Better Regulation in EU Contract Law: The Fitness Check and the New Deal for Consumers 9781509928354, 9781509928385, 9781509928378

Citation preview

BETTER REGULATION IN EU CONTRACT LAW This book is the first to provide a critical investigation of EU better regulation from the perspective of EU contract law. The Commission’s ‘New Deal for EU Consumers’ is one of the first EU contract law initiatives to implement both the newly revised Better Regulation Guidelines and the newly introduced combined evaluation of multiple Directives in the form of a ‘fitness check’. This offers an opportunity to explore difficulties and best practices at a national level, as demonstrated by experience with the EU’s Unfair Terms Directive. Both the fitness check and the impact assessment accompanying the New Deal should facilitate critical reflection on the design of EU contract law. This book addresses key questions. Do impact assessments favour business interests at the expense of a high level of consumer protection? Is the evaluation of EU contract law and the analysis in impact assessments in line with scientific standards? Has the fitness check revealed difficulties and success stories with EU measures at national level, and thereby facilitated an in-depth scrutiny of the design of EU contract law? Ultimately, is the potential of better regulation being realised? Volume 29: Studies of the Oxford Institute of European and Comparative Law

Studies of the Oxford Institute of European and Comparative Law Editor Professor Birke Häcker Board of Advisory Editors Professor Mark Freedland, FBA Professor Stephen Weatherill Professor Stefan Enchelmaier Recent titles in this Series Volume 20: The EU Charter of Fundamental Rights as a Binding Instrument: Five Years Old and Growing Edited by Sybe de Vries, Ulf Bernitz and Stephen Weatherill Volume 21: The Images of the Consumer in EU Law: Legislation, Free Movement and Competition Law Edited by Dorota Leczykiewicz and Stephen Weatherill Volume 22: Passing Wealth on Death: Will-Substitutes in Comparative Perspective Edited by Alexandra Braun and Anne Röthel Volume 23: General Principles of Law: European and Comparative Perspectives Edited by Stefan Vogenauer and Stephen Weatherill Volume 24: The Future of Contract Law in Latin America: The Principles of Latin American Contract Law Edited by Rodrigo Momberg and Stefan Vogenauer Volume 25: The Code Napoléon Rewritten: French Contract Law after the 2016 Reforms Edited by John Cartwright and Simon Whittaker Volume 26: Discretion in EU Public Procurement Law Edited by Sanja Bogojevic, Xavier Groussot and Jörgen Hettne Volume 27: New Economic Constitutionalism in Europe George Gerapetritis Volume 28: French Civil Liability in Comparative Perspective Edited by Jean-Sébastien Borghetti and Simon Whittaker

Better Regulation in EU Contract Law The Fitness Check and the New Deal for Consumers

Edited by

Esther van Schagen and

Stephen Weatherill

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2019 Copyright © The editors and contributors severally 2019 The editors and contributors have asserted their right under the Copyright, Designs and Patents Act 1988 to be identified as Authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2019. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication data Names: Schagen, Esther van, editor.  |  Weatherill, Stephen, 1961- editor. Title: Better regulation in EU contract law : the fitness check and the new deal for consumers / [edited by] Esther van Schagen, Stephen Weatherill. Other titles: Better regulation in European Union contract law Description: Chicago : Hart Publishing, an imprint of Bloomsbury Publishing, 2019.  |  Series: Studies of the oxford institute of European and comparative law; volume 29  |  Includes bibliographical references and index. Identifiers: LCCN 2019034119 (print)  |  LCCN 2019034120 (ebook)  |  ISBN 9781509928354 (hardback)  |  ISBN 9781509928361 (Epub) Subjects: LCSH: Contracts—European Union countries. Classification: LCC KJE1640 .B48 2019 (print)  |  LCC KJE1640 (ebook)  |  DDC 346.2402/2—dc23 LC record available at https://lccn.loc.gov/2019034119 LC ebook record available at https://lccn.loc.gov/2019034120 ISBN: HB: ePDF: ePub:

978-1-50992-835-4 978-1-50992-837-8 978-1-50992-836-1

Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

CONTENTS Table of Cases������������������������������������������������������������������������������������������������������������� vii Table of Legislation������������������������������������������������������������������������������������������������������ xi 1. Impact Assessments in EU Contract Law�������������������������������������������������������������1 Esther van Schagen and Stephen Weatherill 2. The REFIT Process in the Area of Consumer Protection: Odds Stacked Against Consumers�����������������������������������������������������������������������13 Christine Riefa 3. REFIT or Rethink – The Politics of EU Research – A Grand Misunderstanding?�����������������������������������������������������������������������������������������������37 Hans-W Micklitz and Aurélie A Villanueva 4. EU Financial Regulation, Contract Law and Sustainable Consumer Finance�����������������������������������������������������������������������������������������������61 Olha O Cherednychenko 5. The Fitness Check of EU Consumer Law and the Impact Assessment for the New Deal for EU Consumers�������������������������������������������������������������������93 Esther van Schagen 6. The Court as a Jack-in-the-box – An Old Story in a New Context�����������������125 Stephen Weatherill 7. ‘Better’ Enforcement of EU Consumer Law: Exploring Responsive Enforcement�������������������������������������������������������������������������������������������������������141 Esther van Schagen 8. European Standardisation and the Unfair Contract Terms Directive�������������163 Barend van Leeuwen 9. Good Governance and the Fitness Check of EU Consumer Law���������������������187 Aurelia Colombi Ciacchi Index��������������������������������������������������������������������������������������������������������������������������201

vi

TABLE OF CASES European Union Afton Chemical Limited v Secretary of State for Transport, Case C-343/09, EU:C:2010:419�����������������������������������������������������������������������������29 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, Case C-67/96, EU:C:1999:28��������������������������������������������������177 Alliance for Natural Health, Cases C-154/04 and C-155/04, EU:C:2005:449������ 129 A-Punkt Schmuckhandels GmbH v Claudia Schmidt, Case C–441/04, EU:C:2006:141�������������������������������������������������������������������������������������������������������127 Árpád Kásler, Case C-26/13, EU:C:2014:282����������������������������������������������������������133 Asbeek Brusse, Case C-488/11, EU:C:2013:341������������������������������������������������������133 Asturcom Telecomuncaciones, Case C-40/08, EU:C:2009:615�����������������������������135 Banco Español de Crédito v Joaquín Calderón Camino, Case C-618/10, EU:C:2012:349���������������������������������������������������������������������������������������������� 134, 136 Banco Grupo Cajatres v Pinilla, Case C-90/14, EU:C:2015:465���������������������������133 Banif Plus Bank Zrt tegen Csaba Csipai en Viktória Csipai, Case C-472/11, EU:C:2013:88�����������������������������������������������������������������������������157 Bankia SA, Case C-109/17, EU:C:2018:735�������������������������������������������������������������136 BKK, Case C-59/12, EU:C:2013:634�������������������������������������������������������������������������128 Buet v Ministère Public, Case 382/87, EU:C:1989:198�������������������������������������������127 Cassis de Dijon, see Rewe-Zentrale AG Citroën Belux NV, Case C–265/12, EU:C:2013:498�����������������������������������������������127 Commission v France, Case C–154/89, EU:C:1991:76������������������������������������������127 Commission v Netherlands, Case C-144/99, EU:C:2001:257�������������������������������179 Elaine Farrell, Case C-413/15, EU:C:2017:745��������������������������������������������������������128 Elisabeth Schmitt v TÜV Rheinland, Case C-219/15, ECLI:EU:C:2017:128������������������������������������������������������������������������������������ 173, 183 EOS KSI Slovensko, Case C-448/17, EU:C:2018:745����������������������������������������������135 Escobedo Cortés v Banco de Sabadell SA, Cases C-94/17 and C-96/16, EU:C:2018:643�������������������������������������������������������������������������������������������������������152 Faccini Dori v Recreb, Case C-91/92, EU:C:1994:292��������������������������������������������128 Fogyasztóvédelmi Hatóság v Invitel Távközlési Zrt, Case C-472/10, EU:C:2012:242�������������������������������������������������������������������������������������������������������157 Foster v British Gas, Case C-188/89, EU:C:1990:313���������������������������������������������128 Fra.bo SPA v Deutsche Vereinigung des Gas-und Wasserfaches EV, Case C-171/11, EU:C:2012:453���������������������������������������������������������������������������176

viii  Table of Cases Frouke Faber, Case C-497/13, EU:C:2015:357��������������������������������������������������������134 Genil v Bankinter, Case C-604/11, EU:C:2013:344��������������������������������������������������78 Germany v Parliament and Council, Case C-376/98, EU:C:2000:544�����������������129 Germany v Parliament and Council, Case C-380/03, EU:C:2006:772�����������������129 Gut Springenheide GmbH and Rudolf Tusky v Oberkreisdirektor des Kreises Steinfurt, Case C-210/96, [1998] ECR I-4657���������������������������������19 Gutiérrez Naranjo, BBVA, Cases C-154/15, C-307/15 and C-308/15, EU:C:2016:980������������������������������������������������������������������������������������������������ 136–37 James Elliott Construction Limited v Irish Asphalt Limited, Case C-613/14, EU:C:2016:821����������������������������������������������������� 172–73, 176–77 Karel de Grote v Kuijpers, Case C-147/16, EU:C:2018:320�����������������������������������128 Milena Tomášová, Case 168/15, EU:C:2016:602�����������������������������������������������������133 Ministère public v Gérard Deserbais, Case 286/86, [1988] ECR 4907�����������������127 Mohammed Aziz v Caixa, Case C-415/11, EU:C:2013:164������������������132, 179, 181 Mostaza Claro v Centro Móvil Milenium, Case C-168/05, EU:C:2006:675����������������������������������������������������������������������������������������132–35, 140 Oceano Grupo Editorial SA v Rocio Murciano Quintero, Cases C-240/98 to C-244/98, EU:C:2000:346���������������������������������������������������133 Pannon GSM Zrt, Case C-243/08, EU:C:2009:350�������������������������������������������������133 Pohotovost, Case C-470/12, EU:C:2014:101������������������������������������������������������������135 Procureur du Roi v Marc J.V.C. Debauve and others, Case 52/79, ECLI:EU:C:1980:83�������������������������������������������������������������������������������������������������49 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein (Cassis de Dijon), Case 120/78, EU:C:1979:42��������������������������������������������������127 Rudolf Gabriel (application of the special regime introduced by the provisions of Title II, Section 4, of the Brussels Convention), Case C-96/00������������������������������������������������������������������������������������������������������������19 RWE Vertrieb AG v Verbraucherzentrale Nordrgein-Westfalen eV, Case C-92/11, EU:C:2013:180�����������������������������������������������������������������������������176 Sacchi, ECLI:EU:C:1974:40 Case 155/73�������������������������������������������������������������������49 Sales Sinués v Caixabank SA; Drame Ba v Catalunya Caixa SA (Catalunya Banc SA), Cases C-381/14 and C-385/14, EU:C:2016:252����� 156–57 Sánchez Morcillo, Case C-169/14, EU:C:2014:2099�����������������������������������������������136 Seda Kücükdeveci, Case C-555/07, EU:C:2010:21��������������������������������������������������128 Simone Leitner, Case C-168/00, EU:C:2002:163��������������������������������������129–31, 140 VB Pénzügyi Lízing, Case C-137/08, EU:C:2010:659���������������������������������������������134 Verein gegen Unwesen in Handel und Gewerbe Köln eV v Mars, Case C-470/93, EU:C:1995:224���������������������������������������������������������������������������127 Vodafone, O2 et al v Secretary of State, Case C-58/08, EU:C:2010:321�������� 125–26 Walter Rau Lebensmittelwerke v De Smedt, Case 261/81, EU:C:1982:382�������������������������������������������������������������������������������������������������������127 XZ v Ibercaja Banco, Case C-452/18, pending��������������������������������������������������������137 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main eV v comtech GmbH, Case C-568/15, EU:C:2017:154��������������������������138

Table of Cases  ix National Germany BGH 17 September 2013, XI ZR 332/12, no 20��������������������������������������������������������77 Netherlands Court of appeal Amsterdam 12 April 2016, ECLI:NL:GHAMS:2016:1419�����������������������������������������������������153 Court of appeal Arnhem-Leeuwarden 3 February 2015, ECLI:NL:GHARL:2015:672���������������������������������������������������153 25 August 2015, ECLI:NL:GHARL:2015:6249��������������������������������������������������153 Court of appeal Den Bosch 13 December 2016, ECLI:NL:GHSHE:2016:5539��������������������������������������������153 25 July 2017, ECLI:NL:GHSHE:2017:3334��������������������������������������������������������153 Court of appeal The Hague 7 April 2009, ECLI:NL:GHSGR: 2009:BK4880�������������������������������������������������145 19 January 2010, ECLI:NL:GHSGR:2010:BL0024��������������������������������������������145 6 May 2014, ECLI:NL:GHDHA:2014:1487�������������������������������������������������������153 District court Amsterdam 24 October 2017, ECLI:NL:RBAMS:2017:7795������������������������������������������������153 District court Breda 24 October 2006, Nederlandse Jurisprudentie Feitenrechtspraak 2006, 628����������������������������������������������������������������������������������������������������������145 9 July 2008, ECLI:NL:RBBRE:2008:BD6815�����������������������������������������������������145 District court Gelderland 1 June 2016, Nederlandse Jurisprudentie Feitenrechtspraak 2016, 332���������153 District court North Holland 14 November 2017, ECLI:NL:RBNNE:2017:4420��������������������������������������������151 15 November 2017, ECLI:NL:RBNHO:2017:9520�������������������������������������������151 6 December 2017, ECLI:NL:RBNHO:2017:9995����������������������������������������������151 20 December 2017, ECLI:NL:RBNHO:2017:10528������������������������������������������153 District court Utrecht 5 December 2012 ECLI:NL:RBUTR:2012:BY7842�������������������������������������������151 District court Zeeland – West-Brabant 27 January 2016, ECLI:NL:RBZWB:2016:3506�������������������������������������������������153 Geschillencommissie Travel 6 April 2017, Case 108693����������������������������������������������������������������������������� 153–54 27 November 2017, case 112291�������������������������������������������������������������������������154 Geschillencommissie Wedding Fashion 30 August 2017, Case 111296������������������������������������������������������������������������������154 Hoge Raad 5 June 2009 (2012) Nederlandse Jurisprudentie 182, 183 and 184�������������������77 27 October 2017, Nederlandse Jurisprudentie 2017, 421��������������������������������153

x  Table of Cases Subdistrict court The Hague 18 January 2017, ECLI:NL:RBDHA:2017:409���������������������������������������������������153 United Kingdom Grant Estates Ltd (in liquidation) and others v Royal Bank of Scotland plc and others [2012] CSOH 133��������������������������������������������������������������������������������77

TABLE OF LEGISLATION European Union Charter, Art 38����������������������������������������������������������������������������� 8–9, 16, 115, 123, 129 Single European Act���������������������������������������������������������������������������������38–39, 59, 168 Treaty of Maastricht��������������������������������������������������������������������������������������������� 18, 128 Treaty on European Union (TEU)�������������������������������������������������9, 81, 126, 140, 197 Preamble�������������������������������������������������������������������������������������������������������������������81 Art 2������������������������������������������������������������������������������������������������������������������������197 Art 5����������������������������������������������������������������������������������������������������������������������������9 Treaty on the Functioning of the European Union (TFEU)������������������ 94, 113, 125, 128, 135, 172 Art 12��������������������������������������������������������������������������������������������������������������������9, 16 Art 114��������������������������������������������������������������������������������������� 5–6, 8, 39, 101, 105, 108, 115, 129, 131, 183 Art 114(3)�������������������������������������������������������������������������������������������������������� 16, 129 Art 169������������������������������������������������������������������������6, 8–9, 115, 123, 128–29, 139 Decision of the President of the European Commission on the establishment of an independent Regulatory Scrutiny Board, C(2015) 3263����������������������������1 Directive 89/552/EEC concerning the pursuit of television broadcasting activities������������������������������������������������������������������������������������������������������� 49–50, 52 Directive 90/314/EEC on package travel������������������������������������������������������������������130 Preamble�����������������������������������������������������������������������������������������������������������������130 Directive 93/13/EEC on unfair terms in consumer contracts�����������2–3, 6, 8–9, 11, 40, 44–45, 47–48, 65, 93–94, 97–100, 104, 106, 112–13, 119, 128, 131–37, 139, 141–43, 147, 149, 151, 154, 160, 163–85, 187 Art 1������������������������������������������������������������������������������������������������������������������������176 Art 1(2)������������������������������������������������������������������������������������������������������10, 176–77 Art 3(1)��������������������������������������������������������������������������������������������������132, 179, 181 Art 3(2)�������������������������������������������������������������������������������������������������������������������132 Art 3(3)�������������������������������������������������������������������������������������������������������������������132 Art 4(2)�������������������������������������������������������������������������������������������������������������������178 Art 5������������������������������������������������������������������������������������������������������������������������179 Art 6(1)������������������������������������������������������������������������������������������������������������ 132–33 Art 7���������������������������������������������������������������������������������������������������������174–75, 182

xii  Table of Legislation Art 7(3)�������������������������������������������������������������������������������������������������������������������176 Ann�������������������������������������������������������������������������������������������������������������������������178 Directive 98/6/EC on consumer protection in the indication of the prices of products offered to consumers������������������������������������������2–3, 6, 40, 48, 93–94, 97–99, 105, 112–13, 141, 187 Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees�����������������������������������������������������2, 7, 40–41, 46, 93–94, 96–98, 104, 106, 111–12, 114, 116, 119, 141, 147 Directive 2003/31/EC on e-commerce���������������������������������������������������������������������105 Directive 2004/39/EC on markets in financial instruments����������������������� 75, 78, 86 Art 24(2)�������������������������������������������������������������������������������������������������������������������75 Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market�����������������������������������2–3, 7, 10, 40, 44–48, 93–94, 97–99, 102–4, 106–7, 109, 112–13, 116–17, 120–21, 123, 128, 136–37, 140–43, 151, 187 Directive 2006/114/EC on misleading and comparative advertising������������� 2–3, 7, 40, 45, 93–94, 112–14, 141 Directive 2006/123/EC on services����������������������������������������������������������105, 169, 171 Art 26(5)���������������������������������������������������������������������������������������������������������� 169–70 Directive 2008/48/EC on credit agreements for consumers����������������������������� 69, 77 Art 8��������������������������������������������������������������������������������������������������������������������������70 Art 16������������������������������������������������������������������������������������������������������������������������77 Directive 2009/22 on injunctions for the protection of consumers’ interests���������������������������������������������������������������������������������� 2–3, 25, 40, 43–45, 48, 76, 93–98, 109, 114–15, 117, 141, 145, 187 Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services������������6, 38, 41, 50–58 Art 16(3)�������������������������������������������������������������������������������������������������������������������52 Directive 2011/83/EU on consumer rights����������������������������������� 2–3, 6–7, 9–10, 17, 22, 24–26, 30, 33–34, 40–41, 46, 48, 95, 97–99, 103–5, 108–9, 113–14, 120–21, 123, 138, 143, 145, 179, 187 Recital 4��������������������������������������������������������������������������������������������������������������������31

Table of Legislation  xiii Art 14������������������������������������������������������������������������������������������������������������������������34 Art 29������������������������������������������������������������������������������������������������������������������������24 Directive 2013/11/EU on alternative dispute resolution for consumer disputes������������������������������������������������������������������������������������������������������ 76, 79, 105 Art 17������������������������������������������������������������������������������������������������������������������������79 Art 19������������������������������������������������������������������������������������������������������������������������79 Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms��� 62, 72 Directive 2014/17/EU on mortgage credit���������������������������������������������������� 22, 69–70 Art 18������������������������������������������������������������������������������������������������������������������������70 Directive 2014/65/EU on markets in financial instruments���������������������� 62, 69, 75, 77–78, 83–84, 86 Art 9(3)���������������������������������������������������������������������������������������������������������������������85 Art 16(3)�������������������������������������������������������������������������������������������������������������������85 Art 24(1)�������������������������������������������������������������������������������������������������������������������75 Art 24(4)(a)(i)����������������������������������������������������������������������������������������������������������86 Art 24(7)(b)��������������������������������������������������������������������������������������������������������������86 Arts 70–72����������������������������������������������������������������������������������������������������������������75 Directive 2014/92/EU on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features���������������������������������������������������������������������������������������������������77 Art 16������������������������������������������������������������������������������������������������������������������������77 Directive 2014/95/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups�������������������������������������82 Directive 2015/2302/EC on package travel���������������������������������������99, 130, 145, 153 Recital 34����������������������������������������������������������������������������������������������������������������131 Art 14(4)�����������������������������������������������������������������������������������������������������������������131 Directive 2015/2366/EU on payment services in the internal market 2015/2366/EU����������������������������������������������������������������������������������������������������������77 Art 73������������������������������������������������������������������������������������������������������������������������77 Art 76������������������������������������������������������������������������������������������������������������������������77 Art 89������������������������������������������������������������������������������������������������������������������������77 Art 90������������������������������������������������������������������������������������������������������������������������77 Directive 2018/1808/EU concerning the provision of audiovisual media services�������������������������������������������������������������������������������������������������������������� 50–52 Interinstitutional Agreement on Better Law-making������������������������������������ 1, 28–29 Recital 2��������������������������������������������������������������������������������������������������������������������14 Regulation (EU) No 2006/2004 on consumer protection cooperation������� 104, 146 Regulation (EU) No 1025/2012 on European standardisation����� 170–71, 183, 185 Art 3������������������������������������������������������������������������������������������������������������������������170 Arts 5–6������������������������������������������������������������������������������������������������������������������171 Art 10(1)�����������������������������������������������������������������������������������������������������������������170 Art 11(1)�����������������������������������������������������������������������������������������������������������������171

xiv  Table of Legislation Regulation (EU) No 524/2013 on online alternative dispute resolution for consumers��������������������������������������������������������������������������������������������������������������146 Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms�������������������������������������������������������������������������72 Regulation (EU) No 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, Art 4(1)(e)�����������������������������������������������������87 Regulation (EU) No 600/2014 on markets in financial instruments (MiFIR)���������������������������������������������������������������������������������������������������������������������69 Arts 40–42��������������������������������������������������������������������������������������������������������� 62, 69 Regulation (EU) No 2120/2015 laying down measures concerning open internet access��������������������������������������������������������������������������������������������������� 3, 145 Regulation (EU) No 1128/2017 on cross-border portability of online content services in the internal market������������������������������������������������������������������3 Regulation (EU) No 302/2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market���������������������������������������������������������������������������������������������������������������� 3, 148 Art 1(a)�������������������������������������������������������������������������������������������������������������������148 Art 2(2) and (3)�����������������������������������������������������������������������������������������������������148 Regulation (EU) No 1724/2018 establishing a single digital gateway to provide access to information, to procedures and to assistance and problem-solving services������������������������������������������������������������������������������������������3 National France Loi no 2014-344 du 17 mars 2014 relative à la consommation, Art L 621-12-1���������������������������������������������������������������������������������������������������������79 Netherlands Civil Code��������������������������������������������������������������������������������������116–17, 145–46, 149, 152–54, 156–57, 159 Art 3:305a����������������������������������������������������������������������������������������������117, 145, 156 Art 3:305d�������������������������������������������������������������������������������������������������������� 145–46 Art 6:193a���������������������������������������������������������������������������������������������������������������116 Art 6:193j(2)���������������������������������������������������������������������������������������������������� 116–17 Art 6:193j(3)�����������������������������������������������������������������������������������������������������������116 Arts 6:230 et seq����������������������������������������������������������������������������������������������������149 Art 6:233(a)���������������������������������������������������������������������������������������������152, 156–57 Art 6:237�����������������������������������������������������������������������������������������������������������������154

Table of Legislation  xv Art 6:237(f)������������������������������������������������������������������������������������������������������������153 Art 6:237(i)�������������������������������������������������������������������������������������������������������������154 Art 6:240�����������������������������������������������������������������������������������������������������������������156 Art 6:243�����������������������������������������������������������������������������������������������������������������156 Art 7:411�����������������������������������������������������������������������������������������������������������������152 Financial Markets Amendment Decree 2013 (2012) 695����������������������������������������86 Market Conduct Supervision (Financial Institutions) Decree () 2006, Art 86c(2)(a)����������������86 Wet handhaving consumentenbescherming (Law on the enforcement of consumer protection)���������������������������������������������������������������������������������������116 United Kingdom Financial Services and Markets Act (FSMA) 2000, s 404����������������������������������������79

xvi

1 Impact Assessments in EU Contract Law ESTHER VAN SCHAGEN AND STEPHEN WEATHERILL*

I. Introduction This book is the result of two Expert Round Tables dedicated to investigation of impact assessments in European contract law which were held in Oxford in 2017. Impact assessments form an essential part of the European’s Commission’s Better Regulation Agenda.1 Better regulation has been a central preoccupation of the Commission of late: it has revised the Impact Assessment Guidelines,2 reformed the Impact Assessment Board,3 negotiated a new Interinstitutional Agreement on Better Lawmaking,4 and established the REFIT platform. Thus, the Better Regulation Agenda has continued to function as a major initiative to improve the EU’s impact as a regulator. Within this agenda, the European Commission has attached special importance to ex ante impact assessments. With the newly revised Better Regulation Guidelines,5 the European Commission has created standards for consultations and ex post evaluations, while also extending the use of combined ex-post evaluations of multiple measures in the form of ‘fitness checks’. Evaluations and fitness checks provide an ‘evidence-based’ judgment of the effectiveness, efficiency, relevance, and coherence of EU measures, as well as their EU added value. The combination of multiple measures should render fitness checks especially

* Esther van Schagen is Assistant Professor of Private Law at the Molengraaff Institute, Utrecht University; Stephen Weatherill is the Jacques Delors Professor of European Law at the University of Oxford and a Fellow of Somerville College. 1 European Commission, ‘Better regulation for better results – An EU agenda’, COM (2015) 215. 2 European Commission, ‘Impact Assessment Guidelines’, SEC (2009) 92, as revised and replaced by European Commission, ‘Better Regulation Guidelines’, SWD (2015) 111; and, subsequently, the European Commission, ‘Better Regulation Guidelines’, SWD (2017) 111. 3 Decision of the President of the European Commission on the establishment of an independent Regulatory Scrutiny Board, C(2015) 3263. 4 Interinstitutional Agreement of 13 April 2016 on Better Law-Making, [2016] OJ L 123/1. 5 SWD (2017) 111.

2  Esther van Schagen and Stephen Weatherill suited to ‘identify excessive regulatory burdens, overlaps, gaps, and inconsistencies’ in EU consumer law.6 These ambitions echo the criticisms of European contract law presented in previous Green and White Papers and Communications released by the Commission since it first insisted on the need to review and reform the state of EU contract law in 2001,7 but typically, and in a manner which is different from usual national private law initiatives, the evidence supporting fitness checks is procured from Eurobarometer surveys, commissioned research in the form of expert advice, reports, and interviews, as well as consultations. In turn, this evidence should strengthen impact assessments, as drafters of these frequently have little insight in national practices.

II.  The Fitness Check of EU Consumer Law The significance of fitness checks and better regulation for EU contract law was demonstrated when the Commission announced that central EU contract law measures, including the Unfair Terms Directive8 and the Consumer Sales Directive,9 would be subjected to a fitness check, alongside the Consumer Rights Directive.10 The findings from the fitness check were published in May 2017.11 The fitness check convincingly highlighted persistent problems of non-compliance with rights conferred upon consumers, as well as overlaps between the transparency obligations

6 The chapters in this book consider ‘EU consumer law’ and EU contract law. Specifically, the fitness check refers to EU consumer law, but it does not focus on, for example, passenger rights or product safety. Instead, the fitness check evaluates measures central to EU contract law, and the New Deal for Consumers, which similarly focuses on measures, including the Consumer Sales Directive, the Unfair Terms Directive, and the Consumer Rights Directive. 7 European Commission, ‘Communication on European Contract Law’, COM (2001) 398; European Commission, ‘A more coherent European contract law – An action plan’, COM (2003) 68; European Commission, ‘European Contract Law and the revision of the acquis: the way forward’, COM (2004) 651; European Commission, ‘Green paper from the Commission on policy options for progress towards a European Contract Law for consumers and businesses’, COM (2010) 348. 8 Directive 93/13 on unfair terms in consumer contracts. 9 Directive 1999/44 on consumer sales on and associated guarantees. 10 Directive 2011/83 on consumer rights. 11 European Commission, ‘Report of the Fitness Check on 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 and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’); Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts; Directive 98/6/EC of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers; 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; Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests; Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising’, SWD (2017) 209.

Impact Assessments in EU Contract Law  3 in the Consumer Rights Directive and the Unfair Commercial Practices Directive,12 abuse of the right of withdrawal under the Consumer Rights Directive, and gaps in the Injunctions Directive.13 Overall, however, the fitness check concluded that the measures were generally fit for purpose. In October 2017, inception impact assessments were published for the revision of the Unfair Commercial Practices Directive and the Consumer Rights Directive, as well as the separate revision of the Injunctions Directive and the Misleading and Comparative Advertising Directive.14 In April 2018, the Commission launched the ‘New Deal for EU Consumers’.15 The New Deal is clearly and firmly presented in the context of the further development of the internal market, where the Commission has already adopted various initiatives which have been converted into legislative form: the Geoblocking Regulation,16 the revised Roaming Regulation,17 the digital single gateway,18 and the portability of online content.19 In the area of contract law, the Commission has adopted draft Directives on contracts for the supply of digital content20 and contracts and online consumer sales,21 as well as the online platforms. The New Deal accordingly targets the modernisation of EU contract law, but it mainly underlines the need for ‘better enforcement’, in line with the findings of the fitness check. The impact assessment accompanying the draft Directives under the New Deal announces that all recommendations in the fitness checks have been adopted.22 This approach has resulted in the adoption of the draft Better Enforcement Directive23 and the draft European Representative Action Directive.24 The latter proposal aims to achieve a drastic revision of the Injunctions Directive, by giving designated organisations

12 Directive 2009/29 on unfair commercial practices. 13 Directive 2009/22 on injunctions for the protection of consumers’ interests. 14 See https://ec.europa.eu/info/sites/info/files/part-2017-279735v1.pdf. 15 European Commission, ‘A New Deal for EU Consumers’, COM (2018) 183. 16 Regulation 2018/302 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market. 17 Regulation 2015/2120 laying down measures concerning open internet access. 18 Regulation 2018/1724 establishing a single digital gateway to provide access to information, to procedures and to assistance and problem-solving services. 19 Regulation 2017/1128 on cross-border portability of online content services in the internal market. 20 European Commission, ‘Proposal for a Directive on certain aspects concerning contracts for the supply of digital content’, COM (2015) 634. 21 European Commission, ‘on certain aspects concerning contracts for the online and other distance sales of goods’, COM (2015) 635, see for the amended version COM (2017) 634. 22 European Commission, ‘Impact assessment accompanying the document Proposals for Directives (1) amending Council Directive 93/13/EEC, Directive 98/6/EC of the European Parliament and of the Council, Directive 2005/29/EC of the European Parliament and of the Council and Directive 2011/83/EU of the European Parliament and of the Council as regards better enforcement and modernisation of EU consumer protection rules and (2) on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC’, SWD (2018) 96, Part 1/3 13. 23 European Commission, ‘Proposal for a Directive as regards better enforcement and modernisation of EU consumer protection rules’, COM (2018) 185. 24 European Commission, ‘Proposal for a Directive on representative actions for the protection of the collective interests of consumers’, COM (2018) 184.

