“So long as the European Commission believes that freedom of contract is the preferred solution, it should do what all sound regulators do to achieve that goal; step out of the limelight as quickly as possible”.
This essay focuses on the above statement with reference to the CJEU’s recent developments on consumer contracts.
The principle of freedom of contract gives traders and consumers opportunities to set terms and conditions for their business relationships. However, consumers need protection from this principle. The Principle of the European Contract Law notes that freedom of contract depends on “requirements of good faith, fair dealing and mandatory rules established under these principles” (Storme, 2005). Therefore, national laws must guide consumers and traders so that they can know terms, which can favour their relationships. This guarantees that there is no inequality in their bargaining power and ensures maximum protection for the consumer who, in most cases, lacks expertise in the field or ignore such terms.
There are restraints to the freedom of contract among the European Union states. Restriction results from the need to protect interests of the society, capital markets, and the environment. Therefore, issues emerge between the need for freedom of contract and its restriction.
The European Union member countries derive their consumer laws from different sources. For instance, the UK consumer law comes from different forms of Acts and other regulations. This results into complex and confusing consumer laws in the UK. Consequently, there is a need to clarify and strengthen such laws. The complexity that exists in the domestic consumer law creates the need to reinforce freedom of contract among the EU member states.
According to the European Commission (EC), the solutions to such complex systems are in the freedom of contract. This is because most rules in various countries limit freedom of contract. Thus, harmonisation is effective in overcoming such barriers.
We can begin by looking at functions of freedom of contract. Freedom of contract may restrict activities and autonomy of parties to impose certain actions. At the same time, it creates opportunities for parties to adopt certain forms of behaviours, which promote trade between parties (Rutgers, 2009). In other words, it creates opportunities for contract to take place. Contract helps in protecting interests of both parties.
Freedom of contract creates conditions for the market to function effectively. Freedom of contract provides opportunities for fair competitions in the market. In this case, there should also be some forms of competition laws to allow new entrants gain access to existing markets. Thus, competition law favours freedom of contract.
According to the Court of Justice of the European Union (CJEU), there is a need for consistency and transparency in the market. For instance, in September 9, 2012, CJEU delivered rulings which required “compatibility of national rules with those of the Union law based on the law of principles of freedom, and freedom to offer services” (Clerens, 2010).
Rules may limit freedom of contract in some member states of the EU. Such restrictive rules do not encourage transparency among traders, consumers, and regulators. However, parties may not recognise some rules from other jurisdictions even if the rules are the same. In addition, rules may also be different and lack transparency. These ambiguities create situations, which limit freedom of contract in various states of the EU. Issues may arise from validity and contents of such rules. This is because such rules may apply to specific areas of the market. Some of the vague terms in such rules are responsible for poor transparency. However, such ambiguities in rules are not difficult to resolve under clear structures and common categories of rules of different states.
Therefore, the CJEU notes that member states of the EU should have a considerable margin of discretion in which national policies (monopoly for a single operator and grant of a limited number of licenses among others) work to attain their public interest objectives” (Clerens, 2010). As a result, recent activities and decisions of the CJEU have stressed the need for the margin of discretion. The Court maintained that such margins of discretion do not exonerate member states from meeting all conditions specified in the law. In this case, member states must be consistent with their practices. It also stresses the need for transparency about licensing especially where member states may have other entities in other states. The Court stresses the importance of transparency and non-discrimination in licensing.
Transparency enhances common structures. However, national laws should have their basic provisions in any contract. The important factor is the expression of such laws. This process should be transparent by aligning them with the Union law as the Court maintains a complete primacy over national laws (Clerens, 2010).
It is clear that contract terms may be unfair to the consumer (The Law Commission and The Scottish Law Commission, 2012). These commissions note that any unfair term shall not bind the consumer to the contract. However, the rest of the contract “shall continue to bind the parties if it is capable of continuing in existence without the unfair term” (The Law Commission and The Scottish Law Commission, 2012).
This argument assumes that consumers are too busy to read complex and standard terms, which parties present to them. However, consumers are rational and make good decisions if they have the right information. Some studies suggest that consumers are only rational up to certain points. This exposes consumers to exploitation by traders due to bias consumers use while approaching products. However, issues arising from individuals’ behaviours are difficult to correct. We can correct some issue through provisions of information and competition in the market. Further, consumers can also get protection from “the Consumer Protection from Unfair Trading Regulations 2008 (CPRs)” (European Commission, 2012). The CPR protects consumers from aggressive and misleading tendencies of traders. On the other hand, consumers may not gain access to any form of protection and must bear the consequences of their decisions. This implies that the CPRs may not completely protect consumers from their own actions, but the law must continue to serve its purpose of protecting consumers.
