a period of one month, the creditor shall inform the consumer without delay, on paper or on another durable medium:

«(a) of the overrunning;

 

(b) of the amount involved;

 

(c) of the borrowing rate;

 

(d) of any penalties, charges or interest on arrears applicable.»

 

ANNUAL PERCENTAGE RATE OF CHARGE: Article 19 of the Directive refers to the method of calculating the APR. It is calculated in accordance with the mathematical formula set out in Part I of Annex I. To calculate the APR the following principles are observed:

  • The APR is the total cost of the credit for the consumer, expressed as an annual percentage of the total amount of the credit. The total cost of credit for the consumer is the total of charges, including interest, commissions, taxes and any other kind of fees, which the consumer is required to pay for the credit agreement and which the creditor is aware of, except notarial costs. Costs related to additional services related to the credit agreement, in particular insurance premiums, are also included if, in addition, the conclusion of the service agreement is mandatory for the approval of the credit or for its granting under the terms and conditions advertised.
  • In the total cost of credit for the consumer (unless the opening of the account is optional and the costs of the account have been clearly and separately shown in the credit agreement or in any other agreement concluded with the consumer) the costs of maintaining an account recording both payment transactions and drawdowns, the costs of using a means of payment for both payment transactions and drawdowns, and other costs relating to payment transactions are included.
  • The costs incurred by the consumer due to breach of any of his obligations under the credit agreement are not taken into account.
  • The additional costs to the purchase price that the consumer has to pay when buying goods or services, whether he buys on credit or in cash, are not included.
  • The calculation of the APR is based on the assumption that the credit agreement is still valid for its entire agreed duration and that the creditor and the consumer fulfill their obligations in accordance with the terms and on the dates specified in the credit agreement. For credit agreements that contain clauses which allow for the variation of the borrowing rate and, where applicable, of the charges included in the APR, but the amount of which cannot be precisely determined at the time of calculation, the APR is calculated according to the presumption that the interest rate and other costs remain fixed at their initial level and apply until the end of the credit agreement.
  • Where necessary, the additional assumptions set out in Annex I may be used in calculating the annual percentage rate of charge (for example, in cases where the credit agreement gives the consumer a right of choice regarding withdrawals, the presumption is that a full and immediate withdrawal of the total amount of the credit is made).

 

2.4.   EXAMINATION BY THE COURT ON ITS OWN MOTION

According to case C-377/14, a national court has an obligation, in the event that a dispute arises before it, relates to claims arising from a credit agreement within the meaning of the Directive, to examine in its own motion the issue of whether the obligation to provide information provided by this provision, and to give way to all the consequences brought about by the violation of such provision, according to national law, provided that such consequences meet the conditions of article 23 (for sanctions – see section 3.4. below) of the Directive. [15]

3. OBLIGATIONS/CHOICES OF MEMBER STATES

3.1.   PRE-CONTRACTUAL INFORMATION

PRE- CONTRACTUAL INFORMATION: Based on Article 5(6) Member States ensure that creditors and, where applicable, credit intermediaries provide adequate explanations to the consumer, in order to place the consumer in a position enabling him to assess whether the proposed credit agreement is adapted to his needs and to his financial situation, where appropriate by explaining the pre-contractual information to be provided in accordance with paragraph 1, the essential characteristics of the products proposed and the specific effects they may have on the consumer, including the consequences of default in payment by the consumer. Member States may adapt the manner by which and the extent to which such assistance is given, as well as by whom it is given, to the particular circumstances of the situation in which the credit agreement is offered, the person to whom it is offered and the type of credit offered.

According to case C-449/13 although the creditor may provide the consumer with sufficient information, it is possible that based on the assessment of the creditworthiness of the consumer, the specific information needs to be adapted and communicated to the consumer in due time, before signing the credit agreement, without however requiring the drawing up of a specific document. [16]

OBLIGATION TO ASSESS THE CREDIT WORTHINESS OF THE CONSUMER: This is referred to in article 8 and it has been analysed above. However, it should be noted that based on Article 9, each Member State shall, in the case of cross-border credit ensure access for creditors from other Member States to databases used in that Member State for assessing the creditworthiness of consumers. If the credit application is rejected on the basis of consultation of a database, the creditor shall inform the consumer immediately and without charge of the result of such consultation and of the particulars of the database consulted.

3.2.   IN RELATION TO MATTERS RELATING TO THE CREDIT AGREEMENT

RIGHT OF WITHDRAWAL: By virtue of Article 14(7) the Article in question (which deals with withdrawal) applies without prejudice to any rule of national law establishing a period of time during which the performance of the contract may not begin.

EARLY REPAYMENT: In relation to early repayment, Article 16(4) states that Member States have the right to determine that such compensation may be claimed by the creditor only on condition that the amount of the early repayment exceeds the threshold defined by national law but in no case can it be more than €10,000 within a 12-month period.

Also, the Member States can allow a creditor to demand higher compensation where he can prove a loss that exceeds the rates of 0.5% and 1% mentioned in Section 2.3. above.

 

3.3.   IN RELATION TO CREDITORS AND CREDIT INTERMEDIARIES

REGULATION OF CREDITORS: According to Article 20, Member States must ensure that creditors are supervised by a body or authority independent from financial institutions, or regulated.

OBLIGATIONS OF CREDIT INTERMEDIARIES: Article 21 states that Member States shall ensure the following in relation to credit intermediaries:

«a) a credit intermediary indicates in advertising and documentation intended for consumers the extent of his powers, in particular whether he works exclusively with one or more creditors or as an independent broker;

 

(b) the fee, if any, payable by the consumer to the credit intermediary for his services is disclosed to the consumer, and agreed between the consumer and the credit intermediary on paper or another durable medium before the conclusion of the credit agreement;

 

(c) the fee, if any, payable by the consumer to the credit intermediary for his services is communicated to the creditor by the credit intermediary, for the purpose of calculation of the annual percentage rate of charge.»

 

3.4.   PENALTIES

Based on Article 23, Member States must lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate and dissuasive.

Based on case C-42/15 in the event that national legislation makes the contract interest-free and without costs in case of non-compliance with the information duties of Article 10(2), the legislation in question is valid as non-inclusion of the elements of Article 10(2) may call into question the consumer’s ability to assess the content of his commitment.

The deterrent nature of the sanctions was examined in case C-565/12. In that case it was held that the national system of sanctions under which, in case of breach by the creditor of its obligation to assess, before concluding the loan agreement, the creditworthiness of the borrower by carrying out a search in the relevant database, was incompatible with the Directive. The reason was because the sanctions prevented the creditor from collecting contractual interest but allowed him to claim statutory interest from the date of the judgment, which statutory interest was increased by 5% at the expiry of the 2 month period from the judgment if the borrower did not fully repay his debt, with the result that the creditor may, even after the application of the sanction, be in a substantially similar position if he collected the contractual interest.[17]

OUT-OF-COURT DISPUTE RESOLUTION: Member States ensure that adequate and effective out-of-court dispute resolution procedures are in place.

 

4. OTHER RELEVANT PROVISIONS

Directive 87/102/EEC was repealed with effect from 12 May 2010.

 

[1] C-602/10, SC Volksbank România SA v. Autoritatea Naţională pentru Protecţia Consumatorilor — Comisariatul Judeţean pentru Protecţia Consumatorilor Călăraşi (CJPC)

[2] C‑127/15, Verein für Konsumenteninformation v. INKO, Inkasso GmbH, para. 39, 41

[3] In such cases, only articles 1-3, 4(1), 4(2)(a)-(c), 4(4), 6-9, 10(1), 10(4), 10(5) apply ), 12,15,17 and 19-32.

[4] In such cases, only articles 1-3, 18, 20, 22 -32 apply.

[5] C-377/14 Ernst Georg Radlinger, Helena Radlingerová ν. FINWAY a.s., παρά 86, 87 και 91

[6] C – 127/15 Verein für Konsumenteninformation v. INKO, Inkasso GmbH, para 43, 44, 46-48, 53

[7] C-449/13, CA Consumer Finance ν. Ingrid Bakkaus, Savary Charline Bonato,

[8] C-449/13, CA Consumer Finance ν. Ingrid Bakkaus, Charline Bonato, Savary, Florian Bonato

[9] C-42/15, Home Credit Slovakia a.s. v. Klára Bíróová

[10] C‑375/15, BAWAG PSK Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG ν. Verein für Konsumenteninformation, para. 42

[11] C‑375/15, BAWAG PSK Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG ν. Verein für Konsumenteninformation, para. 43

[12] C‑375/15, BAWAG PSK Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG ν. Verein für Konsumenteninformation, para. 44

[13][13] C-42/15, Home Credit Slovakia a.s. v. Klára Bíróová

[14] C-42/15, Home Credit Slovakia a.s. v. Klára Bíróová

[15] C-377/14 Ernst Georg Radlinger, Helena Radlingerová ν. FINWAY a.s.

[16] C-449/13, CA Consumer Finance ν. Ingrid Bakkaus, Charline Bonato, Savary, Florian Bonato

[17] C-565/12LCL Le Crédit Lyonnais, SA ν. Fesih Kalhan

Σχετικά Άρθρα

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Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Contracts for the supply of digital content and digital services (Directive 2019-770)

1. PURPOSE OF THE DIRECTIVE

Directive (EU) 2019/770 of the European Parliament and of the Council of 20 May 2019 on certain aspects concerning contracts for the supply of digital content and digital services (“Directive“) aims to protect consumers who purchase digital content or services from a trader. The Directive sets rules on:

  1. the conformity of digital content or a digital service with the contract,
  2. remedies in the event of a lack of such conformity or a failure to supply, and the modalities for the exercise of those remedies, and
  3. the modification of digital content or a digital service.

The Directive entered into force on the 1st of January 2022 and applies to the supply of digital content or digital services taking place from that date onwards.

The level of harmonisation imposed to MSs by the Directive is one of maximum harmonisation and according to Article 3 of the Directive, it applies:

to any contract whereby the trader supplies or undertakes to supply digital content or digital service to the consumer and the consumer pays or undertakes to pay a price

The fact that the digital content or service is designed according to the consumer’s specifications does not preclude the application of the Directive.

DEFINITION OF PRICE: The definition of price is “money or a digital representation of value” which is paid or agreed to be paid in exchange for the supply of digital content or a digital service. Digital representation of value includes electronic vouchers or coupons as well as virtual coins.  It should be noted that the concept of value includes the provision of personal data by the consumer except where the data provided by the consumer are:

“processed by the trader for the purpose of supplying the digital content or digital service in accordance with this Directive or for allowing the trader to comply with legal requirements to which the trader is subject, and the trader does not process those data for any other purpose.”

Personal data bears the definition included in Regulation (EU) 2016/679 – that is:

“…any information relating to an identified or identifiable natural person (“data subject”); an identifiable natural person is one whose identity can be established, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or one or more factors specific to the physical, physiological, genetic, psychological, economic, cultural or social identity of that natural person”

DIGITAL CONTENT: According to the Directive, digital content is “data which are produced and supplied in digital form”.

DIGITAL SERVICE: A digital service, on the other hand, is
a service that allows the consumer to create, process, store or access data in digital form. It also includes a service that allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service.

CONSUMER AND TRADER: For the purposes of the Directive, the consumer is “any natural person who, in relation to contracts covered by this Directive, is acting for purposes which are outside that person’s trade, business, craft, or professionand the trader is:

“any natural or legal person, irrespective of whether privately or publicly owned, that is acting, including through any other person acting in that natural or legal person’s name or on that person’s behalf, for purposes relating to that person’s trade, business, craft, or profession, in relation to contracts covered by this Directive

NON-APPLICABILITY OF THE DIRECTIVE: The Directive does not apply in the following 8 cases:

“a)       the provision of services other than digital services, regardless of whether digital forms or means are used by the trader to produce the output of the service or to deliver or transmit it to the consumer» However, it should be noted that the Directive still applies to the elements of the contract relating to the digital content or service.

b) electronic communications services as defined in Article 2(4) of Directive (EU) 2018/1972, with the exception of number-independent interpersonal communications services as defined in Article 2(7) of that Directive;

c) healthcare as defined in point (a) of Article 3 of Directive 2011/24/EU;

d) gambling services, namely, services that involve wagering a stake with pecuniary value in games of chance, including those with an element of skill, such as lotteries, casino games, poker games and betting transactions, by electronic means or any other technology for facilitating communication and at the individual request of a recipient of such services;

e) financial services as defined in point (b) of Article 2 of Directive 2002/65/EC;

f) software offered by the trader under a free and open-source licence, where the consumer does not pay a price and the personal data provided by the consumer are exclusively processed by the trader for the purpose of improving the security, compatibility or interoperability of that specific software;

g) the supply of digital content where the digital content is made available to the general public other than by signal transmission as a part of a performance or event, such as digital cinematographic projections;

 h) digital content provided in accordance with Directive 2003/98/EC of the European Parliament and of the Council by public sector bodies of the Member States..”