4  Esther van Schagen and Stephen Weatherill the possibility to bring collective claims, including claims for damages, injunctions, and other claims, in cross-border cases. As such, even if there is room to describe the sweep of the proposed reforms as ‘not very exciting’,25 the focus on better enforcement deserves to be and should be welcomed. The question arises whether this focus is also the result of the fitness check, as well as the public and targeted consultations surrounding the fitness check and the subsequent impact assessment and consultations for the proposals under the New Deal.26 Potentially, fitness checks and impact assessments can provide EU decision makers with insight into problems with the implementation of directives at the national level. In the European multilevel legal order, instruments that strengthen legislative discourse and facilitate interaction between EU and national non-state actors are to be welcomed.27 They should prevent the risk that actors undermine one another’s initiatives – for example, the extent to which national legislators can safeguard the predictability of the law on standard terms diminishes if the EU legislator adopts measures that are subsequently interpreted unpredictably by the Court of Justice for the European Union (CJEU). Conversely, as the quality of discourse among actors involved in developing EU contract law improves, opportunities for learning should arise. For example, best practices with self-regulation in one legal order may provide a source of inspiration for EU actors or market participants in other legal orders interested in encouraging or developing self-regulation. Fitness checks should help to uncover these experiences, and draw attention to overlaps, gaps, and, hopefully, problems that market participants face when they seek to enter into cross-border trade. Similarly, impact assessments could prompt EU regulators to reconsider their regulatory approach towards EU consumer law.28 Thus, fitness checks and impact assessments have, albeit cautiously, been welcomed in EU consumer law.29 On closer inspection, impact assessments have been criticised for their analysis of the need for full harmonisation,30 regulatory burdens for consumers,31 and their

25 MBM Loos, ‘The Modernisation of European Consumer Law: A Pig in a Poke?’ (2019) 27 European Review of Private Law 113, 124. 26 See for an overview https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332. 27 See generally on the use of impact assessments ACM Meuwese, Impact Assessment in EU Lawmaking (The Hague, Kluwer Law International, 2008). 28 EAG van Schagen, ‘The Hidden Potential of Regulatory Impact Assessments (RIAs) in the Private Law Acquis’ (2014) 22 European Review of Private Law 69–87. 29 Van Schagen (n 28); S Weatherill, Contract law of the internal market (Cambridge, Intersentia, 2016), ch 5.10; V Mak, The character of European private law (Tilburg, Tilburg University, 2015) 41. G Rühl, ‘(Ex post) Evaluation of legislative actions in the European Union: the example of private international law’ (2017) 33 Nederlands Internationaal Privaatrecht 433–61, has advocated a fitness check of private international law. 30 H-W Micklitz, ‘The Targeted Full Harmonisation Approach: Looking behind the curtain’ in G Howells and R Schulze (eds), Modernising and Harmonising Consumer Contract Law (Munich, Sellier European Law Publishing, 2009) 47, 69–73. 31 D Leczykiewicz, ‘Regulatory Cost and the Consumer’, in D Leczykiewicz and S Weatherill (eds), Images of Consumers (Oxford, Hart Publishing, 2016) 276–77.

Impact Assessments in EU Contract Law  5 reasoning towards a solution.32 Criticism is also visible in the few contributions on the fitness check. The position paper on the fitness check of EU consumer law criticised the quality of research supporting the fitness check, both for its methodology and its conclusions.33 Similarly, the few contributions that have discussed the fitness check are critical. Loos34 questions why the fitness check does not follow the recommendations in Civil Consulting’s main report on the fitness check and Micklitz35 underlines the time pressure imposed on researchers involved in the fitness check, which is hardly conducive to ‘excellence’. Twigg-Flesner36 signals an apparent unwillingness to learn from previous experiences, when the Commission sought to develop a fully harmonised horizontal measure for EU contract law. It is worrisome if major instruments to improve EU law, and EU legislative discourse, are found to have recurring flaws. Some of these ‘flaws’ may well be inherent in fitness checks and impact assessments. Notably, fitness checks and impact assessment are not designed to provide an absolute answer to the question of whether divergences form an impediment to cross-border trade, nor should they exhaustively analyse all possible options for the further development of EU consumer law and policy. Impact assessments are specifically not intended to replace political debate – but they should strengthen it. This means, for example, that the Commission may choose to adopt a policy option that is, according to an impact assessment, the most optimal solution. Equally, the European Parliament and Council should conduct impact assessments for ‘substantial’ amendments – but this should not preclude these institutions from suggesting and supporting amendments. Thus, the potential of fitness checks and impact assessments does not come from their potential to curb the Commission’s discretion to choose how to proceed pursuant to Article 114 TFEU, but from the insights they provide to actors involved in EU legislative discourse. In addition, impact assessments require drafters to justify their choices, and consider the impact of future measures. Ideally, this requirement provides further insight into the reasoning and motivations involved in the adoption of EU measures. Transparency is a leitmotif in substantive EU consumer law and policy – impact assessment seeks to bring that thematic concern for transparency also into the preparation, making and application of EU consumer law and policy.

32 WH van Boom, ‘The Draft Directive on Consumer Rights: Choices Made & Arguments Used’ (2009) 5 Journal of Contemporary European Research 2009 452–64. 33 ALB Colombi Ciacchi and others, ‘Position Paper on the Fitness Check of EU Consumer Law’ (2018) 26 ERPL 703–05. 34 MBM Loos, ‘Oude wijn in nieuwe zakken? Modernisering van het Europese consumentenrecht (II)’ (2018) 24 Nederlands Tijdschrift voor Europees Recht 1–15 (online version). 35 H-W Micklitz, ‘Eine merkwürdige Welt – Beobachtungen zur sog. Verbraucherforschung der Europäischen Kommission’ (2016) 30 Verbraucher und Recht 322. 36 C Twigg-Flesner, ‘From REFIT to a Rethink: Time for fundamental EU contract law Reform?’ (2017) 6 Journal of European Consumer and Market Law 186–87.

6  Esther van Schagen and Stephen Weatherill

III.  The Suitability of Fitness Checks The justification for adopting EU measures is typically founded upon classic ­cost-benefit analysis, outlining the beneficial economic impact of future measures.37 This emphasis on classic economic assumptions, as well as empirical research, asks awkward questions of continental European regimes, where the stable development of law should be ensured by Civil Codes, and frequently relies on doctrinal and comparative legal research, while not pursuing clearly defined policy aims. What is to be expected of better regulation? Riefa confirms that the focus on the reduction of regulatory burdens is not without significance for the political discussion on European contract law. She questions what ‘better regulation’, in itself a laudable initiative, is for consumers, and concludes that the initiative has so far been beneficial in favour of businesses, for it focuses on reducing regulatory burdens for these actors, and on giving them a prominent voice through the REFIT platform. The reasoning in the impact assessment for reducing the right to withdrawal under the Consumer Rights Directive can be taken as an example of one-sided reasoning that steers towards a business-friendly outcome. Does the preoccupation with evidence-based law development then ensure that fitness checks evaluate EU contract law on the basis of scientifically sound criteria? How much room should there be for sociological and comparative legal research, and what does comparative legal research reveal about the interpretation of the Unfair Terms Directive? What standards are required for developing scientifically and politically sound behaviourally informed initiatives? Micklitz and Villanueva critically analyse the fitness check for consumer law, based on external research, and the evaluation of the Audiovisual Media Services Directive, based on in-house research. They highlight striking similarities between the two evaluations, especially the construction of the policy agenda and methodology, steering towards conclusions in line with the policy agenda whilst leaving no room for a ‘rethink’ of EU regulation. More generally, Micklitz and Villanueva conclude that the use of evaluations in this limited manner is inherent to EU regulation. Alternatively, if the added value of a fitness check should primarily be found in fostering coherence, and identifying inconsistencies and gaps, how is this safeguarded in the Better Regulation Guidelines? The Guidelines do not stipulate how these measures should be selected – not even how the selection of measures should be motivated. Possibly, the selection of measures could be motivated by their common legal basis – with the exception of the Price Indication Directive, which was based on Article 169 TFEU, it is what is today Article 114 TFEU that provides the common foundation stone of the legislative acquis. Alternatively, their common aim – protecting consumers to foster their confidence in the internal 37 See for a detailed analysis of cost–benefit analysis in EU impact assessments, prepared to support the revision of the Impact Assessment Guidelines, A Renda and others, Assessing the costs and benefits of regulation, Final Report, Brussels, 10 December 2013, available at http://ec.europa.eu/smart-regulation/ impact/commission_guidelines/docs/131210_cba_study_sg_final.pdf.

Impact Assessments in EU Contract Law  7 market – could form a reason, although one might still wonder why other measures that pursue similar aims did not also form part of the fitness check. Possibly, one’s view of which measures form or should form a coherent whole may depend on one’s perspective. In the EU, and contrary to national perspectives that typically emphasise the importance of the coherence of national private law, the functional market-making approach often followed by the European Commission is capable of leading to a different view of coherence.38 It is plain that the fitness check has resulted in a diverse set of separate initiatives and revisions, and overall coherence is not visible. Remarkably, a key part of inconsistencies to be addressed concerned inconsistencies between the Unfair Commercial Practices Directive and the Consumer Rights Directive, which was evaluated separately. A major part of better enforcement should emanate from the revised Consumer Protection Cooperation Regulation, which was revised before the New Deal was launched. Despite the fitness check’s strong emphasis on better enforcement, any future measure on the civil procedural protection of consumers is likely to take place separately. In addition, better enforcement may also depend on the success of consumer ADR, but the Consumer ADR Directive should have been transposed by 2015, and an evaluation is not due until mid-2019. In addition, the Consumer Sales Directive was revised separately, even though it was formally included in the fitness check. The fitness check also resulted in a separate initiative to revise the Misleading and Comparative Advertising Directive.39 The separate development of these initiatives, despite their combined evaluation, diminishes the added value of a fitness check conducted over separate evaluations. Although the priorities and course of legislative initiatives are difficult to predict, especially at the European level, and ultimately depend on the findings of the fitness check, the experiences with the fitness check of EU consumer law should be a reason to consider the selection of measures in fitness checks more carefully, more transparently and much more prominently. More widely, fitness checks should serve to improve coordination in EU policy. Cherednychenko develops the argument that, in line with principles of better ­regulation, financial regulation and contract law should be much more closely aligned. EU law on financial services is especially fragmented. Measures in this area characteristically focus on the relation between financial institutions and regulators, while some financial law instruments confer rights on individual consumers. These instruments in turn have implications for the relations between financial institutions and consumers. Typically, the relations between consumers (or ‘end users’) and creditors or (other) financial institutions are shaped by contracts. Cherednychenko argues that the disconnect between these areas of 38 Generally, W van Gerven and S Lierman, Algemeen deel. Veertig jaar later (Mechelen, Kluwer, 2010) 190. cf H-W Micklitz, ‘The economic efficiency rationale and European private law’ in G Comparato, H-W Micklitz and Y Svetiev (eds), European regulatory private law – autonomy, competition and regulation in European private law (Florence, EUI, 2016) 41–61. 39 European Commission, ‘Proposal for a Regulation on promoting fairness and transparency for business users of online intermediation services’, COM (2018) 236.

8  Esther van Schagen and Stephen Weatherill law hinders the extent to which financial law is able to address conflicts between, on the one hand, the public interest, and, on the other hand, the private interests of market participants. This is complicated further by the development of new financial services at a time of rapid digitalisation. Better regulation, with its focus on coherence, could provide an impetus to coordinate conflicting EU policies on consumer finance and to provoke reconsideration of the current fragmented approach. In particular, in the development of EU initiatives on consumer law, contractual remedies and practices should be integrated. Impact assessments and fitness checks should help drafters of new initiatives to do so. If the fitness check is not conducted with consumer protection as its main incentive, if it is not based on scientifically sound criteria, and if the potential for fostering coherent EU policies presently remains unfulfilled, one might ask what could be expected from fitness checks. The prominence of the fitness check in the revision of EU consumer law should not lead one to expect that a fitness check will necessarily result in a fundamental reshaping of EU consumer law. A closer look at the Better Regulation Guidelines reveals that the aim of fitness checks may be much more limited. This is not only due to the vague recommendations in the Better Regulation Guidelines, but also follows from the nature of the questions asked in fitness checks and its influence in subsequent EU legislative discourse. Van Schagen investigates the link between the fitness check of EU consumer law and the impact assessment accompanying the New Deal in light of these requirements. The shortcomings in the fitness check – found in the methodology, the influence of the preceding impact assessment on the draft Digital Content Contracts Directive and the draft Online Sales Directive, as well as the difficulties inherent in establishing a causal relationship between EU consumer law and its ambiguous aims under Article 114 TFEU, including consumer confidence and the internal market, are not necessarily contrary to the Guidelines. The impact assessment expressly acknowledges the link between the fitness check and the impact assessment. The impact assessment convincingly highlights problems of non-compliance, as also evidenced by the fitness check, and its focus on reducing consumer detriment is novel, as well as emphasising the context of consumer protection guaranteed by Article 169 TFEU and Article 38 of the Charter. However, the support for the assumed deterrent effect on non-compliance of more and higher sanctions is missing in both the fitness check and the impact assessments, and the reasoning on unfair competition cannot be found in the fitness check and is wafer-thin. Meanwhile, the conclusion of the fitness check that EU consumer law is ‘fit for purpose’ has limited the scope of the fitness check and the attention to alternative modes to develop EU consumer law further.

IV.  Policy Options Arguably, the added value of evaluations and fitness checks lies in the insights that the EU legislator gains into national difficulties, as showcased by the conclusions with regard to the Unfair Terms Directive. The Directive establishes a broad legal

Impact Assessments in EU Contract Law  9 framework for the protection of consumers against unfair standard terms, after Member States over time had developed diverging initiatives to address repetitive market failures. Unlike some more modern measures such as the Consumer Rights Directive, the Directive leaves room for Member States to provide more stringent protection for consumers, which potentially translates into imposing stricter standards on businesses than provided in the Directive. In a manner different from other EU measures on contract law, it not only targets contracts on goods, but also protects against unfair terms in consumer contracts for services, which form a substantial part of EU trade. Surprisingly, the fitness check finds that the minimum harmonisation approach of the Directive has not resulted in barriers to the internal market. In this respect, the findings in the fitness check differ radically from previous impact assessments, for the draft Online Sales Directive and the Consumer Rights Directive. According to the Better Regulation Guidelines, fitness checks should ‘feed into’ impact assessments. Therefore, fitness checks not only seem well suited to improve the problem analysis in impact assessments, but also the so-called ‘baseline scenario’. The baseline scenario is one of the policy options that must be evaluated in impact assessment. In EU consumer law, the baseline scenario is usually portrayed as the ‘status quo’, ‘do nothing’, or ‘no action’ option. Impact assessments in EU consumer law frequently present a static analysis of the status quo – it is not forward-looking, and does not, for example, take into account future growth of the internal market, regardless of the adoption of the proposed measure. As a result, the ‘no option’ compares less favourably to other policy options that do reflect the future growth of the internal market. This is clearly contrary to the Guidelines. At first sight, the impact assessment for the New Deal does not suffer the same defect. It is clearly forward-looking and incorporates future growth. However, on closer inspection, the impact assessment does not do justice to the dynamic nature of the Unfair Terms Directive. This measure has been interpreted in an expansive and sometimes unexpected manner, and continues to generate a vast amount of case law from the CJEU and national courts. Weatherill analyses the role of the CJEU in developing the law in this area, illustrating the dynamic and sometimes unpredictable interpretation of the Unfair Contract Terms Directive. More awareness of this trend – in the fitness check, in its conclusions, and in its follow-up – would heighten regulatory sensitivity. Especially in EU consumer law, this is desirable: in this area of law, the Court’s decisions have a clear constitutional resonance with Articles 12 and 169 TFEU and Article 38 of the Charter, and the EU legislator has opted to incorporate provisions on open-textured norms such as ‘good faith’ that invite and assume judicial activism. Moreover, the Court’s decisions should be seen in light of the principle of conferral in Article 5 TEU. As the Court interprets EU measures more expansively, less competence is left for Member States. Despite EU and national case law on the Unfair Contract Terms Directive, difficulties in enforcement remain. Although the fitness check revealed enforcement problems, the initiatives developed to specifically strengthen and revise this directive are limited, and disappointing. It is not clear why recommendations of the

10  Esther van Schagen and Stephen Weatherill fitness check that could have contributed to enforcement have not been followed. Specifically, the draft Better Enforcement Directive does not revise Article 1(2) Unfair Contract Terms Directive, nor does it codify CJEU case law, or clarify the consequences of the non-binding nature of unfair terms – for example, may these terms be replaced by national default law? Arguably, the choice for Guidance is hardly self-evident. The development of Guidance for the Unfair Commercial Practices Directive and the Consumer Rights Directive have not prevented both measures equally from facing problems of non-compliance. One might wonder whether Guidance is the best suited instrument to increase compliance. Although the influence of non-legislative initiatives – such as the introduction of EU-level negotiations on the presentation of standard terms and a Consumer Law Database – might help to somewhat strengthen enforcement, it is not clear what is exactly is meant by ‘better enforcement’. Van Schagen analyses ‘better enforcement’, as proposed by the Commission, using insights from responsive regulation. With its initiative for better enforcement, the Commission builds on earlier policy to facilitate access to dispute resolution, but the draft Directives will result in very few changes for Dutch consumers. Dutch law already provides not only the Dutch Consumer Union (‘Consumentenbond’) but also other organisations with the possibility to bring collective claims and consumers already have the possibility to either claim damages or avoid a contract entered into under the influence of unfair commercial practices. Why, then, would the proposals drastically enhance enforcement and compliance, especially for domestic cases? The initiatives on better enforcement are based on outdated theories on the deterrent effect of sanctions. The concept of ‘responsive enforcement’ provides a more convincing analysis of enforcement. Responsive enforcement highlights the importance of market participants’ willingness to comply with consumer law and the gradual use of a range of sanctions for enforcement authorities and, presumably, consumers. Dutch self-regulation on unfair terms indicates that traders are generally willing to comply. However, compliance is made more challenging by the complexity of the law in this area, illustrated by the obligation of traders to inform consumers of standard terms and the question which terms are unfair and why. However, the complexity of the law does not explain the continued use of clearly unfair terms. If market participants fail to agree on the question of what is an unfair term, enforcement policy should exert more pressure on actors to use fair terms. The chapter suggests alternative measures that might more meaningfully strengthen enforcement, including more active online monitoring of suspect clauses and more sharing of information. The impact assessment on the New Deal analyses a limited number of policy options. The impact assessment indicates it has discarded two possible options – self-regulation and farther-reaching options – in an early stage of drafting the impact assessment. The Better Regulation Guidelines do not force EU actors to include these options. Instead they generally recommend that in the design of impact assessments, drafters should identify and screen all available options,

Impact Assessments in EU Contract Law  11 and select the ‘most relevant’ options for further analysis.40 The impact assessments should, however, always ‘consider’ the following policy options: the baseline scenario (often portrayed, in EU contract law, as the ‘do nothing’, or ‘status quo’ option), better implementation, enforcement, or simplification, options based on new technological developments (such as the use of algorithms to identify unfair terms), alternative policy instruments (such as regulations rather than directives), and alternative approaches (that is, self-regulation or standardisation), or alternative scope. Subsequently, drafters should screen which of these options should be included in an impact assessment.41 It is, however, clear, from the wording of the Guidelines, that drafters are not obliged to subject these options to an in-depth analysis. Accordingly, the Guidelines note that ‘views on the best policy typically differ (among stakeholders, Member States, policymakers, Commission services and experts)’.42 In addition, it is impossible to delineate which initiatives should be analysed in all cases – this depends on the measure at hand. Therefore, it is not problematic that other policy options, which would have been in line with the conclusions of the fitness check, are not subjected to an in-depth analysis – or even mentioned. Accordingly, it is not problematic, as such, that the impact assessment has not considered ‘better implementation’ – despite the controversy surrounding the question of how directives can best be implemented, or, more drastically, whether the problems of implementation associated with the room left for Member States should count as a reason for preferring regulations over directives.43 It is even less problematic that the fitness check did not recommend, under the heading of ‘alternative policy options’, standardisation, which, so far, has been confined to EU product safety law. Nevertheless, some of the conclusions of the fitness check are in line with expanding the scope of standardisation. Van ­Leeuwen explains that standards, if used as standard terms, could be subjected to an evaluation of fairness under the Unfair Contract Terms Directive, but they rarely confer rights and obligations on contract parties. The fitness check could have considered the use of standardisation in the context of the Unfair Contract Terms Directive, based on the New Approach or on the basis of a mandate to the European Committee for Standardisation (CEN), but Van Leeuwen doubts whether standardisation is a suitable forum for further contract law harmonisation. Standardisation has traditionally focused on questions of technicality rather than legal questions on fairness, and the actors involved in standardisation are insufficiently representative. Thus, the recommendations in the Better Regulation Guidelines are not only not binding – they are also ambiguous, and are not targeted at improving EU law

40 SWD

(2017) 111 20. (2017) 111 21–22. 42 SWD (2017) 111 21. 43 Twigg-Flesner (n 35). 41 SWD

12  Esther van Schagen and Stephen Weatherill for consumers. In this respect, the contribution of the fitness check towards ‘less consumer detriment’ is novel, but a drastic change in the approach of the European Commission towards consumer law is not foreseen at present. The limitations of the fitness check can also at least partially be attributed to the non-binding nature of these Guidelines and their ambiguity. The recent revisions of the Guidelines do not lead to drastic changes in this respect. The ambiguity, and the lack of publicity surrounding these changes, raise the question whether the guidelines for fitness checks and impact assessments, the findings in the fitness check and the policy options scrutinised in the impact assessment, take into account good governance principles such as transparency and accountability. Colombi Ciacchi addresses the Fitness Check of EU Consumer Law from a governance perspective. She discusses the question of to what extent the Fitness Check can be considered an exercise of good governance. Thereby the international standards of good governance developed by the UN and the World Bank are compared with the EU definition of good governance, conceptualised in the White Paper of 2001 on EU governance. The latter definition then forms the basis for a critical comment on the Fitness Check from a good governance perspective.

V.  The Potential of Better Regulation for EU Contract Law With the Better Regulation Agenda, the European Commission has launched an initiative that should also impact the revision of EU contract law. EU better ­regulation, and the initiatives developed within this agenda, draw attention to questions about the regulatory design of EU contract law. Better regulation, as such, continues previous programmes on ‘smart regulation’, and ‘better regulation’, and has further introduced procedural standards for the EU legislative process, designed to enhance deliberative discourse and decision making. Accordingly, consultations, impact assessments and ex-post evaluations should result in more evidence-based discourse. The use of consultations is not a novelty in EU contract law, either at the national or European level. Impact assessments are a more recent development. The unfamiliarity with ‘better regulation’, as well as the ambiguity surrounding this concept, have entailed that little attention has so far been paid to better regulation and its impact on European consumer law. This book approaches the fitness check on EU consumer law and the impact assessment as an example of the problems, but also as a means to show the potential of better regulation for EU consumer law. Presently, the reasoning in fitness check and impact assessments seems geared towards further harmonisation. However, the fitness check is also more cautious on the impact of minimum harmonisation, highlights the need for better enforcement and gap-filling, and focuses on consumer detriment. Thus, better regulation shows the potential to strengthen EU legislative discourse, which has, however, not yet been fully realised.

2 The REFIT Process in the Area of Consumer Protection: Odds Stacked Against Consumers CHRISTINE RIEFA*

I. Introduction REFIT stands for Regulatory Fitness and Performance Programme. It is: the Commission’s programme for ensuring that EU legislation remains fit for purpose and delivers the results intended by EU law makers. REFIT is not about deregulation but rather about regulating better. It aims to unlock the benefits of EU law for citizens, businesses and society as a whole in the most efficient and effective way, while removing red tape and lowering costs without compromising policy objectives’.1

It was launched in 2012 and a new strengthened approach was shaped in 2015, seeking to be more targeted, quantitative, inclusive and embedded in political decision making.2 REFIT is an exercise that is much broader than consumer law and spans all regulatory areas of the EU.3 It is completed by the Commission Work Programme, published every year, and the REFIT Scoreboard, a document that outlines the priorities.4 In addition, the Commission issues a set of Better Regulation Guidelines, complemented by a Toolbox.5 * Dr Christine Riefa, Reader, Brunel University (London). This chapter draws on the speech delivered at the consumer protection conference organised by the Bulgarian Presidency of the Council of the European Union, ‘Consumer law and policy today. Can we do better?’ (Sofia, 29–30 April 2018). 1 European Commission, ‘Better regulation for better results – An EU agenda’, COM (2015) 215 final, 10, http://ec.europa.eu/smart-regulation/better_regulation/documents/com_2015_215_en.pdf, accessed 13/1/2019. 2 COM (2015) 215 final, 10. 3 For an overview of the areas, see European Commission ‘Regulatory Fitness and Performance Programme (REFIT): Initial results and mapping of the Acquis’, SWD (2013) 401 final. 4 REFIT Scoreboard (2018), http://publications.europa.eu/webpub/com/refit-scoreboard/en/index. html, accessed 13/1/2019. 5 European Commission, ‘Better Regulations Guidelines’, SWD (2017) 350, https://ec.europa.eu/info/ sites/info/files/better-regulation-guidelines.pdf, accessed 13/1/2019. For a critique of the Guidelines and

14  Christine Riefa The REFIT process falls within what is known as the ‘Better Regulation’ Agenda, an initiative that dates back to 2002 and which has evolved over time. It is a shared commitment of all the EU institutions6 and consequently is governed by an Inter-institutional Agreement. The European Parliament, the Council and the Commission signed the latest instalment of that agreement on 13 April 2016.7 Recital 2 of the agreement states: The three Institutions recognise their joint responsibility in delivering high-quality Union legislation and in ensuring that such legislation focuses on areas where it has the greatest added value for European citizens, is as efficient and effective as possible in delivering the common policy objectives of the Union, is as simple and as clear as possible, avoids overregulation and administrative burdens for citizens, administrations and businesses, especially small and medium-sized enterprises (‘SMEs’), and is designed with a view to facilitating its transposition and practical application and to strengthening the competitiveness and sustainability of the Union economy.

The framework under which EU Regulation is assessed and changed, as well as the methodology used to do so, are far from perfect instruments. The way the process is designed means that the odds are stacked against consumers. The current ongoing discussions on the latest round of reforms in the area of consumer law, the so-called ‘New Deal’,8 offers an opportunity to reflect on how the search for better regulation can lead to consumers being less protected rather than more. This ­chapter continues by exploring the fact that consumer protection is only a by-product of the REFIT and Better Regulation agenda (section II), two openly pro-business regulatory initiatives (section III). It assesses the way this structural environment shapes the place of consumer protection in Europe. The chapter then moves to looking at how the methodology used for ex-ante and ex-post evaluations is ill-equipped to defend the consumer interest (section IV). The chapter shows, through a case study on the removal of the right to withdraw for incorrectly used goods in the New Deal, how odds are indeed stacked against consumers (section V). The chapter concludes by looking at what ‘better regulation’ should look like if it was to serve the interests of consumers (section VI).

II.  Consumer Protection is Only a By-product of the Better Regulation Agenda and the REFIT Process Consumers are absent from the general beneficiary groups of the Better Regulation Agenda. Despite some action in consumer law being part of the REFIT Scoreboard Toolbox with regards to their remit and application, see EAG van Schagen, ‘Better Regulation and the Principle of Consumer Protection in EU Contract Law’ 13 (2017) 3 ECRL 241. 6 SWD (2017) 350, 6. 7 Interinstitutional Agreement on Better Law-making, OJ L 123, 12.5.2016, 1 http://eur-lex.europa.eu/ legal-content/EN/TXT/?uri=OJ:L:2016:123:TOC, accessed 10/1/2019. The previous Interinstitutional agreement dated back to 2003. 8 http://europa.eu/rapid/press-release_IP-18-3041_en.htm, accessed 13/1/2019.

The REFIT Process in Consumer Protection  15 and subject to the current and past rounds of reforms, REFIT is also not a process focused on consumer protection. If anything, by default, ‘better regulation’ in the way intended by the REFIT and Better Regulation Agenda favours ‘deregulation’ and not stronger regulatory oversight, which would be more suited to protecting consumers (at least the more vulnerable ones). One of the rare documents to make direct reference to consumers was the Commission Action Programme of 2007. This document states that [t]he focus of the Action Programme is on obsolete, redundant or repetitive IOs [information obligations] which should be clearly distinguished from legislative design features consistent or necessary for achieving the benefits of legislation. The aim is to reduce unnecessary administrative burdens on businesses; however, the programme will also bring about substantial improvements for consumers e.g. through lower prices.9

While consumers are mentioned in this Action Programme, they only appear twice and each time without any clear demonstration of how cutting administrative burdens could truly benefit them.10 Besides, the Action Programme identified 13 priority areas, none of which, apart from food safety, was clearly of benefit to consumers.11 The work of the high-level Stoiber group on administrative burden, which followed the 2007 Action Programme, did little to advance the recognition of a consumer interest in better regulation.12 The work of the European Commission in this area, notwithstanding that it has championed some important consumer protection initiatives and continues to do so,13 further attests to the lack of direct concerns for consumers when looking at how to improve regulation. Indeed, the Commission Communication from 2015 does not contain a single reference to the term ‘consumer’.14 The Better Regulations Guidelines, also adopted in 2015,15 only make a few timid references to them, but no content is dedicated to ensuring that consumers’ interests are properly catered for as part of the methodology put forward. Specifically, in the section relating to the guidelines for impact assessments, there are only a few passing mentions.16 A specific heading in the

9 European Commission, ‘Action Programme for Reducing Administrative Burdens in the European Union’, COM (2007) 23 final, 3. 10 European Commission (n 9) 2. The first mention comes in relation to the objective of reducing the burden by 25%. The Action Programme explains: ‘It is important that all parties involved in this process take appropriate and quick action, so that the political objective can be translated into operational measures, to the benefit of the business community, in particular of the small and medium sized enterprises, and of the consumers.’ 11 European Commission (n 9) 7. 12 High Level Group on Administrative Burdens, Cutting Red Tape in Europe, Legacy and Outlook (2014). The Stoiber group was very much focused on smart regulation and cutting red tape and addressed areas where business costs could be cut most effectively, namely VAT and electronic invoicing and an exemption for micro-businesses. 13 BEUC, Juncker Commission interim balance, consumer performance check (May 2017) https://www. beuc.eu/publications/beuc-x-2017-043_juncker_commission_interim_balance.pdf, accessed 13/1/2019. 14 European Commission (n 1). 15 European Commission ‘Better Regulation Guidelines’, SWD (2015) 111 final. 16 SWD (2015) 111 final, 26–27.