The European Commission has realised the need to empower consumers. Consequently, the Commission has adopted its strategic vision for the EU consumer policy for years to come (European Commission, 2012). This vision aims to improve the consumer’s involvement and trust in the market. The EU has built its strategic plan around four agendas with the purpose of enhancing consumer confidence through: “reinforcing consumer safety; enhancing knowledge; stepping up enforcement and securing redress; aligning consumer rights and policies to changes in society and in the economy” (European Commission, 2012). In addition, the Commission also plans to implement key areas of the agenda by 2014.
The Commission has recognised challenges consumers face in the market and with contracts. For instance, the existing laws make it difficult for consumers, traders, and law enforcement agencies to follow. Most consumers have expressed their concerns about complexity of the law. On the other hand, consumers’ advisors claim that litigation makes the law unclear. Consequently, they cannot advise their customers. These conditions create difficulties for all stakeholders in the market.
The final decision usually rests with the CJEU based on such complexities in the market and provisions in the law. This implies that CJEU may overturn the Supreme Courts’ decisions about consumer contracts. Therefore, traders using national rules, which may have unfair terms, can face serious challenges and litigation.
Given such challenges facing consumers, the EU has realised the importance of creating a strong EU consumer protection rules. In the past years, the EU has developed and adopted many rules and policies to protect its consumers and enable consumers have benefits of the expanding EU markets. First, the EU has created Product Safety Policy and Legislation. This aims at preventing exposure of consumers to unsafe products. At the same time, it also ensures that qualities of goods from the EU markets are of high qualities. Second, the EU has also developed Consumer Law. The law aims at curbing all unfair activities, unfair contract terms, and misleading advertisements. The law covers both domestic and regional issues as they aid consumers to withdraw from the contract and seek legal redress in cases of unfair contracts. Third, the EU has the Consumer Rights Directive. This law aims at enhancing consumer rights. The law specifically focuses on several rules, which consumers encounter while dealing with online contracts. The EU argues that online laws require timely and efficient implementation. For instance, in 202, the CJEU ruled that flight cancellation of insurance “cannot be included as a default setting when selling air tickets over the internet” (Brennan, 2012). According to CJEU, this may only be an optional supplement provided on an opt-in situation according to Regulation (EC) No. 1008/2008 on common rules for the operation of air services in the EU. This was the case of German consumer protection association and an air travel agent selling tickets online. The association wanted to stop the company from including cancellation of insurance as a default setting for customers booking their flights online. The German Court referred the case to CJEU. The CJEU held that optional price supplements included “costs, connected with air travel, arising from services, such as flight cancellation insurance, supplied by a party other than the air carrier, and charged to the customer by the person selling that travel, together with the air fare, as part of a total price” (Brennan, 2012).
Fourth, there is also the Services Directive to ensure that traders do not “discriminate consumers based on residence or nationality of consumers” (European Commission, 2012). Fifth, Competition Rules give the EU opportunities to control dominant market leaders who abuse their positions. In addition, the rules apply to cartels and other practices, which have negative impacts on consumers.
The EU has also focuses on some specific sectors important to consumers. For instance, the EU requires that consumers gain access to quality transportation systems while moving within the EU zone. It also has the EU’s roaming cap. This ensured that consumers saved up to 70 percent of unfair charges on telecom packages, and customers could switch their service providers. The EU also insists on provisions of food information to consumers. The information must also substantiate claims of nutrition contents and other health claims companies make. This gives consumers chances to make informed choices and protect themselves from unhealthy foods. In 2010, the EU adopted the Quality Package. This aims to enhance the provision of information to consumers through “a policy on certification schemes, value-adding terms, and standards for agricultural products” (European Commission, 2012). The EU also reviewed the Roaming Regulation so that subscribers could easily migrate to a service provider of their choice. In addition, the regulation brought additional retail prices cap for roaming consumers. In 2011, the EU proposed Common European Sales Law (European Commission, 2012). This law aims at harmonising different laws from various member states. The intention is to create “a single and comprehensive set of rules for sales contracts as well as for contracts governing digital contents, which businesses and consumers can voluntarily choose to apply” (European Commission, 2012). This law will guarantee consumers improved security when buying items online. It will also create opportunities for consumers to gain access to several products and services from different regions at low costs.