In addition, the Directive does not apply to digital content or digital services embedded in goods with digital elements, i.e. tangible movable items that incorporate, or are inter-connected with, digital content or a digital service in such a way that the absence of that digital content or digital service would prevent the goods from performing their functions.

2. SUBSTANTIVE PROVISIONS

2.1.             In Connection with the Supply of the Digital Content or Digital Service

TIME OBLIGATION TO SUPPLY: Article 5 of the Directive requires the trader to supply the agreed digital content or service in accordance with the terms of the agreement, and where there is no such term as to supply (i.e. delivery), then the supply must be “without undue delay after the conclusion of the contract”.

TIME WHICH THE PURCHASE OF DIGITAL CONTENT OR DIGITAL SERVICE TAKE PLACE: It should be mentioned here that in relation to the point in time when the digital content or service was purchased:

  • Digital content is considered to be acquired when “the digital content or any means suitable for accessing or downloading the digital content is made available or accessible to the consumer, or to a physical or virtual facility chosen by the consumer for that purpose;”.
  • The digital service “is made accessible to the consumer or to a physical or virtual facility chosen by the consumer for that purpose.”

2.2.             Conformity of the Digital Content or Digital Service

The trader must supply to the consumer digital content or a digital service that meets subjective and objective compliance requirements as well as compliance requirements resulting from poor integration of the digital content or service into the consumer’s digital environment. These situations are discussed below:

2.2.1.               Subjective Requirements for Conformity

Article 7 of the Directives states that in order to comply with the terms of the contract, the digital content or service must:

“a)       be of the description, quantity and quality, and possess the functionality, compatibility, interoperability and other features, as required by the contract;,

b) be fit for any particular purpose for which the consumer requires it and which the consumer made known to the trader at the latest at the time of the conclusion of the contract, and in respect of which the trader has given acceptance;

c) be supplied with all accessories, instructions, including on installation, and customer assistance as required by the contract; and

d) be updated as stipulated by the contract.”

2.2.2.               Objective Requirements for Conformity

Article 8 of the Directive contains the objective conformity requirements for goods – i.e. requirements that are laid down irrespective of the intention of the parties.

PROVISION OF THE MOST RECENT VERSION: Firstly, it should be stated that the digital content or service is provided with the latest version available at the time of the conclusion of the contract unless the parties have agreed otherwise.

OBJECTIVE REQUIREMENTS: Article 8(1) of the Directive states that digital content or digital service:

“a)       be fit for the purposes for which digital content or digital services of the same type would normally be used, considering, where applicable, any existing Union and national law, technical standards or, in the absence of such technical standards, applicable sector-specific industry codes of conduct.

b) be of the quantity and possess the qualities and performance features, including in relation to functionality, compatibility, accessibility, continuity and security, normal for digital content or digital services of the same type and which the consumer may reasonably expect, given the nature of the digital content or digital service and taking into account any public statement made by or on behalf of the trader, or other persons in previous links of the chain of transactions, particularly in advertising or on labelling unless the trader shows that:

i) the trader was not, and could not reasonably have been, aware of the public statement in question.

ii) by the time of conclusion of the contract, the public statement had been corrected in the same way as, or in a way comparable to how, it had been made; or

 iii) the decision to acquire the digital content or digital service could not have been influenced by the public statement.

c) where applicable, be supplied along with any accessories and instructions which the consumer may reasonably expect to receive; and

d) comply with any trial version or preview of the digital content or digital service, made available by the trader before the conclusion of the contract.”

Where the contract provides for the continuous supply of the digital content or service over a period of time, the digital content or service shall be in conformity throughout that period.

UPDATES AND SECURITY UPDATES: With regard to updates, Article 8(2) provides that the trader must ensure that the consumer is informed of and supplied with updates, including security updates, that are necessary to keep the digital content or digital service in conformity, for the period of time:

“a)       during which the digital content or digital service is to be supplied under the contract, where the contract provides for a continuous supply over a period of time; or

b) that the consumer may reasonably expect, given the type and purpose of the digital content or digital service and taking into account the circumstances and nature of the contract, where the contract provides for a single act of supply or a series of individual acts of supply.”

OBLIGATION ON CONSUMERS TO INSTALL UPDATED: Alongside the trader’s obligation to provide updates, the consumer is obliged to install them within a reasonable time. The Directive explicitly states that the trader is not liable for any lack of conformity resulting solely from the lack of updates, provided that:

“a)       the trader informed the consumer about the availability of the update and the consequences of the failure of the consumer to install it; and

b) the failure of the consumer to install or the incorrect installation by the consumer of the update was not due to shortcomings in the installation instructions provided by the trader.”

EXCLUSION OF LIABILITY: Article 8(5) of the Directive provides that if the trader informs the consumer specifically about a particular characteristic of the digital content or digital service which is deviating from the objective requirements of conformity mentioned above, and the costumer expressly and separately accepted the deviation when concluding the contract, then there is no lack of conformity. It should be noted that the exclusion of liability of the trader is only possible at the time of the conclusion of the contract.

2.2.3.               Requirements Regarding the Integration of the Digital Content or Digital Service

Article 9 of the Directive refers to the incorrect integration of digital content or digital service due to a poor integration of the digital content or service into the consumer’s digital environment. In such a case, the content or service is considered to be non-compliant if:

“a)       the digital content or digital service was integrated by the trader or under the trader’s responsibility; or

b) the digital content or digital service was intended to be integrated by the consumer and the incorrect integration was due to shortcomings in the integration instructions provided by the trader.”

2.2.4.               Modification of the Digital Content or Digital Service

Article 19 of the Directive refers to cases where the contract provides that the digital content or digital service is to be supplied or made accessible to the consumer over a period of time – such as, for example, a one-year contract for the supply of anti-virus software, a cloud storage contract for two years or an unlimited subscription to a social media platform.  In such a case Article 19(1) states that:

“the trader may modify the digital content or digital service beyond what is necessary to maintain the digital content or digital service in conformity in accordance with Articles 7 and 8, if the following conditions are met:

a) the contract allows, and provides a valid reason for, such a modification;

b) such a modification is made without additional cost to the consumer;

c) the consumer is informed in a clear and comprehensible manner of the modification”

Based on Article 19(2), the consumer is entitled to terminate the contract if the modification negatively impacts the consumer’s access to, or use of the digital content or digital service, (unless such negative impact is only minor). In such case, the consumer is entitled to terminate the contract free of charge within 30 days of the receipt of the information or of the time when the digital content or digital service has been modified by the trader, whichever is later.

NOTIFICATION BY THE TRADER OF THE AMENDMENT: As to the time which the consumer must be informed that the service or content is being modified, Article 19(1)(d) states that the information shall be given

“in advance on a durable medium of the features and time of the modification and of the right to terminate the contract in accordance with paragraph 2, or of the possibility to maintain the digital content or digital service without such a modification”

TERMINATION OF THE CONTRACT: In the case of a consumer who terminates the contract in accordance with Article 19(2), Articles 15 to 18 of the Directive apply mutatis mutandis.  However, there is neither the right of termination nor the information obligation provided for in Article 19(1)(d) if the trader has given the consumer the opportunity to retain the digital content or service without additional charge and without the modification, and the digital content or service is kept in conformity.

2.2.5.               Third-Party Rights

According to Article 10 of the Directive,

“Where a restriction resulting from a violation of any right of a third party, in particular intellectual property rights, prevents or limits the use of the digital content or digital service in accordance with Articles 7 and 8, Member States shall ensure that the consumer is entitled to the remedies for lack of conformity provided for in Article 14, unless national law provides for the nullity or rescission of the contract for the supply of the digital content or digital service in such cases.”

In short, the above article aims to protect the consumer where a third party obliges the trader to stop infringing his intellectual property rights when such intellectual property have been licensed to the consumer. In such a case the consumer is entitled to remedies for the lack of conformity, unless national law provides for the nullity of the contract, or for its rescission, for example for breach of legal warranty against eviction.

2.3.             Liability of the Trader and Burden of Proof

According to Article 11(1), the trader is liable for any failure to supply the digital content or digital service in accordance with Article 5 (i.e. without delay and within the agreed time).  The burden of proof as to whether or not the digital content or service has been supplied are borne by the trader.

Article 11(2) refers to single acts of supply or a series of individual acts of supply, and in such cases the trader is liable for any lack of conformity under Articles 7, 8 and 9 which exists at the time of supply, without prejudice to Article 8(2)(b). In cases covered by Article 11(2), the burden of proof with regard to whether the supplied digital content or digital service was in conformity at the time of supply shall be on the trader for a lack of conformity which becomes apparent within a period of one year “from the time when the digital content or digital service was supplied.”

If, under national law, the trader is only liable for lack of conformity that becomes apparent within a period of time after the supply, that period must not be less than two years from the time of supply, without prejudice to Article 8(2)(b). Indeed, based on the same article, MSs must ensure that such limitation period allows the consumer to exercise the remedies laid down in Article 14 for any lack of conformity that exists at the time indicated in the first subparagraph and becomes apparent within the period of time indicated in the second subparagraph.

Article 11(3) states that in the event that the contract provides for the continuous supply over a period of time, the trader shall be liable for a lack of conformity under Articles 7, 8 and 9, that occurs or becomes apparent within the period of time during which the digital content or digital service is to be supplied under the contract.

MSs shall ensure that such limitation period allows the consumer to exercise the remedies laid down in Article 14 for any lack of conformity that occurs or becomes apparent during the period of time referred to in the first subparagraph.

In relation to the burden of proof for cases subject to Article 11(3), as to whether the digital content or digital service was in conformity within the period of time during which the digital content or digital service is to be supplied under the contract, it is the trader who has to prove that there was no lack of conformity if such lack of conformity becomes apparent within that period.

According to Article 12(4), the burden of proof relating to the conformity of the content of the contract is not on the trader, provided that the trader demonstrates that the digital environment of the consumer is not compatible with the technical requirements of the digital content or digital service and where the trader informed the consumer of such requirements in a clear and comprehensible manner before the conclusion of the contract. To determine this, the consumer must cooperate with the trader, to the extent reasonably possible and necessary, to ascertain whether the cause of the lack of conformity of the digital content or digital service at the time specified in Article 11(2) or (3), as applicable, lay in the consumer’s digital environment. Based on Article 12(5):

the obligation to cooperate shall be limited to the technically available means which are least intrusive for the consumer. Where the consumer fails to cooperate, and where the trader informed the consumer of such requirement in a clear and comprehensible manner before the conclusion of the contract, the burden of proof with regard to whether the lack of conformity existed at the time specified in Article 11(2) or (3), as applicable, shall be on the consumer.

2.4.             Consumer Rights

2.4.1.               Right to Bring into Conformity

According to Article 14(1) the consumer is entitled to have the digital content or digital service brought into conformity, to receive a proportionate reduction in the price, or to terminate the contract. Article 14(2) states that the consumer is entitled to have the digital content or digital service brought into conformity, unless this would be impossible or would impose costs on the trader taking into account all of the circumstances of the case, including:

“a)       the value the digital content or digital service would have if there were no lack of  conformity; and

b) the significance of the lack of conformity.”

HOW CONFORMITY IS EFFECTED: According to article 14(3), the trader must bring the digital content or digital service into conformity within a reasonable time from the time the trader has been informed by the consumer about the lack of conformity, free of charge and without any significant inconvenience to the consumer, taking into account the nature of the digital content or digital service and the purpose for which the consumer required the digital content or digital service.

According to article 14(4), the consumer is entitled to either a proportionate reduction of the price, where the digital content or digital service is supplied in exchange for a payment of a price, or the termination of the contract.