16  Christine Riefa toolbox is dedicated to how to identify impacts in impact assessments, evaluations and fitness checks17 and makes a specific mention of consumers. However, practice shows that this heading is seldom populated adequately. Worse, the guidelines do not reflect the need to prioritise consumer protection, which may lead to impact assessments overlooking it altogether. According to Van Schagen, while not contrary to the Better Regulation Guidelines, this oversight is contrary to the principle of consumer protection as recognised by Article 38 of the Charter and Articles 12 and 114 para 3 TFEU.18 Similarly, in the Better Regulation Guidelines released in 201719 consumers are mentioned four times, three in the context of being identified as one affected party or stakeholder group/categories amongst others,20 and once to define how the most significant impacts need to be considered both in quantitative and qualitative terms. The same paragraph is reproduced from the 2015 version of the guidelines. It states: Impacts should be assessed from the point of view of society as a whole although distributional effects and cumulative burdens on individual parties should also be ­ proportionately assessed and considered. Whenever impacts are aggregated, you should make sure you avoid any double counting (for instance, businesses transferring increased compliance costs on consumer prices, public authorities imposing fees to cover for the costs of enforcing a regulation).21

Here again the focus on consumer protection is absent. The 2018 Work Programme only uses references to consumers in two places. The first is in the context of ‘a deeper and fairer Internal Market with a strengthened industrial base’, which introduces reforms in company law as well as VAT, etc. The Work Programme explains: ‘A well-functioning Single Market is at the heart of the European project. It enables people, services, goods and capital to move more freely. It provides opportunities for European businesses and offers greater choice and lower prices for consumers.’22 ‘Lowering prices for consumers’ has therefore become a mantra. It is repeated in countless documents without much substantiation regarding how any of the legislative changes proposed would truly benefit consumers. No content is ever devoted to showing the details of how those lower prices can be realised. It is not at all clear how consumers will benefit from a change in regulatory burdens.23

17 SWD (2015) 111, 87. 18 Van Schagen (n 5) 241. 19 European Commission, ‘Better Regulations Guidelines’, SWD (2017) 350, https://ec.europa.eu/ info/sites/info/files/better-regulation-guidelines.pdf, accessed 13/1/2019. 20 SWD (2017) 350, 25, 49 and 77. 21 SWD (2017) 350, 27. 22 European Commission, ‘Work Programme 2018 – An agenda for a more united, stronger and more democratic Europe’, COM (2017) 650 final, 5. 23 For example, it echoes the Action Programme from 2007 or follows in the footsteps of the 2015 Toolbox that accompanied the 2015 Guidelines. The Toolbox is focused on the ‘empowerment of

The REFIT Process in Consumer Protection  17 The other reference in the 2018 Work Programme is the area of justice and fundamental rights. The document explains: the success of the internal market ultimately depends on trust. This trust can easily be lost if consumers feel that remedies are not available in cases of harm. The Commission will therefore present a New Deal for Consumers to enhance judicial enforcement and out-of-court redress of consumer rights and facilitate coordination and effective action by national consumer authorities.24

However, in the New Deal25 documents presented, the Commission is at a loss to show a tangible link between harmonisation, better regulation and consumer trust and how the new reform would in fact provide any enhancement in the trust consumers may have in the market. Traditionally also impact assessments, as a rule, do not tend to provide further evidence for the connection between harmonisation and consumer trust. Needless to say, if consumers benefit from the Better Regulation Agenda and the REFIT process, they are not the cornerstones of their operation. This may not ­necessarily be problematic. But the continued disregard for consumers’ interests throughout the evolution of the Better Regulation Agenda and REFIT highlights the risks that better regulation may in fact only work for the named targets and not for consumers. There are also legitimate concerns that the Better Regulation Agenda, despite the fact that it states that it is not about deprioritising social protection or fundamental rights, does little to ensure that the level of consumer protection currently in existence is maintained and not sacrificed at the altar of regulatory efficiency.

III.  Better Regulation and REFIT Favour Businesses Not including consumers as a fully fledged stakeholder group necessarily leads to a distortion of the priorities likely to be given in the Better Regulation Agenda and the REFIT process. It begs the question: better regulation for whom? In the way official documents are presented, the answer is very clear: better regulation for businesses. They are the driving force of the Better Regulation Agenda and the direct beneficiaries of any savings that are to be made from cutting the burdens imposed on them. The REFIT webpage from the Commission also consumers and is based on a strong confidence in the internal market, and the benefits that consumers can derive from the internal market in the form of lower prices and more choice’ without offering more details on how this is so. On this point, see Van Schagen (n 5) 244. 24 COM (2017) 650 final, 7. 25 The main documents underpinning the ‘New Deal’ are: • • •

Commission Staff Working Document SWD (2017) 209 final May 2017; Study for the Fitness Check of EU Consumer and marketing law (CIVIC consulting) Final report, May 2017 (Fitness Check); Study on the Application of the Consumer Rights Directive 2011/83/EU Final report, May 2017 (CRD Evaluation);

18  Christine Riefa clearly states: ‘REFIT pays particular attention to small businesses, which can be disproportionately affected by the burden of implementing EU rules.’26 This is explained by the fact that the motivation for reducing the administrative and legislative burden in the Better Regulation Agenda is anchored in trying to ensure that red tape is cut for businesses to improve their competitiveness on the world stage. Other groups are subservient. For example, we can find references to citizens or workers in some other parts of the Better Regulation Guidelines,27 alongside businesses and some mention of SMEs. The other stakeholder group getting a mention in a large number of documents is ‘society as a whole’.28 Consumers are no doubt part of society. They are also citizens. But while there is overlap, there are also important differences that do not seem to be acknowledged. Arguably, ‘citizens’ may encompass consumers and both concepts were introduced in the Treaty of Maastricht. From a normative point of view, the shift towards citizenship as a point of reference may be welcomed, moving towards a recognition of consumer law as part of an ‘economic citizenship’.29 In any event, despite some commonalities, including the fact that both enjoy subjective rights30 and a right to effective judicial protection, there are many differences that subsist between the economic citizenship granted to consumers and social citizenship granted to nationals.31 Chiefly the content of rights granted to both categories is different. According to Reich, ‘consumer law is mostly concerned with a right to information in order to compensate the asymmetry of the position of the consumer vis a vis the professional on the market. Consumer rights are rights of passive market citizens.’32 But they also protect legitimate expectations notably through the Treaty and the recognition that consumers are protected for their health, safety and economic interests. By contrast, citizenship is mostly concerned with free movement and any extensions remain attached to a general right to non-discrimination. Therefore, it is not •

other related documents and evidence (this includes a Consumer Market Survey, conducted by the Commission; the Report on the implementation of the 2013 Recommendation on Collective Redress COM (2018) 40); • a number of impact assessments carried out at different stages of the process (including an inception impact assessment and SWD (2018) 96 final). 26 https://ec.europa.eu/info/law/law-making-process/evaluating-and-improving-existing-laws/ refit-making-eu-law-simpler-and-less-costly_en, accessed 15/1/2019. 27 SWD (2017) 350, 3. The introduction to the document states: ‘EU action must lead to a simple, clear, stable and predictable regulatory framework for businesses, workers and citizens that continue to add value as problems evolve, new solutions emerge and political priorities change.’ 28 See eg COM (2015) 215 final, 3. 29 N Reich, ‘The consumer as citizen, the citizen as consumer, reflections on the present state of the theory of consumer law in the EU’, in Etudes de droit de la consommation, Liber Amicorum Jean ­Calais-Auloy (Paris, Dalloz, 2004) 946. 30 This occurs through the application of the doctrine of direct effect and the purposive approach adopted by the CJEU or through state liability. ibid, 948. 31 ibid, 963. 32 ibid, 953.

The REFIT Process in Consumer Protection  19 yet possible to equate citizens’ interests to that of consumers.33 Worse, according to Davies, the perception in the case law of the European Court (hereafter ‘CJEU’) shows that there is a clear separation of consumers as economic beings (‘shoppers’) and citizens. He explains: ‘when she shops, she ceases to be more than a shopper. There is no space for the citizen or the person in the adjudication of economic law.’ This author affirms that the Court does not look at Europeans as they are, but as a certain vision of what the law would like them to be.34 While the courts do not seem determined to push economic freedom at all cost, the cases do not show that the Court is engaged with quality of life (that is, the social interests) because they are about a subjective experience.35 Consumer law, at least at national level, was originally built on the premise that regulation is there to intervene between two stakeholder groups in an imbalanced relationship. Consumers are the weaker party.36 This was the case in the UK with the Molony report in the late 1960s or in France, for example, with the work of the ‘Commission de refonte’, which under the presidency of Professor Jean Calais-Auloy led to the creation of the Code de la consommation (consumer code). Therefore, to protect consumers, regulation would necessarily have to engender a burden on businesses. This burden was accepted as ‘the price of doing business’, a necessary cost. Early legislation was focused on ensuring that the consumers’ interest could prevail. However, the narrative built by the European Commission, the CJEU and other European institutions has distorted this original premise. The perception of the consumer as a market actor and entity has evolved from being the weaker party to being an individual who is now ‘reasonably informed, reasonably observant and circumspect’.37 As a result, the lack of direct concerns for consumers in the Better Regulation Agenda may lead to perpetuating the idea that EU consumer law is not there primarily to serve consumers, but simply as a vehicle to build the internal market and therefore in turn directly benefit businesses who can sell across borders with only very limited hurdles. When looking at impact assessments in the area of consumer law, this interpretation is sadly confirmed.38 Further, in neo-liberal economic terms the narrative centres on improving businesses’ ability to transact at lower costs by removing regulatory burdens. It is assumed that such reduction in costs will necessarily benefit consumers, because it 33 Besides, any rights derived from respective legal status are attached to criteria such as residence for consumers and nationality for citizens. See ibid, 956. 34 G Davies, ‘The Consumer, Citizen and the Human Being’ in D Leczykiewicz and S Weatherill (eds), Images of Consumers (Oxford, Hart Publishing, 2016) 327. 35 G Davies (n 34) 330. 36 In Rudolf Gabriel (application of the special regime introduced by the provisions of Title II, Section 4, of the Brussels Convention), Case C-96/00, the Court recognised that the special regime was ‘to ensure adequate protection for the consumer as the contracting party deemed to be economically weaker and less experienced in legal matters than his professional co-contractor’ (at para 39). 37 Case C-210/96, Gut Springenheide GmbH and Rudolf Tusky v Oberkreisdirektor des Kreises Steinfurt [1998] ECR I-4657, para 37. 38 Van Schagen (n 5) 239–54.

20  Christine Riefa will lead to savings that will be passed on to consumers. While strong competition can in many cases benefit consumers, a systematic approach based on this assumption is dangerous. It does not take into account that lower costs do not necessarily lead to lower prices or improved quality for consumers. It omits to investigate how in neo-liberal economies, lower costs may also simply mean richer shareholders. In addition, the perception at European level is that regulation per se is not desirable. It is billed as an impediment to businesses when in fact, in many cases it is absolutely essential to safeguard the interests of consumers. Indeed, the Better Regulation Watchdog (BRW) worries that the European Commission’s Better Regulation Agenda does not further public interest, but rather aims to weaken or neglect essential regulations protecting workers, consumers, citizens and the environment. The BRW further points out that a number of recommendations from the high-level group on administrative burdens do not serve the public interest. It specifically identifies the recommendation under which new legislation can only be introduced by removing existing burdens and setting a net target for reducing regulatory costs as well as exempting SMEs and microbusinesses from their obligations. The main concern here is that in the effort to reduce regulatory burdens, the EU Commission becomes prey to corporate interests to the detriment of the public good39 and the protection of consumers. One key question to answer is, in fact, what does ‘better regulation’ mean in the context of the EU and, more precisely, the consumer policy area? The fitness check seemed to hint towards less regulation and a strengthening of the processes in place for its adoption. The emphasis seems to have been put on the process rather than its outcomes for citizens. Indeed, what better regulation is can be assessed, according to Dawson, by reference to the regulation meeting the approval of citizens expressed in national and EU elections or by reference to the way it successfully clears technical and procedural standards (including, for example, impact assessments and consultation processes).40 For Van den Abeele, however, better regulation is simply a bureaucratic simplification with a political agenda.41 Unfortunately, it does not appear to be one that prioritises consumer welfare.

IV.  REFIT Ex-ante and Ex-post Evaluation Methodology is Ill Equipped to Consider Consumers’ Interests Let us now turn our attention to aspects of the Better Regulation Agenda and the REFIT methodology that further stack the odds against consumers. We could not in this chapter be exhaustive, but a number of issues need to be highlighted. 39 http://www.betterregwatch.eu/about-us/, accessed 7/1/2019. 40 M Dawson, ‘Better regulation and the future of EU regulatory law and politics’ 5 (2016) 53 Common Market Law Review 1209–35. 41 E van den Abeele, ‘“Better Regulation”: a bureaucratic simplification with a political agenda’, Working paper 2015.4 (Etui).

The REFIT Process in Consumer Protection  21

A.  Limitations of the Standard Cost Model The Commission, for its assessment of regulation, uses the Standard Cost Model (SCM), albeit with some modification.42 Note that it is a method that the OECD recognises to calculate the administrative burden of regulation.43 Nevertheless, it has some serious downsides that do not seem to be always widely acknowledged. One of the issues with this method of calculation is that the SCM is normally focused on the costs generated by the law and its application. It is ill equipped to account for the benefits of regulation or account for economic costs for consumers. Indeed, Leczykiewicz explains that impact assessment reports have not been seriously engaging with the issue of consumer financial burden, a lacuna that is also replicated by the CJEU.44 The SCM starts from the premise that legislation is a burden that will affect competitiveness and does not look at the benefits consumers may derive from it.45 According to Van den Abeele, the Juncker Commission should have the courage to recognise that legislation has a cost and generates an administrative burden that is not the main problem. The real issue is whether the legislation in question and its associated burden are useful, if they ultimately bring benefits that outweigh the costs that they generate. It is to be regretted that nothing – or very little – has been said in this respect.46

Further, there is a tendency towards overestimating the burden of legal compliance as the default calculation method assumes all businesses are fully ­compliant.47 Yet, for example, the impact assessment for the New Deal admits that still many traders do not comply with EU consumer law and shows that some aspects of the reforms are driven by the fact that compliant businesses are likely to suffer from the actions of non-compliant ones.48 In addition, enforcement costs and implementation costs seem to be almost routinely left out of calculations. Yet, according to Renda, ‘enforcement costs are an essential element to be considered in any cost-benefit analysis, as their magnitude can tilt the balance in favour of regulatory options that would not be chosen in a more partial assessment.’49 This is, for example, the case of the New Deal, 42 International Working Group on Administrative Burdens, The Standard Cost Model, a framework for defining and quantifying administrative burdens for businesses (2004), https://ec.europa.eu/eurostat/ documents/64157/4374310/11-STANDARD-COST-MODEL-DK-SE-NO-BE-UK-NL-2004-EN-1. pdf/e703a6d8-42b8-48c8-bdd9-572ab4484dd3, accessed 15/1/2019. 43 OECD, Cutting Red Tape, Why is administrative simplification so complicated? Looking beyond 2010 (2010) 18, https://read.oecd-ilibrary.org/governance/why-is-administrative-simplification-socomplicated_9789264089754-en#page1, accessed 6/1/2019. 44 D Leczykiewicz, ‘Regulatory Cost and the Consumer’ in D Leczykiewicz and S Weatherill (eds), Images of Consumers (Oxford, Hart Publishing, 2016) 275–76. 45 For more on this and other methods used, see A Renda and others, Assessing the costs and benefits of regulation, Final Report 10 December 2013, available at http://ec.europa.eu/smart-regulation/ impact/commission_guidelines/docs/131210_cba_study_sg_final.pdf. 46 van den Abeele (n 41) 74. 47 OECD, Cutting Red Tape, National Strategies for Administrative simplification (Paris, OECD, 2006) 43. 48 SWD (2018) 96 final part 1/3, para 2.3, 17. 49 Renda (n 45) 31.

22  Christine Riefa where the impact assessment largely ignores the impact any legislative changes may have on national enforcement authorities or on legislators who will need to put the legislation in place or proceed with removing any legislation deemed redundant or too burdensome.

B.  Nudging Towards Business-friendly Policy Options In addition, impact assessments and other consumer policy-making documents routinely tend to emphasise the costs of ‘unwanted options’ and favour the benefits of preferred options. Van Boom, discussing the proposal for Directive 2011/83 on Consumer Rights, explains that the Commission’s assessment of costs and benefits is wafer thin and geared towards convincing the reader of the aptness of choices already made. He adds: ‘In some respect, the evidence presented by the Commission is unconvincing.’50 Van Boom criticised the way the Commission is ‘framing choices’ by presenting a number of unviable alternatives encouraging the reader towards preferring some alternatives to others.51 For example, the impact assessment for Directive 2008/122 on Timeshare never seriously considered the impact that better enforcement of existing rules would have compared to the introduction of new ones.52 Similarly, looking at Directive 2014/17 on mortgage credit, only a small number of options were identified and investigated, thereby steering towards the preferred option without costs and benefits neatly adding up. Recognition of the need for an assessment of the direct and indirect impacts of proposed legislation has been incremental. The European Council and Parliament recognised in 2015 the need to cover not only the costs but also the benefits of a piece of legislation, not just from an economic standpoint, but also in broader social and environmental terms. On a positive note, this methodology was used for the assessment of the costs and benefits analysis conducted in the fitness check of EU consumer and marketing law. This document states: The objective of this analysis is to respond both on a monetary and non-monetary basis (on economic, social, and environmental aspects) to the general and specific evaluation questions to support the assessment of the implementation of the individual directives, as well as their combined impact.53

While this is very welcome, the details of the fitness check, the evaluation of the Consumer Rights Directive reports or indeed impact assessment for the New Deal proposals54 do not always show a systematic concern for the analysis of benefits for consumers. 50 WH van Boom, ‘The Draft Directive on Consumer Rights: Choices Made and Arguments Used’ 5 (2009) 3 Journal of Contemporary European Research 452, 462. 51 WH van Boom (n 48) 457. 52 Van Schagen (n 5) 251. 53 Fitness Check (n 25) 15. 54 SWD (2018) 96 final Part 1/3.

The REFIT Process in Consumer Protection  23 In particular, the way impact assessments are conducted is not lending itself to improving consumer protection levels, rather the opposite. This is primarily due to the fact that according to Van Schagen, the ‘Toolbox does not link welfare to the level of legal protection afforded to consumers’.55 Indeed, the Toolbox considers three dimensions for measuring consumer welfare: knowledge, awareness and trust with respect to consumer legislation’.56 It does not in fact consider what rights and remedies consumers have and how good those may be. As a result, the reduction of regulatory fragmentation and the adoption of maximum harmonisation measures is presented as a simplification and thus a benefit to consumers when in fact it is not always the case and the emphasis remains on fostering the internal market, even if it is a consumer problem that prompted a particular assessment.57 The impact assessment for the New Deal continues in this vein. It seems to not only repeat materials seemingly favourable to a business position in many places in the document, but also offers analysis that favours businesses. Besides, the table comparing options (with pictorial shortcuts including – 0 + and ++) seems to also favour traders. For example, while the specific proposal (explored further below) to remove some imbalances in the right of withdrawal only scores 0/– against the objective of achieving a high level of consumer protection, it is rated +++ to eliminate unnecessary costs for compliant businesses. Yet, our analysis shows that the underlying data used to arrive at this conclusion is lacking. It also scores highly on savings efficiency +++ but 0 on costs efficiency. Finally, it scored stakeholders’ views in six columns, one for consumer associations (– –), citizens (–) and public authorities (0) as well as three columns dedicated to business interests (business associations, SMEs, large companies) all seemingly favouring the proposal (++ in each column).58 Based on this alone, the proposal concerning the removal of the right to withdraw for improperly tested products is presented as the only option. Yet, it is a proposal that would be likely to disadvantage consumers. No alternatives are investigated, such as requiring national authorities to train businesses better in assessing the diminished value of goods returned to them.

C.  Distorted Data Quality At this point it is also important to acknowledge that to conduct an accurate ­cost–benefit analysis, underlying data needs to be available but it is often missing. As a result, teams working on evaluations often have to ‘make do’ and provide their best ‘guesstimate’. In addition, when data is available it is often less than ideal and yet gets billed as perfectly robust. The Commission Staff Working Document on impact assessment 55 Van Schagen (n 5) 244. 56 European Commission, Better Regulation Toolbox, https://ec.europa.eu/info/better-regulationtoolbox_en, 206. 57 Van Schagen (n 5) 244. 58 SWD (2018) 96 final part 1/3, 84.

24  Christine Riefa accompanying the proposals for better enforcement and modernisation of consumer rules as well as the proposal on representative actions59 offers an archetypical example. The table of contents contains a heading on ‘overview of problems and robustness of data’. However, on closer inspection, the robustness of data for this impact assessment is limited to a few lines of text (reproduced here in their integrality) for a document that is overall 94 pages long. It states: Quantitative data received for this IA [impact assessment] has been complemented by robust data collected for the fitness check, the CRD [Consumer Rights Directive] evaluation, the Collective redress report and from other information sources, such as desk research, Eurobarometer data and relevant studies. Furthermore, qualitative assessments have been used as much as possible to supplement quantitative data.60

It presents the underlying data as ‘robust’ when in fact those documents it refers to do acknowledge the gaps in their data and the fact that caution needs to be exercised. For example, in the report on the evaluation of the Consumer Rights Directive, it is noted that stakeholders could not provide quantitative estimations on the impacts of the CRD as they could not establish causality between increase in sales and CRD, on the side of benefits; yet, some examples of costs related to specific provisions have been provided (and given in Section 4) … The literature review has been sparse on the costs and benefits due to the short time since the Directive has been transposed (in addition MS have only got a requirement to report on the regulatory choices under Art. 29).

The report further explains that the only source of estimates is the impact assessment. The earlier impact assessment estimated the administrative burden to distance sellers according to the number of Member States they traded in and the different regulatory requirements. This, however, did not distinguish between the different Member States and an overhead figure applied to the total number of companies engaged in cross-border selling. Another limitation to the study, the Consumer Rights Directive report notes, is that the level of response to the online survey from traders and consumers has been rather low, despite reminders and engagement through social media … To compensate for this, additional data was collected through interviews with trade associations and other stakeholders but only from those willing to participate. This may, in turn, provide more weight to their arguments versus others that remained indifferent so their views may be over-represented in the study findings.

Yet, none of those limitations are acknowledged in the staff working document on impact assessment from the Commission. The conclusions of the fitness check, the Consumer Rights Directive report and other studies are taken at face value, not acknowledging the limitations of the methodology and data underlying them.61

59 SWD

(2018) 96 final. (2018) 96 final, part 1/3, 17. 61 SWD (2018) 96 final, 12–18. 60 SWD

The REFIT Process in Consumer Protection  25 Results, as a consequence, continue to be skewed by improper calculations and policy choices are nudged in directions that a correct weighting of the evidence may not have led to. Besides, other issues with the data and its interpretation reside with the fact that much of the research rests on qualitative data. When this is the case, interviewers and interviewees have a highly subjective approach. They tend to ‘maximise the time that they spend on the administrative burden in order to justify their own usefulness’.62 More concerning is the fact that results may be distorted due to extrapolations and generalisations based on interviews and seminars, sampling or surveys. Van Boom noted, regarding the proposal for the Consumer Rights Directive, that the green paper on the revision of the consumer acquis yielded over 300 responses. From those responses, the Commission concluded that 62 per cent were in favour of maximum harmonisation. In fact, on closer inspection, Van Boom found that the majority of business representatives favoured maximum harmonisation while consumer representatives predominantly favoured minimum harmonisation. But as the two groups are unequally represented, the amalgamation of statistics creates a narrative in favour of the businesses’ preferred position. In the fitness check, the terms of reference required that the provider proceed with interviews, surveys, stakeholder events and case studies63 seemingly without safeguarding for extrapolations and generalisations. The fitness check’s findings were based on one to two legal experts per Member State being consulted, 255 interviews conducted across the entire EU in ministries, enforcement bodies, consumer organisations, business associations, a consultation of SMEs totalling 291 businesses including five responses from companies larger than 250 employees, 436 responses to a public survey for the entire EU and concerning the Injunctions Directive, the team received 29 responses from only 21 Member States. It is clear that it is not possible to have 100 per cent response rates, but there seems to be little 62 van den Abeele (n 41) 15. 63 Fitness Check (n 25) 14: ‘To respond to the general and specific evaluation questions, the Contractor will carry out as a minimum the following data collection activities in the 28 Member States, based on questionnaires to be prepared in coordination with the Commission: –– –– –– –– ––

Interview national consumer enforcement authorities, responsible ministries and the relevant national regulatory authorities in the selected areas where sector-specific EU consumer protection rules exist as well as the European Consumer Centres (ECCs); Interview national consumer associations (as well as their EU umbrella associations), including associations active in the selected areas where sector- specific EU consumer protection rules exist; Interview business associations (as well as their EU umbrella associations), including associations in the selected areas subject to sector-specific EU consumer protection rules (i.e., all major business organisations in each of the Member States); Perform “case studies” with individual companies: at least 5 small-size and 5 micro companies per Member State, active in retail trade and e-commerce as well as trading cross-border in the EU. The Contractor will prepare, in coordination with the Commission, an appropriate questionnaire for each target group.’

26  Christine Riefa concern for how representative the data collected may be. The number of businesses in particular seems rather low for a study that spans the entire EU and effectively all business sectors. Yet, in the impact assessment, business groups are often given more weight than that of other stakeholder groups.64 Similarly, a market of nearly half a billion does not seem sufficiently represented by 436 responses to a public survey. In the Consumer Rights Directive, findings were based on 255 ‘complete’ responses from consumers. While the number is low it might have been encouraging to read that complete responses were received. However, on closer inspection a ‘complete’ response was complete when only one question had been answered. Besides, only 24 ‘complete’ responses were received from national consumer associations compared to 157 from traders. There were only 24 responses from enforcement authorities and 16 from ministries.65 Of course, the wider the study, the higher the costs, and budgets commissioning those studies are limited. However, given the importance given to the results and the impact they have on changing the course of policy making and the legislative process, it seems important to require that a certain amount of data be collected and from a variety of sources, if results are to be presented as quantitative or qualitative rather than anecdotal. This should urge the EU to put in place adequate, consistent and systematic ways of measuring impacts if it wants to rely on useful evidence in future. For the time being, as one reviews legislative proposals, caution should be applied regarding the significance of the data presented as a means to justify a particular course of action. In the impact assessment for the New Deal it is regrettable that it is only in a footnote in Annex 2 that one can read: ‘it is important to note that the consultations are not statistically representative of the target population’.66 It therefore seems indispensable that any impact assessment or other document that will influence policy making comes with a ‘health warning’ and that more than a few lines are spent explaining the robustness of the data. Due regard to the quality of the data should be improved and in any event information on the quality should be made sufficiently prominent to enable all involved in the legislative process to consider any deficiencies.

D.  Impact Assessments as Hurdles to – Not Guardians of – Quality? There are clear differences in the way the European institutions have approached and applied the Better Regulation Agenda. The Commission Communication of 2015 explains that for example, between 2007 and 2014, the Commission produced over 700 impact assessments; in the same period, the European Parliament assessed the impact of around 20 64 eg SWD (2018) 96 final part 1/3, 84. 65 For details of the stakeholders’ consultation in the New Deal, see SWD (2018) 96 final, part 2/3, Annex 2. 66 SWD (2018) 96 final, part 2/3, Annex 2, 14.

The REFIT Process in Consumer Protection  27 of its amendments, while the Council assessed none. Only rarely do the co-legislators begin their consideration of a proposal with a proper review of the Commission’s impact assessment.67

The Council of the European Union and Parliament therefore do need to play their role as counter-balances and watchdogs in order to ensure that the legislation that reaches the book is the best it can be. This is particularly critical as the methods and process by which the Commission arrives at the impact assessments it puts forward is far from ideal. There is some evidence that impact assessments can suffer from being far too easily manipulated to the institution’s agenda, reinforcing the need for robust scrutiny. From a series of seven case studies of impact assessments in different policy areas, Van den Abeele notes: we would conclude that the IA [impact assessment], despite all the existing guidelines, is a system that operates to order, depending on the wishes of the Commission and other discreet influences. Sometimes the Commission ignores the IAs and withdraws proposals that are, however, essential (Clean Air and Circular Economy packages), and sometimes it does not carry out IAs even though it is felt that they are needed (industrial policy) or the consequences on the real economy and on the life of European citizens demand it (economic governance). It also sometimes overestimates the expected impact of legislation (electronic invoicing for micro-enterprises) or negotiations (TTIP). Lastly, sometimes it disregards the opinion of the social partners, although favourable, and dismisses an initiative (hairdressers). In short, the practice of impact assessments would gain from being systematised and strengthened, particularly the environmental and social aspects, without their results being prejudged. This once again raises the question of a common, clear and transparent methodology.68

In any event, all institutions have a different way to assess the content of impact assessments and review their findings. Parliament has a unit monitoring impact assessment, the Ex-Ante Impact Assessment Unit, which conducts fitness checks of the impact assessments produced by the Commission. It studies their solidity, consistency and completeness. This unit examines the Commission’s roadmaps on legislative proposals and undertakes an initial appraisal of all the Commission’s significant impact assessments to check that all relevant criteria have been met and to identify the strengths and weaknesses of the text.69 At the Commission, the quality of impact assessments is monitored by the Regulatory Scrutiny Board (RSB),70 which replaces the Impact Assessment Board. But this process also has its limitations. First, when reviewing impact assessments, the board can take into account a number of concerns including subsidiarity and proportionality. Reviews follow a template, but the methodology is still a work in progress. The 2017 report announced



67 European

Commission (n 1) 8. den Abeele (n 41) 62. 69 Van den Abeele (n 41) 41. 70 https://ec.europa.eu/info/law/law-making-process/regulatory-scrutiny-board_en, accessed 15/1/2019. 68 Van

28  Christine Riefa measures to improve the way impact assessment and their reviews were conducted and assessed.71 Second, all impact assessments and the opinions of the board are only published online once the Commission has adopted the relevant proposal. As a result, it is not possible for third parties to benefit from the expertise of the board at a time where they can use the information to inform negotiations on the legislative proposal. It also means that it can be difficult to evaluate exactly what has been changed in an impact assessment that was originally rejected and to identify the additional work carried out. The Commission tends to identify if changes were made, but the details can remain rather vague. Concerning the New Deal, for example, the RSB initially issued a negative opinion concerning the impact assessment. Part of the concern had to do with the presentation of stakeholders’ views prompting some corrections ensuring they were separated by respondents’ groups and explained in more detail. Even so, we regret that the portrayal of some of the results remains capable of misinterpretation and we were not able to ascertain exactly how the criticism of the board was worded or framed in the absence of publication of the document. All other changes related to a lack of depth and details in the way options were presented and impact assessed. In particular, the Commission reworked section 6 on social impacts in chapter 6,72 adding further information on impacts on vulnerable consumers, a part that was missing in the original assessment. Yet, the analysis added remains rather simplistic, and only features where the measure is shown to clearly benefit vulnerable consumers (as is the case, for example, with the improved measures on improving enforcement).73 With a view to improving regulation making, the Commission proposed some changes to the Inter-Institutional Agreement.74 But not all changes are to be welcomed. The use of impact assessments, which used to be reserved to only big legislative projects, has been gradually expanded and is being used at an even earlier stage of the policy cycle to cover non-legislative proposals.75 While first designed to improve quality, impact assessments have become hurdles to be cleared. Their multiplication across the entire legislative process can lead to inefficiencies and add to the cost and length of procedures. Indeed, the Interinstitutional Agreement requires that any substantial amendment by the Council or the European Parliament to a Commission proposal must now

71 Regulatory Scrutiny Board, Annual Report 2017, https://ec.europa.eu/info/sites/info/files/rsb-report2017_en.pdf, accessed 15/1/2019. 72 SWD (2018) 96 final, part 1/3, para 6, Chapter 6, impacts of the policy options, 50. 73 SWD (2018) 96 final, part 1/3, para 6, 55, 59 and 61. It is missing from the impact assessments on other aspects of the proposed New Deal or barely developed; eg, at para 6.2.3, on social impact: ‘Enhancing consumer protection in the digital area might be more effective for vulnerable consumers that are more likely to experience problems when using “free” digital services.’ 74 Interinstitutional Agreement on Better Law-making, OJ L 123, 12.5.2016, 1 http://eur-lex.europa.eu/ legal-content/EN/TXT/?uri=OJ:L:2016:123:TOC, accessed 10/1/2019. 75 van den Abeele (n 41) 17.