In June 2010, the EU outlined rules for the online sales. This is the “Vertical Restraints Block Exemption Regulation and Guidelines (VRBE) of the EU for online sales” (Whelan, 2010). The VRBE shall protect consumers for the next 12 years. The EU recognised the role of the Internet in trade and introduced the law to protect consumers. The VRBE concentrates on “hardcore restrictions” to protect consumers. First, the law requires traders to prevent unfair competition for customers located in other regions by rerouting such customers to other Web sites. Second, the law requires traders to block unauthorised use of credit cards. Traders can verify such information by verifying the region of the user. Third, traders should balance both online and offline sales. Finally, traders should control prices of online products.
The EU also proposed Alternative Dispute Resolution (ADR) and Online Dispute Resolution (ODR) to provide opportunities for “traders and consumers to solve disputes through inexpensive means” (European Commission, 2012). This shall enhance consumer confidence on the online trade and develop e-commerce. According to Halton, the EU consumers can resolve their disputes with traders without resorting to Courts using the online portal. However, the system requires a competent dispute resolution team to run it. Consequently, the EU has promised that such bodies shall be available throughout the EU member states. The system aims to resolves disputes within 30 days (Halton, 2011).
Brennan observed that the CJEU gave its verdict on information needed for online or distance sales. The Court ruled that giving details to consumers regarding “their rights under the Distance Selling Directive 97/7/EC via a hyperlink to a Web site is not sufficient” (Brennan, 2012). This method cannot satisfy the requirement of “the Article 5(1) of the Distance Selling Directive (97/7/EC) that a consumer has to receive written confirmation or confirmation on another durable medium” (Brennan, 2012). According to the Court, the consumer receives information from the trader. The Court based the decision on the case of Content Services Limited v Bundesarbeitskammer. In this scenario, the trader wanted the consumer “to click on a link in the confirmation e-mail in order to view the information as the Directive stated” (Brennan, 2012). According to the Court, “such proactive conduct fell short of the requirements in the Directive” (Brennan, 2012). It also maintains that a Web site is not a durable means of communication as the owner can change its contents, tamper with information, or block any future access. This implies that any online information must meet conditions in Article 5(1) about the Distance Selling Directive. Therefore, traders must ensure that information from customers meet such requirements so as to be enforceable against the customer in cases of disputes.
The EU also has the Data Protection Reform package. This law aims to protect and reinforce the current provisions on data protection rights of consumers. This is the only way to gains consumers’ trust.
The CJEU also gave its verdict on a case the Court of Appeal referred to it. The case involved database right infringement. The Court maintained that the act of sending extracted data from “the database of the claimant to the user’s computer via the Internet was an act of reuse under the provisions Directive 96/9/EC” (Scourfield, Kilshaw and Chopra, 2012). However, infringement took place in the country where the defendant gained access to information. However, this also depended on evidence of the defendant’s intention and his targets (Scourfield, Kilshaw and Chopra, 2012). This was the case of Dataco and Sportradar.
This case raised several issues on data infringement under the EU context. The CJEU dismissed Sportradar’s argument. According to the Court, reuse of such data only takes place on the member state where the Web server is. This implies that use of data with the Web server in other countries (outside the EU) cannot amount to data infringement. This decision by the CJEU remains questionable among the database owners. However, the Court provided a clear conclusion on this issue. It stated that the act of infringement “takes place in the member state where there is evidence of intention, leaving open the question as to whether this can include the state where emission takes place” (Scourfield, Kilshaw and Chopra, 2012). The same ruling can also apply to the copyright law as they have similar wordings. The copyright law is in the Directive 96/9/EC. It defines reuse as “making available to the public” with the intention of communicating to the public.
The CJEU has recognised the right to intellectual property. The right to intellectual property is in Article 17(2) of the EU Charter. However, the CJEU claims that such rights now need a balance with regard to other rights. In the age of technology, the CJEU argues that such rights need balancing with the copyright holder and the hosting company. In this sense, the hosting companies also need to conduct business. The CJEU bases this argument on Article 16 of the Charter.
The European Commission also proposed “a review of its Directive on Investor Compensation Schemes” (European Commission, 2012). This aimed at providing the last resort of protection to investors especially in cases involving fraud where assets are difficult to trace.
Finally, the EU also proposed to review its Markets in financial instruments Directive. It hopes to protect investors on financial institutions by imposing tough measures on financial institutions and enhancing governance of such businesses. According to Business Europe, “freedom of contract must serve as the basis for free capital markets” (Business Europe, 2007). Freedom of contract protects free markets and ensures fair competition in the capital market. However, different institutions of the EU member states have their own share structures. The EU must ensure that it protects small investors and uphold long-term interests of such investors in institutions through actively engaging freedom of contract as it believes. Business Europe notes that freedom of contract must also enhance transparency in companies. This view is similar to that of Clerens on transparency and freedom of contract on CJEU ruling (Clerens, 2010).