PRICE REDUCTION: The reduction in price is proportionate to the decrease in the value of the digital content or digital service which was supplied to the consumer compared to the value that the digital content or digital service would have if it were in conformity.

Where the contract stipulates that the digital content or digital service is to be supplied over a period of time in exchange for the payment of a price, the reduction in price applies to the period of time during which the digital content or digital service was not in conformity.

2.4.2.               Termination of the Contract due to Lack of Conformity

TERMINATION OF THE CONTRACT: For the consumer to be able to terminate the contract, the lack of conformity must not be insignificant and one of the following conditions must be met.

“a)       the remedy to bring the digital content or digital service into conformity is impossible or disproportionate in accordance with paragraph 2;

b) the trader has not brought the digital content or digital service into conformity in accordance with paragraph 3;

c) a lack of conformity appears despite the trader’s attempt to bring the digital content or digital service into conformity;

d) the lack of conformity is of such a serious nature as to justify an immediate price reduction or termination of the contract; or

e) the trader has declared, or it is clear from the circumstances, that the trader will not bring the digital content or digital service into conformity within a reasonable time, or without significant inconvenience for the consumer.”

2.4.3.               Termination of the Contract due to Failure to Supply

RIGHT OF TERMINATION: Based on Article 13(1), where the trader has failed to supply the digital content or digital service in accordance with Article 5, the consumer can call upon the trader to supply the digital content or digital service. If the trader then fails to supply the digital content or digital service without undue delay, or within an additional period of time, as expressly agreed to by the parties, the consumer is entitled to terminate the contract.

In the following cases, the consumer may terminate the contract directly.  That is where:

“a)       the trader has declared, or it is equally clear from the circumstances, that the trader will not supply the digital content or digital service;

b) the consumer and the trader have agreed, or it is clear from the circumstances attending the conclusion of the contract, that a specific time for the supply is essential for the consumer and the trader fails to supply the digital content or digital service by or at that time.”

Where the consumer terminates the contract under paragraphs 1 or 2 of Article 13, Articles 15 to 18 shall apply mutatis mutandis.

2.4.4.               Rights in case of Termination

EXERCISE OF THE RIGHT OF TERMINATION: According to Article 15, the consumer is allowed to exercise the right to terminate the contract by means of a statement to the trader expressing the decision to terminate the contract.

OBLIGATIONS OF THE TRADER IN THE EVENT OF TERMINATION: Article 16 of the Directive refers to the trader’s obligations in the event of termination of the contract by the consumer. In such a case, the trader must reimburse the consumer for all sums paid under the contract.

REPAYMENT OF THE PRICE PRO-RATA: When the contract provides for the supply of the digital content or digital service in exchange for a payment of a price and over a period of time, and the digital content or digital service had been in conformity for a period of time prior to the termination of the contract, the trader must reimburse the consumer only for the proportionate part of the price paid corresponding to the period of time during which the digital content or digital service was not in conformity, and any part of the price paid by the consumer in advance for any period of the contract that would have remained had the contract not been terminated.

PERSONAL DATA: In the case of termination of the contract, the trader must comply with the obligations applicable under Regulation (EU) 2016/679and must refrain from using any content other than personal data, which was provided or created by the consumer when using the digital content or digital service supplied by the trader, except where such content:

“a)       has no utility outside the context of the digital content or digital service supplied by the trader;

b) only relates to the consumer’s activity when using the digital content or digital service supplied by the trader;

c) has been aggregated with other data by the trader and cannot be disaggregated or only with disproportionate efforts; or

d) has been generated jointly by the consumer and others, and other consumers are able to continue to make use of the content.”

In the case referred to in (d) above, the trader must, at the request of the consumer, make available to the consumer any content other than personal data, which was provided or created by the consumer when using the digital content or digital service supplied by the trader.

The consumer is entitled to retrieve that digital content free of charge, without hindrance from the trader, within a reasonable time and in a commonly used and machine-readable format.

Without prejudice to this, the trader may prevent any further use of the digital content or digital service by the consumer, in particular by making the digital content or digital service inaccessible to the consumer or disabling the user account of the consumer.

OBLIGATIONS OF THE CONSUMER IN THE EVENT OF TERMINATION: According to the article 17(1), after the termination of the contract, the consumer must refrain from using the digital content or digital service and from making it available to third parties. In case that the digital content was supplied on a tangible medium, the consumer must, at the request and at the expense of the trader, return the tangible medium to the trader without undue delay. If the trader decides to request the return of the tangible medium, that request must be made within 14 days of the day on which the trader is informed of the consumer’s decision to terminate the contract.

It should be noted that the consumer is not liable to pay for any use made of the digital content or digital service in the period, prior to the termination of the contract, during which the digital content or the digital service was not in conformity.

2.4.5              Time Limits for Refunds by the Trader

TIME LIMITS FOR REIMBURSEMENT: Article 18(1) states that refunds by the trader to the consumer for a reduction of the price or termination of the contract must be carried out without undue delay and, in any event, within 14 days of the date on which the trader is informed of the consumer’s decision to invoke the consumer’s right for a price reduction or to terminate the contract.

Based on article 18(2), the trader must carry out the reimbursement using the same means of payment as the consumer used to pay for the digital content or digital service, unless the consumer expressly agrees otherwise, and provided that the consumer does not incur any fees as a result of such reimbursement.

It is noted that the trader must not impose any fee on the consumer in respect of the reimbursement.

2.4.6 Right of Redress by the Trader

According to Article 20 of the Directive:

“Where the trader is liable to the consumer because of any failure to supply the digital content or digital service, or because of a lack of conformity resulting from an act or omission by a person in previous links of the chain of transactions, the trader shall be entitled to pursue remedies against the person or persons liable in the chain of commercial transactions. The person against whom the trader may pursue remedies, and the relevant actions and conditions of exercise, shall be determined by national law.

The above right, is the right of the trader to take action against a previous service supplier if the former is contractually bound to a consumer and breaches its contract with the consumer and the breach is attributable to the previous supplier.

3. Obligations of Member States

According to Article 21 of the Directive, MSs must ensure that adequate and effective means exist to ensure compliance with this Directive. Such means include provisions whereby one or more of the following bodies, as determined by national law, may take action under national law before the courts or before the competent administrative bodies to ensure that the national provisions transposing this Directive are applied:

“a)       public bodies or their representatives.

b) consumer organisations having a legitimate interest in protecting consumers.

c) professional organisations having a legitimate interest in acting;

d) not-for-profit bodies, organisations, or associations, active in the field of the protection  of data subjects’ rights and freedoms as defined in Article 80 of Regulation (EU) 2016/679.”

4. OTHER RELEVANT PROVISIONS

4.1.             Enforcement

Article 22(1) states that any contractual term which, to the detriment of the consumer, excludes the application of the national measures transposing this Directive, derogates from them or varies their effects before the failure to supply or the lack of conformity is brought to the trader’s attention by the consumer, or before the modification of the digital content or digital service in accordance with Article 19 is brought to the consumer’s attention by the trader, shall not be binding on the consumer.

It should be noted however, that traders can offer consumers contractual arrangements that go beyond the protection provided by the Directive.

4.2.             Amendments

Article 23 amends Regulation (EU) 2017/2394 and Directive 2009/22/EC.

4.3.             Review

According to Article 25, the Commission will review the application of the Directive and submit a report to the European Parliament, to the Council and to the European Economic and Social Committee. The report shall examine, inter alia, the case for harmonisation of rules applicable to contracts for the supply of digital content or digital services other than that covered by this Directive, including supplied against advertisements.

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Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Contracts for the sale of goods  (Directive 2019/771)

1. PURPOSE OF THIS DIRECTIVE

Directive (EU) 2019/771 of the European Parliament and of the Council of 20 May 2019 on certain aspects concerning contracts for the sale of goods, amending Regulation (EU) 2017/2394 and Directive 2009/22/EC and repealing Directive 1999/44/EC (“the Directive”) which entered into force in all Member States (“MS”) on 1 January 2022, aims to contribute to the smooth functioning of the internal market and to set a high level of protection for consumers in relation to sales contracts concluded between consumers and sellers and provides for rules relating to the conformity of goods with the sales contract, possibility of redress in the event of lack of such conformity, the means of exercising remedies and commercial warranties. The primary purpose is to place on traders a duty to guarantee the products they make available to consumers by also including goods available on the market with digital elements thus protecting consumers not only from hardware defects but also from software defects. An additional intention of the legislator in addition to the protection of consumers, as derived from the Directive, is also the protection of the environment since through the guarantees provided, microlife of the products is indirectly prohibited.

LEVEL OF HARMONISATION: The Directive is of maximum harmonization, since one of its main objectives is to strengthen the legal certainty required in order to strengthen the confidence of consumers (in the product market and especially in the cross-border product market) and sellers (especially in their establishment but also when they make their products available in other Member States). In the recitals of the Directive, it seems that the argument is strongly put forward that the differences in the way of application of legislative rules on the sale of goods between Member States, may negatively affect businesses and consumers since businesses may be burdened with additional compliance costs as a result of which they prefer to operate in the domestic market.

By laying down uniform rules across sales channels (personal contact sales and distance sales, etc) the Directive aims to avoid any divergence that would create disproportionate burdens for the growing number of omni-channel retailers in the Union.

SCOPE: The directive applies to sales contracts between a consumer and a seller as this is defined below.

CONSUMER: A consumer is any natural person who, in relation to contracts covered by this Directive, is acting for purposes which are outside that person’s trade, business, craft or profession. In case the consumer acts for a dual purpose, it is left to the Member States to decide whether the contract falls within the Directive. Also, MSs may, if they wish, extend the protection provided by the Directive to non-consumers such as government organisations, start-ups or SMEs.

SELLER: According to article 2 of the Directive, “seller” means any natural person or any legal person, irrespective of whether privately or publicly owned, that is acting, including through any other person acting in that natural or legal person’s name or on that person’s behalf, for purposes relating to that person’s trade, business, craft or profession, in relation to contracts covered by the Directive.

Platform providers are also sellers within the scope of this Directive if they act for purposes relating to their own business activity and they act as the consumer’s direct counterparties for the sale of goods. It is noted that MSs remain free to extend the application of the Directive to platform providers that do not meet the requirements to qualify as “sellers”.

SALES CONTRACT: Based on the Directive, a “sales contract” means any contract under which the seller transfers or undertakes to transfer ownership of goods to a consumer, and the consumer pays or undertakes to pay the price. If the sales contract contains a service (eg installation of goods), it is up to each MS to decide whether it falls within the definition of a sales contract. The Directive does not refer to the transfer of the risk of the goods, nor to issues of breach of contract for delay in delivery. These matters are covered by Directive 2011/83/EU:

Α. Therefore, risk in respect of products shipped to the consumer is transferred to the consumer only when the consumer or a third party designated by the consumer has obtained physical possession of the goods.

Β. Regarding delivery, the goods must be delivered within 30 days of the conclusion of the contract unless the parties have agreed otherwise. If they are not delivered within said period, the consumer must give an additional period in accordance with the circumstances of the case and in case the trader does not deliver within this second period, the consumer is entitled to terminate the contract.

The goods covered by the Directive may be existing or goods to be manufactured or produced in the future and they include:

  a) any tangible movable items. It is noted that water, gas and electricity are to be considered as goods within the meaning of this Directive when they are put for sale in a limited volume or a set quantity and

  b) any tangible movable items that incorporate or are inter-connected with digital content or a digital service in such a way that the absence of that digital content or digital service would prevent the goods from performing their functions (“goods with digital elements”).

DIGITAL CONTENT: According to article 2(6) of the Directive, “digital content”, means data which are produced and supplied in digital form and may be pre-installed at the time of the contract of sale or, where the contract so provides, may be installed subsequently.

DIGITAL SERVICE:  According to article 2(7) of the Directive, «digital service» is:

  1. a service that allows the consumer to create, process, store or access data in digital form;
  2. a service that allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service.

Digital services include software provided in a cloud computing environment, the continuous provision of traffic data to a navigation system, or the continuous provision of personalized training programs in the case of a smart watch.