The REFIT Process in Consumer Protection  29 undergo a mandatory impact assessment, whereas they were only optional in the 2003 interinstitutional agreement. To put this into context, prior to the adoption of the new Interinstitutional Agreement, case law confirmed that the legislature must be allowed a broad discretion, and that impact assessments were not binding on the Council and Parliament, who could request amendments to the legislation scrutinised.76 The CJEU explained that it is necessary to ascertain whether, in exercising its discretion, the European Union legislature attempted to achieve a degree of balance between, on the one hand, the protection of health, environmental protection and consumer protection and, on the other hand, the economic interests of traders, while pursuing the objective assigned to it by the Treaty to ensure a high level of protection of health and environmental protection.77

This case demonstrated that impact assessments were tools but could not prevail over the political assessment made by the legislative apparel of the European union.78 Yet, the Commission Communication of 2015 explains: it should be the responsibility of the Council of the European Union and Parliament to carry out an impact assessment on any substantial amendments they propose during the legislative process. Where the European Parliament and the Council find an agreement significantly different from the initial Commission proposal, they should assess the likely economic, social and environmental impact and regulatory burden before any final decision is taken.

This measure is therefore particularly worrying for the chilling effect it may impose on the legislative process. It seems that it overrides pre-existing case law to some degree. Adding a hurdle in this way is more likely to result in bad legislation being let through, or only ‘tinkering around the edges’ with minor amendments, rather than encourage proper scrutiny by the Parliament and the Council.

E.  Sub-optimal Consumer Representation in Stakeholder Groups The lack of identification of consumers’ direct needs in the REFIT or Better Regulation Agenda may have some direct correlation with the fact that their representation is not optimal. The problem therefore appears at first glance to be

76 Case C343/09, Afton Chemical Limited v Secretary of State for Transport), EU:C:2010:419. The case indeed concerned atmospheric pollution. 77 Afton Chemical, (n 74) para 56. 78 However, Leczykiewicz explained that even if an impact assessment predicted extensive costs for consumers it would not be at all certain that a legislative objective would be rejected as disproportionate by the Court. See D Leczykiewicz, ‘Regulatory Cost and the Consumer’, in D Leczykiewicz and S Weatherill (eds), Images of Consumers (Oxford, Hart Publishing, 2016) 277.

30  Christine Riefa numerical. For example, the REFIT platform, which assists in consulting stakeholders, hosts a number of stakeholder groups. BEUC is the only consumer representative. It is an isolated voice amongst another 18 stakeholders in the REFIT stakeholder groups. Other participants overwhelmingly represent business interests and small elements of civil society.79 The lack of consumer representation continues in other settings. For the Consumer Rights Directive report for example, there were double the number of trade associations interviewed compared to the consumer associations giving interviews.80 In the same vein, the way in which the consultation of stakeholders takes place has the potential to further influence the process to the disadvantage of consumers. Indeed, in recent years, stakeholder consultation has developed to a point where one can wonder if stakeholders’ consultation has not in fact replaced the European Economic and Social Committee’s and the Committee of the Regions’ role in the legislative process or at least very much lessened the impact those institutions had in the process. Van den Abeele notes: ‘It straightaway appears that not all stakeholders are equal in the expertise that they hold and the information that they can access, and therefore in the influence that they can exert over the European process.’81 He worries that the system put in place by the First Vice-President aims to ‘bypass’ the entire democratic consultation chain: experts from the Member States and social partners in particular, to the benefit of a new category of actors whose legitimacy must be questioned, particularly as their influence will be difficult to monitor.82

He adds, we must note that a paradigm shift seems to be occurring in the European Union. The delegitimisation or sidelining of actors instituted by the Treaty on the Functioning of the European Union (social partners, EESC, CoR) to the benefit of a new category of actors – ‘high-level’ experts, consultants, stakeholders – is worrying because, paradoxically, a new form of opaqueness is developing, which is perhaps more dangerous than the dysfunctions in the current system. If we involve these new actors in the process from start to finish, even before the democratic procedure has been initiated, this will open the door to hidden influences.83

It is not possible to assess whether or not Van den Abeele’s worries are justified in practice. However, on the point of principle, and having noted that consumer representatives tend to be thin on the ground in stakeholders’ groups, it is perfectly legitimate to call for better representation of consumers as well as more open 79 REFIT platform stakeholder group list, https://ec.europa.eu/info/law/law-making-process/evaluating-and-improving-existing-laws/refit-making-eu-law-simpler-and-less-costly/refit-platform/ refit-platform-members/refit-platform-members-stakeholder-group_en. 80 Study on the application of the Consumer Rights Directive 2011/83/EU (n 25) 12. 81 Van den Abeele (n 41) 26. 82 Van den Abeele (n 41) 26. 83 Van den Abeele (n 41) 28.

The REFIT Process in Consumer Protection  31 processes. This coupled with the deficiencies in the impact assessment and fitness checks processes, highlighted above, confirm that the odds are indeed stacked against consumers.

V.  Distorted Data Quality, Consumer Representation and Framed Narrative – Case Study on the Right of Withdrawal in the New Deal Proposal The New Deal proposal sought to make changes to the right to withdraw granted to consumers who buy at a distance on the basis that ‘several’ business stakeholders expressed concerns on the right of withdrawal from distance and off-premises sales regarding: (1) the consumer’s right to return goods that have been used beyond what is strictly necessary; and (2) the obligation to reimburse the consumer even before receiving the goods back from the consumer. This case study only focuses on the former. The impact assessment explains that within the Consumer Rights Directive evaluation, business stakeholders reported regulatory costs associated with the consumer right also to return unduly tested goods. Specifically, traders found it difficult to assess the ‘diminished value’ of the returned goods and to resell them as second-hand goods.84 The danger that the Consumer Rights Directive report highlighted was that if consumers at a large scale exercise their right of withdrawal even after having used a good more than allowed, it would indeed risk distorting the right balance between a high level of consumer protection and the competitiveness of enterprises pursued by the Directive in accordance with its recital 4.85

However, when looking at the finer details, it transpires that the version of events the Commission takes on board is distorted. First, the proposal and impact assessment do not offer any consideration for the fact that the right to withdraw has a protective purpose and that it has already been eroded in previous reforms. Indeed, the impact assessment omits to explain that the current legislation enables businesses to retain some of the monies paid when the use of the goods has gone beyond what is necessary to assess the suitability of the goods as would have been done in a shop. Second, it does not seem reasonable that businesses struggling to understand a legal concept and applying it in practice ought to lead to considering its removal, especially when the below points are also considered. The impact assessment notes that close to 50 per cent (48 out of 99) of SMEs from across only 15 Member States responding to the SME panel consultation replied that they face disproportionate burden due to these obligations at least

84 SWD 85 SWD

(2018) 96 final, part 1/3, 29. (2017) 169 final, 39.

32  Christine Riefa ‘sometimes’ or ‘rarely’ in relation to unduly tested goods.86 What this in fact means is that it is either rare or happens only sometimes for a business to think it has faced a disproportionate burden. Instead, the issue is billed as widespread (close to 50 per cent instead of saying below 50 per cent which is in fact statistically the case, since the exact percentage is 48.48 per cent). The Commission portrayal also fails to point out that Annex 13 on additional data on rules on the right to withdraw explains that, in fact, the majority of SMEs selling to consumers online replied that they NEVER faced disproportionate burden related to the legal obligation to accept the return of ‘unduly tested goods’ (51 out of 99 businesses).87 In addition, the results from the public consultation showed that only 28 per cent of SMEs (26 out of 92) have experienced at least one instance where withdrawal relating to unduly tested goods created a problem. For larger businesses, the wording used in the impact assessment is again misleading. It states that close to 50 per cent have experienced problems at least once, when in fact the actual percentage is 47.05 per cent and the sample is limited to 17 companies. As a result, the total sample of 191 SMEs and 17 larger businesses is used as a basis for policy making. This overall small number of businesses was deemed representative of the true difficulties that may be encountered with the way the right to withdraw applies. It was used as a basis to extrapolate and adopt legislation proposing to remove the right to withdraw for unduly tested goods. Worse, 67 per cent of SMEs and 41 per cent of larger businesses replying to the same public consultation chose the answer ‘I do not know’88 and were thus unable to report how affected they may be. Besides, very few respondents provided qualitative data/estimates. 12 respondents (out of which 10 micro-companies, 1 large company and a national business association) indicated that, on average, 20 per cent of goods are ‘unduly tested’ in proportion to all returned goods.89

Meanwhile, the impact assessment also reports that close to 50 per cent of the consumer associations (7 out of 16) and more than 50 per cent of the public authorities (10 out of 16) acknowledged that the right of withdrawal for unduly tested goods creates disproportionate/unnecessary burden for traders, to a ‘large’ or ‘some’ extent.90 What the document fails to highlight in the main section but can be uncovered on reading Annex 13 is that in fact, 30 consumer associations were consulted but only 16 out of 30 did offer a response on this question.91 What this means is that abstention has been counted against consumer associations when in fact it should have been interpreted as indicating that no problems were perceived or that the



86 SWD

(2018) 96 final, part 1/3, 29. (2018) 96 final, part 3/3, 30. 88 SWD (2018) 96 final, part 1/3, 30. 89 SWD (2018) 96 final, part 1/3, 30. 90 SWD (2018) 96 final, part 1/3, 30. 91 SWD (2018) 96 final, part 3/3, 30. 87 SWD

The REFIT Process in Consumer Protection  33 association did not have an opinion. Interestingly the question they had to answer was: Do you consider that traders face unnecessary and/or disproportionate burden due to the following obligations related to the right to withdraw? The question then goes on to list the issues. In fact, it seems that a more balanced interpretation is that 23.33 per cent of consumer associations acknowledged that the right of withdrawal for unduly tested goods creates disproportionate/unnecessary burden for traders to a ‘large’ or ‘some’ extent92 rather than the close to 50 per cent the Commission chose to highlight. In addition, Annex 13 also reveals that most consumer associations (14 out of 15), Member States’ authorities (12 out of 16) and the ‘others’ category (5 out of 8) consider the right of withdrawal for unduly tested goods are ‘rather’ or ‘very’ important.93 There is therefore strong support for the right to be maintained but this is not conveyed by the Commission in the main part of the impact assessment and instead is drowned in the small print in Annex 13. The impact assessment therefore builds the impression that the right of withdrawal is problematic and that this is a view shared by businesses, consumer associations and national public authorities, when in fact this is not supported by the underlying data. It goes on to look at only one option – Option 1: removing specific obligations for traders related to the right of withdrawal in the Consumer Rights Directive,94 when in fact, based on the data discussed above, at least the option of maintaining the status quo ought to have been envisaged, alongside a range of other options aimed at assisting smaller businesses that may be more directly affected than larger ones. Ensuring that businesses were adequately trained to understand the status quo and make adjustments to refunds for ‘diminished value’ ought to also have featured. The single option considered is based on the fact that SMEs reported annual losses on average of €2,223 (range: 0 – €13,500, median: €100) for SMEs,95 from data collected amongst a small sample and the unsubstantiated view is that the burden is likely to increase in future.96 The document states that it is not possible to quantify the exact amount of cost savings but that repealing this obligation would reduce costs for traders. Conversely, no assessment of the impact of such a measure would have on consumers and on the way online sales may be affected if consumers were to no longer have a right to withdraw even when having used the goods more than they ought to have done, is found in the assessment. Instead, the assessment claims that removal of the right to withdraw for unduly tested goods would also have the positive effect of eliminating disputes regarding the diminished value of the goods and the resulting consumer’s liability that they explain can go up to 100 per cent of the value when the goods cannot be resold. However, this is misleading because it implies that when consumers no longer have a right to return goods

92 SWD

(2018) 96 final, part 1/3, 29. (2018) 96 final, part 3/3, 30. 94 SWD (2018) 96 final, part 1/3, 74–75. 95 SWD (2018) 96 final, part 1/3, para 8.4 REFIT Cost Savings – preferred options, 91. 96 SWD (2018) 96 final, part 1/3, 74. 93 SWD

34  Christine Riefa they would have effectively used beyond what would have been done in a shop, no disputes will emerge. Yet, the assessment itself acknowledges that although disputes regarding the value lost would disappear, proof would still have to be established as to whether or not the goods were used beyond this point. Therefore, while the topic in dispute may change, the likelihood of dispute would not. In addition, the impact assessment further adds that ‘although the exact amount of cost savings cannot be estimated, the potential cost reduction for traders could lead to price reduction to consumers and increase of consumer sale, including cross-border’. This statement is absolutely not supported by any evidence and yet underpins how the measure would promote the smooth functioning of the internal market. There are further puzzling statements included in the impact assessment. For example, the claim is made that the costs for dispute resolution bodies and public authorities are likely to diminish since there will be no disputes about the calculation of the diminished value of the goods. Yet, we have already explained that this is unlikely to be true since disputes as to whether or not the goods were used beyond what is allowed are likely to continue emerging. Here again, the assessment contains a one liner, not backed by any evidence. There are also no costs attached to the fact that Member States would have to change their national laws. Finally, the assessment claims that the removal of the right to return unduly tested goods would increase legal clarity. Whereas the Commission relied on evidence that ‘traders found it difficult to assess the “diminished value” of the returned goods’ to instigate the removal of the right, it does not seem to even envisage that consumers too may be confused as to whether the use of the goods goes beyond what the law intended. There is also absolutely no concern for the fact that consumers may interpret the removal of the right of withdrawal for unduly used goods as a removal of a right of withdrawal altogether. Based on these findings from the Commission, Article 14 Consumer Rights Directive dealing with the obligations of the consumer in the event of withdrawal was amended by removing the right of consumers to return the goods even where those have been used more than necessary to test them subject to the obligation to pay for the diminished value. The deficiencies of the underlying methodology and process to arrive at the legislative proposal on this aspect of the right of withdrawal is a clear example of how odds are stacked against consumers. This proposal bears no resemblance with the actual analysis of the data available and would have, no doubt, been d ­ etrimental to consumers if adopted. This was, however, a trade-off between consumer protection and reduction of burdens for traders the Commission was willing to take, because it ‘will affect only those consumers who are not diligent or even abuse the withdrawal right by not exercising the required level of care’.97 This position completely overlooked the fact that not only the current legislation was able to deal with those careless consumers by enabling business to retain value from the

97 SWD

(2018) 96 final Part 1/3, 89.

The REFIT Process in Consumer Protection  35 refund offered up to 100 per cent, but also that changing the right to withdraw may create confusion amongst consumers (and businesses too) and thus lead to a further erosion of the right to withdraw even when the consumer has only tried the goods. Many businesses already insist that goods are only refundable if the goods are returned in original packaging and with all tags attached. Many also do not reimburse the cost of the return. In addition, the position adopted also completely ignores and fails to investigate from a consumer’s point of view how much of a problem unfair retention for diminished value by businesses may be.

VI. Conclusion Better Regulation is a laudable initiative. It would be hoped that in any legislative process, care is given to its efficiency and overall effectiveness. In consumer law, it makes sense that only legislation that can deliver tangible benefits is taken forward and that a balance is struck between the interest of consumers and that of businesses. Regrettably, there does not seem to be any real focus on what would constitute better regulation for consumers. The shorthand used is that if it is good for business it will necessarily benefit consumers. I have shown that consumer protection is at best only a by-product of better regulation and the REFIT process. The system is geared towards ensuring the competitiveness of businesses and the realisation of the internal market which can lead to a lowering of consumer protection standards rather than their improvement. In addition to structural issues, the methodology continues to stack the odds against consumers. The standard costs model struggles to capture consumers’ interests and assumes that more legislation is necessarily bad, when in fact for many consumers, legislation and public enforcement may be the only real chance at protection.98 Impact assessments and other key documents are often nudging towards business-friendly solutions and many rest on distorted data. Besides, impact assessments, in particular, have become procedural hurdles to be cleared rather than act as real guardians of quality. In addition, consumer representation is sub-optimal in the entire Better Regulation and REFIT process compounding the problems already highlighted. Overall, odds are stacked against consumers. This is counterintuitive because good regulation for consumers may not necessarily mean more regulatory initiatives, full harmonisation or better procedural oversight. Instead, more systematic enforcement may already hold the key to higher levels of protection. On this point, some of the proposals in the New Deal are to be welcomed as they shed light on the need for better enforcement of rights. Nevertheless, the New Deal proposal also continues to suffer from looking 98 On this point, see P Siciliani, C Riefa and H Gamper, Consumer Theories of Harm: An economic approach to consumer law enforcement and policy making (Oxford, Hart Publishing, 2019).

36  Christine Riefa at punctual solutions in many areas (digital goods, online information, etc.) and using harmonisation as a leitmotif, without discussing the merits of a more drastic overhaul of the law. One criticism is that the fitness check could not lead to an adequate rethink of consumer law. The evaluations in the fitness check focused on specific areas as defined in the Terms of Reference.99 This piecemeal approach did not give much leeway to the evaluation team to err and dig in places where a fundamental rethink of the subject area would have been useful to truly improve consumer welfare. Yet, it seems that a more principled approach to consumer protection may yield better results for consumers although it may appear costlier in the short term and ironically may not pass the scrutiny of an impact assessment.

99 C Twigg-Flesner, ‘From REFIT to a Rethink: Time for fundamental EU Consumer Law Reform?’ 5 (2017) 6 Journal of European Consumer and Market Law 185–89.

3 REFIT or Rethink – The Politics of EU Research – A Grand Misunderstanding? HANS-W MICKLITZ AND AURÉLIE A VILLANUEVA* Evidence-based policy (EBP) is a term often applied in multiple fields of public policy to refer to situations whereby policy decisions are informed by rigorously established objective evidence. Underlying many of the calls for ‘evidence based policy’ is often a (stated or unstated) concern with fidelity to scientific good practice, reflecting the belief that social goals are best served when scientific evidence is used rigorously and comprehensively to inform decisions, rather than in a piecemeal, manipulated, or cherry-picked manner. (Wikipedia)1 ‘A scientist, whether theorist or experimenter, puts forward statements, or systems of statements, and tests them step by step. In the field of the empirical sciences, more particularly, he constructs hypotheses, or systems of theories, and tests them against experience by observation and experiment. I suggest that this is the task of the logic of scientific discovery, or the logic of knowledge, to give a logical analysis of this procedure; that is, to analyse the method of empirical sciences.’ (Karl Popper)2

I.  The Hypothesis Assessing existing legislation can be seen as an instrument to implement a predefined political agenda or as an opportunity for scientific research. This distinction is well established. On the one hand there is evidence-based policy3 dating back

* Hans-W Micklitz is Professor of Economic Law at the EUI; Aurélie A. Villanueva is a second-year PhD Researcher at the EUI Law Department. 1 https://en.wikipedia.org/wiki/Evidence-based_policy. 2 KR Popper, The Logic of Scientific Discovery (London, Routledge, 2002) 4. 3 Among the vast literature L Courtenay Botterill, Evidence-Based Policy (Oxford, Oxford University Press, 2017) https://oxfordre.com/politics/view/10.1093/acrefore/9780190228637.001.0001/acrefore9780190228637-e-177. With regard to consumer policy K Hagen and others, ‘Check Verbraucherpolitik Und Verbraucherbeteiligung’ – Empfehlungen Für Eine Evidenzbasierte Verbraucherpolitik’ (2013) 8 Journal für Verbraucherschutz und Lebensmittelsicherheit 61.

38  Hans-W Micklitz and Aurélie A Villanueva to the 1990s. On the other there is Karl Popper, the protagonist for fundamental research.4 In 2012 the European Commission launched the Regulatory Fitness and Performance Programme (REFIT).5 The Commission mapped the EU legislative framework in order to ‘identify burdens, gaps and inefficient or ineffective measures including possibilities for simplification or repeal’.6 In 2013 the Commission presented the results along with smart regulation tools (impact assessment, evaluation, stakeholder consultation) and measures taken to ensure that legislation is fit for purpose.7 What is it that the Commission is asking for? Evidence-based policy? Policy-based evidence? Research? What kind of research: fundamental research, policy-driven research? The distinction gets all too often confused. Politics and academia tend to present as research what is in truth evidence production. We argue that REFIT runs the risk of serving as policy-based evidence. The confusion about what exactly REFIT stands for results in a missed opportunity. RETHINK instead of REFIT should be the political and legislative agenda command of the day. This chapter focuses on consumer law and audiovisual media services law. The two fields entered the European legal sphere in the early 1980s. Thirty years later, consumer law and the Audiovisual Media Services Directive (AVMSD)8 are scrutinised under the Regulatory Fitness and Performance Programme. The REFIT evaluations were planned to ensure that the legislation is fit for purpose and passes the self-set benchmarks for the evaluation.9 Both fields are intrinsically linked to the liberalisation policies of the EU in the aftermath of the Single European Act, which entered into force in 1987. The Internal Market policy put pressure on the welfare state model, on the emphasis of ‘protection’ and on state incumbents acting as the sole provider of a variety of public services. The rise of European consumer law goes hand in hand with the decline of consumer protection law in the Member States. Time to RETHINK?10 The chapter does not intend to provide a stock taking of the substance of European consumer law and European media law. Its direct concern is not whether the protective outlook of consumer law has vanished or whether the liberalisation of the media is better for the society than public broadcasting. Nor is it interested in

4 KR Popper, The Logic of Scientific Discovery (London, Routledge, 2002) 4. 5 European Commission, ‘Communication on EU Regulatory Fitness’ COM (2012) 746 final. 6 European Commission, ‘Staff Working Document Regulatory Fitness and Performance Programme (REFIT): Initial Results of the Mapping of the Acquis’ SWD (2013) 401 final (Commission REFIT mapping) 4. 7 European Commission (n 6). 8 Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services ­(Audiovisual Media Services Directive) (2010) OJ L95/1 (AVMSD 2010). 9 European Commission (n 6) 152–54. 10 GG Howells, C Twigg-Flesner and T Wilhelmsson, Rethinking EU Consumer Law (London, Routledge, 2018).

REFIT or Rethink  39 the complicity between the Member States and the EU in the transformation of consumer and media policy and what it implies for the people. The focus lies on how the European Commission instrumentalises evidence production for predefined policy objectives under the REFIT programme. Such a finding, if correct, has huge implications for the future of what might be understood as ‘research’ in European law. The EU is by far the biggest sponsor. It sets the agenda, it defines the rules of procedure and the methodology to be applied. The Lisbon Agenda 2000 catapulted the European Commission into pole position. The REFIT programme and the methodology are hardly understandable without the rhetoric of turning ‘the EU into the most competitive economy of the world’.11 Nearly 20 years later, the research landscape has changed. Consultancy firms are dominating the European research community. Young scholars building their career and being under pressure from their home university to raise funds are easy prey, hardly able to refuse unmanageable working conditions. In order to demonstrate how the political agenda of the EU is determining REFIT we will use the same structure of analysis for both fields, starting with the disclosure of the political agenda, analysing the REFIT tender if there is one, highlighting the findings of the evidence production, looking into the preparatory work for the proposed revision of the EU legislation under scrutiny and finally comparing the end product of the EU with the agenda. At the end of the ­chapter we will merge the two fields and draw preliminary conclusions on what could be termed the ‘grand misunderstanding’ – which involves putting policy-driven evidence production on an equal footing with RESEARCH.

II.  Consumer Law A.  The Agenda After the adoption of the Single European Act, the European Union was in a position to take the necessary regulatory measures to set benchmarks for the protection of consumers in the Internal Market. This was possible through the introduction of the new competence, then Article 100A (now Article 114 TFEU) and the adoption of secondary EU law by way of qualified majority decisions. The measures taken go back to the first and second consumer policy programmes of 1976 and 1981. The result is a dense network of consumer law rules with a focus on consumer contract law and consumer law enforcement.12

11 European Council Presidency Conclusions (Lisbon, 23 and 24 March 200) available at http://www.europarl.europa.eu/summits/lis1_en.htm. 12 S Weatherill, EU Consumer Law and Policy 2nd edn (Cheltenham, Edward Elgar Publishing, 2013); N Reich and others (eds), European Consumer Law 2nd edn (Antwerp, Intersentia, 2014).

40  Hans-W Micklitz and Aurélie A Villanueva In 2001 the European Commission joined forces with the European ­ arliament in the promotion of a European Civil Code. In 2002 the European P Commission adopted its new consumer policy programme, announcing the shift from minimum to maximum harmonisation to make European consumer law more effective and more efficient. The European Commission advocated the development of a consumer rights directive that systematised the existing rules, proposed the introduction of a general obligation of fair dealing and ­advocated a fully harmonised body of EU rules. This project failed, just as that of the ­European Civil Code failed.13 The Consumer Rights Directive, adopted in 2011, fully harmonises doorstep and distant selling, but does not touch upon the other areas of consumer law. The REFIT focuses on ‘consumer and marketing law’.14 A rather superficial explanation for the heading might be that the REFIT also covers the Directive on Misleading and Comparative Advertising which applies only in B2B relations. However, there might be more behind it. In DG Just, in the Consumer Directorate, there is a sub-unit on ‘consumer and marketing law’. It is not clear whether the new heading also indicates a shift in the direction of consumer policy and, if it does, what kind of direction it could take. The whole REFIT exercise is broken down into three parts. The major part covers six directives, the Unfair Commercial Practices Directive (UCPD), the Unfair Contract Terms Directive (UCTD), the Price Indication Directive (PID), the Consumer Sales and Guarantees Directive (CSGD),15 the Misleading and Comparative Advertising Directive (MCAD), as well as the Injunctions Directive (ID). The Consumer Rights Directive (CRD), which fully harmonises doorstep and distant selling, is evaluated separately, but in parallel to the REFIT.16 Other relevant consumer law directives

13 For a good overview on the interplay between consumer law and the Civil Code project see R Schulze, ‘Contours of European Private Law’ in H Schulte-Nölke and R Schulze, European private law: current status and perspectives (Munich, Sellier European Law Publishers, 2010). From one of the authors, N Reich and H-W Micklitz, ‘Crónica de Una Muerte Anunciada: The Commission Proposal for a ‘­Directive on Consumer Rights’ (2009) 46 Common Market Law Review 471. 14 Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC and Regulation (EC) No 2006/2004; Directive 93/13/EEC on unfair terms in consumer contracts; Directive 98/6 EC on consumer protection in the indication of the prices of products offered to consumers; Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees; Directive 2006/114/EC concerning misleading and comparative advertising; Directive 98/6 EC on consumer protection in the indication of the prices of products offered to consumers. 15 Two studies on the Consumer Sales and Guarantee Directive were tendered by the European Commission in a separate lot. See ICF International, ‘Study on the costs and benefits of the minimum harmonisation under the Consumer Sales and Guarantees Directive 1999/44/EC and of potential full harmonisation and alignment of EU rules for different sales channels’ (2017) available at ec.europa. eu/newsroom/document.cfm?doc_id=44638 and ICF International, ‘Study on the costs and benefits of extending certain rights under the Consumer Sales and Guarantees Directive 1999/94/EC’ (2017) available at ec.europa.eu/newsroom/document.cfm?doc_id=44803. 16 Directive 2011/83/EC on consumer rights amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council (2011) OJ L304/64.

REFIT or Rethink  41 on services (package tours, time share), on consumer law in regulated markets (­telecommunications, energy, financial services (credit and investment), transport) and on the Transborder Co-operation in Consumer Law Enforcement are not subject to a separate evaluation, but are to be integrated under the overall call for ‘coherence’.17 The REFIT does not cover the Product Liability Directive – which was evaluated separately18 – the Directive on Alternative Dispute Resolution (ADR), the Regulation on Online Dispute Resolution, the Rome I and II Regulation, the Brussels Regulation, the Small Claims Procedure and the European Payment Order Procedure. The seven Directives – the six plus the CRD – form the core of consumer contract law, as conceptualised in the 1970s. The REFIT does not deal with consumer law 2.0 nor with the possible relationship between consumer law 1.0 and consumer law 2.0.19

B.  The Tender, the Methodology and the Tasks In the context of the consumer law evaluation the Commission tendered four studies: the first on the fitness check of consumer and marketing law, the second on the cost and benefits of minimum harmonisation under the Consumer Sales Directive and of the extension of certain rights under the same directive, the third on the Consumer Market and the fourth on the Consumer Rights Directive. In order to keep track with the different procedural steps, the European Commission has set up a website which documents the procedural steps.20 We are mainly interested in the tendering process and methodology of the first study and how the European Commission is merging the overall findings of the four studies into one policy document. This allows for a useful comparison with the approach chosen in the AVMSD REFIT, where the study was not the subject of external tender but was rather carried out internally by the Commission itself. The tender of the first study on the fitness check of EU consumer law is 51 pages, written in English.21 The contractor is given 10 months to study six directives and their implementation in 28 legal systems. The report must be provided in accurate English that has been corrected by a native speaker.

17 European Commission, ‘Staff working document Report of the Fitness Check’ SWD (2017) 209 final (Consumer REFIT); see also European Commission, Executive summary of the Consumer REFIT, SWD (2017) 208 final (Executive Summary Consumer REFIT) 5. 18 European Commission, ‘Report on the Application of the Council Directive on the approximation of the laws, regulations, and administrative provisions of the Member States concerning liability for defective products (85/374/EEC)’ COM (2018) 246 final. 19 G Joost and others, Verbraucherrecht 2.0 – Verbraucher in Der Digitalen Welt (Baden Baden, Nomos, 2017). 20 See https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332. 21 European Commission, ‘Tender Specifications attached to the invitation to tender Study to support the Fitness Check of EU Consumer law’ JUST/A4/DS/kl ARES(2015) 5918980 (Tender).