We can look at the CJEU’s view on unfair terms in a consumer contract using the case of Invitel. The Supreme Court usually reviews terms of contract using Article 3(1) and (3) of the Council Directive 93/13/EEC. According to this article, the unfair terms in the business contract between traders and consumers offer unilateral ways to obtain fees for services or products supplied. However, the trader fails to specify or provide any valid reason for such fees. Therefore, the Court must decide, inter alia, the terms of the contract and any contested terms. Therefore, the Court can determine such cases based on the member states’ laws. In this context, it must focus on “the general business conditions, issues, the reasons for, or the method of, and the amendment of the fees connected with the service” (Korkovelos, 2012). The language of the contract must be set out in plain and intelligible language. The Court may decide whether the consumer can terminate such contract without legal repercussions.
If the EU believes in freedom of contract, then it must propose agendas for social, economic, and technological development. First, the EU must guarantee safety of consumers. In this sense, the EU must ensure that all products and service meet quality standards. This should be its main objective before embarking on terms of freedom of contract. The EU can be able to solve issues of the global supply challenges and export quality products. This approach must cover all consumers within the EU zone. In order to meet consumer safety, the EU must ensure that all regulatory mechanisms are effective and advocate for additional safety measures. This means that the EU must revise its current approaches to consumer safety and protection.
Second, the EU must also educate consumer. This is a means of empowering consumer to understand various terms and conditions in the freedom of contract relationship. In this sense, information should be clear, comparable, understandable, and reliable together with materials to aid understanding of information. Traders and consumers in the EU regions must understand their roles, rights, and obligation to one another. Therefore, the EU should ensure that the online dispute resolution system has reliable and competent team across all member states. This calls for engaging other intermediaries and thorough education. It is necessary that traders should develop a self-regulatory approach in conducting business. At the same time, traders with consumer-based approaches tend to educator their customers and avoid disputes.
Consumers must have sufficient knowledge in areas related to investments, finance, e-commerce, protection systems, and their rights as consumers when dealing with institutions. The EU should create effective education campaigns as means of creating awareness among consumers. In fact, educating consumers should also involve organisations and authorities who provide services and products to consumers. Consumer organisations should take active role in educating and protecting consumers from exploitation. They should provide modes of seeking redress for consumers who have issues with traders. The main role of such organisations should be defending vulnerable consumers. In this area, the EU should focus on enhancing “information and creating awareness of consumer rights and interests among both consumers and traders, and creating knowledge and capacity for more effective consumer participation in the market” (European Commission, 2012).
The Commission must have both short-term and long-term agendas for these strategies. This is the only to ensure that there are changes among consumers. The EU should strengthen consumer networks across the EU zones in order to realise their effectiveness.
Third, the Commission must ensure that it works closely with both the CJEU and national court systems in order to ensure that consumers get justice. However, we must recognise that the CJEU has the primacy over the national courts. Thus, it is the best place for appeals. Consumers can only trust bodies, which guarantee their protection, fairness, and efficient processes. Therefore, law enforcement agencies must be able to offer effective redress systems. The CJEU gave its verdict on use of online information from consumers. In addition, the EU also outlined its strategy for promoting e-commerce in the region. Therefore, if consumers can get a similar treatment in the EU member states, then they shall have trust with the system. On the other hand, traders who also discourage freedom of contract by creating unfair competitions through any means should face penalties. This is the only way the EU can enhance its cross-border trade and cooperation between consumers and traders.
The EU should focus on this area has digital revolution changes the way businesses run today. However, the Commission must watch activities of rogue traders who take advantage of the Internet and distance to increase their prices. As a result, the EU must focus on effective and reliable ways of enforcing consumer laws especially in strategic sectors. In addition, it must also create effective and reliable systems for consumers to solve their disputes.
Given the rising cases of fraud, the EU must restrict use of consumer data. This should focus on credit cards. The EU must enforce traders to cancel any suspected case of fraud through stolen identities. This shall ensure that customers gain confidence with the system. At the same, traders and consumers who disregard the EU laws must face infringement actions from the Commission. The EU must also review the effectiveness of its system periodically. This should focus on cross-border activities such as administration justice, e-commerce, and consumer education among others. Such evaluation processes shall enable the Commission to implement appropriate strategies so that it can achieve the vision 2020.