It is important to note that, based on Article 3(3), the Directive does not apply to contracts for the provision of digital content or digital services  except where these are provided with goods as mentioned above. Whether the provision of the digital content or digital service embedded in or interconnected with the goods forms part of the contract of sale with the seller should depend on the content of every contract. Such is the case where (a) it is expressly provided for in the contract, or (b) where a good is expected to include embedded or interconnected digital content or services, or (c) where there have been public statements by the seller or other persons at earlier stages of the transaction chain, including the producer, about such content or services.  The fact that the consumer would have to download some software to his or her phone in order for the smart watch to work makes the smart watch a “digital good” under the Directive since the application is considered an “interconnected digital item.”

In case of doubt as to whether the provision of embedded or interconnected digital content or an embedded or interconnected digital service is part of the sales contract, the digital content or digital service shall be presumed to be covered by the sales contract.

WHEN DOES THE DIRECTIVE NOT APPLY: Under Article 3(4), the Directive does not apply to:

a) any tangible medium which serves exclusively as a carrier for digital content; or

b) any goods sold by way of execution or otherwise by authority of law.

The MSs have the option to exclude from the scope of the Directive, sales contracts for second-hand goods sold at public auctions and live animals.  It should be noted that the Directive is without prejudice to national law to the extent that the relevant issues are not regulated by it, such as the legality of goods, damages and aspects of general contract law, such as the formation, validity, nullity or effects of contracts.

2. SUBSTANTIVE PROVISIONS

2.1.           Compliance of goods

According to Article 5 of the Directive, the seller is obliged to deliver to the consumer goods that comply with the requirements of the Directive. Recital 29 of the Directive states that:

«Conformity should be assessed, inter alia, by considering the purpose for which goods of the same type would normally be used, whether they are supplied with the accessories and instructions that the consumer can reasonably expect to receive or whether they correspond to the sample or model that the seller made available to the consumer. The goods should also possess the qualities and features which are normal for goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statement made by or on behalf of the seller or other persons in previous links of the chain of transactions

Compliance requirements are divided into subjective and objective requirements. It should be noted that the Directive allows sellers to offer consumers rights that go beyond those provided for in the Directive.

2.1.1.            Subjective Conformity Requirements

The subjective conformity requirements are contained in Article 6 of the Directive and relate to matters agreed between the consumer and the seller on the basis of communication between them (irrespective of how the communication was made – whether by description, instructions, dissemination of information, etc.). This article states that for goods to be considered as compliant with the terms of the sales contract, the goods must, where applicable:

 «a) be of the description, type, quantity and quality, and possess the functionality, compatibility, interoperability and other features, as required by the sales contract

b) be fit for any particular purpose for which the consumer requires them and which the consumer made known to the seller at the latest at the time of the conclusion of the sales contract, and in respect of which the seller has given acceptance

c) be delivered with all accessories and instructions, including on installation, as stipulated by the sales contract; and

d) be supplied with updates as stipulated by the sales contract.»

Furthermore, to the extent that any pre-contractual statement forming part of the sales contract contains specific information on durability, the consumer should be able to rely on it in the context of subjective compliance criteria. It is important to state that the requirements in the contract which are deemed to have been agreed include those arising from the pre-contractual information under Directive 2011/83/EU since such information forms an integral part of the contract of sale.

2.1.2.            Objective Conformity Requirements

Article 7(1) concerns the objective conformity requirements. The objective requirements are in fact implied terms of the contract which apply to all contracts for the sale of consumer goods. Under Article 7(1), the goods must:

«a) be fit for the purposes for which goods of the same type would normally be used, taking into account, where applicable, any existing Union and national law, technical standards or, in the absence of such technical standards, applicable sector-specific industry codes of conduct·

b) where applicable, be of the quality and correspond to the description of a sample or model that the seller made available to the consumer before the conclusion of the contract·

c) where applicable, be delivered along with such accessories, including packaging, installation instructions or other instructions, as the consumer may reasonably expect to receive; and

d) be of the quantity and possess the qualities and other features, including in relation to durability, functionality, compatibility and security normal for goods of the same type and which the consumer may reasonably expect given the nature of the goods and taking into account any public statement made by or on behalf of the seller, or other persons in previous links of the chain of transactions, including the producer, particularly in advertising or on labelling.

INFORMATION RELATING TO GOODS WITH DIGITAL ELEMENTS: In the case of goods with digital elements, the seller must ensure that the consumer is informed of and supplied with updates, including security updates, that are necessary to keep those goods in conformity:

«a) that the consumer may reasonably expect given the type and purpose of the goods and the digital elements, and taking into account the circumstances and nature of the contract, where the sales contract provides for a single act of supply of the digital content or digital service; or

b) indicated in Article 10(2) or (5), as applicable, where the sales contract provides for a continuous supply of the digital content or digital service over a period of time.»

It is noted that, where the consumer fails to install updates supplied in accordance with paragraph 3 within a reasonable time, the seller is not liable for any lack of conformity resulting solely from the non-installation or defective installation of the relevant update, provided that:

«a) the seller informed the consumer about the availability of the update and the consequences of the failure of the consumer to install it; and

 b) the failure of the consumer to install or the incorrect installation by the consumer of the update was not due to shortcomings in the installation instructions provided to the consumer.»

PUBLIC STATEMENTS: Article 7(1)(d) of the Directive states that the seller is not bound by public statements if the seller proves that:

«a) the seller was not, and could not reasonably have been, aware of the public statement in question;

b) by the time of conclusion of the contract, the public statement had been corrected in the same way as, or in a way comparable to how, it had been made; or

c) the decision to buy the goods could not have been influenced by the public statement

EXCLUSION OF LIABILITY: According to Article 7(5) of the Directive, the seller is allowed to inform the consumer specifically that a particular characteristic of the goods deviated from the objective conformity requirements. Article 7(5) states that:

«There shall be no lack of conformity within the meaning of paragraph 1 or 3 if, at the time of the conclusion of the sales contract, the consumer was specifically informed that a particular characteristic of the goods was deviating from the objective requirements for conformity laid down in paragraph 1 or 3 and the consumer expressly and separately accepted that deviation when concluding the sales contract.»

2.1.3.            Incorrect Installation of the goods

As a general rule, the seller is not liable for the installation of goods except where this has been agreed. If this has been agreed, but due to the defective installation of the goods there is a lack of conformity, the seller is liable.  Furthermore, any lack of conformity resulting from:

«…the incorrect installation of the digital content or digital service incorporated in or inter-connected with the goods, should be regarded as a lack of conformity, where the installation was performed by the seller or under the seller’s control

Where the installation was carried out by the consumer and the goods show a lack of conformity due to shortcomings in the installation instructions provided by the seller or, in the case of goods with digital elements, by the seller or by the provider of the digital content or service, then the seller is also liable.

2.1.4.            Third-Party Rights

Where a restriction resulting from a violation of any right of a third party, in particular intellectual property rights, prevents or limits the use of the goods according to the contract, MSs ensure that in such cases the consumer is entitled to the remedies for lack of conformity provided for in Article 13, unless national law provides for the nullity or rescission of the sales contract in such cases.

2.2.           Period of the Seller’s Liability

PERIOD OF LIABILITY: Based on Article 10(1) of the Directive, the seller shall be liable to the consumer for any lack of conformity which exists at the time when the goods were delivered and which becomes apparent within two years of that time. The same applies in relation to goods with digital elements, but there is no reference to whether the 2-year period starts to run from the day the digital elements or the service is loaded onto the goods. However, it appears from recital 39 of the Directive that the supply of goods with digital content is deemed to take place when the physical elements of the goods have been delivered and the individual act of supplying the digital content or service has been carried out or the continuous supply of the digital content or service over a period of time has begun.

It is noted that where the contract provides for the continuous provision of digital content or service for more than two years, the seller is liable for any non-compliance of the digital content or service that arises or becomes apparent within the period during which the digital content or service must be provided under the sales contract.  This means that account is taken of the period of time during which the consumer can reasonably expect to receive updates taking into account the circumstances and the nature of the sales contract.  According to recital 36 of the Directive.:

«…A consumer would normally expect to receive updates for at least as long as the period during which the seller is liable for a lack of conformity, while in some cases the consumer’s reasonable expectation could extend beyond that period, as might be the case particularly with regard to security updates. In other cases, for instance as regards goods with digital elements the purpose of which is limited in time, the seller’s obligation to provide updates would normally be limited to that time

INSTALLATION: If the goods are installed by the seller without the consumer being able to use the goods or detect the defect before installation, delivery is deemed to have taken place after installation has been completed.

USED GOODS: The same liability period applies to second-hand goods unless the MSs decide that this period can be shorter than two years – provided that it is not shorter than one year. It is noted that the liability period may be extended by the MSs without any limitation.

2.3.           Remedies for lack of conformity

There are various ways in which the seller is obliged to provide a remedy to the consumer in case of non-compliance of the goods. Article 13(1) firstly mentions restoration of the conformity of the goods, secondly, reduction of the price and thirdly, termination of the contract in accordance with the terms of Article 13.

RIGHT OF WITHHOLDING PAYMENT: Before exercising the above rights, the consumer is entitled to the right to withhold the balance of the price or part of it until the seller has fulfilled his obligations under the Directive. Member States may determine the conditions and the ways in which the consumer may exercise the right of withhold payment.

2.3.1.            Restoration of Conformity

The restoration of conformity can be achieved in two ways: repair or replacement of the goods. Article 14 contains the details of these rights. According to Article 14(1), repair or replacement is carried out.:

«a) free of charge· 

b) within a reasonable period of time from the moment the seller has been informed by the consumer about the lack of conformity; And

c) without any significant inconvenience to the consumer, taking into account the nature of the goods and the purpose for which the consumer required the goods

It should be noted that although the Directive provides for the repair of the goods, it does not oblige sellers to ensure the availability of spare parts during a certain period of time.

Where the non-compliance is remedied by repair or replacement of the goods, the consumer makes the goods available to the seller and the seller recovers them at his own expense.

INSTALLATION: Special provision is made in cases where the goods have been installed in a manner consistent with their nature and purpose before the non-compliance becomes apparent under Article 14(3). In such cases:

« the obligation to repair or replace the goods shall include the removal of the non-conforming goods, and the installation of replacement goods or repaired goods, or bearing the costs of that removal and installation

ORDINARY USE OF GOODS: In cases where the consumer uses goods which are not in conformity with the contract, the Directive states (thereby adopting what was mentioned in Case C-404/06 – Quelle AG) that the consumer is not obliged to pay for their normal use during the period preceding their replacement.

WHEN IS RESTORATION OF CONFORMITY NOT POSSIBLE: According to Article 13(2) the restoration of conformity is not possible when:

«…the remedy chosen would be impossible or, compared to the other remedy, would impose costs on the seller that would be disproportionate, taking into account all the circumstances, including:

a) the value the goods would have if there were no lack of conformity;

b) the significance of the lack of conformity; and

c) whether the alternative means of redress could be completed without significant inconvenience to the consumer.»

For example, it may be disproportionate to require the replacement of goods because of a small mark if the replacement would incur significant costs and the mark could be easily repaired.

Under Article 13(3), repair or replacement is also impossible if the seller justifiably refuses. Such is the case where «the repair and replacement are impossible or would impose costs on the seller that would be disproportionate, taking into account all circumstances including those mentioned in points (a) and (b) of paragraph 2For example, when the goods are located in a place other than the place where they were originally delivered, the shipping and transport costs could be disproportionate for the seller.  In such a case, it does not mean that the consumer is left without a remedy – it simply means that the consumer is entitled to the other remedies which may be more beneficial to the consumer.

2.3.2.            Price Reduction

According to Article 15, the reduction of the price «is proportionate to the decrease in the value of the goods which were received by the consumer compared to the value the goods would have if they were in conformity» with the contract.