42  Hans-W Micklitz and Aurélie A Villanueva The overall contract amounts to €900,000.00. The study shall be executed in the light of five parameters: Effectiveness: What progress has been made over time towards achieving the objectives of the directives subject to Fitness Check? Is this progress in line with the initial expectations? What is the level of compliance of businesses with their provisions? Which main factors (e.g. implementation by Member States, action by stakeholders) have contributed to or stood in the way of achieving these objectives? Beyond these objectives, have these instruments led to any other significant changes, both positive and negative? Efficiency: What are the costs and benefits (monetary and non-monetary) associated with the application of these legal instruments in the Member States? What good practices in terms of their cost-effective application can be identified? What, if any, specific provisions in these instruments can be identified that make a cost-effective implementation more difficult and hamper the maximisation of the benefits? In particular, what is the (unnecessary/cumulative) regulatory burden identified? What are the specific challenges to SMEs, in particular micro enterprises, with respect to the implementation of these instruments? Coherence: To what extent have the general principles and requirements set out in these legal instruments contributed to the coherence of consumer protection policy? To what extent have they proved complementary to other Union initiatives in the area of consumer protection? What, if any, specific inconsistencies and unjustified overlaps, obsolete provisions and/or gaps can be identified in relation to the entire EU regulatory framework in this policy area, including the forthcoming rules on online and other distance sales of goods under the DSM Strategy, and other pieces of Union legislation? How do they affect the application/performance of these instruments? How do the general EU regulatory framework and the interactions between the different instruments subject to Fitness Check affect their separate and overall impacts? Relevance: To what extent are the objectives of these instruments still relevant and valid? Are there any other objectives that should be considered in view of current needs and trends in consumer behaviour and in the markets? EU added value: What has been the EU added value of the consumer law directives in the context of national horizontal and sector-specific, both substantive and procedural consumer law, and civil and commercial law?

With regard to each directive, the tender contains a detailed description on what the parameters mean, and to which questions the contractors must find an answer. In fact, such methodologies are echoed in six tasks to be carried out by the contractor. The first four tasks consist in evidence gathering: 1) legal analysis; 2) literature review; 3) consultation (interviews, surveys, stakeholders’ events and case studies); 4) cost–benefit analysis. The remaining two aim at policy output: 5) recommendation for future actions; and 6) establishing problem definition and baseline scenario in line with the impact assessment. The contractor is given indications on which documents to consult, whom to question and how many people should be questioned.

REFIT or Rethink  43 The invitation to tender is meant to provoke competition between different tenderers. Every tenderer must set up a team, which covers the important areas of EU law, the legal systems in 28 countries. This is a project that involves more than 30 participants, and requires organisational management and financial monitoring. The latter can only be provided by specialised consulting firms. Everyone who is familiar with consumer law and consumer research knows about the scarce number of competent researchers. We would have liked to secretly observe the tender procurement, gained insight into the competence of the competence teams and learnt how the European Commission assessed the project teams and the hundreds and hundreds of pages that the applicants handed in. Not only the broad scope of the study and the actors involved but also the level of detail that is laid down in the tender as regards parameters, tasks and methodology ask questions about the nature of the project undertaken. It is questionable whether such a framework allows for findings or methodologies that fall outside of the frame set out in the tender. There is little leeway for other issues or concerns to be raised and evaluated, nor for alternative methods to be followed, nor for additional studies to be undertaken. The pre-setting in the tender thereby preconditions the work of the contractor. Civic Consulting won the tender for the first study on the fitness check and delivered within the given time.22 Civic Consulting set up a team of 60 persons, with reporters in each country. The list reads like the ‘Who’s Who’ of consumer law. The findings are available on the internet.23 This is how Civic Consulting gathered the evidence: Country analyses by legal experts in all 28 Member States (including a review of academic literature and evaluation of case law); a broad scale interview process at EU and Member State level, consisting of a total of 255 interviews with key stakeholder organisations (mostly ministries, enforcement bodies, consumer organisations, business associations) and an additional 282 business interviews in all 28 Member States; an open public consultation with a total of 436 responses; a survey of qualified entities under the Injunctions Directive which received 29 answers from 21 Member States; and a comprehensive analysis of costs and benefits of the legislation. The fieldwork and the analysis for the study were concluded in February 2017.24

Civic Consulting broke down the study into four parts. Part 1, the main report, explains the methodology and answers the questions raised in the tender with regard to the five evaluation parameters, one by one. Civic Consulting laid particular emphasis on the analysis of the effectiveness which makes up for

22 Civic Consulting, ‘Study for the Fitness Check of EU consumer and marketing law’, May 2017, available at https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332. 23 See https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332. 24 Civic Consulting, Executive summary, May 2017, available at https://ec.europa.eu/newsroom/just/ item-detail.cfm?item_id=59332 at 1.

44  Hans-W Micklitz and Aurélie A Villanueva one third of the main report. The other four parameters are equally balanced. Part  2 ­documents  the result of the open public consultation. Civic Consulting has received 436 responses to its questionnaire, from consumer and business. Part 3 – Country Reporting – covers a legal analysis of 28 legal orders along the line of a ­standardised set of questions and completed by interviews with the relevant stakeholders in the field. The focus is laid on the effectiveness of the respective directives in the national legal systems. Cross-cutting issues are cost–benefit analysis, coherence, relevance and added value. Each report is between 40 and 50 pages long. There is no comprehensive and separate comparative analysis. The 28 country reports are integrated into the cross-cutting issues, albeit to a different degree.25 Part 4 – ­Additional Evidence – is mainly composed of a set of interviews which are divided into those along the line of the use and implementation of the Injunctions Directive with the qualified entities and the other five directives with business in order to evaluate potential barriers in the application of the law as well as the potential costs and benefits. The four reports amount to 2,189 pages.

C.  The Findings and the Applied Methodology The main report sums up the findings with regard to the five parameters and concludes with a set of recommendations in the following words:26 The Study concludes that the legislative framework subject to this evaluation is to be considered broadly fit for purpose.

Overall the language is moderate. The report draws a comparison between the two horizontal directives, on unfair terms and unfair commercial practices, which are said to have improved the level of protection considerably, whereas the report is more critical on the enforcement deficits with regard to the Injunctions Directive. After the more general assessment the study dives into the five parameters one by one with regard to the directives under scrutiny. Civic Consulting finds the directives effective, that is, not raising major problems, setting aside the Injunctions Directive. As regards efficiency, Civic Consulting elegantly stresses the benefits of consumer law to society.27 Consumers can incur considerable costs, whereas for traders the benefits are likewise important, and the costs are proportionate. The main report discusses coherence of the Unfair Commercial Practices Directive and the Unfair Contract Terms Directive in relation to sector-related rules. Overall, there is claimed to be room for fine-tuning. On relevance, the Unfair Commercial

25 Civic Consulting (n 22) 3. The cross-cutting analysis was divided between E Terryn, C Willett, B Keirsbilck and P Rott. 26 Civic Consulting (n 22) findings at 249–68 and recommendations at 268–300. 27 Civic Consulting (n 22) 257.0

REFIT or Rethink  45 Practices Directive, the Unfair Contract Terms Directive and the Injunctions Directive provide a coherent legal framework together with EU legislation. The legal framework is relevant and an extension of the Unfair Commercial Practices Directive to B2B transactions or a revision of the Misleading and Comparative Advertising Directive is said to bring benefits for cross-border trade, provided remaining obstacles in the use of injunctions could be overcome. There is a clear EU added value as the Unfair Commercial Practices Directive, the Unfair Contract Terms Directive and the Injunctions Directive have increased the level of consumer protection and the latter has increased the potential for cross-border change. The improvement of consumer protection depends, however, on the status quo in the Member States before the EU took action. For example, the level of protection did not increase with the implementation of the Unfair Contract Terms Directive in the Netherlands, Denmark or Germany, where a high level of protection was already in place. The evidence relied on is the country reports, which inform on the practices in the implementation of the directives in the Member States. In the evaluation of effectiveness, an open public consultation and online questionnaire in 23 languages, targeted evidence collection regarding the use of the injunctions as well as country reports support the analysis. Efficiency is scrutinised in the light of a cost–benefit analysis of minimum and full harmonisation and interviews. The five methodological parameters carry the whole exercise. Civic Consulting does not discuss the limits and the politics of the predefined set of methodologies. The difficulties to measure effectiveness are well known. Despite all the enormous efforts undertaken it is striking to see how easily all these reservations are indirectly claimed to be overcome through questionnaires and interviews with stakeholders.28 Efficiency can be measured. However, where is acknowledgment of all the research undertaken in the US that shows that the poor pay for the rich consumers and that class action is the only serious remedy that could improve their ­situation?29 Coherence is tied to an internal understanding, one shaped by and within the rights and remedies of EU consumer law. There is no deeper debate on coherence, on the different meanings it might have for the ­shaping of consumer law, on its feasibility, on its desirability and on its added value.30 Discussing ­relevance implies a serious stock taking of the consumer problems in Europe, which is not possible due to the lack of a common statistical basis. But even if it

28 See the contributions in R van Gestel, H-W Micklitz and EL Rubin (eds), Rethinking Legal Scholarship: A Transatlantic Dialogue (Cambridge, Cambridge University Press, 2016). 29 O Ben-Shahar, ‘The Paradox of Access Justice, and Its Application to Mandatory Arbitration’ (2016) 83 University of Chicago Law Review 1755. 30 T Wilhelmsson, ‘The Contract Law Acquis: Towards more Coherence through Generalisations?’ (2008) 4 Europäischer Juristentag 111; D Kennedy, ‘Thoughts on Coherence, Social Values and National Traditions in Private Law’ in M Hesselink (ed), The politics of a European civil code (The Hague, Kluwer Law International, 2006).

46  Hans-W Micklitz and Aurélie A Villanueva existed, what is relevant for whom differs very much on the potential addressee, the vulnerable, the confident or the responsible consumer. What is totally missing is the societal dimension, the sociology of consumer law. This is not mandated in the tender and it is not included in the study of Civic Consulting. Indirectly, though, the sociological dimension is enshrined in the issue of ‘consumer problems’. The tender requests that the study should ‘identify … consumer problems which stem from the application of EU law or … are not regulated despite the market failure although a market failure could be ­identified’.31 The Civic Consulting Study puts quite some effort into the definition of consumer problems and identifies a list of markets and society drivers that take account of societal change, such as increasing levels of e-commerce and online B2C cross-border shopping; innovation in technology, increasing potential to target vulnerable groups of consumers; stagnant levels of awareness of EU consumer and marketing legislation.32 What is the European Commission making out of Civic Consulting and the other two lots? The cost–benefit analysis on the minimum harmonisation of the Consumer Sales Directive and the potential extension of the legal guarantee to three years has been executed by ICF International. GfK received the consumer market study, which consists of a survey questionnaire and a representative sample of proper GFK data; mystery shopping in the UCPD and CRD; and four behavioural experiments. In its consumer REFIT the European Commission merged the roughly 3,000 pages of the three studies into the five parameters: effectiveness, efficiency, coherence, relevance, EU added value and consumer problems.33 There are two ways to read the working staff document. One might admire how the European Commission is carefully using the findings of the three studies and how it completes them with empirical studies from previous times and from the Eurobarometer. The document presents the state of the art, how the European Commission works and how carefully it sticks in its analysis to the methodology that governs the tender and the three studies. Another way to look at the document is to realise how the five parameters dominate the process of evidence production and how they determine not only the arguments but also the possible outcome of the whole exercise. The methodology is the Procrustean Bed into which all data – economic, social and legal – have to squeeze to demonstrate a) that the six directives are basically fit for purpose and b) that some adjustments are needed to make them even fitter. It suffices to compare the findings of Civic Consulting with the Commission consumer REFIT. The chart provides for an overview and intends to highlight the potential differences.



31 Tender

(n 21) 22. Consulting (n 22) 225, 240, 257. 33 European Commission (n 17) 74–87. 32 Civic

REFIT or Rethink  47 Tender

Civic Consulting Study

EU Commission

Effectiveness

(1) Open public consultation – online questionnaire (2) Additional evidence collection (3) Country reports (4) Final report (pp 31–138)34

(1) Trust increased but problems stable (2) Substantive rules capable of addressing the problems (3) Better enforcement with increasing awareness (4) Other legislative and non-legislative actions to improve effectiveness

Efficiency

(1) Cost–benefit of minimum harmonisation (2) Cost–benefit of extending 99/44 (3) Country reports cross cutting (4) Final report (pp 139–64)

(1) Significant benefits (2) Estimated costs deemed proportionate

Coherence

(1) Market Study GFK offline-online (2) Final report (pp 165–90)

(1) Safety net UCPD + UCTD (2) Coherent rules online and offline

Relevance

(1) Country reports (2) Final report (pp 190–221)

(1) Consistent with market development and consumer behaviour

EU added value

(1) Country reports (2) Final report (pp 221–25)

(1) Harmonised rules to address enforcement more effectively

Consumer problem

(1) Country reports (to some extent) (2) Final report (pp 225–49)

(1) Fit for purpose: better knowledge + enforcement and targeted amendment.

According to the Commission, consumer trust generally increased and consumer problems are relatively stable, which demonstrates that the substantive rules in place are capable of addressing consumer problems. The objectives of the consumer protection directives should be improved through better enforcement and increased awareness. The Commission finds that the Unfair Commercial Practices Directive and Unfair Contract Terms Directive provide for a safety net, coherent online and offline. The content and objectives of the directives are relevant and consistent with market development and consumer behaviour. On the EU added value, the Commission notes that harmonised rules would address enforcement more effectively.



34 All

page numbers refer to the Civic Consulting (n 22) main report.

48  Hans-W Micklitz and Aurélie A Villanueva

D.  Political Action, Political Agenda Based on the three studies and the REFIT report the European Commission opened a public consultation.35 In April 2018 two proposals backed by an impact assessment were published as part of the policy programme presented as the New Deal for Consumers.36 Much ink has been spent on the details of the two proposals and the degree to which they improve the rights of the consumer. What matters is that the proposals of the Commission are in line with the evaluation questions formulated in the tender and the answers in the Civic Consulting and Commission REFIT reports. Overall, the Commission proposals fit into its self-set agenda and illustrate the path dependency followed by EU consumer policy. The first proposal remedies a set of deficiencies in the six directives under review. The second is the so far last attempt of the European Commission to introduce European minimum standards for compensatory collective actions. The European Commission instrumentalised the findings on the enforcement deficits of the Directive on Injunction to translate Recommendation 2013/396 into a binding legal instrument.37 What is the benefit of the whole exercise of the Consumer REFIT for consumer law, consumer policy and consumer research? Is the methodology apt to find out what the problems of the consumers are, whether the consumer problems are the same in the countries and in the societies? Jim Jarmush’s Night on Earth tells the story of five taxi drivers in Los Angeles, New York, Paris, Rome and Helsinki: Hans Micklitz was on his way to the Advisory Council for Consumer Affairs in Berlin. At some point the taxi driver asked him what he is doing and he tried to explain what the Advisory Council of Consumer Affairs is all about. The taxi driver listened carefully, harked back and concluded: The rich people do not need you. They can care for themselves. The poor people need you, but they have different problems. All what you are doing is to improve your own situation. 35 European Commission, ‘Consultation strategy Targeted revision of the EU consumer protection directives V.30 June 2017’, https://ec.europa.eu/info/sites/info/files/consultation-strategy-refit-followup-ia30june17.pdf. 36 European Commission, ‘Proposal amending Council Directive 93/13/EEC of 5 April 1993, ­Directive 98/6/EC of the European Parliament and of the Council, Directive 2005/29/EC of the European Parliament and of the Council and Directive 2011/83/EU of the European Parliament and of the Council as regards better enforcement and modernisation of EU consumer protection rules’ COM (2018) 185 final. European Commission, ‘Proposal for a Directive on representative actions for the protection of the collective interest of consumers and repealing Directive 2009/22/EC’ COM (2018) 184 final. European Commission, ‘Staff Working Document Impact assessment Accompanying the document proposals of directives (1) amending Council Directive 93/13/EEC, Directive 98/6/EC of the European Parliament and of the Council, Directive 2005/29/EC of the European Parliament and of the Council and Directive 2011/83/EU of the European Parliament and of the Council as regards better enforcement and modernisation of EU consumer protection rules and (2) on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC’ SWD (2018) 96 final. See also European Commission, ‘Communication A New Deal for Consumers’ COM (2018) 183 final. 37 European Commission, ‘Recommendation 2013/396/EU on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union law’ (2013) OJ L201/60.

REFIT or Rethink  49 Talking to taxi drivers and interviewing them might have told more about consumer problems in the European societies and it would have been much less costly.

III.  Audiovisual Media Services Law A.  The Agenda There are few sectors in our society that have undergone such a dramatic change in the last decades as that of what we have come to call Audiovisual Media Services. Until the 1980s the limited services, largely conventional broadcasting, were provided by state monopolies, financed through taxpayers’ money and through levies from the citizens. The technological revolution has not only changed the kind of services provided but also the behaviour of the citizens and with it the role and function of audiovisual services media in society. The Member States, perhaps with the exception of the UK, have left it by and large to the European Union to drive the transformation process, to transform incumbents into market players and citizens into consumers. From the first freemovement conflicts in the broadcasting sector, the approach of the ECJ and of the Commission has focused on the establishment of a common market for broadcasting alongside the liberalisation and privatisation of the sector.38 The concern of the fragmentation of national markets was addressed by the introduction of the country of origin principle which ensures free circulation and the establishment of a common market in broadcasting. The regulation of the broadcasting sector reflects an industrial policy of the EU that also has an external dimension, namely, to compete with (or to fight against the takeover by) the US broadcasting industry. The rules on the promotion of European and independent works are meant to ensure the distribution and creation of European content in order to counterbalance the US both industrially and culturally. The rules on country of origin and promotion of European and independent works are two fundamental principles of the regulation of broadcasting. They were introduced in the Television Without Frontiers Directive in 1989.39 The legal framework also includes rules on advertising and the protection of minors from harmful content. The directive was amended in 1997 and significantly revised in 2007 where its scope was extended to cover on-demand services. The directive was accordingly

38 Case 155/73 Sacchi ECLI:EU:C:1974:40; Case 52/79 Procureur du Roi v Marc J.V.C. Debauve and others ECLI:EU:C:1980:83; European Commission, ‘Green Paper on the establishment of the common market for broadcasting, especially by satellite and cable’ COM (84) 300 final. 39 Directive 89/552/EEC on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities.

50  Hans-W Micklitz and Aurélie A Villanueva renamed the Audiovisual Media Services Directive (AVMSD).40 The AVMSD is nowadays fully integrated in the EU digital agenda thereby extending to new forms of audiovisual media services, such as audiovisual content on online platforms, which entails that the scope of the directive has to be regularly adapted to technological evolution. We are interested in the work that led to the latest revision of the directive in 2018 and in the methodology the European Commission applied to bring its political agenda to fruition.41 In its 2013 REFIT mapping, the Commission announced the fitness check of the AVMSD.42 In 2016, the Commission published its ex-post REFIT evaluation43 and an impact assessment44 accompanying the proposal for the revision of the AVMSD.45 Contrary to the evaluation pursued in consumer law, it is by and large an in-house process under the auspices and the responsibility of the European Commission. However, we can identify very similar patterns in how knowledge is produced through a particular set of methodology to underpin and justify the predefined political agenda. Although the evidence production is less schematic than in the consumer law REFIT, the same five parameters are guiding the whole exercise. This allows the European Commission to drive its agenda forward. The extension of the scope of the directive and the introduction of rules on regulators strengthens the industrial/regulatory web and the Commission’s influence over the sector.

B.  The Tender, the Methododology and the Tasks The European Commission has not outsourced the AVMSD REFIT, nor has it launched a tender or commissioned external studies. The European Commission

40 Directive 97/36/EC amending Council Directive 89/552/EEC on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities; Directive 2007/65/EC amending Council Directive 89/552/EEC on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities. 41 Directive 2018/1808/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive) in view of changing market realities. 42 European Commission (n 6) 152–54. 43 European Commission, ‘Staff Working Document Ex-post REFIT evaluation of the Audiovisual Media Services Directive 2010/13/EU’ SWD (2016) 170 final (AVMSD REFIT). 44 European Commission, ‘Staff Working Document Impact Assessment accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services in view of changing market realities’ SWD (2016) 168 final (AVMSD Impact assessment). 45 European Commission, ‘Proposal for a Directive amending Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services in view of changing market realities’ COM (2016) 287 final (2016 AVMSD Proposal).

REFIT or Rethink  51 produced the necessary knowledge itself within a very particular frame which is largely due to the sectoral character of the services. The institutional framework between consumer law and media law differs considerably. In DG JUST a Directorate is dedicated to consumer law whereas in DG CONNECT a sub-section of the Media Policy directorate is dedicated to the AVMSD. This is intrinsic in the nature of the legal framework; consumer law is composed of multiple directives which are both sector-specific and cross-sectoral. The AVMSD covers a wide range of issues in one directive that is the main legal instrument for audiovisual media services in the field of media policy. These differences can to a certain extent explain why the Commission would outsource or instead carry out the study in-house. Along the line with the transformation process from state incumbents to a media market, the EU established reporting duties on the side of the Member States towards the European Commission and on the side of the European Commission towards the European Parliament and the Council. In order to understand the process of knowledge generation, it is therefore necessary to distinguish between the two levels and to look into the role of the European Commission and the criteria it imposes on the Member States in the collection of the information that forms the basis for what the European Commission is reporting to the European Parliament and the Council. The Commission provides in Annex 1 to the REFIT report procedural information on the evaluation. The collection of evidence took place between March and December 2015 and builds on information collected before and during the period of the evaluation.46 The evidence gathered before the evaluation period refers to previous reports of the Commission on the implementation of the directive. In accordance with the provisions of the Directive, the Commission reports every couple of years to the European Parliament and the Council on the implementation of the directive.47 The reports are publicly available in all official languages. Through this obligation the Commission regularly assesses the implementation of the AVMSD. There is accordingly an on-going evidence collection on the AVMSD, which can explain the fact that the study was carried out in-house rather than publicly tendered. Over the last decades the European Commission has shaped the reporting obligations of Member States. More particularly the Commission has encouraged

46 European Commission (n 43) Annex 1 59. 47 European Commission, ‘First Report on the application of Directive 2010/13/EU “Audiovisual Media Service Directive” Audiovisual Media Services and Connected Devices: Past and Future Perspectives’ COM (2012) 203 final; European Commission, ‘Second Report on the application of Directive 2010/13/EU “Audiovisual Media Service Directive”’ Ex-post REFIT, Annex 7 203–18 (Commission AVMSD Second Report). Art 33 AVMSD 2010 sets out the general reporting obligation of the European Commission. Arts 13, 16, 17 set out a specific reporting obligation on the Member States and the European Commission for the implementation of the provisions on European and independent works.

52  Hans-W Micklitz and Aurélie A Villanueva the Member States to follow a methodological framework for the national reports. The Member States have a specific obligation to report to the Commission on the application of the quota rules on European and independent works. According to the AVMSD, such reports shall include a statistical statement for each television channel under the Member States’ jurisdiction as well as reasons and measures to be taken when the quota is not complied with.48 The national reports are thereby always composed of two parts, one reporting the data and one justifying the data. From the first reports the Commission laid down guidelines as to definitions and data collection. With technological developments and the increasing number of channels and Member States the Commission fine-tuned its guidelines, shifting from providing a standard table to be filled in to instead elaborating performance indicators.49 Despite remaining differences in monitoring mechanisms at the national level, the national reports are nowadays harmonised. The justifications provided by the Member State are also impacted by this in that they are standardised compared to the explanations provided in the 1990s. In this sense, the qualitative aspects of the reports are fading, and the quantitative ones are taking over. This process of evidence standardisation qualitatively and quantitatively allows the Commission to synthesise the evidence easily in its reports to the European Parliament and the Council. The Commission thereby ensures its task is done in the most efficient manner. The scope of the AVMSD REFIT is broad. It covers the directive in its entirety, from its fundamental principles to its public interest objectives. The evaluation identifies one general and three specific objectives. Under the general objective fall the provisions on the scope of application of the directive and on country of origin. Under the specific objectives fall the public-interest objectives of the directive: the protection of viewers, the objective of cultural diversity pursued by the provisions on the promotion of European audiovisual production and distribution, and the promotion of media pluralism and freedom of expression. Contrary to the consumer law REFIT, the report is structured along the line of individual provisions which are assessed according to their relevance, effectiveness, EU added value, efficiency and coherence. This is due to the fact that there is only one directive under scrutiny. However, this directive covers a broad range of issues broken down into a whole set of consumer law directives. The evaluation questions are the following: Relevance: In a converging media environment, to what extent have the AVMSD rules proved relevant to the needs of the EU audiovisual market and to consumers/viewers? Effectiveness: To what extent have the general and specific objectives of the AVMSD been met? If not, what factors hindered their achievement? 48 Art 16(3) AVMSD 2010. 49 Respectively, European Commission, ‘Fourth report on the application of articles 4 and 5 of ­Directive 89/552/EEC “Television without Frontiers”’ COM (2000) 442 final; European Commission, ‘Sixth report on the application of Articles 4 and 5 of Directive 89/552/EEC “Television without ­Frontiers”’ COM (2004) 524 final.

REFIT or Rethink  53 EU added value: What is the additional value resulting from the AVMSD, compared to what could be achieved by Member States at national and/or regional level? To what extent do the issues addressed by the AVMSD require action at EU level? Efficiency: Did the AVMSD deliver good value for money, including for SMEs? Could the general and specific objectives have been achieved at a lower cost? Is there scope for streamlining and/or simplifying the procedures laid down in the AVMSD? Coherence: How well does the AVMSD work together with other EU regulatory and policy initiatives? To what extent does the AVMSD take into account potential interactions or conflicts with other EU initiatives?

The evidence collection methodology of the Commission is similar to the tasks imposed on the contractor in the consumer REFIT. The Commission collects the evidence as listed in Annex 1 along the line of the same four evidence-gathering tasks described in the consumer REFIT, although the AVMSD REFIT does not refer explicitly to such a mandate. This indicates that the Commission generally applies the same approach through the REFIT exercise whatever the area might be. In the legal analysis, literature review, consultation and cost–benefit analysis, the Commission relies on its reports on the implementation of the AVMSD, and on studies and reports by the European Parliament, the European Committee of the Regions or the European Economic and Social Committee or the regulators group.50 Desk research and literature review is carried out in-house by DG CONNECT. The Commission publicly tendered two studies.51 One asks three specific questions on the exposure of minors to alcohol advertising, which are answered based on responses to a detailed questionnaire. The other on the independence of regulatory authorities focused on criteria for independence and their effectiveness. It relies on country expert reports. There is a difference with the consumer law REFIT in that the Commission outsourced studies on very specific issues of the AVMSD rather than broad market studies. However, the process is not so different from the consumer law REFIT. The two studies support two of the main Commission proposals as regards rules on the protection of minors and the introduction of rules on independence of the audiovisual regulators. In addition, the European Commission organised numerous consultations and surveys, not

50 European Parliament resolution of 4 July 2013 on connected TV (2012/2300(INI)); European Parliament resolution of 12 March 2014 on Preparing for a Fully Converged Audiovisual World (2013/2180(INI)); European Parliament resolution of 19 January 2016 on Towards a Digital Single Market Act (2015/2147(INI)); European Economic and Social Committee Opinion on the ‘Preparing for a Fully Converged Audiovisual World: Growth, Creation and Values (Green Paper)’ COM (2013) 231 final (2013) OJ C341/87; European Committee of the Regions Opinion on the Review of the ­Audiovisual Media Services Directive (2017) OJ C185/41. 51 Two studies were outsourced: the Study on the exposure of minors to alcohol advertising on linear and non-linear audiovisual media services and other online services, including a content ­analysis, awarded to ECORYS and National Institute for Health and Welfare; and the Study on Regulatory Authorities’ independence and Efficiency Review (AVMSD RADAR) awarded to EMR Institute for European Media Law and the University of Luxembourg.

54  Hans-W Micklitz and Aurélie A Villanueva least on the AVMSD cost and benefits.52 As regards the output tasks, namely task 5 on the recommendations for future action and task 6 on the establishment of problem definition and baseline scenario, the Commission published an impact assessment accompanying the legislative proposal and the REFIT report.53 Despite the long list of evidence mentioned in the annex, the REFIT Report relies repeatedly on the 2015 public consultation and the Commission second report on the application of the directive. To a lesser extent, the REFIT report relies on the work of the audiovisual regulators group (ERGA), of the EU institutions or of the European Audiovisual Observatory (EAO).54 This can be explained, on the one hand, by the fact that both the public consultation and the report provide for the most up-to-date evidence since they were carried out in 2015, a year before the REFIT report. On the other, both the consultation and the second report on the application of the directive reflect the most refined policy state of play of the European Commission. They were elaborated on the basis of previous evidence, such as previous consultations and reports, thereby building on previous findings and asking relevant questions in light of the policy agenda.55 This can be seen as a pre-framing of issues according to previous evaluations. It illustrates how evidence production is adjusted to policy objectives.

C.  The Findings and the Applied Methodology The general conclusion of the REFIT finds the objectives of the AVMSD still relevant. However, it concludes that the rules are no longer fit to attain them in the light of the market developments brought by technological change. The main problems identified concern, first, the rules on consumer protection, which are only partially effective because of considerable changes in viewing patterns which expose consumers to content on platforms which are not or only lightly regulated by the AVMSD. Second, even if the rules of the directive have contributed to media freedom and pluralism, such values could be endangered by the different levels of independence of national regulators. There is a lack of coherence vis-à-vis other sectors where rules on the independence of regulators are in force. Third, from an economic perspective, the differentiated regulation of on-demand service providers and traditional TV broadcasters creates a competitive disadvantage for broadcasters. Finally, even if the AVMSD is an efficient regulatory framework, the evaluation has identified unnecessary regulatory burdens in the country of origin and advertising rules.

52 European Commission (n 43) Annex 1 59–63. 53 European Commission (n 44). 54 European Commission (n 43) Annex 1 59–63. 55 European Commission, ‘Green Paper Preparing for a Fully Converged Audiovisual World: Growth, Creation and Values (Green Paper)’ COM (2013) 231 final.