The EU must also ensure that member states cooperate especially in the area of administering justice. The EU should harmonise the Charter with those of member states. At the same time, there should be adequate resources for implementing such proposal and plans. Administrative of justice should also focus on unfair trading activities.
It is also necessary for the EU to develop a database of its consumers and traders. Such trends can help the Commission to identify existing patterns, preferences, and know where to divert its resources.
Fourth, the EU must also develop strategies for aligning its policy with those of social and economic developments. The EU must note the changing trends in consumption and demographic characteristics. Therefore, it must ensure that its consumer laws meet diversity in the market. At the same time, consumer behaviour should inform the decisions of the EU. The EU should address challenges which may prevent its consumers from gaining access to any form of market. The EU has made improvement with its Common European Sales Law. This shall ensure harmonisation of laws to reduce barriers. Variation in laws across the region is the major obstacles to freedom of contract. Thus, any attempt to streamline the law can ensure that EU moves towards achieving freedom of contract.
The EU has intended to approach the European Parliament for adoption and implementation of the proposals. This is a way of empowering consumers and protecting them. Such approach can also ensure that the region has sustainable solutions to its problems. In order to address such challenges among consumers, the EU must focus on economic and social challenges in the region. In this context, the Commission must address the use of technology to facilitate business and ensure that the region can achieve sustainable development in key areas like transport, energy, and finance.
The EU favours freedom of contract. However, the Commission has not been effective in adopting policies, which encourage freedom of contract between consumers and traders. It is necessary to note that the EU has developed a comprehensive agenda for its consumers. This is an indicator of adopting a Single Market strategy that shall promote freedom of contract between traders and consumers.
The single important idea about the EU policy is that it focuses on benefiting consumers. It also considers aspects consumer behaviours, social, technological, and economic changes. Thus, this strategy shall empower the EU consumers and ensure that they safeguard their rights. The EU can achieve the agenda if it understands various elements, which influence consumer decisions and explain their behaviours. Therefore, the EU must revise some of its current proposals and conduct periodic reviews. With changing needs of consumers, the EU must keep track and database of relevant data from consumers.
The EU can study consumers’ responses to various activities in the market including malfunctions. The EU can only have effective processes of implementing its agenda if it coordinates the program effectively. This shall ensure that consumers embrace the EU approaches to their concerns.
The recent CJEU rulings have set new benchmarks for the EU region. The Court has ruled on some cases national courts refer to it. Such rulings have shaped consumers behaviours and activities. The Court provides better opportunities for harmonisation of various trade laws. In these rulings, the primacy of the Court over other national courts is undeniable. The Court has stressed the importance of enhancing freedom of contract. It noted that national laws should be compatible with the EU laws regarding principles of freedom of establishing a business, providing services and gaining access to markets. As a result, the Court has encouraged member states to comply with issues of transparency and consistency.
The rulings have also identified where member states must reconsider their national policies and laws. Member states must address issues of market monopoly by a single operator and licensing style. However, the Court is consistent with the message of the margin of discretion. It shows member states that the margin of discretion “does not in any way exonerate them from the duty to ensure that the measures they impose satisfy all the conditions laid down in the case-law of the Court, particularly about their proportionality and consistency, both in law and in acts” (Clerens, 2010). In addition, the Court reminds member states to be transparent and avoid discrimination when dealing the issues of licensing.
References
Brennan, D 2012, CJEU clarifies information requirements in Distance Selling Directive. Web.
Brennan, D 2012, Flight cancellation insurance must be offered to customers on an opt-in basis only. Web.
Business Europe 2007, Proportionality between ownership and control: Freedom of contract and transparency must prevail, Business Europe, Belgium.
Clerens, A 2010, Four new CJEU rulings on betting and gaming: back to basics?. Web.
European Commission 2012, A European Consumer Agenda – Boosting confidence and growth, The Commission, Brussels.
Halton, M 2011, Commission Proposal to Establish a European On-Line Dispute Resolution Platform. Web.
Korkovelos, P 2012, CJEU’s decision in Invitel case. Web.
Rutgers, J 2009, ‘The European Economic Constitution, Freedom of Contract and the DCFR’, ERCL, vol. 2, pp. 96-109.
Scourfield, T, Kilshaw, L and Chopra, N 2012, European Union: The Final Score On Database Rights. Web.
Storme, M 2005, ‘Freedom of Contract: Mandatory and Non-mandatory Rules in European Contract Law’, European Legal Harmony, pp. 1-15.
The Law Commission and The Scottish Law Commission 2012, Unfair Terms in Consumer Contracts: a new approach?, Crown, London.
Whelan, J 2010, New EU rules for Online Sales. Web.