The possibility to reduce the price is available under Article 13(4) in the following cases:

«a) the seller has not completed repair or replacement or, where applicable, has not completed repair or replacement in accordance with Article 14(2) and (3), or the seller has refused to bring the goods into conformity in accordance with paragraph 3 of this Article·

b) a lack of conformity appears despite the seller having attempted to bring the goods into conformity·

c) the lack of conformity is of such a serious nature as to justify an immediate price reduction or termination of the sales contract; or ·

d) the seller has declared, or it is clear from the circumstances, that the seller will not bring the goods into conformity within a reasonable time, or without significant inconvenience for the consumer. »

Relevant to points (a) and (b) is paragraph 52 of the preamble which states the following:

«Where the seller has taken action to bring the goods into conformity but a lack of conformity becomes apparent subsequently, it should be objectively determined whether the consumer should accept further attempts by the seller to bring the goods into conformity, taking into account all the circumstances of the case, such as the type and the value of the goods, and the nature and the significance of the lack of conformity. In particular, for expensive or complex goods it could be justified to allow the seller another attempt to remedy the lack of conformity. It should also be taken into account whether the consumer can be expected to maintain confidence in the ability of the seller to bring the goods into conformity or not, for instance, due to the same problem appearing twice

In relation to point 13(4)(d), the MSs must interpret the meaning of «of reasonable time for completing repair or replacement, by providing for fixed periods that could generally be considered reasonable for repair or replacement, in particular with regard to specific categories of products»

2.3.3.            Termination of the contract.

Termination of the contract is permissible for the same reasons as those provided for a reduction of the price. Thus, the consumer may terminate the contract instead of requesting a reduction of the price except where the lack of conformity is minor.  According to Article 13(5) of the Directive, the burden of proving that the lack of conformity is minor lies with the seller.

METHOD OF EXERCISE: According to Article 16(1) of the Directive, «the consumer shall exercise the right to terminate the sales contract by means of a statement to the seller expressing the decision to terminate the sales contractAt the time the termination right is exercised, the consumer must (a) return the goods to the seller at the seller’s expense and (b) the seller must refund the price to the consumer.  MSs are free to provide for time limits for the return of the price or goods.

NON-CONFORMING GOODS: Where the non-compliance concerns only some of the goods delivered under the sales contract and there are grounds for termination, the consumer may terminate the entire sales contract if it is not reasonable to expect the consumer to agree to keep only the compliant goods.

2.3.4.            Commercial Guarantees

A positive addition to the Directive is the introduction of rules on commercial guarantees. This was because there was the potential for consumer confusion as there was no clear distinction between a legal guarantee and a commercial guarantee. The commercial guarantee is independent of and additional to the legal guarantee, the latter being automatically granted to the consumer. In the event that a person on the side of the sales chain decides to provide a commercial guarantee, this is considered to be additional to the legal guarantee.

According to the Directive, a “commercial guarantee” is:

«any undertaking by the seller or a producer (the guarantor) to the consumer, in addition to the seller’s legal obligation relating to the guarantee of conformity, to reimburse the price paid or to replace, repair or service goods in any way if they do not meet the specifications or any other requirements not related to conformity set out in the guarantee statement or in the relevant advertising available at the time of, or before the conclusion of the contract·»

According to Article 17(1) the commercial guarantee is binding on the guarantor under the conditions set out in the commercial guarantee statement and in the relevant advertisement existing at the time of or before the conclusion of the sales contract.

Where a producer provides a commercial guarantee to the consumer regarding the durability of certain goods for a certain period of time, the producer is directly liable to the consumer for the duration of the commercial guarantee regarding durability, for the repair or replacement of the goods. If advertising is more favourable than the terms of the commercial guarantee, then the producer is bound by the advertising rather than by the less favourable terms of the commercial guarantee.  This is unless prior to the conclusion of the sales contract the relevant advertisement had been corrected in the same or a similar manner to the one that took place.

WHAT IS INCLUDED: Under Article 17(2), the commercial guarantee statement is provided to the consumer on a durable medium at the time of delivery of the goods the latest.  A fixed medium is:

«any instrument which enables the consumer or the seller to store information addressed personally to that person in a way that is accessible for future reference, for a period of time adequate for the purposes of the information, and which allows the unchanged reproduction of the information stored·»

The commercial guarantee statement shall be in plain and intelligible language and shall include the following:

«a) a clear statement that the consumer is entitled by law to remedies from the seller free of charge in the event of a lack of conformity of the goods and that those remedies are not affected by the commercial guarantee;

b) the name and address of the guarantor;

c) the procedure to be followed by the consumer to obtain the implementation of the commercial guarantee;

d) the designation of the goods to which the commercial guarantee applies; and

e) the terms of the commercial guarantee

2.3.5.            Right of Redress

According to Article 18 of the Directive, if a seller is liable to a consumer for lack of conformity for which a person at an earlier stage in the transaction chain is responsible, it gives the seller the right to seek redress from the person or persons responsible in the transaction chain. Note that failure to provide updates to goods with digital data under Article 7(3) is included in the failures that give the seller the right to bring a claim against another person in the chain.

It is noted that MSs may adopt rules for allowing the consumer to act directly against against a person responsible in the transaction chain.

2.3.6.            Mandatory Nature

According to Article 21 of the Directive, any contractual agreement which, to the detriment of the consumer, excludes the application of the Directive, derogates from it or alters its effect before the lack of conformity of the goods has been brought to the seller’s attention by the consumer, is not binding on the consumer.

Based on the above article, there are two things to note. First, it is permissible for a consumer to disclaim liability later on when he becomes aware of the compliance and second, it is permissible for producers in the chain of agreements to disclaim liability to persons in that chain other than consumers. It is also recalled that under Article 7(5) of the Directive, the seller may exclude liability for breach of the objective compliance requirements when this is done by specific notification to the consumer.

2.3.7.            Examination of certain matters by the Court

Useful guidance on the examination of certain issues relating to this Directive is provided by the case law of the CJEU, which was based on the repealed Directive 1999/44/EC. Our view is that case law based on the repealed Directive 1999/44/EC, remains relevant.

SELF-EXAMINATION IF THE PURCHASER IS A CONSUMER:   According to judgment C497/13, a national court seized of a dispute concerning a contract which may fall within the scope of the repealed directive must, where it has the legal or factual elements necessary for that purpose or can obtain those elements through a simple request for clarification, ascertain whether the purchaser can be classified as a consumer within the meaning of that directive, even if the purchaser has not relied on that status.

EXAMINATION OF INFRINGEMENT OF THE DIRECTIVE ON THE COURT’S OWN MOTION: The national court is also obliged to examine on its own motion whether the provisions of the repealed directive have been infringed. This was decided in case C-32/12 and confirmed in case C 377/14:

«…it is appropriate to note that the Court has recalled on a number of occasions the obligation of national courts to examine of their own motion infringements of EU consumer protection legislation (see, to that effect, with regard to Directive 93/13, judgment of 4 June 2009 in Pannon GSM, C‑243/08EU:C:2009:350, paragraph 32; with regard to Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (OJ 1985 L 372, p. 31), judgment of 17 December 2009 in Martín Martín, C‑227/08EU:C:2009:792, paragraph 29; and, with regard to Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees…»

AWARD OF DAMAGES ON THE COURT’S OWN MOTION: It also appears that, based on the case law of the CJEU regarding the application of the Directive, the national court should on its own motion assist the consumer in cases where he claims one of the remedies provided for in the Directive but fails. In other words, the Court should check whether he can use an alternative remedy provided for by the Directive. According to Case C-32/12:

…Directive 1999/44 must be interpreted as precluding legislation of a Member State, such as that at issue in the main proceedings, which does not allow the national court hearing the dispute to grant of its own motion an appropriate reduction in the price of goods which are the subject of a contract of sale in the case where a consumer who is entitled to such a reduction brings proceedings which are limited to seeking only rescission of that contract and such rescission cannot be granted because the lack of conformity in those goods is minor, even though that consumer is not entitled to refine his initial application or to bring a fresh action to that end.”

3.          OBLIGATIONS OF MEMBER STATES

ENFORCEMENT: The MSs ensure that there are adequate and effective means to enforce the Directive, and it is acceptable for MSs to give organisations the right to take legal action in the courts to enforce national provisions transposing the Directive.  Such bodies include:

“a) public bodies or their representatives

b) consumer organisations having a legitimate interest in protecting consumers

c) professional organisations having a legitimate interest in acting.”

REPORTING OBLIGATIONS: According to Article 20 of the Directive, the MSs:

«…take appropriate measures to ensure that information on the rights of consumers under this Directive, and on the means to enforce those rights, are available to consumers»

4.          OTHER RELEVANT PROVISIONS

This Directive repealed Directive 1999/44/EC on 1 January 2022 and amended Regulation (EU) 2017/2394 and Directive 2009/22/EC.

The Directive entered into force on its publication in the Official Journal of the European Union and will be reviewed by the Commission on 12 June 2024.

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Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Misleading and comparative advertising (Directive 2006/114/EC)

Directive 2006/114/EC of the European Parliament and of the Council, of December 12, 2006, on misleading and comparative advertising (“Directive“) aims to protect traders from misleading advertising and its unfair consequences and to define the conditions under which comparative advertising is permitted. The Directive repealed Directive 84/450/EEC as it had been amended but several of the latter’s provisions remained intact – the jurisprudence of Directive 84/450/EEC therefore remains relevant

This Directive is related to Directive 2005/29/EC on unfair commercial practices, which we have already analyzed in Chapter 3, with the difference that the latter protects consumers while the former protects businesses.

LEVEL OF HARMONIZATION: The Directive is of minimal harmonization  and applies to “advertisements” which are either (1) misleading, or (2) unlawful comparative advertising, or both.

INTERPRETATION OF ADVERTISING:  Based on the Directive, advertising is interpreted as «the making of a representation in any form in connection with a trade, business, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations». The scope of the above interpretation is relatively broad, and it has been decided that even metatags consisting of keywords either embedded in website code or entered into a search engine, constitute advertising within its meaning. Likewise, using a domain name is considered advertising.

The reason it became necessary to control such advertisements is to protect against distortions of competition at EU level.

PROTECTION OF PROFESSIONALS: As mentioned above, the Directive is intended to protect professionals (i.e. traders) from misleading advertising by other businesses – i.e. it applies to B2B relationships which are considered unfair commercial practices.  This is because, in relation to consumer protection, Directive 2005/29/EC on unfair commercial practices applies. The Directive clarifies that its purpose is to protect traders from misleading advertising and its unfair consequences for them,  thus setting the minimum objective criteria for determining an advertisement as misleading.

PROTECTION OF TRADERS AND CONSUMERS:  Regarding non-permitted comparative advertising, however, the provisions of the Directive apply not only to B2B relationships but also apply to B2C relationships – that is, where a trader directs comparative advertising to consumers. The way this is achieved is through article 6(2)(a) of Directive 2005/29/EC which states that any practice which creates confusion, including through comparative advertising, with products, trademarks, trade names and other distinctive features of a competitor, is misleading. In other words, the consumer must refer to article 4 of Directive 2006/114/EC to check whether the conditions of permitted comparative advertising are met.

The provision of article 4(a) of the Directive operates in a similar way in relation to B2B transactions. That is, the article in question, which states that comparative advertising which is misleading is not allowed, essentially refers to Directive 2005/29/EC and an examination of articles 6 and 7 concerning misleading commercial practices.

Therefore, the Directive:

“… will either provide conditions for such assessment under the UCPD for B2C transactions or impose additional requirements which are relevant for traders, mainly competitors, in B2B transactions.”

MEANING OF TRADER: Based on the Directive, “trader” is any natural or legal person who is acting for purposes relating to his trade, craft, business or profession and anyone acting in the name of or on behalf of a trader.

1.   MISLEADING ADVERTISING

 INTERPRETATION:  Misleading advertising under article 4(b) is:

«… any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor»

Based on article 3, in order to assess whether an advertisement is misleading, all its features are taken into account and in particular any information concerning:

«a) the characteristics of goods or services, such as their availability, nature, execution, composition, method and date of manufacture or provision, fitness for purpose, uses, quantity, specification, geographical or commercial origin or the results to be expected from their use, or the results and material features of tests or checks carried out on the goods or services·

 

b)  the price or the manner in which the price is calculated, and the conditions on which the goods are supplied or the services provided ·

 

c) the nature, attributes and rights of the advertiser, such as his identity and assets, his qualifications and ownership of industrial, commercial or intellectual property rights or his awards and distinctions..»

2.   COMPARATIVE ADVERTISING

WHAT IS COMPARATIVE ADVERTISING:  Comparative advertising based on the Directive is «any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor ».

PERMISSIBLE COMPARATIVE ADVERTISING:  The general perception as well as the course of jurisprudence to date, including the relevant Directive, is that comparative advertising is permissible. The reason given by the CJEU and the Directive is that it contributes:

“…in the objective presentation of the advantages of various comparable products and, therefore, in stimulating competition between suppliers of goods and services for the benefit of consumers, the conditions laid down for comparative advertising must be interpreted in the most favorable way.”