REFIT or Rethink  55 The parameters do not carry the same weight throughout the evaluation. Some parameters are overlooked whereas some are scrutinised in detail. The parameters of coherence and added value play a limited role in the evaluation of the provisions. They are usually limited to a few simplistic paragraphs. As to efficiency, the exercise often lacks a precise cost–benefit analysis. The Commission does not engage in an economic analysis. An economic analysis was also not outsourced. Overall, there is little quantitative data in the study. The data generally relates to market developments and viewing patterns and relies on statistics provided by online platforms and by the EAO. Considerable attention is devoted to relevance. In a market subject to rapid technological change it is necessary to ensure that the rules remain relevant. Effectiveness is the parameter scrutinised in more detail. It accounts for the achievements of the provisions and points to the margin for improvements in order to maximise the effectiveness of the AVMSD. Similarly, as in the consumer REFIT, there is an indirect sociological dimension under the parameter of effectiveness as problems are grounded and highlighted in the light of societal change. Despite this, the report lacks a socio-legal assessment of the regulation. This is true for both economic and non-economic objectives of the AVMSD. Along the structure of the AVMSD REFIT, whereby the different provisions of the directive are evaluated in the light of the six parameters, the parameters are applied with unequal thoroughness. In particular, parameters are scrutinised thoroughly where the Commission proposes an amendment to the relevant provisions of the directive. This is the case of the extension of the material scope of the directive or of rules relating to minor protection. This is also the case of the rules on the independence of regulators. The examination of such rules in the REFIT is peculiar as no such rules were in place (yet) in the AVMSD. The directive does not contain provisions on regulatory authorities, it does not require the Member States to create one, nor does it require the independence of existing ones. Article 30 AVMSD only refers to national regulatory authorities in the context of regulatory co-operation between the Member States. Yet the evaluation devotes a fairly long part to rules on the independence of regulators – six pages, where there is an average of three pages per provision in the report. A thorough evaluation is carried out. In order to show the effectiveness of such rules, the criteria laid down by the Council of Europe are applied to the national regulatory authorities.56 It is then demonstrated how the lack of standards on the independence of regulatory authorities compromises the objectives of the AVMSD, such as the objective of media pluralism. The conclusion reached, as to effectiveness, is that Article 30 ‘does not provide sufficient safeguards to an effective and coherent application of the AVMSD across the EU’.57 Efficiency could not be assessed as the provisions are

56 Council of Europe, ‘Recommendation on the independence and functions of regulatory authorities for the broadcasting sector’ (2000) Rec(2000)23. 57 European Commission (n 43) 44.

56  Hans-W Micklitz and Aurélie A Villanueva not yet in force. There is an intrinsic EU added value in setting up independence rules since it would ensure that the functioning of the audiovisual internal market is not undermined. It is further explained that the absence of rules on independence of regulators is not coherent with the regulatory standard in other fields such as telecommunications or energy. If the evaluation is carried out under Article 30 of the directive, it is a legal amendment that is scrutinised in the evaluation. This illustrates the extent to which the evaluation is designed in the light of a legislative agenda rather than an evaluation of the current state of the law. The Commission relies on its previous evidence and conclusions in order to design not only the evaluation questions and scope but also to a certain extent its findings. There is a clear correlation between the thoroughness of the evaluation and the agenda pursued.

D.  Political Action, Political Agenda The REFIT and the impact assessment are documents accompanying the Commission proposal for a revision of the directive. The three documents were elaborated alongside and as we have seen the propositions of the Commission are already legitimised. In the impact assessment and in the proposal, we identify four main regulatory initiatives put forward that correlate with the findings of the REFIT: the reinforcement of the obligations of on-demand service providers and the extension of these obligations to video-sharing platforms; the development of the rules on regulatory authorities with the introduction of the independence principle and the reinforcement of the role of the ERGA; the adaptation of the rules on advertising; and country of origin. There is a clear correlation between the Commission’s audiovisual media services policy in the digital age, the choice and thoroughness in the application of the parameters, the findings of the evaluation, and the legislative proposal. The scope of the directive is to be extended to cover new forms of audiovisual content, which expands the scope of the EU’s reach on digital markets and reinforces the common market. This is in line with the industrial policy objectives of the EU in the audiovisual media services sector. The provisions on the independence of regulators and the reinforcement of the role of the ERGA strengthen the regulatory web in the sector, which is an important component of industrial policies in the EU and which was lagging behind in the audiovisual sector. Such measures also contribute to the achievement of the public interest objectives pursued by the AVMSD, such as media freedom and pluralism or consumer protection. Interestingly, there is a shift in the arguments put forward to legitimise the amendments: from economic to public-interest objectives. The application of the directive to new services has traditionally been justified on economic grounds – backed by cost–benefit analysis. They were related to the concern of fragmentation, the completion of the internal market and the competitiveness of the actors involved. In recent years, the protection of consumers/viewers and non-economic

REFIT or Rethink  57 values plays an increasingly central role in justifying the expansion of the scope of the directive to new services. If the scope would be extended, it would mean that the former non-economic values also come under the market rationale of the Internal Market logic. In short, they are economised and marketised and then apt to be admitted to an efficiency test. Despite this narrative shift, the non-economic policy goals remain the second priority of the AVMSD. This is, for example, the case of the objective of cultural diversity, which is promoted by the quota rules. Yet the compliance with the quota rules is assessed by purely quantitative parameters. The reports do not mention the objective of cultural diversity. Non-economic goals are not relied on as analytical benchmarks, although they ground the policy initiative. This creates a considerable methodological gap and questions the ability of such evaluation processes to consider legislation in a wider societal context. There is a clear disconnection between the economic aspects of the legal framework legitimised on public policy grounds and social reality. To conclude, let us come back on the fact that we find in the scope of the REFIT the evaluation of new provisions that were introduced in the legislative proposal following the REFIT. The Commission thereby evaluated the fitness of future legislative proposals via the REFIT. The Commission has identified the regulatory concerns of the AVMSD ahead of the REFIT evaluation and included its solutions to such concerns in the evaluation in order to further justify/legitimise them, and to push its agenda through. This indicates that the evaluation is p ­ re-conceptualised and is not seeking to find ground-breaking regulatory s­olutions. There is little space for new findings in this context. This is also supported by the fact that the Commission mainly relies on its reports on the application of the directive, thereby answering the evaluation questions in the light of conclusions it has already established.

IV. Conclusions The rich material from the two fields allows surface-level reflections on the inner mechanics of the functioning of the European Commission, on the role of evidence production and on the methodology applied. The consumer law REFIT was externalised and tendered, the AVMSD REFIT was by and large produced in-house. There are obvious institutional and substantial differences. The consumer law REFIT is executed by a sub-unit within DG JUST, in charge of a broad range of consumer law directives. The AVMSD REFIT is produced in-house, within DG Connect, which is competent for the whole sector covered by the AVMSD. Despite these institutional and substantial differences there is not much difference in the way the policy agenda is set in both areas, the way the work is carried out and the methodology used. The evaluation questions are formulated in the light of the respective political agenda. The parameters, tasks and methodology are framed to fit the agenda. This leaves little to no room for findings outside of the established frame. There is nevertheless some nuance in the parameters of

58  Hans-W Micklitz and Aurélie A Villanueva coherence, significance and added value, which can be explained by the different perspective. The consumer law REFIT is internal; it looks at the functioning of the rules within consumer law and policy. The AVMSD REFIT is external; it looks at the rules in the light of the internal market/overall EU law objectives rather than its internal coherence as an instrument/policy field. In consumer law, the European Commission is squeezing broader external findings into its predefined agenda. In media law, the European Commission keeps the whole process under control from the beginning to the end – through the reporting and the technicality. What, then, is it that the European Commission is doing – is it evidence production to comply with the standards of evidence-based policy making, is it just the contrary policy-based evidence, or is it to be called research and, if so, under what conditions? There seems to be a kind of mismatch between the language the European Commission uses and that used by the consultancy firms. In the consumer law REFIT, the European Commission refers to country research, market research, or research relied on in the evaluations, but does not call the REFIT exercise ‘research’. In the AVMSD REFIT, the term ‘research’ is not mentioned. Civic Consulting chose more ambitious language. In the methodology part concerning the structuring of the evaluation, Civic Consulting explains:58 The intervention logic of the EU consumer and marketing law Directives was refined in light of the results of the exploratory research and discussion with the Commission to ensure an in-depth understanding of the context within which the Directives were adopted, the underlying ‘theory’ of the intervention (how it was expected to work), and their practical implementation, including possible implementation issues at the Member State level. The analytical framework for the evaluation was also revised in light of the exploratory research. The intervention logic of the EU consumer law and marketing Directives is presented in Annex VI and the analytical framework of the evaluation is presented in Annex VII.

Annex VII lists the criteria, questions, who to consult etc. What is meant by exploratory research is nowhere explained. The findings of Civic Consulting are not transformed into a scientific publication. That is why it remains for the 60 contributors of the study to exploit the collected material for the preparation of a knowledgeable article. It is beyond the scope of this paper to investigate whether and to what extent the authors of the studies and members of the European Commission, both in Consumer and AVMSD REFIT, have made use of the overwhelming material for scientific articles or books or in (peer-reviewed) journals. All those who participate in the evidence production seem to shy away from equating the publicly available result as ‘research’, let alone as fundamental research. But how can the evidence production be classified – are the findings backing predefined policies only – are the findings to be understood as policy-based



58 Civic

Consulting (n 22) 26.

REFIT or Rethink  59 evidence – or are the findings initiating evidence-based consumer and media ­policies? If one looks at the output of the time and taxpayers’ money-consuming exercise one might tend to come to a rather critical conclusion. However, such a result-orientated analysis does not take the broader implications into account which follow from the institutional constraints in which the implementation of European policies is embedded. The Single European Act provided the EU with a mandate to promote the role of the consumer in the internal market and to liberalise (and in limits to privatise) the media sector. That is why there is always a policy behind the evidence which is needed to exactly back and promote the policy. Therefore the intermingling of policy-driven evidence and evidence-driven policy is inbuilt into the regulatory state and even stronger in EU regulation. The policies enshrined in the SEA are meant to foster European integration. Each EU policy is submitted to a double functionalism, one to the achievement of the policy and the other to the completion of the Internal Market. The EU, just as the regulatory state, does not need fundamental research to ensure the well functioning of its policies. The regulatory state/the EU is autoregulated in that it auto-evaluates its policies according to regulatory standards such as effectiveness, efficiency, coherence, relevance and added value. Such an auto-evaluation allows and legitimises the adaptation of policies in order to best meet the set regulatory standards. Under this logic, there is always a need for a REFIT, namely a need for reorientation of the regulation to its core objectives and standards. There is no need to seek ideas or RETHINK the regulation, its objectives or its standards as long as the policy itself is not questioned. What remains, nevertheless, is to clarify the role academics play in the evidence production, to investigate the relationship between consultancy firms and academics, to analyse the complicity between state-run universities that are pushing researchers to raise funds for building a career and state/EU-financed evidence production which provide the opportunity. An analysis of academics’ curricula vitae might confirm the all-too-obvious assumption that the academics involved are selling the fundraising as a success to their home universities so as to justify and legitimate the claim for a salary rise or even an upgrading of the position. Policy-driven research might absorb too much of the funds and the intellectual capacities which are needed to RETHINK the policies under scrutiny in the way Karl Popper asked. Socio-legal research is urgently needed. Ironically RETHINK instead of REFIT might be much less costly though much more timeconsuming. It is to be hoped that the publicly available material, the 3,400 pages in the Consumer REFIT alone, is being exploited for such RETHINK. There is more in the documents than the European Commission has made of them and is institutionally bound to make of them.

60

4 EU Financial Regulation, Contract Law and Sustainable Consumer Finance OLHA O CHEREDNYCHENKO*

I. Introduction As the recent global financial crisis has shown, innovation in financial contract design may lead to the creation of financial products that do not benefit individual consumers and societies at large. The mis-selling of the subprime mortgage loans designed for vulnerable consumers wishing to buy their dream house to millions in the US is just one example. Not only did these financial products severely harm many individual consumers, who lost their homes – they also triggered the financial crisis. Now, more than a decade after the outbreak of the crisis, consumer finance is still among the areas in which European consumers are most dissatisfied with the products they receive.1 Problematic financial products, such as payday loans2 or contingent convertible bonds (CoCos),3 continue to upset the retail financial markets across the EU. Besides, the growing digitalisation of consumer finance and its development outside the traditional financial sector, such as ­crowdfunding, pose new challenges.

* Professor of European Private Law and Comparative Law and Director of the Groningen Centre for European Financial Services Law, University of Groningen (the Netherlands). 1 European Commission, Consumer Scoreboard: Making Markets Work for Consumers, 2016, 18; European Commission, Green Paper on Retail Financial Services ‘Better Products, More Choice, and Greater Opportunities for Consumers and Businesses’, COM (2015) 630 final, p 9. See also Better Finance, ‘A Major Enforcement Issue: The Mis-Selling of Financial Products’, April 2017. 2 See, eg, OO Cherednychenko, JM Meindertsma, ‘Irresponsible Lending in the Post-Crisis Era: Is the EU Consumer Credit Directive Fit for Its Purpose?’, 42 Journal of Consumer Policy 2019, forthcoming; OO Cherednychenko and JM Meindertsma, Mis-selling of Financial Products in the European Union: Consumer Credit, Study for the European Parliament’s Committee on Economic and Monetary Affairs, June 2018; http://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL_ STU(2018)618997, p 10 et seq. 3 European Securities and Markets Authority, Potential Risks Associated with Investing in Contingent Convertible Securities: Statement, ESMA/2014/944.

62  Olha O Cherednychenko To bridge the gap between consumer finance and society in post-crisis Europe, the EU and its Member States have increasingly resorted to intrusive regulation of the financial sector. In particular, the post-crisis era has witnessed a revolutionary intervention into the financial product life-cycle and remuneration structures in the distribution chain, indicating a major shift from the information paradigm of financial consumer protection towards more intrusive forms of financial ­regulation.4 These include organisational requirements to product design processes within financial institutions, prohibitions of financial products and limits or bans on third party inducements of financial service providers.5 In addition, with the creation of the Banking Union, the prudential domain has also come under increasing supervisory scrutiny with more attention being paid, inter alia, to (risk) culture within financial institutions and qualities of their senior management.6 Yet, the effectiveness of these regulatory efforts is seriously threatened by another gap – the gap between two areas of law that profoundly shape consumer finance, that is financial regulation and contract law – in the current European policy discourse and legal scholarship. While a flawed contractual design of financial products and a failure of contract law to ensure their economic and social utility were at the root of the global financial crisis, the EU policy discourse has traditionally focused on economic activities (for example financial services) rather than the legal mechanisms used to carry out such activities (for example contracts) and enforcement avenues available to private parties.7 This approach is also reflected in the post-crisis EU financial regulation, which has been largely insensitive to complex contractual settings and national contract laws. The latter, however, have considerable influence in shaping financial market practice and the remedies available to aggrieved consumers, and hence may profoundly affect the ability of EU financial regulation to realise its policy goals. As Caruso put it: ‘In the legal culture of Europe,

4 On this in more detail, see, eg, OO Cherednychenko, ‘Freedom of Contract in the Post-Crisis Era: Quo Vadis?’, 10 European Review of Contract Law 2014, 390; N Moloney, ‘Regulating the Retail Markets’ in N Moloney and others (eds), The Oxford Handbook of Financial Regulation (Oxford, Oxford University Press, 2015) 736. 5 See, eg, Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) [2014] OJ L173/349 (MiFID II), Art 24 and Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments and amending Regulation (EU) No 648/2012 [2014] OJ 2014 L173/84 (MiFIR), Arts 40–42. 6 See, eg, Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC [2013] OJ L176/338 (CRD IV); Financial Stability Board, Guidance on Supervisory Interaction with Financial Institutions on Risk Culture 2014; European Central Bank, SSM Supervisory Statement on Governance and Risk Appetite, June 2016. 7 cf M Andenas, F Della Negra, ‘Between Contract Law and Financial Regulation: Towards the Europeanisation of General Contract Law’ (2017) 28 European Business Law Review 499, 504.

EU Financial Regulation  63 private law is perceived as and may actually function as a bulwark against the flood of European regulation, a sort of antidote to the dilution of regional identities.’8 This is still as true today as it was in 1997 when this observation was made. The gap between financial regulation (predominantly as part of public law) and contract law (as part of private law) is also reflected in European legal scholarship where the two are still largely studied separately.9 The central argument that the contribution develops is this. The effectiveness of EU financial regulation depends on a broader legal framework that often reaches far beyond its regulatory ambit. Contract law plays a particularly important role in this context, shaping contract practice in the retail financial markets which financial regulation is designed to steer, as well as possibilities for consumer redress and compensation in case of breach of regulatory standards. Therefore, in order to be able to bridge the gap between consumer finance and society, we need to reduce the gap between financial regulation and contract law. The EU’s Better Regulation agenda10 and its sustainable development strategy11 provide an opportunity for the EU legislator to rethink its current regulatory approach and to take the ‘contract law’ dimension of consumer finance more seriously when evaluating the existing EU legislation in this area and making new legislation. Looking at financial regulation through the ‘contract law’ lens could lead to ‘better regulation’ of the retail financial markets across a wide spectrum of financial transactions, in particular in terms of regulatory coherence and effectiveness, with a view to ensuring sustainable consumer finance.

8 D Caruso, The Missing View of the Cathedral: The Private Law Paradigm of European Legal Integration’, (1997) European Law Journal 3, 4. 9 For some notable exceptions see, eg, Special Issue on European Regulatory Private Law and Financial Services, 10 European Review of Contract Law 2014 (with an editorial by H-W Micklitz and contributions from OO Cherednychenko, Y Svetiev and A Ottow, H Marsjola and F Della Negra); Special Issue on the Banking Union and the Creation of Duties (2015) 16 European Business Organisation Law Review (with an editorial by S Grundmann and H-W Binder and contributions of, among others, S Grundmann, C Hadjiemmanuil, and F Möslein); S Grundmann, F Möslein and K R ­ iesenhuber, ‘Contract Governance: Dimensions in Law and Interdisciplinary Research’ in S Grundmann, F Möslein and K Riesenhuber (eds), Contract Governance: Dimensions in Law and Interdisciplinary Research (Oxford, Oxford University Press, 2015) 3; OO Cherednychenko, ‘Contract Governance in the EU: Conceptualising the Relationship between Investor Protection Regulation and Private Law’ (2015) 21 European Law Journal 500; OO Cherednychenko, ‘Public and Private Enforcement of European Private Law in the Financial Services Sector’, (2015) 23 European Review of Private Law 621; S  ­Grundmann, ‘Privaatrecht und Regulierung’ in HC Grigoleit and R Petersen (eds), Privatrechtsdogmatik im 21. Jahrhundert: Festschrift für Claus-Wilhelm Canaris zum 80. Geburtstag (Berlin, De Gruyter, 2017) 907; Andenas and Della Negra, above, n 7; A Marcacci, ‘European Regulatory Private Law Going Global? The Case of Product Governance’ (2017) 18 European Business Organization Law Review 305. 10 European Commission, ‘Better Regulation Guidelines’, SWD (2017) 350. 11 See, eg, European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, ‘Next Steps for a Sustainable European Future: European Action for Sustainability’, COM (2016) 739 final; European Commission, ‘Key European Action Supporting the 2030 Agenda and the Sustainable Development Goals’, SWD (2016) 739 final.

64  Olha O Cherednychenko Before we can begin to examine the interplay between financial regulation and contract law, however, the meaning of the key concepts which lie at the heart of this analysis – financial regulation and contract law – needs to be clarified. The complexity of defining these categories is reflected in the debates on the interrelationship between law and regulation in general,12 and private law and regulation in particular.13 Although these categories may have intuitive appeal, establishing criteria which differentiate between them is not straightforward. While the conventional approach to private law emphasises its distinctive value in pursuing interpersonal justice in horizontal relations,14 an increasing number of scholars look at private law through the ‘regulatory’ lens and consider it to be an instrument for governing complex economic and social relations.15 Moreover, the EU widely uses private law, in particular contract law, as a tool for market integration.16 If private law is perceived and used as a regulatory technique, any attempt to draw a strict line between regulation and private law based on the internal rationality of each is unlikely to succeed. The oxymoron ‘European regulatory private law’17 – a term used to refer to the EU measures of a regulatory nature that affect private law relationships – aptly captures this point. Nevertheless, for the sake of analytical clarity when analysing a complex relationship between financial regulation and contract law, it is helpful to distinguish between the two as ideal types given the primary focus of each. For the purposes of this contribution, financial regulation is conceived of as a set of sector-specific EU and national rules imposed by government on the financial sector in the public interest, in particular with a view to ensuring well-functioning financial markets and adequate consumer/retail investor protection. Apart from mandatory rules, it also encompasses non-binding supervisory guidance produced by European and national financial regulators as part of administrative practice (also known as public soft law) and private regulation by the financial industry to the extent that the latter has been adopted within a public regulatory framework (also known as private soft law). The two main areas of financial regulation include prudential regulation for the safety and soundness

12 See, eg, C Parker and others (eds), Regulating Law (Oxford, Oxford University Press, 2004). 13 See, eg, H Collins, Regulating Contracts (Oxford, Oxford University Press, 1999); Grundmann (n 9). 14 See, eg, H Dagan, ‘Between Regulatory and Autonomy-Based Private Law’ (2016) 22 European Law Journal 644. 15 See, eg, Collins (n 13). 16 cf, eg, H-W Micklitz, ‘The Visible Hand of European Regulatory Private Law’ (2008) 28 Yearbook of European Law 3; H Collins, ‘The Hybrid Quality of European Private Law’ in R Brownsword, H-W Micklitz, L Niglia and S Weatherill (eds), The Foundations of European Private Law (Oxford, Hart Publishing, 2011) 453; OO Cherednychenko, ‘Private Law and Scholarship in the Wake of the Europeanisation of Private Law’, in J Devenney and M Kenny (eds), The Transformation of European Private Law: Harmonisation, Consolidation, Codification or Chaos? (Cambridge, Cambridge University Press, 2013) 148, 149. 17 Micklitz (n 16).

EU Financial Regulation  65 of financial institutions and conduct of business regulation relating to how financial institutions conduct business with customers. Both EU prudential regulation and conduct of business regulation are typically concerned with the relationship between administrative agencies and financial institutions and implemented in national administrative law. In addition, conduct of business regulation of the EU origin may also confer individual rights on consumers and be transposed into national private law. The mode of implementation notwithstanding, both types of financial regulation may directly or indirectly affect financial contracting and will therefore be considered in the present context. Contract law, in turn, is understood here as a set of rules that govern transactions among private parties, thereby establishing those parties’ enforceable rights and obligations vis-à-vis each other. While being not insensitive to the common good, contract law thus constructs a legal framework which primarily allows the parties to shape their legal relationships as self-determining agents and which safeguards the balance between their private interests. Contract law is typically found in the official national sources, in particular legislation and case law, which provide general rules applicable to all types of contracts as well as the specific rules for certain types of contracts (for example service contracts).18 Such rules govern the conclusion, content and interpretation of financial contracts, as well as remedies for breach of contract, and can be default or mandatory in nature. In addition, the contract law rules in the above sense may also stem from the binding and non-binding supranational sources, including horizontal EU directives implemented within national private laws of the Member States (for example the Unfair Contract Terms Directive19) and soft law instruments (for example the Principles of European Contract Law20). The contribution proceeds in three stages. The analysis commences by demonstrating the growing legal fragmentation in the field of consumer finance and the problems faced by the EU legislator in this area as a result of the gap between financial regulation and contract law (section II). Building upon this analysis, the next section explores how a more integrated approach to financial regulation and contract law can be developed in the context of the EU’s Better Regulation agenda and its sustainable development strategy, with a particular focus on the four key areas that shape consumer finance in post-crisis Europe: (a) the financial product life-cycle; (b) remuneration structures in the distribution process; (c) the organisational culture in financial institutions; and (d) the online alternative finance

18 While this is true for all the legal systems, the relative importance of legislation and case law varies by country depending on whether it has a civil law or a common law background. 19 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L95/29. 20 O Lando and H Beale (eds), Principles of European Contract Law: Parts I and II (Combined and Revised) (prepared by the Commission on European Contract Law) (The Hague, Kluwer Law International, 2000); O Lando and others (eds), Principles of European Contract Law: Part III (prepared by the Commission on European Contract Law) (The Hague, Kluwer Law International, 2003).

66  Olha O Cherednychenko markets (section III). The chapter concludes with some final observations about the role of contract law in the EU’s regulatory landscape of consumer finance (section IV).

II.  The Gap between Financial Regulation and Contract Law While financial contracting in the retail financial markets was traditionally the exclusive province of contract law, today it is also subject to financial regulation. The latter increasingly poses limits to freedom of contract when it comes to making standard contract terms for consumer financial products, distribution agreements with respect to such products or financial service contracts more generally. In addition, the rise of public enforcement of contract-related financial regulation by financial supervisory authorities has led to the development of a hybrid legal order which can be called ‘European financial supervision private law’.21 I use this oxymoron to describe any body of regulatory conduct of business rules of the EU origin, to be observed by financial institutions when dealing with their (potential) clients, which forms part of a framework for public supervision over EU financial markets. From a legal-technical point of view, European financial supervision private law rules in this sense concern the relationship between a particular financial institution and an administrative agency entrusted with the supervisory and enforcement tasks, and hence they do not belong to the realm of traditional private law, in particular contract law. At the same time, such rules set standards of behaviour in the relationship between a financial institution and its (potential) client and also aim to protect the latter. In essence, therefore, European supervision private law rules affect the relationships between private parties and can thus be considered as quasi-private. The growing importance of EU financial regulation as well as public supervision and enforcement in the contractual domain has thus led to the emergence of an overly complex legal matrix governing consumer financial contracts in the EU multi-level system of governance (see Figure 4.1 below). The main components of this matrix include EU financial regulation, national administrative law and practice, and national contract law. In addition, multiple actors at the EU and national level are involved in rule-making, ensuring compliance with – and enforcement

21 On this emerging legal field in more detail, see OO Cherednychenko, ‘Public Supervision over Private Relationships: Towards European Supervision Private Law?’, (2014) 22 European Review of Private Law 37. See also H-W Micklitz, ‘The Public and the Private – European Regulatory Private Law and Financial Services’, 10 European Review of Contract Law 2014, 473; OO Cherednychenko, ‘Financial Consumer Protection in the EU: Towards a Self-Sufficient European Contract Law for Consumer Financial Services?’, (2014) 10 European Review of Contract Law 476.

EU Financial Regulation  67 of – multiple sets of rules pertaining to consumer financial contracts. These include legislators, financial regulators, courts (including the Court of Justice of the European Union (CJEU), as well as national administrative and civil courts), ADR bodies, and the financial industry. In fact, enforcement in the financial sector has become a regulated market for dispute resolution where providing justice to consumers is a service.22 Although the ultimate enforcement authority remains vested in state institutions, diverse enforcement mechanisms in such a market compete with each other. The emergence of a regulated market for enforcement contributes to the increasing complexity of the legal matrix for consumer finance, making it more and more difficult to navigate. Figure 4.1  The Legal Matrix for Consumer Finance in the EU Multi-level System of Governance CJEU

Legislators EU financial regulation Financial regulators

Administrative courts

Financial industry

Consumer financial contracts National administrative law and practice

National contract law

Civil courts

ADR bodies

What is more, while the boundaries between administrative law and contract law have become blurred in practice, the disciplinary divide and silo mentality still profoundly affect the academic discourse on financial contracting. As Andenas and Della Negra observe: ‘For a contract lawyer, an interest rate swap is a contract, but for an administrative lawyer, it is a financial instrument.’23 The gap between financial regulation and contract law in the current European policy discourse and legal scholarship contributes to the increasing legal

22 A Wechsler and B Tripković, ‘Conclusions: Enforcement in Europe as a Market of Justice’ in H-W Micklitz and A Wechsler (eds), The Transformation of Enforcement: European Economic Law in Global Perspective (Oxford, Hart Publishing, 2016) 377. 23 Andenas and Della Negra (n 7) 505.

68  Olha O Cherednychenko fragmentation and stands in the way of designing a coherent and effective legal regime in the field of consumer finance. In the context of EU law making, this gap manifests itself, in particular, in: (a) a contradictory policy agenda for the retail financial markets; (b) insufficient attention to contract practice; and (c) a lack of a coherent and effective enforcement strategy. Each of these problematic aspects will be considered in more detail below.

A.  A Contradictory Policy Agenda for the Retail Financial Markets While the need for a high level of financial consumer protection has been acknowledged at the EU level, the relationship between the parties to consumer financial contracts has never been a central concern of EU financial regulation. Unlike traditional national contract laws, EU financial regulation regards the contracting parties not as ends in themselves with their own justified interests, but rather as market functionaries, such as consumers, retail investors, investment firms or mortgage credit intermediaries, who are supposed to play their roles in the internal market.24 Consumer financial contracts and contract law more generally, in turn, are seen as vehicles of financial market integration. Whereas financial regulation generally aims to ensure financial stability, market efficiency, and consumer protection, in the EU context these specific objectives are linked to the promotion of the single market as a meta-goal. Protective measures are primarily justified by the considerations of ensuring access of financial consumers to the internal market.25 After all, without financial consumers and consumer protection, the integration of European financial markets would be impossible to achieve. The internal market rationale underpinning the EU policy agenda for the retail financial markets has weakened a link between financial regulation and contract law, which, in turn, has resulted in the lack of a coherent policy agenda in this area. This manifests itself in contradictions and tensions between the post-crisis policies and regulatory objectives in this area. For example, as mentioned above, in the post-crisis period, the EU has taken the path of tightening the regulatory grip on traditional sources of finance,

24 cf, eg, Micklitz (n 16); G Davies, ‘The Consumer, the Citizen, and the Human Being’ in D Leczykiewitz and S Weatherill (eds), The Images of the Consumer in EU Law (Oxford, Hart Publishing, 2016) 325, 327; H Collins, ‘The Revolutionary Trajectory of EU Contract Law towards Post-national Law’ in S Worthington et al (eds), Revolution and Evolution in Private Law (Oxford, Hart Publishing, 2018) 315. 25 cf H-W Micklitz, ‘Introduction – Social Justice and Access Justice in Private Law’ in H-W Micklitz (ed), The Many Concepts of Social Justice in European Private Law (Cheltenham, Edward Elgar, 2011) 3; H-W Micklitz, The Politics of Justice in European Private Law: Social Justice, Access Justice, Societal Justice (Cambridge, Cambridge University Press, 2018) 2 et seq.

EU Financial Regulation  69 in particular with a view to ensuring financial stability and a high level of consumer/retail investor protection. At the same time, it has also adopted a largely facilitative approach to crowdfunding – an alternative form of financing emerging from outside the conventional financial system that connects those who give, lend or invest money directly with those who need financing by means of an electronic platform. While, as will be discussed in more detail in section III.E below, crowdfunding generates profound consumer/retail investor protection concerns and gives rise to many complex contract law issues relating to the relationship between lenders/investors, fundraisers and crowdfunding platforms,26 these issues appear to be of only secondary importance in the context of the EU efforts to promote this novel form of fundraising as part of its economic growth agenda.27 As the European Commission itself has noted in the context of its initiative for an EU framework on crowd and peer-to-peer finance, ‘[t]he overall aim of this initiative is to enable crowdfunding activity to grow by making better use of the Single Market potential’.28 Moreover, the Commission’s recent proposal for a regulation on European crowdfunding service providers is limited to business lending and thus does not include consumer peer-to-peer lending (P2PL).29 This form of crowdfunding also falls outside the scope of the Consumer Credit Directive30 – the primary piece of legislation governing the provision of consumer credit across the EU designed with the conventional borrowing model in mind.31 By the same token, a lack of a coherent approach to consumer financial contracts coupled with the different political backgrounds to the Consumer Credit Directive and Mortgage Credit Directive32 has resulted in peculiar differences in the levels of consumer protection with respect to non-mortgage and

26 See, eg, G Ferrarini and E Macchiavello, ‘Investment-Based Crowdfunding: Is MiFID II Enough?’, in D Busch, and G Ferrarini (eds), Regulation of the EU Financial Markets: MiFID II and MiFIR (Oxford, Oxford University Press, 2017) 659, 690. 27 cf N Moloney, ‘Regulating the Retail Markets’ in N Moloney et al (eds), The Oxford Handbook of Financial Regulation (Oxford, Oxford University Press, 2015) 736, 744. 28 European Commission, Legislative Proposal for an EU Framework on Crowd and Peer to Peer Finance: Inception Impact Assessment, Ref Ares(2017)5288649 – 30/10/2017, p 2. See also European Commission, ‘Communication from the Commission to the European Parliament and the Council on Long Term Financing of the European Economy’, COM (2014) 168 final and European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions ‘Unleashing the Potential of Crowdfunding in the European Union’, COM (2014) 172 final. 29 European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on European Crowdfunding Service Providers (ECSP) for Business’, COM (2018) 113 final. 30 Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC [2008] OJ L133/66 (Consumer Credit Directive). 31 Cherednychenko and Meindertsma (2019) (n 2). 32 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 [2014] OJ L60/34 (Mortgage Directive).