Indeed, consumers’ choices are widened when they are able to differentiate between goods – through this logic, it is legitimate to compare and promote product comparison through advertising.

At the same time, however, it must be ensured that comparative advertising is not used in a manner contrary to the rules of competition and unfairly or in a manner that affects the interests of consumers. That is, such advertising should be subject to rules that ensure transparency, prevent confusion and “motivate businesses to invest in the quality and image of their products”.

INTERPRETATION:  The broad interpretation of the concept of “comparative advertising” is intended to cover all forms of comparative advertising regardless of how the comparison is viewed – that is, whether it is directly or indirectly viewed. For example, where advertising refers to a type of product (even if no specific business or product is mentioned) that refers to a competitor, it is considered comparative advertising. This applies regardless of whether the reference concerns undertakings acting in concerto – i.e. together.

COMPETITIVE RELATIONSHIP:  From the above, it follows that it is necessary for a business, to be able to prove that it is a competitor of the advertiser, before making any claims against the advertised business.

Relevant is case C-381-05 where it was decided that for a case to fall within the Directive, there must be a competitive relationship between the advertiser and the business identified in the advertising message with reference to the products (goods or services) offered – that is, the existence of a relationship between businesses depends on the finding that the products they offer have some degree of substitutability – one for the other. To determine the existence of such a competitive relationship between products, the following shall be taken into account:

  • the present state of the market and consumer habits as well as the possibilities of their evolution and the further potential for the substitution of products for one another which may be revealed by intensification of trade;
  • the part of the Community territory in which the advertising is disseminated, without, however, excluding, where appropriate, the effects which the evolution of consumer habits seen in other Member States may have on the national market at issue and
  • the particular characteristics of the product which the advertiser seeks to promote and the image which it wishes to impart to it.

CRITERIA OF COMPARATIVE ADVERTISING:  However, in order to allow comparative advertising, the following conditions must be cumulatively fulfilled in their entirety:

«a) it is not misleading within the meaning of Articles 2(b), 3 and 8(1) of this Directive or Articles 6 and 7 of Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (‘Unfair Commercial Practices Directive’) (7);.

 

b)  it compares goods or services meeting the same needs or intended for the same purpose;

 

c)  it objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price;

 

d)  it does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities or circumstances of a competitor;

 

e)  for products with designation of origin, it relates in each case to products with the same designation;

 

f)  it does not take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products;

 

g)  it does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name;

 

h)  it does not create confusion among traders, between the advertiser and a competitor or between the advertiser’s trade marks, trade names, other distinguishing marks, goods or services and those of a competitor..»

OBJECTIVITY:  An interesting case in the field of comparative advertising and the way objectivity is examined in relation to article 4(c) of the Directive, is case C-562/15 Carrefour Hypermarchés. In that case, Carrefour company (which operates various stores – including hypermarkets, supermarkets and other smaller stores), launched a television advertising campaign entitled “Lower Price Guarantee” in which it quoted comparative prices of other competing chains and offered consumers as refund, double the price difference in the event that they found any of the specific products at a lower price in a store other than Carrefour. What had been done, however, was that Carrefour had compared products of the Carrefour supermarket (and not of its smaller stores) with the smaller chain stores of its competitors – with the result that the price of Carrefour products was clearly lower.

Examining the issue, the CJEU stated that, as a general rule, article 4(c) of the Directive does not require that the category or size of the stores in which the products whose prices are compared are sold be similar. Also, comparing the prices of similar products sold in stores of a different category or size is permissible and does not oppose fair competition or the interests of consumers  provided, however, that (1) the conditions of article 4 are met and (2) the advertisement compares prices objectively and is not misleading.

Where, however, the stores whose prices have been obtained are members of chains each of which has a range of stores of different sizes and categories, and the advertiser compares the prices of stores of a larger size or higher category in his chain with those recorded in stores of a smaller size or lower category of competitive chains, without this element appearing in the advertisement, this may distort objectivity.

Similarly, an objective comparison cannot be made where, what is being compared is price, while the products being compared have different qualities without these qualities being mentioned in the advertisement.

MISLEADING ADVERTISING:  Regarding article 4(a) of the Directive, the CJEU decided that comparative advertising is misleading where, in any way, by act or omission, it misleads consumers it is addressed to and influences their economic behaviour or, for these reasons, it harms a competitor.  It is important to mention that, although the CJEU recognized that under article 7 of Directive 2005/29/EC, restrictions on the medium in which the advertisement is shown may be taken into account for whether there is a misleading omission, in such circumstances, these limitations did not justify the omission of essential information about store differences.  That is, the information should not only be clear, but should also be included in the advertising medium itself.

DESIGNATION OF ORIGIN:  In relation to article 4(e), and products with a designation of origin, case C-381-05 is relevant  where the question was whether beer could be compared to champagne. It was decided that for products that do not have a designation of origin, any comparison with products that have a designation of origin is not prohibited.

TRADEMARKS:  With reference to article 4(d) and (f) – (h) and the use of trademarks, it should be noted that comparative advertising that makes reference to competitors’ trademarks is permissible, given that it complies with the provisions of the Directive.

However, it is impermissible (especially in relation to articles 4(f) – (h)) to use trademarks, brands or other distinguishing marks of a competitor to promote the advertiser’s products. Nor is it permissible for someone to copy a competitor’s mark and state above that the product (which the mark represents) is an imitation, since in this way he effectively usurps and unfairly benefits from the reputation of the mark.

METATAGS:  Also of interest is the use of competitor brand metatags to attract consumers to websites. Such practice may be considered trademark infringement – but is there a way for it to be considered permissible comparative advertising?

The answer seems to be negative since it is difficult for the advertiser to be able to convince that the use of competitor metatags is not misleading and/or that it is not taking unfair advantage of the competitor’s trademark.

3.   ROLE OF MEMBER STATES

Based on article 5 of the Directive MSs should provide appropriate and effective means to combat misleading advertising and enforce compliance with the provisions on comparative advertising in the interest of traders and competitors. Such means include:

  • Right to take legal action against the said advertisement or
  • File a complaint against the advertisement before an administrative authority which is competent to either decide on the complaint or refer the matter to the competent court.

EXERCISE OF RIGHTS BY ORGANIZATIONS: The above rights are exercised by anyone with a legal interest including organizations.

MSs may also decide that before a court or administrative body can take up a dispute, other existing means of dealing with complaints should first be resorted to, including means such as voluntary control of such advertising by independent bodies.

APPEAL BY A CODE OWNER:  Also, the MSs can decide whether appeals can be brought separately or jointly against a number of traders in the same economic sector and whether these appeals can be brought against a code owner, if the code in question promotes non-compliance with any legal provisions.  According to the Directive, a “code owner” is:

“…any entity, including a trader or group of traders, which is responsible for the formulation and revision of a code of conduct and/or for monitoring compliance with the code by those who have undertaken to be bound by it.”

The MSs, in accordance with article 5(3), are required to confer on the courts or administrative authorities powers under which they may, when they consider such measures necessary and, taking into account all the interests involved and in particular the public interest: order the cessation of misleading advertising or unauthorized comparative advertising, or initiate the appropriate legal proceedings for this purpose or, if the misleading advertisement or unauthorized comparative advertising has not yet been published, but its publication is imminent, prohibit it or initiate the relevant legal proceedings to ban this publication even if actual damage or harm, fraud or negligence on the part of the trader is not proven. Based on the same article, the MSs should ensure that the measures referred to in this paragraph can be taken within the framework of an expedited procedure, either with temporary or final effect.

In addition, in order to eliminate the continuing effects of misleading advertising or unlawful comparative advertising, the cessation of which has been ordered by a final decision, the MSs may confer on the courts or administrative authorities powers under which they may require the publication of the decision (in whole or in part in such form as they deem fit) and/or require the publication of a remedial statement.

Administrative bodies should, among other things, justify their decisions.

PROOF OF CLAIMS:  Under article 7, MSs should confer powers on courts or administrative authorities to require the advertiser to provide evidence of the accuracy of the factual claims contained in the advertisement, if deemed necessary on the basis of the data of the specific case and taking into account the legitimate interests of the advertiser and in the case of comparative advertising to require that the advertiser present these evidence in a short period of time and in the event that he does not do so or where the claims are inaccurate, then these are considered inaccurate.

RIGHTS OF MSs:  Based on article 8(1), MSs may adopt provisions which provide greater protection to traders and competitors against misleading advertising (but not comparative advertising as far as the comparison is concerned).

Σχετικά Άρθρα

Power of the Court to extend the time for referring a matter to arbitration
Conciliation Rules of the Cyprus Center for Alternative Dispute Resolution
Mediation Rules of the Cyprus Center for Alternative Dispute Resolution
Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED

Package travel and linked travel arrangements (Directive 2015/2302)

1. PURPOSE OF THE DIRECTIVE

Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 November 2015 on package travel and linked travel arrangements, amending Regulation (EC) No 2006/2004 and Directive 2011/83/EU of the European Parliament and of the Council and repealing Council Directive 90/314/EEC («Directive») aims at contributing to the proper functioning of the internal market and to the achievement of a high and as uniform as possible level of consumer protection by approximating certain aspects of the laws, regulations and administrative provisions of the Member States in respect of contracts between travellers and traders relating to package travel and linked travel arrangements

LEVEL OF HARMONIZATION: Article 4 provides that the Directive is a maximum harmonization Directive unless expressly stated otherwise in the Directive.

SCOPE: The Directive applies to packages offered for sale or sold by traders to travellers and to linked travel arrangements facilitated by traders for travellers. A “trader” is any natural person or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in his name or on his behalf, for purposes relating to his trade, business, craft or profession in relation to contracts covered by the Directive, whether acting in the capacity of organiser, retailer, trader facilitating a linked travel arrangement or as a travel service provider. In accordance with the definitions of the Directive:

  • The Organiser is a trader who combines and sells or offers for sale packages, either directly or through another trader or together with another trader, or the trader who transmits the traveller’s data to another trader in accordance with Article 3(2)(b)(v)(2).
  • A Retailer is a trader other than the organiser who sells, or offers for sale packages combined by an organiser.

A package in accordance with the Directive, means a combination of at least 2 different types of travel services for the purpose of the same trip or holiday provided that:

  • those services are combined by one trader, including at the request of or in accordance with the selection of the traveller, before a single contract on all services is concluded; or
  • irrespective of whether separate contracts are concluded with individual travel service providers, those services are:
  • purchased from a single point of sale and those services have been selected before the traveller agrees to pay,
  • offered, sold or charged at an inclusive or total price,
  • advertised or sold under the term ‘package’ or under a similar term,
  • combined after the conclusion of a contract by which a trader entitles the traveller to choose among a selection of different types of travel services, or
  • purchased from separate traders through linked online booking processes where the traveller’s name, payment details and e-mail address are transmitted from the trader with whom the first contract is concluded to another trader or traders and a contract with the latter trader or traders is concluded at the latest 24 hours after the confirmation of the booking of the first travel service.

In relation to the definition of “travel service”, in accordance with Article 3(1), this may be either of the following:

  • carriage of passengers;
  • accommodation which is not intrinsically part of carriage of passengers and is not for residential purposes;
  • rental of cars, other motor vehicles within the meaning of Article 3(11) of Directive 2007/46/EC of the European Parliament and of the Council (16), or motorcycles requiring a Category A driving licence in accordance with point (c) of Article 4(3) of Directive 2006/126/EC of the European Parliament and of the Council (17);
  • any other tourist service not intrinsically part of a travel service within the meaning of points (a), (b) or (c);

In case the combination of travel services where not more than one type of travel service is combined with one or more tourist services as referred to in Article 3(1)(d) this is not a package in case the services of Article 3(1)(d):

(a) do not account for a significant proportion of the value of the combination and are not advertised as and do not otherwise represent an essential feature of the combination; or
(b) are selected and purchased only after the performance of a travel service as referred to in point 3(1)(a),(b) or (c) of point 1 has started;

 

PACKAGE TRAVEL CONTRACT: In accordance with the Directive, a package travel contract, is a contract on the package as a whole or, if the package is provided under separate contracts, all contracts covering travel services included in the package. In accordance with judgement C-400/00 the term covers trips which are organised by a travel agent following the request of and in accordance with the specifications of a consumer or limited group of consumers.

LINKED TRAVEL ARRANGEMENT: It is important to note that the Directive covers, in addition to packages, linked travel arrangements. Article 3(5) of the Directive interprets a linked travel arrangement as at least two different types of travel services purchased for the purpose of the same trip or holiday, not constituting a package, resulting in the conclusion of separate contracts with the individual travel service providers, if a trader facilitates:

(a) on the occasion of a single visit or contact with his point of sale, the separate selection and separate payment of each travel service by travellers; or

 

(b) in a targeted manner, the procurement of at least one additional travel service from another trader where a contract with such other trader is concluded at the latest 24 hours after the confirmation of the booking of the first travel service.

Where not more than one type of travel service as referred to in Article 3(1)(a),(b) or (c) and one or more tourist services as referred to in Article 3(1)(d) are purchased, they do not constitute a linked travel arrangement if the latter services do not account for a significant proportion of the combined value of the services and are not advertised as, and do not otherwise represent, an essential feature of the trip or holiday.

WHERE THE DIRECTIVE DOES NOT APPLY: According to Article 2(2), the Directive does not apply in the following circumstances:

(a) packages and linked travel arrangements covering a period of less than 24 hours unless overnight accommodation is included;

 

(b) packages offered, and linked travel arrangements facilitated, occasionally and on a not-for-profit basis and only to a limited group of travellers;

 

(c) packages and linked travel arrangements purchased on the basis of a general agreement for the arrangement of business travel between a trader and another natural or legal person who is acting for purposes relating to his trade, business, craft or profession.

NATIONAL LAW: National law which relates to the rules of validity, formation or effect of a contract do not affect the Directive (Article 2(3)).

IMPERATIVE NATURE OF THE DIRECTIVE: Article 23 states that the nature of the Directive is imperative and a declaration by an organiser of a package or a trader facilitating a linked travel arrangement that he is acting exclusively as a travel service provider, as an intermediary or in any other capacity, or that a package or a linked travel arrangement does not constitute a package or a linked travel arrangement, shall not absolve that organiser or trader from the obligations imposed on them under this Directive. Also travellers may not waive the rights conferred on them by the national measures transposing this Directive.

 

2. SUBSTANTIVE PROVISIONS

2.1.                PROVISION OF INFORMATION

2.1.1.                     INFORMATION PRIOR TO THE CONCLUSION OF THE CONTRACT

By Article 5, the organiser and, where the package is sold through a retailer, also the retailer must provide the traveller with the standard information by means of the relevant form as set out in Part A or Part B of Annex I, in a clear, comprehensible and prominent manner:

(a) the main characteristics of the travel services:

(i) the travel destination(s), itinerary and periods of stay, with dates and, where accommodation is included, the number of nights included;

 

(ii) the means, characteristics and categories of transport, the points, dates and time of departure and return, the duration and places of intermediate stops and transport connections.

Where the exact time is not yet determined, the organiser and, where applicable, the retailer shall inform the traveller of the approximate time of departure and return;

 

(iii) the location, main features and, where applicable, tourist category of the accommodation under the rules of the country of destination;

 

(iv) the meal plan;

 

(v) visits, excursion(s) or other services included in the total price agreed for the package;

 

(vi) where it is not apparent from the context, whether any of the travel services will be provided to the traveller as part of a group and, if so, where possible, the approximate size of the group;

 

(vii) where the traveller’s benefit from other tourist services depends on effective oral communication, the language in which those services will be carried out; and

 

(viii) whether the trip or holiday is generally suitable for persons with reduced mobility and, upon the traveller’s request, precise information on the suitability of the trip or holiday taking into account the traveller’s needs;

 

(b) the trading name and geographical address of the organiser and, where applicable, of the retailer, as well as their telephone number and, where applicable, e-mail address;

 

(c) the total price of the package inclusive of taxes and, where applicable, of all additional fees, charges and other costs or, where those costs cannot reasonably be calculated in advance of the conclusion of the contract, an indication of the type of additional costs which the traveller may still have to bear;

 

(d) the arrangements for payment, including any amount or percentage of the price which is to be paid as a down payment and the timetable for payment of the balance, or financial guarantees to be paid or provided by the traveller;

 

(e) the minimum number of persons required for the package to take place and the time-limit, referred to in point (a) of Article 12(3), before the start of the package for the possible termination of the contract if that number is not reached;

 

(f) general information on passport and visa requirements, including approximate periods for obtaining visas and information on health formalities, of the country of destination;

 

(g) information that the traveller may terminate the contract at any time before the start of the package in return for payment of an appropriate termination fee, or, where applicable, the standardised termination fees requested by the organiser, in accordance with Article 12(1);

 

(h) information on optional or compulsory insurance to cover the cost of termination of the contract by the traveller or the cost of assistance, including repatriation, in the event of accident, illness or death.

 

Under the provisions of the Directive, for travel contracts concluded by telephone, the organiser, and where applicable, the retailer must provide the traveller with the standard information set out in Part B of Annex I, and the information set out in Article 5(1)(a) to (h).

Based on Article 5(2), where the package is of the type mentioned in Article 3(2)(b)(v), the organiser and the trader to whom the data are transmitted ensures that each of them provides, before the traveller is bound by a contract or any corresponding offer, the information set out in Article 5(1)(a) to (h) depending on the respective travel services they offer. The organiser also provides, at the same time, the standard information by means of the form set out in Part C of Annex I.

In accordance with Article 6(1), the organiser, and where applicable, the retailer shall communicate all changes to the pre-contractual information to the traveller in a clear, comprehensible and prominent manner before the conclusion of the package travel contract.

Where the organiser and, where applicable, the retailer has not complied with the information (as stated in Article 5(1)(c)) then Article 6(2) states that the traveller shall not bear those fees, charges or other costs.

BURDEN OF PROOF: The burden of proof that the information requirements have been complied with, is on the trader.

 

2.1.2.                     OTHER INFORMATION REQUIREMENTS CONNECTED WITH THE ORGANISED TRAVEL ARRANGEMENT

MANDATORY CHARACTER OF THE INFORMATION: According to Article 6(1), the information of Article 5(1)(a),(c),(d),(e) and (g) form an integral part of the package travel contract and cannot be altered unless the contracting parties expressly agree otherwise.

COPY OF THE CONTRACT AND REQUIREMENTS: Article 7(1) states that package travel contracts are in plain and intelligible language and, in so far as they are in writing, legible. At the conclusion of the package travel contract or without undue delay thereafter, the organiser or retailer shall provide the traveller with a copy or confirmation of the contract on a durable medium.

The traveller is entitled to request a paper copy if the package travel contract has been concluded in the simultaneous physical presence of the parties. In relation to off-premises contracts, a copy or confirmation of the package travel contract must be provided to the traveller on paper or, if the traveller agrees, on another durable medium.

By Article 7(2), the contract also includes the information of Article 5(1)(a) to (h) as well as the following information:

(a) special requirements of the traveller which the organiser has accepted;

 

(b) information that the organiser is:

(i) responsible for the proper performance of all travel services included in the contract in accordance with Article 13; and
(ii) obliged to provide assistance if the traveller is in difficulty in accordance with Article 16;
(c) the name of the entity in charge of the insolvency protection and its contact details, including its geographical address, and, where applicable, the name of the competent authority designated by the Member State concerned for that purpose and its contact details;
(d) the name, address, telephone number, e-mail address and, where applicable, the fax number of the organiser’s local representative, of a contact point or of another service which enables the traveller to contact the organiser quickly and communicate with him efficiently, to request assistance when the traveller is in difficulty or to complain about any lack of conformity perceived during the performance of the package;
(e) information that the traveller is required to communicate any lack of conformity which he perceives during the performance of the package in accordance with Article 13(2);
(f) where minors, unaccompanied by a parent or another authorised person, travel on the basis of a package travel contract which includes accommodation, information enabling direct contact with the minor or the person responsible for the minor at the minor’s place of stay;
(g) information on available in-house complaint handling procedures and on alternative dispute resolution (‘ADR’) mechanisms pursuant to Directive 2013/11/EU of the European Parliament and of the Council (18), and, where applicable, on the ADR entity by which the trader is covered and on the online dispute resolution platform pursuant to Regulation (EU) No 524/2013 of the European Parliament and of the Council (19);
(h) information on the traveller’s right to transfer the contract to another traveller in accordance with Article 9.

Article 7(3) states that where the package is of a type mentioned in Article 3(2)(b)(v), the trader shall inform the organiser of the conclusion of the contract leading to the creation of a package. The trader must also provide the organiser with the information necessary to comply with his obligations as an organiser. As soon as the organiser is informed that a package has been created, the organiser shall provide to the traveller the information referred to in Article 7(2)(a) to (h) on a durable medium.

INFORMATION TO BE PROVIDED PRIOR TO THE START OF THE PACKAGE: Article 7(5), states that prior to the start of the package, the organiser must provide the traveller with the necessary receipts, vouchers and tickets, information on the scheduled times of departure and, where applicable, the deadline for check-in, as well as the scheduled times for intermediate stops, transport connections and arrival.

BURDEN OF PROOF: The burden of proof that the information requirements have been complied with, is on the trader.

2.2.                OTHER OBLIGATIONS

2.2.1.                     CHANGES TO THE CONTRACT PRIOR TO THE START OF THE PACKAGE

TRANSFER OF THE PACKAGE TRAVEL CONTRACT TO ANOTHER TRAVELLER: According to Article 9, a traveller (“the transferor”) who gives reasonable notice prior to the start of the package (7 days are considered reasonable) in a durable medium that they will transfer the package travel contract to another person (“the transferee”), may do so provided that the transferee satisfies all the conditions applicable to that contract.

The organiser must then provide the transferor with proof of the additional fees, charges or other costs arising from the transfer of the package travel contract provided that these are reasonable and do not exceed the actual cost incurred by the organiser due to the transfer of the package travel contract.

Article 9(2) creates a joint and several obligation on the transferor and transferee for the balance due, and for any additional fees, charges or other costs arising from the transfer.

ALTERATION OF THE PRICE: Article 10 gives the right to increase the price only where the traveller has a parallel right of decrease. An increase in the price is possible only when the increase is a direct consequence of changes in:

(a) the price of the carriage of passengers resulting from the cost of fuel or other power sources;
(b) the level of taxes or fees on the travel services included in the contract imposed by third parties not directly involved in the performance of the package, including tourist taxes, landing taxes or embarkation or disembarkation fees at ports and airports; or
(c) the exchange rates relevant to the package.

Also, in the case of an increase in the total price of the package of more than 8%, then the provisions of Article 11(2) and (5) of the Directive apply which provide for the modification of the terms of the contract (supra next 2 paragraphs).

The price increase shall be possible only if the organiser notifies the traveller clearly and comprehensibly of it with a justification for that increase and a calculation, on a durable medium at the latest 20 days before the start of the package.

In accordance with Article 10(5), in case of a price reduction, the organiser shall have the right to deduct actual administrative expenses from the refund owed to the traveller. At the traveller’s request, the organiser shall provide proof of those administrative expenses.

ALTERATION OF OTHER PACKAGE TRAVEL CONTRACT TERMS: Article 11(1) states that the organiser may not unilaterally change package travel contract terms unless (a)
the organiser has reserved that right in the contract; (b) the change is insignificant; and (c) the organiser informs the traveller of the change in a clear, comprehensible and prominent manner on a durable medium.

Articles 11(2) and 11(5) states that whenever an organiser prior to the start of the package is constrained to alter significantly any of the main characteristics of the travel services as referred to in Article 5(1)(a) or cannot fulfil the special requirements as referred to Article 7(2)(a), or proposes to increase the price of the package by more than 8 %, the traveller may within a reasonable period specified by the organiser:

(a) accept the proposed change; or

 

(b) terminate the contract without paying a termination fee.

If the package travel contract is terminated and the traveller does not accept a substitute package, the organiser shall refund all payments made by or on behalf of the traveller without undue delay and in any event not later than 14 days after the contract is terminated. (Article 11(5))

The organiser, in case of changes in the terms, must without undue delay inform the traveller in a clear, comprehensible and prominent manner on a durable medium of:

(a) the proposed changes and their impact on the price of the package;

 

(b) a reasonable period within which the traveller has to inform the organiser of his decision to accept a change or terminate the contract (and/or select another package);

 

(c) the consequences of the traveller’s failure to respond within the period referred to point (b), in accordance with applicable national law; and

 

(d) where applicable, the offered substitute package and its price.