70  Olha O Cherednychenko mortgage credit in the EU. In particular, while the pre-crisis Consumer Credit Directive has only introduced a limited duty of responsible lending which does not specify the consequences of the negative outcome of the consumer’s creditworthiness assessment,33 the post-crisis Mortgage Credit Directive, in essence, has obliged the creditor to refuse to grant credit to the consumer in such a case.34 By introducing a stricter responsible lending obligation, the Mortgage Directive has clearly departed from the more liberal approach of the Consumer Credit Directive and struck a different balance between access to credit and consumer protection against overindebtedness.35 One may question, however, to what extent the fundamental differences in the levels of consumer protection between the two directives are justified, given that problems of irresponsible lending exist not only in secured but also unsecured credit markets, particularly those associated with high-cost credit, such as payday loans.36 The vulnerable position of the consumer interests in the current EU regulatory landscape also comes to light in the context of the post-crisis financial stability agenda. On the one hand, in response to the systemic risks exposed by the large-scale mis-selling of mortgages to vulnerable consumers in the US subprime mortgage market, financial stability concerns have reinforced a more paternalistic approach to consumer protection at the EU level, as evidenced by the introduction of potentially far-reaching product regulation.37 On the other hand, however, restricting the entry of financial products reduces the diversity of financial contracts deployed and may thereby adversely affect financial stability.38 An uneasy relationship between consumer protection and financial stability also manifests itself in the context of the Banking Union. As will be shown below, the strengthening of prudential rules for credit institutions and investment firms with a view to ensuring financial stability, as evidenced by the adoption of the Single Rulebook, may come at the expense of retail investor protection. The traditional separation of prudential regulation from conduct of business regulation, which has paved its way into the EU regulatory landscape with the European Central Bank (ECB) being responsible for the former and the European Supervisory Authorities (ESAs) for the latter, reinforces the gap between financial regulation and contract law. The subsidiary position of retail market governance to stability-oriented governance

33 Consumer Credit Directive, Art 8. 34 Mortgage Credit Directive, Art 18. 35 On this in more detail, see, eg, Cherednychenko (n 4) 408 et seq. 36 Cherednychenko and Meindertsma (2019) (n 2); I Ramsay, ‘Changing Policy Paradigms of EU Consumer Credit and Debt Regulation’ in D Leczykiewicz and S Weatherill (eds), The Images of the Consumer in EU Law: Legislation, Free Movement and Competition Law (Oxford, Hart Publishing, 2016) 159. 37 M Andenas, and I H-Y Chiu, The Foundations and Future of Financial Regulation: Governance for Responsibility (London, Routledge, 2014) 255. 38 R Romano, ‘For Diversity in International Regulation of Financial Institutions: Critiquing and Recalibrating the Basel Architecture’ (2014) 31 Yale Journal of Regulation 1; J Armour and others, ­Principles of Financial Regulation (Oxford, Oxford University Press, 2016) 75.

EU Financial Regulation  71 in the typical institutional hierarchy coupled with the current ­prominence of ­financial stability in the EU policy agenda entails the risk that the ESAs will prioritise financial stability over consumer protection.39 Notably, according to the 2014 European Commission’s report on the operation of the ESAs and the European System of Financial Supervision (ESFS), the general view among stakeholders was that consumer protection had not been given sufficient priority in the ESAs’ work.40 It remains to be seen whether the current overhaul of the ESFS will bring about a major improvement in this respect.41

B.  Insufficient Attention to Contract Practice Many failures of the pre-crisis financial regulation had their roots in fundamental failures of understanding on the part of financial regulators as to how the contracting parties on the supply and demand side of consumer finance behave in specific market contexts. As the crisis has shown, individual financial contracts may adversely affect not only the parties thereto but also third parties, jeopardising financial stability and even causing deep economic recession.42 Yet regulatory measures aimed at preventing such negative effects in the contractual domain may not only fail to correct pathologies in financial institutions’ behaviour or manage risks, but produce the opposite effects from those intended.43 In particular, financial regulation may lead to new innovations in financial contract design that may pose major new regulatory challenges.44 This is especially true when it comes to intrusive regulatory measures, often with a strong paternalistic flavour, such as high bank capital requirements or bans on the conclusion of certain financial contracts. In contrast to light-touch regulation, which typically intends to enable consumers to make well-informed financial decisions, more paternalistic regulation may deeply interfere with the way in which financial institutions conduct their business, in turn profoundly affecting contract practice in the retail financial markets.

39 cf Moloney (n 4) 753 et seq. 40 European Commission, ‘Report from the Commission to the European Parliament and the Council on the operation of the European Supervisory Authorities (ESAs) and the European System of Financial Supervision (ESFS)’, SWD (2014) 261 final, p 14. 41 See European Commission, Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions ‘Reinforcing Integrated Supervision to Strengthen Capital Markets Union and Financial Integration in a Changing Environment’, COM (2017) 542 final. 42 See, eg, H-W Micklitz, ‘Herd Behaviour and Third Party Impact as a Legal Concept: On Tulips, Pyramid Games, and Asset-backed Securities’ in S Grundmann, F Möslein and K Riesenhuber (eds), Contract Governance: Dimensions in Law and Interdisciplinary Research (Oxford, Oxford University Press, 2015) 106. 43 cf, eg, J Black, ‘Paradoxes and Failures: “New Governance” Techniques and the Financial Crisis’ (2012) 75 Modern Law Review 1037, at 1039. 44 cf, eg, Black (n 43) 1039; Armour and others (n 38) 84 et seq.

72  Olha O Cherednychenko In the past, for example, bank capital adequacy rules introduced by the Basel Committee on Banking Supervision in 1988 (Basel I) led to the development of the notorious asset-backed securities market which was at the root of the global financial crisis.45 Under these rules, banks had to maintain at least 8 per cent capital buffer against a risk-adjusted measure of their assets. In the US, the buffer was set at 10 percent, if a bank was to be designated ‘well capitalised’,46 which was inherently costly. In order to evade this regulatory capital requirement, banks first bundled the assets, such as mortgages, to create securities. Subsequently, they moved these financial instruments from the banking book to the trading book. This allowed banks to develop and trade asset-backed securities off-balance sheet, so that they did not have to hold significant capital buffers against them. What is more, opaquely structured securitised mortgages were rubber-stamped as ‘AAA’ by rating agencies, indicating to investors that they were as safe as the safest corporate bonds. This generated considerable demand for these contract law products among investors, including the banks themselves. Today, the post-crisis regulatory measures aimed at ensuring financial stability and a high level of consumer/retail investor protection pose similar challenges to financial regulators. For example, in the wake of the financial crisis, the Basel Committee has issued new capital adequacy rules (Basel III) intended to improve the quality, consistency and resilience of bank capital. At the EU level, these rules were transposed in CRD IV and the Capital Requirements Regulation (CRR).47 While, as in Basel III, the total amount of capital banks need to issue as a percentage of risk weighted assets remains 8 per cent, a number of capital buffers top up this global requirement. Interestingly, in response to the new capital adequacy rules, many large European banks have issued the so-called contingent convertible securities, commonly known as CoCos. Under the applicable contract terms, these newly invented financial instruments may be converted into equity or written down automatically upon a certain pre-defined trigger event which can be based on a variety of factors, such as share prices or capital ratios. The contract design of these instruments allows an issuer to optimise its capital structure with affordable loss absorption funding, re-establishing the link between risk-taking and liability. As such, CoCos address the moral hazard and excessive risk-taking problems that were exposed during the financial crisis and have the potential to play an important role in inhibiting risk transfer from debt holders to taxpayers. Therefore, from a prudential point of view, the use of these innovative instruments

45 On this in more detail, see, eg, V Acharya and M Richardson, ‘Causes of the Financial Crisis’ (2011) 21 Critical Review 195. 46 Such a designation brought certain privileges, such as a lower deposit insurance premium. 47 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 [2013] OJ L176/1 (CRR).

EU Financial Regulation  73 by banks has been welcomed by financial regulators.48 However, as the European Securities and Markets Authority (ESMA) has pointed out, CoCos have not been tested yet and it is uncertain how they will perform in a stressed environment.49 Therefore, it remains to be seen to what extent their potential to reduce systemic risk and reinforce financial stability will actually be realised. Moreover, CoCos have also raised major investor protection concerns, leading ESMA to issue a statement highlighting potential risks associated with investing in these instruments and the financial institutions’ responsibilities when selling them.50 As ESMA has noted: There exists a tension between (i) the prudential needs of an issuer to optimize its capital structure with affordable loss absorption funding that maintains the entity as a going concern, and (ii) the needs of investors to properly price the risk of loss of coupon or capital, which are particular challenges for CoCos. Similarly, given the varying trigger levels of issuance across a given banking group it is difficult to envision exactly how the contractual provisions relating to the conversion or write-down of CoCos will play out.51

Notably, following ESMA’s warning, the UK’s Financial Conduct Authority (FCA) went as far as to restrict financial firms from distributing these highly complex financial instruments to the mass retail market, first temporarily,52 then ­permanently.53 According to the FCA, the loss per retail investor in some cases has been over 80 per cent of their initial investment.54 Likewise, the introduction of greater capital requirements and stricter responsible lending rules for traditional lenders in the post-crisis period with a view to safeguarding financial stability and ensuring a high level of consumer protection has led to considerable growth of the alternative finance markets, such as crowdfunding, across the EU.55 Many consumers have turned to these much riskier nascent markets to meet their financial needs, as it has become increasingly difficult for them to obtain funding within the conventional banking system.

48 See, eg, ESMA, Statement ‘Potential Risks Associated with Investing in Contingent Convertible Securities’, 31 July 2014, para 5. 49 ESMA (n 48) para 12. See also, eg, N Martynova and E Perotti, ‘Convertible Bonds and Risk Taking’, DNB (De Nederlandsche Bank) Working Paper No 480/August 2015, with further references. 50 ESMA (n 48). 51 ESMA (n 48) para 5. 52 FCA, Restrictions in relation to the retail distribution of contingent convertible instruments: Temporary product intervention rules, August 2014. 53 FCA, Restrictions on the retail distribution of regulatory capital requirements instruments: Feedback to CP 14/23 and final rules, June 2015. 54 FCA (n 52) 6. 55 See, eg, Massolution, 2015CF Crowdfunding Industry Report, available at http://www.crowdsourcing.org/research; P Baeck et al, Understanding Alternative Finance: The UK Alternative Financial Industry Report 2014 (Nesta/University of Cambridge, 2014); B Zhang, Pushing Boundaries: The 2015 UK Alternative Finance Industry Report (Nesta/University of Cambridge, 2016).

74  Olha O Cherednychenko While novel contractual practices which have developed in the alternative finance markets pose new regulatory challenges, so far they remain largely unexplored. These examples provide a striking illustration of a close interconnection between prudential regulation, conduct of business regulation and contract law which exists in practice, but which is not reflected sufficiently in the current EU legal and institutional matrix for consumer finance. They also point to the need to take more seriously the effects of regulatory measures in the prudential and conduct of business domains on contractual behaviour on the supply and demand side of the retail financial markets, as well as financial contract design in general. As Black aptly observes: Financial markets are inextricably interwoven with legal institutions as the products they trade in are legal, calculative and accounting constructs. Law does not just ‘vindicate’ financial instruments … it constitutes them. Financial markets’ development and innovation is thus facilitated by the “law merchants” of the legal profession, who give material form to these synthetic constructs in legal opinions, standard form precedents and bespoke contracts which provide innovative ways in which to allocate rights and risks and exert a considerable influence in shaping market practice. The terms of those contracts will be the terms, for the most part, on which markets operate. They create the products that set the terms on which risk is being distributed and the terms on which it will crystallize.56

While contract law constitutes and vindicates consumer financial products, the gap between prudential regulation, conduct of business regulation and contract law in the contemporary European policy discourse and legal scholarship stands in the way of gaining a better understanding of the effects of regulatory interventions on contract practice and hence the ability of such interventions seen as a whole to attain the stated policy objectives. A lack of such understanding, in turn, precludes the development of a coherent policy agenda for consumer finance in the post-crisis era, as well as effective regulatory measures to realise it in line with the European Commission’s Better Regulation strategy.

C.  A Lack of a Coherent and Effective Enforcement Strategy Legal norms that are not properly enforced rarely fulfil their objectives. Effective enforcement in terms of reducing the incidence of harmful behaviour and doing so at least cost for both the regulators and the regulated is vital to the ability of

56 J Black, ‘Reconceiving Financial Markets – From the Economic to the Social’ (2001) 13 Journal of Corporate Law Studies 401, 417. See also, eg, D North, Institutions, Institutional Change and Economic Performance (Cambridge, Cambridge University Press, 1990); WR Scott, Institutions and Organizations (London, Sage, 1995); K Pistor, ‘A Legal Theory of Finance’ (2013) 41 Journal of Comparative Economics 315.

EU Financial Regulation  75 EU and national financial regulation to attain desired outcomes. Accordingly, efforts expended on setting standards must be allied to effective supervisory and enforcement strategies.57 However, the development of such strategies is seriously hampered by the gap between financial regulation and contract law, which manifests itself most evidently in the current enforcement landscape. First of all, the growing prevalence of public supervision and enforcement in the contractual domain gives rise to many new challenges for developing an adequate enforcement strategy both at the EU and national level.58 In particular, one may question to what extent contract-related financial regulation actually lends itself to formal enforcement actions with the use of pecuniary penalties and other punitive administrative sanctions. Such sanctions are prescribed, for example, by the Markets in Financial Instruments Directive II (MiFID II),59 which has been adopted post-crisis to replace its predecessor – the Markets in Financial Instruments Directive (MiFID).60 MiFID II specifies not only the range of administrative sanctions, including pecuniary penalties, which should be employed for certain types of breach of investor protection rules, but also how the determination as to the appropriate sanction and level of sanction should be made.61 But is this enforcement mode fit for its purpose when it comes to open-ended regulatory obligations of investment firms in the contractual sphere which leave much discretion to the firms in terms of compliance? Consider, for example, a duty to act ‘honestly, fairly and professionally in accordance with the best interests of its clients’ when providing investment services or a duty to ensure that financial instruments for sale to clients ‘are designed to meet the needs of an identified target market of end clients’.62 By placing a significant degree of responsibility for compliance on financial institutions, conduct of business rules of this kind compensate for the limitations of prescriptive command and control regulation in capturing the complexity of financial markets. They allow financial institutions to engage with the regulatory goals and spirit and thus have the potential to prompt a cultural reorientation within the financial sector towards the interests and needs of financial consumers. However, resort to top-down formal enforcement actions with the use of punitive 57 N Moloney, ‘Effective Policy Design for the Retail Investment Services Market: Challenges and Choices Post FSAP’ in G Ferrarini and E Wymeersch (eds), Investor Protection in Europe: Corporate Law Making, the MiFID and Beyond (Oxford, Oxford University Press, 2007) 381, 425. 58 On this in more detail, see Cherednychenko (2015) European Review of Private Law (n 9). 59 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) [2014] OJ 2014 L173/349 (MiFID II). 60 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC [2004] OJ L145/1 (MiFID). 61 MiFID II, Arts 70–72. 62 MiFID II, Arts 24(1) and MiFID, Art 24(2), respectively.

76  Olha O Cherednychenko administrative sanctions may stand in the way of realising this potential. This is particularly true for the product governance obligations of investment firms that manufacture financial instruments, partly because the financial regulators themselves have accumulated very little experience so far with this quite intrusive regulatory technique. In fact, the growing involvement of supervisory authorities across the EU in ‘managing’ contractual relationships may point to the need for innovative supervisory practices of a more informal nature. And some national financial regulators are already experimenting with such practices.63 For example, the Dutch Authority for the Financial Markets (Autoriteit financiële markten (AFM)) tends to engage in a dialogue with financial institutions about what constitutes a good financial product rather than to impose its own vision. Pursuing a uniform public enforcement strategy in this area at the EU level, however, may preclude national financial regulators from experimenting with different – both formal and informal – supervisory practices in the contractual sphere. This may, in turn, seriously imperil the attainment of the objectives pursued by EU financial regulation. Furthermore, next to public enforcement, private enforcement by individuals or their groups remains crucial to ensuring the effectiveness of EU financial regulation. After all, by exercising their liability rights, whether contractual or otherwise, financial consumers may play an important role in promoting customer-oriented behaviour of financial institutions.64 The importance of private enforcement in the financial services sector has been increasingly recognised by the EU, which has been promoting individual consumer redress through ADR,65 as well as collective consumer redress through representative actions before national courts or administrative authorities.66 However, the role of national private law, in particular contract law, within the European enforcement architecture has been largely neglected, which is reflected in the lack of a coherent approach to this issue at the EU level.

63 See Y Svetiev and A Ottow, ‘Financial Supervision in the Interstices between Private and Public Law’ (2014) 10 European Review of Contract Law 496; Cherednychenko (2015) European Review of Private Law (n 9) 627. 64 cf Moloney (n 57) 425. 65 See, in particular, Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L165/63 (Directive on Consumer ADR) and Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ 2013 L165/1 (Regulation on consumer ODR). On this development in more detail, see, eg, Cherednychenko (2015) European Review of Private Law (n 9) 638 et seq. 66 See, eg, European Commission, ‘Proposal for a Directive of the European Parliament and of the Council on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC’, COM (2018) 184 final. See also European Commission, Communication for the Commission to the European Parliament, the Council and the European Economic and Social Committee ‘A New Deal for Consumers’, COM (2018) 183 final.

EU Financial Regulation  77 Thus, some EU measures in the financial services field, such as the Payment Accounts Directive,67 the Payment Services Directive II (PSD II),68 and the Consumer Credit Directive, were, at least in part, drafted from the private law perspective and clearly conferred individual rights on financial consumers. The examples include the consumer’s right of access to a payment account with basic features,69 the consumer payer’s right to a refund for payment transactions initiated by or through a payee,70 and the consumer borrower’s right to early repayment.71 Moreover, PSD II also extensively deals with the issue of payment service providers’ liabilities to consumers, in particular in the case of unauthorised payment transactions or their defective execution.72 In addition, this directive even contains rules on the burden of proof designed to improve the consumers’ procedural position in disputes with providers.73 By way of contrast, MiFID and MiFID II were drafted from the perspective of public supervision, casting conduct of business rules of investment firms as supervisory standards subject to administrative enforcement.74 This has led Member States to implement these rules within financial supervision frameworks, leaving the issue of their private law effects in the investment firm–client relationship to national civil courts. And the latter have demonstrated varying degrees of willingness to grant effect to the regulatory duties in private law, in particular contract law. While in some Member States, such as the Netherlands, civil courts tend to consider conduct of business rules of the EU origin when determining the private law standard of care or loyalty in individual cases,75 in others, such as Germany and the UK, courts (or at least some courts) appear to be reluctant to do so.76

67 Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features [2014] OJ 2014 L257/214 (Payment Accounts Directive). 68 Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC [2015] OJ 2015 L337/35 (Payment Services Directive II (PSD II)). 69 Payment Accounts Directive, Art 16. 70 PSD II, Art 76. 71 Consumer Credit Directive, Art 16. 72 PSD II, Arts 73 and 89. 73 PSD II, Art 90. 74 On this in more detail, see Cherednychenko (2015) European Law Journal (n 9) 505; Cherednychenko (2015) European Review of Private Law n 9, 634 et seq. 75 See, eg, the decisions of the Dutch Supreme Court in civil matters (Hoge Raad) in Levob v B, De Treek v Dexia and Stichting Gedupeerden (HR 5 June 2009 (2012) Nederlandse Jurisprudentie 182, 183 and 184). 76 For Germany, see, eg, BGH 17 September 2013, XI ZR 332/12, no 20, where the Federal Supreme Court in civil matters dismissed the concept of the radiating effect (Ausstrahlungswirkung) of the MiFID conduct of business rules implemented in the public law framework on the standard of care in contract law. For the UK, see, eg, Court of Session 21 August 2012 [2012] CSOH 133 (Grant Estates Ltd (in liquidation) and others v Royal Bank of Scotland plc and others), where the fact that the MiFID conduct of business regime was primarily addressed to financial supervisory authorities was used by the Scottish judge Lord Hodge as an argument against granting effect to it in common law.

78  Olha O Cherednychenko In its judgment in Genil v Bankinter,77 the CJEU did not take the opportunity to unequivocally clarify its stance on the issue in question.78 While MiFID II contains extensive rules on administrative sanctions for the violation of regulatory conduct of business rules, the ‘principle of civil liability’, which was included in the initial consultation document of the European Commission,79 ultimately did not make it into the text of the directive. As a result, the uncertainty concerning the effect of the investment firms’ regulatory conduct of business rules in private law, which has emerged under MiFID, is likely to continue. This is particularly the case when it comes to bans on the conclusion of certain financial contracts and other more paternalistic rules, which national civil courts may be even more reluctant to give effect to in contract law. Last but not least, the emergence of a variety of public, private and mixed enforcement mechanisms designed to deliver behavioural compliance and/or provide redress to aggrieved consumers gives rise to the question of how they all should relate to each other. It is widely acknowledged in the law and economics literature that public and private enforcement should complement each other so as to avoid any conflict or overlap between them.80 The idea of complementarity implies a strict separation between a regulatory, deterrence-oriented function of administrative enforcement pursued by public authorities on the one hand, and a compensatory function of private enforcement exercised by civil courts and ADR entities on the other. Designing a perfect complementarity between public and private enforcement in a particular field, however, is not an easy task.81 In fact, reinforcing one type of enforcement increases the risk of adverse side effects on the other. The complementarity between public and private enforcement, however, can also be understood in another, less ambitious sense, namely as a state where there is at least some degree of co-operation between public and private enforcers with a view to ensuring co-ordination between their activities in the regulatory and compensatory domains.82 The examples of such co-ordination can already be found in some Member States. For example, the French financial watchdog, Autorité des marchés financiers (AMF), may transmit the files of its administrative investigation to the civil court at the request of the judge hearing

77 Case C-604/11, Genil v Bankinter, EU:C:2013:344. 78 On this in more detail, see Cherednychenko (2015) European Review of Private Law (n 9) 635 et seq. 79 See European Commission, Public Consultation ‘Review of the Markets in Financial Instruments Directive (MiFID)’, 8 December 2010, 63, para 7.2.6 (Liability of firms providing services). 80 See, eg, S Shavell, ‘A Model of the Optimal Use of Liability and Safety Regulation’, 15 RAND Journal of Economics 1984, 271; S Shavell, Foundations of Economic Analysis of Law (Harvard, Belknap, 2004), 589 et seq; CD Kolstad, TS Ulen and GV Johnson, ‘Ex post Liability for Harm vs Ex ante Safety Regulation: Substitutes or Complements?’ (1990) 80 American Economic Review 888. 81 cf F Weber and M Faure, ‘The Interplay between Public and Private Enforcement in European Private Law: Law and Economics Perspective’ (2015) 23 European Review of Private Law 525, 527. 82 On this in more detail, see Cherednychenko (2015) European Review of Private Law (n 9) 641 et seq.

EU Financial Regulation  79 a civil lawsuit if these documents are relevant for resolving it.83 This makes it possible for aggrieved clients to benefit from the information obtained in the course of public supervision and administrative enforcement in civil proceedings. The complementarity between public and private enforcement has also been promoted at the EU level, albeit so far exclusively in the context of strengthening private enforcement by means of ADR. The Directive on Consumer ADR obliges Member States to ensure co-operation between ADR entities and administrative agencies entrusted with the enforcement of EU legislation on consumer protection, including that in the financial services field.84 Alternatively, instead of separating a regulatory function and a compensatory function from each other, the two functions can be combined within one particular enforcement mechanism in order to increase its effectiveness.85 As a result, a hybrid form of enforcement can emerge whereby deterrence and compensation can be pursued by the same authority. The power of the UK financial watchdog, the Financial Conduct Authority (FCA), to make rules requiring financial institutions to establish and operate consumer redress schemes86 is probably the most notable example of this. Yet, such a hybrid enforcement tool also implies the need for the FCA to coordinate its activities with that of the authorities typically involved in consumer dispute resolution, that is, civil courts and the Financial Ombudsman Service (FOS).87 While some Member States and the EU are thus already experimenting with the complementarity and hybridisation between public and private enforcement, coordination mechanisms between the two generally remain underdeveloped. The lack of a more integrated approach to financial regulation and contract law in EU policy making makes it difficult to make progress on this issue, hindering the development of a more coherent and effective enforcement strategy of the EU in the field of consumer finance.

III.  Bridging the Gap between Financial Regulation and Contract Law According to the European Commission, ‘Better Regulation’ is about designing EU policies and legislative instruments ‘so that they achieve their objectives at

83 Loi no 2014-344 du 17 mars 2014 relative à la consommation, Art L 621-12-1. See Svetiev and Ottow (n 63) 527. 84 Directive on Consumer ADR, Arts 17, 19. 85 On this in more detail, see Cherednychenko (2015) European Review of Private Law (n 9) 641 et seq. 86 Financial Services and Markets Act (FSMA) 2000, s 404. See also FCA, Consumer Redress Schemes Sourcebook, available at https://www.handbook.fca.org.uk/handbook/CONRED.pdf. 87 Provisions to this effect are contained in FCA, Consumer Redress Schemes Sourcebook, ss 1.3.7–1.3.17 and ss 1.6.1–1.6.24.

80  Olha O Cherednychenko minimum cost’.88 Regulatory coherence and effectiveness are key in this context. However, as the previous analysis has shown, the gap between financial regulation and contract law in the current European policy discourse and legal scholarship may seriously undermine the efforts to meet these objectives in the field of consumer finance. In order to close the gap between financial regulation and contract law, these two areas should be examined as one organism rather than two separate domains. In particular, the assessment of EU financial regulation through the ‘contract law’ lens should unveil a complex interplay between the regulatory dimension and contractual settings which may profoundly affect the ability of regulatory interventions to realise their objectives. There is a strong need to better understand the contractual techniques that financial institutions use to manage risk within the retail financial markets, the effects of regulatory interventions in the prudential and conduct of business domains on contractual behaviour on the supply and demand side of the markets, as well as the private law consequences of non-compliance with regulatory rules. Therefore, in order to be able to properly evaluate specific regulatory interventions with respect to standard setting and enforcement, it is necessary to conduct detailed empirical studies of their impact on financial contracting in a given area, as well as legal-comparative studies of the relationship between such interventions and national private law. A better understanding of the ‘contract law’ dimension of specific EU regulatory measures should, in turn, inform the ‘fitness check’ of EU financial regulation across a wide spectrum of retail financial transactions and ultimately lead to ‘better regulation’ of consumer finance as a whole, in particular in terms of regulatory coherence and effectiveness.89 But how can a more integrated approach to financial regulation and contract law be developed, given a contradictory EU policy agenda for the retail financial markets, the growing fragmentation of the existing legal framework for consumer finance and still a profound disciplinary divide? As any hopefully successful journey, the development of such an approach should begin with a clear and coherent vision concerning what kind of consumer financial contracts we would like to be concluded in the twenty-first century. In my view, the EU’s sustainable development strategy offers an opportunity to build such a vision around the concept of sustainable consumer financial contracts. All the more so, given that the EU’s Better Regulation agenda, in the words of the European Commission, ‘provides the means to mainstream sustainable development into the Union’s policies’.90 88 European Commission (n 10) 4. 89 In the context of the Better Regulation agenda, these criteria have been explicitly mentioned by the European Commission in its guidelines on evaluation (including fitness checks). See European Commission (n 10) 51. 90 European Commission (n 10) 5.

EU Financial Regulation  81 In the following, I will further develop the notion of sustainable consumer financial contracts and elaborate upon a more integrated approach to financial regulation and contract law that could build around this novel concept in the context of EU law making. The analysis will focus on the four key areas that shape consumer finance: the financial product life-cycle; remuneration structures in the distribution process; the organisational culture in financial institutions; and the online alternative finance markets. The first three have been directly affected by the post-crisis financial regulation at the EU and/or Member State level. The fourth, in turn, has largely emerged in its shadow.

A.  Towards Sustainable Consumer Financial Contracts The term ‘sustainability’ has been traditionally associated with the idea that renewable natural resources should only be used to the extent to which they will be able to grow back. Nowadays, however, this term is no longer confined to the realm of ecology and is widely used in various disciplines, albeit often in different meanings. For example, some scholars have developed a three-dimensional model of sustainability aimed at reconciling perspectives relating to ecology, economy and society.91 Such a broad understanding of sustainability has also shaped EU policy in the past two decades. The preamble to the Treaty on European Union (TEU) states that the Member States are ‘determined to promote economic and social progress for their peoples, taking into account the principle of sustainable development’. According to the European Commission, sustainable development stands for meeting the needs of present generations without jeopardising the ability of future generations to meet their own.92 It offers a vision of progress which presupposes an integration of immediate and longer-term objectives, local and global action, and views social, economic and environmental issues as inseparable and interdependent components of human progress. The idea of sustainability has also been increasingly explored by private law scholars.93 Yet, although the financial

91 G Michelsen and M Adomßent, ‘Nachhaltige Entwicklung: Hintergründe und Zusammenhänge’ in H Heinrichs and G Michelsen (eds), Nachhaltigkeitswissenschaften (Cham, Springer, 2014) 3, 28 et seq. 92 European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions ‘Next Steps for a Sustainable Future: European Action for Sustainability’, COM (2016) 739 final. See also United Nations General Assembly, ‘Transforming Our World: The 2030 Agenda for Sustainable Development’, 21 October 2015. 93 See, eg, B Sjafjell and B Richardson (eds), Company Law and Sustainability: Legal Barriers and Opportunities (Cambridge, Cambridge University Press, 2015); C Poncibò, ‘The Contractualisation of Environmental Sustainability’ (2016) 12 European Review of Contract Law 335; E Eftestol‐Wilhelmsson, European Sustainable Carriage of Goods: The Role of Contract Law (London, Routledge, 2016).