In case the changes to the travel package result in a package of lower quality or cost, the traveller shall be entitled to an appropriate price reduction.

Finally, and in accordance with Article 11(5), in case that the consumer terminates the contract due to a change in its terms where the change is significant and in case the consumer does not accept another package, then the organiser must refund all payments made by or on behalf of the traveller without undue delay and in any event not later than 14 days after the contract is terminated.

TERMINATION OF THE CONTRACT:

  • FROM THE TRAVELLER: In accordance with Article 12, the traveller may terminate the package travel contract at any time before the start of the package. Where the traveller terminates the package travel contract under this paragraph, the traveller may be required to pay an appropriate and justifiable termination fee to the organiser. The package travel contract may specify reasonable standardised termination fees based on the time of the termination of the contract before the start of the package and the expected cost savings and income from alternative deployment of the travel services. In the absence of standardised termination fees, the amount of the termination fee must correspond to the price of the package minus the cost savings and income from alternative deployment of the travel services. At the traveller’s request the organiser shall provide a justification for the amount of the termination fees.

The only case where a charge cannot be imposed on the traveller, is in the case of unavoidable and extraordinary circumstances occurring at the place of destination or its immediate vicinity and significantly affecting the performance of the package, or which significantly affect the carriage of passengers to the destination. In such a case, the traveller is entitled to a full refund of any payments made for the package, but shall not be entitled to additional compensation.

  • FROM THE ORGANISER: The Organiser also has the right to terminate the package travel contract and provide the traveller with a full refund of any payments made for the package in case the former is prevented from performing the contract because of unavoidable and extraordinary circumstances. In such case the organiser must notify the traveller of the termination of the contract without undue delay before the start of the package.
  • In the case of contracts with a minimum number of passengers, the organiser must notify the traveller of the termination of the contract within the period fixed in the contract, but not later than:
(i) 20 days before the start of the package in the case of trips lasting more than six days;

 

(ii) seven days before the start of the package in the case of trips lasting between two and six days;

 

(iii) 48 hours before the start of the package in the case of trips lasting less than two days;

 

In the abovementioned cases, the organiser must provide the traveller with a full refund of any payments made for the package but is not liable for additional compensation.

RIGHT OF WITHDRAWAL: The only case where a genuine right of withdrawal is mentioned is Article 12(5). The Article is not mandatory in nature but it states that:

“With respect to off-premises contracts, Member States may provide in their national law that the traveller has the right to withdraw from the package travel contract within a period of 14 days without giving any reason.”

2.2.2.                     PERFORMANCE OF THE PACKAGE

PERFORMANCE OF THE PACKAGE: By virtue of Article 13, the Member States ensure that the organiser is responsible for the performance of the travel services included in the package travel contract, irrespective of whether those services are to be performed by the organiser or by other travel service providers. Also, Member States may maintain or introduce in their national law provisions under which the retailer is also responsible for the performance of the package. In such case, Article 7 and 9-12 apply to the retailer.

TRAVELLER LIABILITY: According to Article 13(2) the traveller must inform the organiser immediately (without undue delay) in relation to any lack of conformity which he perceives during the performance of a travel service included in the package travel contract.

ORGANISER LIABILITY: In such a case, the organiser must remedy the lack of conformity, unless that is impossible or it entails disproportionate costs, taking into account the extent of the lack of conformity and the value of the travel services affected. In the last two instances, Article 14 applies. Otherwise, Article 13(4) is applicable which states that:

“if the organiser does not remedy the lack of conformity within a reasonable period set by the traveller, the traveller may do so himself and request reimbursement of the necessary expenses. It shall not be necessary for the traveller to specify a time-limit if the organiser refuses to remedy the lack of conformity or if immediate remedy is required.”

OTHER OBLIGATIONS: In accordance with Article 13(5), when a large number of a significant proportion of the travel services cannot be provided as agreed in the package travel contract, the organiser must offer, at no extra cost to the traveller, suitable alternative arrangements of equivalent or higher quality than those specified in the contract (if that is possible), for the continuation of the package, including where the traveller’s return to the place of departure is not provided as agreed. Where this results in a package of lower quality than that specified in the package travel contract, the organiser shall grant the traveller an appropriate price reduction.

The traveller reserves the right to reject the proposed alternative arrangements only if they are not comparable to what was agreed in the package travel contract or the price reduction granted is inadequate.

In the cases where the lack of conformity substantially affects the performance of the package and the organiser has failed to remedy it within a reasonable period set by the traveller, the traveller may terminate the package travel contract without paying a termination fee and, where appropriate, request, in accordance with Article 14, price reduction and/or compensation for damages.

Where the traveller rejects the proposed alternative arrangements or where the alternative arrangement is impossible, the traveller is allowed to a price reduction and/or compensation in accordance with Article 14 without terminating the package travel contract.

If the package includes the carriage of passengers, the organiser shall, in the cases referred to in the first and second subparagraphs, also provide repatriation of the traveller with equivalent transport without undue delay and at no extra cost to the traveller.

IMPOSSIBILITY OF RETURN: According to Article 13(7):

“If it is impossible to ensure the traveller’s return as agreed in the package travel contract because of unavoidable and extraordinary circumstances, the organiser shall bear the cost of necessary accommodation, if possible of equivalent category, for a period not exceeding three nights per traveller. Where longer periods are provided for in Union passenger rights legislation applicable to the relevant means of transport for the traveller’s return, those periods shall apply”

Article 13(7) does not apply to persons with reduced mobility, and any person accompanying them, pregnant women and unaccompanied minors, as well as persons in need of specific medical assistance, provided that the organiser has been notified of their particular needs at least 48 hours before the start of the package.

REDUCTION OF THE PRICE AND COMPENSATION: Article 14, provides for a reduction in the price and the compensation allowed by the consumer. The Member States shall ensure that the traveller is entitled to an appropriate price reduction for any period during which there was a lack of conformity, unless the organiser proves that the lack of conformity (a) is attributable to the traveller or (b) attributable to a third party unconnected with the provision of the travel services included in the package travel contract and is unforeseeable or unavoidable or (c) is due to unavoidable and extraordinary circumstances.

Where the lack of conformity is due to the fault of the organiser, then, under Article 14(2), the traveller shall be entitled to receive appropriate compensation from the organiser for any damage which the traveller sustains as a result of any lack of conformity. The compensation is made without undue delay.

In accordance with the case law of the ECJ, Article 14 allows the consumer the right to be compensated for any moral damage which is due to the lack of conformity or non execution of the organised trip from the organiser or the trader.[1]

According to Article 14(6), the limitation period for introducing claims under this Article must not be less than two years.

OBLIGATION OF THE ORGANSIER TO PROVIDE ASSISTANCE: Article 16 states that Member States ensure that the organiser gives appropriate assistance without undue delay to the traveller in difficulty, in the following ways:

(a) providing appropriate information on health services, local authorities and consular assistance; and

 

(b) assisting the traveller to make distance communications and helping the traveller to find alternative travel arrangements.

 

The same Article states that the organiser shall be able to charge a reasonable fee for such assistance if the difficulty is caused intentionally by the traveller or through the traveller’s negligence. It is to be noted however that such fee must not exceed the actual costs incurred by the organiser.

COMPLAINT MADE TO THE RETAILER: Article 15 states that Member States ensure that the traveller may address messages, requests or complaints in relation to the performance of the package directly to the retailer through which it was purchased. The retailer shall forward those messages, requests or complaints to the organiser without undue delay.

For the purpose of compliance with time-limits or limitation periods, receipt of the messages, requests or complaints referred to in the first subparagraph by the retailer shall be considered as receipt by the organiser.

2.2.3.                     INSOLVENCY PROTECTION

INSOLVENCY PROTECTION: Articles 17 and 18 refer to the protection of the traveller in the case where the organiser becomes insolvent.

Article 17 states that Member States ensure that organisers established in their territory provide security for the refund of all payments made by or on behalf of travellers insofar as the relevant services are not performed as a consequence of the organiser’s insolvency. If the carriage of passengers is included in the package travel contract, organisers shall also provide security for the travellers’ repatriation.

In case organisers are not established in a Member State but sell or offer for sale packages in a Member State, or they, by any means direct such activities to a Member State, they shall be obliged to provide the security in accordance with the law of that Member State.

NATURE OF THE GUARANTEE: According to case C-134/11, the scope of application of Article 17, includes the case where the insolvency of the organiser is also attributable to its own fraudulent behaviour.[2]

SCOPE OF THE GUARANTEE: The guarantee of Article 17(2) covers all costs which are  reasonably foreseeable and it also covers the amounts of payments made by or on behalf of travellers in respect of packages, taking into account the length of the period between down payments and final payments and the completion of the packages, as well as the estimated cost for repatriations in the event of the organiser’s insolvency.

Also, Article 17(3) states that regardless of the place of residence of the traveller, the place of departure or where the package is sold and irrespective of the Member State where the entity in charge of the insolvency protection is located, the traveller is offered with the same protection in relation to insolvency. It should be noted that the guarantee must cover the accommodation of the traveller prior to repatriation as well as any refunds for travel services which have not been performed without undue delay after the traveller’s request.

Article 18(1) states that Member States shall recognise as meeting the requirements laid down in the Directive when an organiser provides such measures.

In relation to traders who facilitate linked travel arrangements, Article 19 states that they must provide security or the refund of all payments they receive from travellers insofar as a travel service which is part of a linked travel arrangement is not performed as a consequence of their insolvency. If such traders are the party responsible for the carriage of passengers, the security shall also cover the traveller’s repatriation. It is also important to note that the trader who facilitates linked travel arrangement is always responsible to inform the traveller that he:

(a) will not benefit from any of the rights applying exclusively to packages under this Directive and that each service provider will be solely responsible for the proper contractual performance of his service; and

 

(b) will benefit from insolvency protection.

In case that the trader does not do so, then the rights and obligations mentioned in Articles 9 and 12 as well as Article 13 to 16 apply.

Finally, in accordance with Article 19(4), a linked travel arrangement is the result of the conclusion of a contract between a traveller and a trader who does not facilitate the linked travel arrangement, that trader shall inform the trader facilitating the linked travel arrangement of the conclusion of the relevant contract.

3. OTHER GENERAL PROVISIONS

WHEN THE ORGANISER IS OUTSIDE THE EEA: In accordance with Article 20, where the organiser is established outside the European Economic Area, the retailer established in a Member State shall be subject to the obligations laid down for organisers in Chapters IV and V (i.e. Articles 13 to 18), unless the retailer provides evidence that the organiser complies with those Chapters.

LIABILITY FOR BOOKING ERRORS: By Article 21, a trader who has agreed to arrange the booking of a package or of travel services which are part of linked travel arrangements, he shall be responsible for the errors made during the booking process.

RIGHT OF REDRESS: Article 22 states that where an organiser or a retailer pays compensation, grants price reduction or meets the other obligations incumbent on him under the Directive, Member States shall ensure that the organiser or retailer has the right to seek redress from any third parties which contributed to the event triggering compensation, price reduction or other obligations.

4. OBLIGATIONS OF MEMBER STATES

In accordance with Article 25, Member States take all necessary measures to lay down and implement rules on penalties applicable to infringements of national provisions adopted pursuant the Directive. The penalties provided for shall be effective, proportionate and dissuasive.

 

5. OTHER RELEVANT PROVISIONS

In accordance with Article 27, Regulation (EC) No 2006/2004 is amended and in accordance with Article 29 Directive 90/314/EEC is repealed with effect from 1 July 2018.

[1] C-168/00 – Simone Leitner v. TUI Deutschland GmbH & Co. KG

[2]  C-134/11 Jürgen Blödel-Pawlik v. HanseMerkur Reiseversicherung AG

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Evripides Hadjinestoros Lawyer
Evripides is a partner at a law firm and the founder of the Cyprus Center for Alternative Dispute Resolution. After completing his law degree, LLB at the Queen Mary University of London in 2009, he completed his master's degree in LLM corporate law at University College London. He graduated with Distinction. In 2016, Evripides published the book "Sale of Goods and Consumer Protection in Cyprus". He has taught and teaches extensively on issues related to commercial and consumer law at the European University of Cyprus.
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