82  Olha O Cherednychenko sector is expected to play a key role in supporting sustainable ­development,94 so  far sustainability has only been scarcely mentioned in EU financial regulation95 and has hardly received any attention in scholarly work in the fields of (retail) financial regulation and financial contract law.96 A policy reorientation towards sustainable finance at the EU level, however, is underway, with potentially far-reaching implications for EU financial regulation. Notably, recently the European Commission has published its action plan on financing sustainable growth as part of the measures aimed at strengthening the Capital Markets Union and financial integration more generally.97 The plan, which builds upon the work of the High Level Expert Group on sustainable finance established by the Commission,98 aims to reorient capital flows towards sustainable investment, limiting the financial impact of environmental and social risks, and fostering transparency and long-termism in financial and economic activity. In a broader sense, according to the High Level Expert Group, ‘sustainable finance refers to a financial system that is promoting a sustainable economic development rather than boom and bust; sustainable social development rather than inequality and exclusion; and sustainable environmental development rather than damaging the endowments of nature.’99 In a narrow sense, sustainable finance means integrating the environmental, social and governance (ESG) criteria into financial decisions.100 Sustainable finance in the latter sense has been the focus of the Commission’s action plan on financing sustainable growth. The plan includes,

94 European Commission, Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of Regions, ‘Reinforcing Integrated Supervision to Strengthen Capital Markets Union and Financial Integration in a Changing Environment’, COM (2017) 542 final. 95 See, eg, Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ 2014 L 330/1. 96 See, eg, OO Cherednychenko, ‘Report on the Inaugural International Conference of the Groningen Centre for European Financial Services Law (GCEFSL) “Towards Sustainable Financial Services in the EU: Making Sense of the Trend”’ (2017) 25 European Review of Private Law 835. In contrast, scholarly studies on finance and sustainability are much more developed in the areas of economics and finance, in particular with respect to corporate social responsibility. See, eg, contributions in S Boubaker, D Cumming and D Khuong Nguyen (eds), Research Handbook on Finance and Sustainability (Cheltenham, Edward Elgar, 2018). 97 European Commission, Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of Regions ‘Action Plan: Financing Sustainable Growth’, COM (2018) 97 final. 98 EU High-Level Expert Group on Sustainable Finance, Financing a Sustainable European Economy: Final Report, 2018, available at https://ec.europa.eu/info/sites/info/files/180131-sustainablefinance-final-report_en.pdf; EU High-Level Expert Group on Sustainable Finance, Financing A Sustainable European Economy: Interim Report, July 2017, available at https://ec.europa.eu/info/sites/ info/files/170713-sustainable-finance-report_en.pdf. 99 EU High-Level Expert Group on Sustainable Finance (2017) (n 98) 16. 100 EU High-Level Expert Group on Sustainable Finance (2017) (n 98) 16. Sustainable finance in this sense thus includes, but is not limited to, finance that generates explicit environmental benefits, also known as ‘green finance’.

EU Financial Regulation  83 among others, measures in the field of retail financial services, such as creating standards and labels for green financial products and incorporating sustainability considerations in financial advice.101 Against this background, sustainable consumer financial contracts can be understood in a broad sense as agreements concluded between financial institutions and consumers (that is, natural persons acting outside their trade or profession) or among consumers themselves that allow consumers to satisfy their financial needs and that are beneficial or at least not detrimental to the sustainable development of Europe in the economic, social and environmental domains. In the first place, this general concept seeks to combine the traditional contract law concerns about contractual justice between the parties with the major goals of financial regulation, in particular financial stability, the orderly functioning and integrity of financial markets, and financial consumer protection. The information asymmetry between the consumer and financial institution makes the contracts between them prone to opportunistic behaviour and fraud. Therefore, in order to ensure that individual consumers are able to satisfy their financial needs (not only in the short but also in the long term), they will typically need to be protected against potential abuses by means of a mix of traditional contract law tools (for example, defects of consent or duties of care) and regulatory tools (for example, conduct of business rules or the fit and proper test for board members of financial institutions). Moreover, with the growing importance of financial contracting outside the conventional financial sector, such as peer-to-peer lending, consumers may even need protection against potential abuses by other consumers. In addition, the proposed idea of sustainability in relation to consumer financial contracts implies that such contracts not only serve the best interests of individual consumers alone, but that they also support the long-term needs of economy, societies and environment, in particular by contributing to or at least not undermining the realisation of the sustainable development goals more generally. While building upon the above-mentioned broad definition of sustainable finance provided by the High Level Expert Group on sustainable finance, the proposed concept of sustainable consumer financial contracts thus points to the need to reconcile the internal dimension of a contract with its external dimension and to strike the right balance between often countervailing regulatory objectives, such as financial stability, financial consumer protection and environmental protection. In itself, however, this concept does not provide guidance as to how the

101 Within the framework of the European Commission’s Sustainability Action Plan, ESMA has recently launched three public consultations on sustainable finance in the areas of securities trading, investment funds, and credit rating agencies. See ESMA, Consultation Paper on Integrating Sustainability Risks and Factors in MiFID II, 19 December 2018; ESMA, Consultation Paper on Integrating Sustainability Risks and Factors in the UCITS Directive and AIFMD, 19 December 2018; ESMA, Consultation Paper ‘Guidelines on Disclosure Requirements Applicable to Credit Ratings’, 19 December 2018.

84  Olha O Cherednychenko individual interests and public goals should be reconciled in the specific market context or in the circumstances of an individual case. Neither does it prescribe how the conflict between different public goals should be resolved. This concept should rather be understood as an umbrella notion or meta-goal that could underpin the Better Regulation agenda in the field of consumer finance. It may be useful to further operationalise it through a set of principles of ­European law on sustainable consumer financial contracts that would go beyond the G20 HighLevel of Financial Consumer Protection102 in that they link financial consumer protection to the above-mentioned sustainable development agenda of the EU and embed the regulatory dimension of consumer financial contracts.103 These principles could include, for instance, fair treatment of financial consumers, financial and social inclusion, financial stability, protection of environment, and effective remedies. The concept of sustainable consumer financial contracts as elaborated upon in such principles could inform the development of a more integrated approach to financial regulation and contract law in the context of EU law making. This can be illustrated by the following four examples.

B.  The Financial Product Life-cycle While in the pre-crisis period consumer detriment was mainly associated with unfair selling practices in the distribution process (such as misleading information or bad financial advice), in the aftermath of the crisis it has been recognised that some financial products as such, or more exactly their contractual design, may pose particular dangers to consumers. One of the key post-crisis regulatory novelties, therefore, is a power of financial regulators to intervene into the financial product life-cycle. Product intervention can extend across a spectrum from ex ante product authorisation, to oversight of product development processes and distribution arrangements (also known as product governance), to ex post product prohibition. Product governance regimes designed to prevent financial institutions developing or distributing financial products that may cause consumer detriment are particularly interesting in the present context. As has been mentioned above, such regimes impose on financial institutions requirements relating to the internal organisation of their activities, irrespective of any relationship with its clients. For example, MiFID II requires financial institutions to have sound product

102 OECD, G20 High-Level Principles on Financial Consumer Protection, October 2011, available at https://www.oecd.org/g20/topics/financial-sector-reform/48892010.pdf. 103 In fact, the idea of principles of this kind is not new. See, in particular, OO Cherednychenko, CEC Jansen, ‘Principles of European Financial Service Contracts’ (2008) 16 European Review of Private Law 443.

EU Financial Regulation  85 governance arrangements (PGAs) in place with a view to ensuring a high level of retail investor protection.104 Such internal arrangements are supposed to safeguard that the manufacturing and distribution of financial products, including financial instruments such as CoCos, is not adversely affected by conflicts of interest between financial institutions and their clients. Both product manufacturers and distributors should thus have the PGAs in place. In particular, manufacturers should operate a product-approval process through which each newly manufactured or significantly adapted existing product must be approved before it is marketed or distributed to retail investors. The internal product approval process should specify, inter alia, an identified target market of end clients, ensure that all relevant risks to such target market are assessed and that the identified distribution strategy is consistent with it, and enable product stress testing (that is, assess the performance of a financial product under negative market conditions). Manufacturers should also inform distributors about the products and the product-approval processes, including the product’s identified target market. Distributors, in turn, should ensure that products are offered or recommended only when this is in the interests of the client. Obviously, the product governance requirements may profoundly affect the contractual design of retail financial products, the contractual relationship between manufacturers and distributors, consumer behaviour in the retail financial markets, as well as the key private law concepts and rules that govern redress and compensation. But the contract law and practice themselves may impact on the ability of such regulatory requirements to attain their policy goals. Therefore, the effectiveness of product regulation of this kind from the sustainability point of view should also be assessed through the ‘contract law’ lens. Such an assessment implies the need to take a closer look, for instance, at the standardised financial product terms encouraged in the context of the Capital Markets Union105 and the product distribution agreements, but also at the supervisory practices relating to PGAs and the availability of civil remedies for aggrieved consumers under national private laws.

C.  Remuneration Structures in the Distribution Process Another area of increased regulatory scrutiny post-crisis revolves around remuneration structures in the distribution process, in particular with respect

104 See MiFID II, Art 9(3) and 16(3), as elaborated in European Commission, Commission Delegated Directive (EU) of 7 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits, C (2016) 2031 final, Arts 9, 10. 105 European Commission, Green Paper, ‘Building a Capital Markets Union’, COM (2015) 63 final, 20.

86  Olha O Cherednychenko to financial advice. While financial advisers can help overcome asymmetric ­information problems and limitations of consumers’ own decision-making capacity, remuneration structures have a considerable potential to misalign incentives between financial consumers and advisers. Third-party inducement-based remuneration generates particularly serious conflict-of-interest risks and has been a significant driver of mis-selling and poor-quality advice internationally. In response, a number of jurisdictions, such as the UK and the Netherlands, as well as the EU, have introduced new regulatory measures designed to bring greater transparency to the financial advice industry and to address the problem of conflicts of interest. It is noteworthy in this context that such measures include, inter alia, limits or bans on third-party inducements (fees, commissions or monetary and non-monetary benefits) from securities issuers and financial product manufacturers when providing financial advice. Such contract-related conduct of business rules are contained, for example, in MiFID II. This directive obliges investment service providers to indicate whether investment advice is provided on an independent basis106 and, where this is the case, prohibits them from accepting and retaining fees, commissions or any monetary or non-monetary benefits paid or provided by any third party in relation to the provision of the service to clients.107 The only exception to this rule are ‘minor’ non-monetary benefits which can enhance the quality of the service and are of such scale and nature that they do not impair the firm’s compliance with its duty to act in the best interests of the client.108 In this way, MiFID II departs significantly from the pre-crisis regulatory philosophy reflected in MiFID I under which investment advisors could simply disclose conflicts of interest to retail investors. In addition, some legal systems, such as the Netherlands, have introduced restrictions on the amount of remuneration that financial advisers can charge to consumers. According to the Dutch rules on inducements, this amount may not be ‘­manifestly unreasonable in view of the nature and scope of the service provided’.109 This openended norm aims to prevent financial advisers from charging clients the amounts of remuneration which cannot be objectively justified in view of the efforts expended in the advisory service.110 Such regulatory interventions into the remuneration structures in the distribution chain may profoundly affect financial contracting in the retail financial markets. In particular, financial advisers may not be willing to offer financial advice to certain consumer groups and/or with respect to certain financial products, while consumers may be unwilling to take financial advice once they have

106 MiFID II, Art 24(4)(a)(i). 107 MiFID II, Art 24(7)(b). 108 MiFID II, Art 24(7)(b). 109 Market Conduct Supervision (Financial Institutions) Decree (Besluit Gedragstoezicht financiële ondernemingen) 2006, Art 86c(2)(a) (translation and emphasis added). 110 Explanations relating to the Financial Markets Amendment Decree 2013 (2012) 695 Staatsblad 87.

EU Financial Regulation  87 to pay for it directly and turn to execution-only financial services instead.111 Such contract practices, in turn, may reduce the effectiveness of the regulatory third-party bans on inducements in making the market for financial advice work well for all financial consumers. Furthermore, while remuneration-related regulatory standards may have effect in contract law, the latter, in turn, may also pose limits to the private enforcement of such rules and thus undermine their effectiveness. For example, where regulation limits the maximum amount of remuneration for financial advice, it is unclear whether it will have any effect in national private laws that still largely oppose the idea of just price as a condition for the contract’s validity. As contract law and practice shaped by it may thus not only be affected by remuneration-related regulation but also affect its effectiveness, they need to be taken seriously when evaluating performance of such regulation on the path towards sustainable consumer finance.

D.  The Organisational Culture in Financial Institutions The financial crisis has made it clear that human behaviour plays a critical role in the functioning of financial institutions and affects their performance. Post-crisis, therefore, the culture within financial institutions has become the subject of supervisory scrutiny. Two methods can be identified in this context: (a) at an individual level – the above-mentioned fit and proper test for board members as the carriers of culture within financial institutions, and (b) at a group level – controlling risky behaviours when it comes to decision making, communication, and leadership. The fit and proper test is designed to prevent individuals who would pose a risk to the proper functioning of the financial institution’s management body from entering in the first place or continuing in their function. The supervised entities have the primary responsibility of selecting and nominating individuals for the management body who comply with the requirements for fitness and propriety. Financial supervisory authorities, in turn, act as gatekeepers. Within the Single Supervisory Mechanism (SSM), the European Central Bank (ECB) is responsible for taking decisions on the appointment of the members of the management bodies of the significant credit institutions that fall under its direct supervision.112 In this context, the ECB and the national competent authorities (NCAs) jointly assess the fitness and propriety of new board members against five criteria: experience, reputation, conflicts of interest and independence of 111 See, eg, HM Treasury and Financial Conduct Authority, Financial Advice Market Review: Final Report, March 2016, available at https://www.fca.org.uk/publication/corporate/famr-final-report.pdf. The report shows that the move to fee-based advice on retail investment products in the UK led to a higher quality of investment advice; at the same time, the UK faced an advice gap with many retail investors finding investment advice unaffordable, and a significant number of banks advising highincome investors only. 112 Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions [2013] OJ L287/63 (SSM Regulation), Art 4(1)(e).

88  Olha O Cherednychenko mind, time commitment, and collective suitability.113 When applying these criteria, the ECB follows a case-by-case approach which takes into account the peculiarities of national law. In addition, financial regulators at the EU and national level increasingly target the group level by supervising group dynamics and decision making in the boardroom. In particular, the Financial Stability Board (FSB) has identified foundational elements of a sound risk culture within a financial institution that should be considered by financial supervisory authorities.114 These indicators include tone from the top, accountability, effective communication and challenge, and incentives. The Dutch Central Bank, for example, appears to go even further in supervising the culture within financial institutions. In order to identify irresponsible and unethical behaviour, it applies three frameworks for assessing the financial institutions’ culture: (1) board effectiveness (observing group dynamics and decision making in a boardroom); (2) risk culture (determining to what extent specific behavioural patterns within a particular institution influence risk taking); and (3) institutional change effectiveness (determining to what extent groups within a financial institution are willing to change).115 It can hardly be denied today that a sound culture within financial institutions is crucial to ensuring the sustainability of consumer financial contracts. However, so far the link between culture-related prudential regulation, conduct of business regulation and contract law has been barely explored. Yet, the importance of establishing such a link cannot be overestimated. In particular, it can be argued that any assessment of the effectiveness of a particular supervisory approach to culture from the sustainability point of view would be incomplete without exploring whether it has produced the desired impact on the contract design of financial products and consumer treatment in a contractual setting. Furthermore, one may also need to examine to what extent culture-related prudential regulation can be enforced through private law and what role can be played by industry codes of conduct in this context.

E.  The Online Alternative Finance Markets As the regulatory grip on the traditional financial sector has tightened post-crisis and the FinTech sector has exploded, novel unconventional forms of financial 113 European Central Bank Banking Supervision, Guide to Fit Proper Assessments, May 2017, available at https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.fap_guide_201705.en.pdf. 114 Financial Stability Board, Guidance on Supervisory Interaction with Financial Institutions on Risk Culture: A Framework for Assessing Risk Culture, 7 April 2014, available at http://www.fsb.org/ wp-content/uploads/140407.pdf. 115 Cherednychenko (n 96) 844, with reference to Frank Elderson, Executive Director of Dutch Central Bank. See also De Nederlandse Bank (DNB), ‘Supervision of Behaviour and Culture: Foundations, Practice and Future Developments’, 2015, available at https://www.dnb.nl/binaries/ Supervision%20of%20Behaviour%20and%20Culture_tcm46-334417.pdf.

EU Financial Regulation  89 contracting have emerged, such as crowdfunding. The latter connects those who give, lend or invest money directly with those who need financing. P2PL, also known as debt-based or lending-based crowdfunding, accounts for the largest share of this emerging market,116 with peer-to-peer consumer lending being its biggest segment.117 In general terms, P2PL can be defined as ‘the use of an electronic platform that matches lenders/investors with borrowers/issuers in order to provide unsecured loans, including consumer lending, as well as lending against real estate’.118 These services are usually provided by new market entrants known for the heavy digitalisation of their processes, including technological support for credit analysis and payments settlements.119 The P2PL model poses benefits to consumers in terms of convenience. It also offers improved access to credit for vulnerable consumers who cannot obtain it from conventional lenders. At the same time, P2PL also poses major risks to both consumer lenders and consumer borrowers.120 Consumer lenders may lose the amount borrowed following either the consumer borrower’s or the platform’s default.121 They may also be unaware of such risks, relying on misleading advertisements or unverified information, in particular about the consumer borrower and his or her project. Consumer borrowers, in turn, may become overindebted due to the lack of or insufficient assessment of their creditworthiness.122 While the P2PL is presented as a form of democratic, participating and disintermediated finance, consumer lenders and consumer borrowers need a P2PL platform in order to reduce information asymmetries between them. The way in which such platforms currently operate, however, raises serious concerns about their reliability in this respect. It is notable that current data reveal an increase in defaults and business failures in the P2PL markets.123 Importantly, in responding to a sector survey, the platforms have identified their own malpractice and borrowers’ defaults/failures as the main current risks in Europe.124 Absent EU

116 European Commission, Legislative Proposal for an EU Framework on Crowd and Peer to Peer Finance: Inception Impact Assessment ((2017)5288649 – 30/10/2017) 1. 117 B Zhang et al, Sustaining Momentum: The 2nd Annual European Alternative Finance Industry Survey, 2016, available at https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/ publications/sustaining-momentum/#.XETIJ_ZFx2M, 20. 118 International Financial Consumer Protection Organisation (FinCoNet), Report on the Digitalisation of Short-Term, High-Cost Consumer Credit, November 2017, available at http://www.finconet. org/Digtalisation-Short-term-High-cost-Consumer-Credit.pdf, 20. 119 FinCoNet (n 118). 120 European Banking Authority, Opinion of the European Banking Authority on Lending-based Crowdfunding, 26 February 2015. 121 European Banking Authority (n 120) 12 et seq. See also E Macchiavello, ‘Financial-return Crowdfunding and Regulatory Approaches in the Shadow Banking, FinTech and Collaborative Finance Era’ (2017) 14 European Company and Financial Law Review 662, 669. 122 European Banking Authority (n 120) 16, 20. See FinCoNet (n 118) 21. 123 Zhang and others (n 117) 21, 47; Zhang and others (n 55) 34. 124 Zhang and others (n 117) 21, 47; Zhang and others (n 55) 34.

90  Olha O Cherednychenko harmonisation in the area of P2PL, the development of consumer protection standards in this field is largely left to the Member States, and the adopted solutions vary greatly.125 The UK, for example, has extended its consumer credit regime to P2PL. As a result, P2PL platforms are required to assess the consumer borrower’s creditworthiness.126 One may question, however, to what extent P2PL platforms perform a role similar to that of traditional lenders and should therefore be subject to the same responsible lending duties. In order to determine whether the EU should intervene in the online alternative finance markets, such as consumer P2PL, and, if so, how an appropriate regulatory regime can best be designed to ensure the sustainability of consumer financial contracts, one needs to take a closer look at the role of contract law in shaping market practice in the shadow of the post-crisis regulation of the traditional financial sector. An impact assessment should therefore include a comprehensive analysis of the contract terms on which the alternative finance markets currently operate and the potential effects of financial regulation on contract law and practice. The business models adopted by P2PL platforms and the possibilities for consumer borrowers and consumer lenders to enforce regulatory standards through national private laws deserve special attention in this context. Understanding how innovation in the consumer P2PL markets is supported by contract law is key to being able to effectively respond to the regulatory challenges posed by the rise of the sharing economy in the domain of consumer finance.

IV.  Concluding Remarks The post-crisis era presents major new challenges for the EU legislator in terms of effectively safeguarding public and private interests in the realm of consumer finance in an increasingly digital environment. New and innovative ways of addressing tensions and contradictions between the common good and individual preferences of market actors in the retail financial markets are needed in order to be able to close the gap between consumer finance and society. However, at present, the efforts to develop workable solutions are seriously hampered by the existence of another gap – the gap between financial regulation and contract law in the current European policy discourse and legal scholarship. In the context of EU law making, this gap manifests itself, in particular, in a contradictory policy agenda for the retail financial markets, insufficient attention to contract practice, and a lack of a coherent and effective enforcement strategy. While the effectiveness

125 See, eg, Macchiavello (n 121); European Banking Authority (n 120) 36 et seq. 126 Consumer Credit Sourcebook, s 5.5. See also Financial Conduct Authority, Consultation Paper, ‘Assessing Creditworthiness in Consumer Credit: Proposed Changes to Our Rules and Guidance’, July 2017, available at https://www.fca.org.uk/publication/consultation/cp17-27.pdf, 20.

EU Financial Regulation  91 of EU financial regulation in the prudential and conduct of business domains depends on a broader legal framework that often reaches far beyond its regulatory ambit, the post-crisis legal matrix for consumer finance is developing in a piecemeal fashion without a clear and coherent vision of consumer financial contracts for the current millennium. In order to reduce the gap between financial regulation and contract law in the EU policy discourse, this chapter has suggested to better integrate the ‘contract law’ dimension of consumer finance into the assessment of existing and new regulatory measures in this area on the basis of a novel concept of sustainable consumer financial contracts. Such an approach fits into the EU’s Better Regulation agenda and its sustainable development strategy, which provide an opportunity to critically rethink the role of contract law in the current regulatory landscape, both in relation to standard setting and enforcement. It also reflects an essentially hybrid nature of the legal regimes that currently shape consumer finance in the traditional and alternative finance markets, throughout the product life-cycle and in the distribution process, as well as by steering the organisational culture in financial institutions. Such regimes are neither solely a product of financial regulation or that of contract law. But contract law plays a particularly important role therein, shaping contract practice which financial regulation is designed to steer, as well as consumer remedies in case of breach of regulatory standards. Examining EU financial regulation through the ‘contract law’ lens, in particular in terms of regulatory coherence and effectiveness, implies the need for detailed empirical and legal-comparative studies into the interplay between specific regulatory interventions and contractual settings. A better understanding of the ‘contract law’ implications of specific EU regulatory measures in the prudential and conduct of business domains should, in turn, inform the ‘fitness check’ of EU financial regulation in the field of consumer finance as a whole. A more integrated approach to financial regulation and contract law in the context of EU law making is vital to ensuring ‘better regulation’ of the retail financial markets and ultimately the sustainability of consumer financial contracts in the EU.

92

5 The Fitness Check of EU Consumer Law and the Impact Assessment for the New Deal for EU Consumers ESTHER VAN SCHAGEN*

I. Introduction After the failed attempt to revise the Consumer Sales Directive1 and the Unfair Contract Terms Directive,2 and after the announcement that the draft Common European Sales Law was to be withdrawn, the Commission announced it would conduct a fitness check of EU consumer law.3 Specifically, the Commission * Assistant Professor Private Law, Molengraaff Institute, Utrecht University. 1 Directive 1999/44 on consumer sales on and associated guarantees. 2 Directive 93/13 on unfair terms in consumer contracts. 3 According to the European Commission, ‘Better Regulation Guidelines’, SWD (2017) 350 53 ‘a fitness check assesses whether the group of interventions is fit for purpose by assessing the performance of the relevant framework with respect to its policy objectives.’ Measures included in one fitness check typically show some logical connection and pursue similar aims. This chapter will distinguish between the Commission’s Report on the Fitness Check, hereafter ‘the fitness check’, on the one hand (European Commission, ‘Report of the Fitness Check on 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 and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’); Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts; Directive 98/6/EC of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers; 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; Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests; Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising’, SWD (2017) 209) and the main report from Civic Consulting on the other hand, hereafter ‘the main report’, Civic Consulting, Study for the Fitness Check of EU consumer and marketing law Final report, May 2017. The main report consists of four parts and is available at https://ec.europa.eu/newsroom/just/item-detail. cfm?item_id=59332. The recommendations from the main report and the fitness check differ at some points, and not all recommendations from the main report have been included in the Commission’s report on the fitness check; see extensively MBM Loos, ‘Oude wijn in nieuwe zakken? Modernisering van het consumentenrecht (II)’ (2018) 24 Nederlands Tijdschrift voor Europees Recht 227–33.

94  Esther van Schagen combined the evaluation of six measures: the Consumer Sales Directive, the Unfair Contract Terms Directive, the Unfair Commercial Practices Directive,4 the Misleading and Comparative Advertising Directive,5 as well as the Price Indications Directive6 and the Injunctions Directive.7 The fitness check should evaluate whether these measures are effective, efficient, coherent, relevant and have EU added value, and should identify overlaps, gaps, inconsistencies and obsolete measures.8 Generally, the Better Regulation Guidelines prescribe that evaluations and fitness checks should ‘feed into’ subsequent decision making.9 Hopefully, this should generally strengthen impact assessments in EU contract law. Currently, impact assessments in EU contract law frequently fail to critically analyse problems the internal market and consumers might experience without harmonisation. Instead, impact assessments typically reason towards the solution – full harmonisation – preferred by the Commission, rather than considering the needs and preferences of stakeholders as a starting point. The need for harmonisation and the effect of harmonisation on cross-border trade and consumer confidence was something that was frequently assumed rather than analysed in impact assessments revising contract law.10 For some measures, complaints from Member States and consumers prompted revision. For example, Directive 2008/122 on timeshare, revising Directive 94/47 on timeshare, took into account consumer complaints, and expanded the definition of timeshare accordingly. The insights from the fitness check could also be highly significant for EU legislative discourse in consumer law: the fitness check could identify experiences from consumers and businesses that should be addressed. However, fitness checks, like impact assessments, are not designed to limit the EU legislator’s discretion in determining what possible course can best be taken to foster the internal market and strengthen consumer protection under Article 114 TFEU. This discretion is especially wide in light of continuing disagreement on the best way to strengthen

4 Directive 2005/29 on unfair commercial practices. 5 Directive 2006/114 on misleading and comparative advertising. 6 Directive 98/6 on consumer protection in the indication of the prices of products offered to consumers. 7 Directive 2009/22 on injunctions for the protection of consumers’ interests. 8 These questions correspond with the questions generally required by the Guidelines, SWD (2017) 350 59–60. 9 SWD (2017) 350 54. 10 eg the impact assessment accompanying the draft consumer rights Directive, SWD (2008) 2544 11–12, as well as the impact assessment accompanying the draft revised timeshare Directive, SEC (2007) 743 9–10, and the impact assessment accompanying the draft unfair commercial practices Directive, SEC (2003) 724 3–4 argues that regulatory fragmentation leads to uncertainty for businesses and a lack of consumer confidence. See critically on the reasoning in the impact assessment accompanying the Consumer Rights Directive WH van Boom, ‘The Draft Directive on Consumer Rights: Choices Made and Arguments Used’ (2009) 5 Journal of Contemporary European Research 2009 452–64. See critically on the reasoning of impact assessments in general EAG van Schagen, ‘The Hidden Potential of Regulatory Impact Assessments (RIAs) in the Private Law Acquis’ (2014) 22 European Review of Private Law 69–87.

The Fitness Check of EU Consumer Law  95 the internal market.11 This raises the question – has the fitness check strengthened the impact assessment accompanying the measures under the New Deal? This chapter will discuss the publication of the fitness check, and summarise its conclusions and follow-up (section II). Subsequently, the chapter will analyse the fitness check in the light of the requirements of fitness checks in the Better Regulation Guidelines. What are the inherent limitations of fitness checks, are they reflected in the fitness check of EU consumer law and does the fitness check meet expectations, or is it a limited exercise? (section III). An essential part of fitness checks is discovering a causal relationship between measures under evaluation and policy aims set by those measures. Has the fitness check, despite its shortcomings, strengthened the subsequent impact assessment accompanying the New  Deal?12 (section IV). The chapter will end with a conclusion (section V).

II.  The Fitness Check: Publication, Conclusions and Follow-Up With the fitness check of EU consumer law, the Commission has not only sought to increase the impact of EU contract law, but also re-emphasised the value of research in doing so, in line with the principles of better regulation.13 However, the publication of the results, and the follow-up, is not easy to oversee (A). The conclusions of the fitness check are generally positive (B) and the follow-up focuses on better enforcement and targeted revision (C).

A.  The Publication of the Fitness Check The report on the fitness check, the evaluation of the Consumer Rights Directive, as well as subsequent consultations and the inception impact assessments have been published online, on the online Newsroom of DG Justice.14

11 Options that have been defended range from cross-border Regulations, see C Twigg-Flesner, A cross-border-only Regulation for consumer transactions in the EU. A fresh approach to EU consumer law (New York, Springer, 2012) to the Open Method of Coordination, by W van Gerven, ‘The Open Method of Convergence’ (2008) 14 Juridica International 32–41. 12 The impact assessment was preceded by an inception impact assessment. Inception impact assessments typically follow evaluations or fitness checks and precede impact assessments. They provide stakeholders and Member States with a first impression of the Commission’s plans and create an opportunity to provide feedback on those plans. This chapter will focus on the impact assessment as the inception impact assessment and the impact assessment diverge considerably – the inception impact assessment initially announced that the Injunctions Directive was to be revised separately. 13 See, however, very critically the contribution of Micklitz and Villanueva in this volume. 14 See https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332.

96  Esther van Schagen Another  website15 provides information on the New Deal for Consumers, publishing the 2018 Communication on the New Deal, as well as the draft better enforcement Directive, the draft Directive on representative actions and the inception impact assessment on the revision of the Injunctions Directive, along with information about a ‘citizen’s dialogue’ – apparently not to be confused with the REFIT stakeholder consumer group.16 This website prominently links to the fitness check. The 2018 Communication and proposals, alongside the opinion of the Regulatory Scrutiny Board and an additional study on transparency in online platforms, have also been published separately on the website of DG Justice’s newsroom.17 The websites do not refer to the revision of the Consumer Sales Directive, even though this directive was evaluated as part of the fitness check. This approach does not as such contradict the Guidelines,18 which prescribe that the evaluation process, evidence base, analysis and findings must be presented in a staff working document, and the roadmap, terms of reference, the report and the summary, as well as the conclusions of the Regulatory Scrutiny Board, if applicable, must be published centrally. One might ask, however, whether it is still easy to oversee the amount of available information, and comprehend the connection between the various initiatives. Arguably, the abundance of publicly available online information, including helpful information sheets, can be difficult to oversee, especially for those not familiar with the fitness check and the New Deal.

B.  The Conclusions of the Fitness Check Generally, the conclusions of the fitness check are largely positive, and recommend, in addition to non-legislative measures, better enforcement and targeted revisions. The fitness check19 finds that the measures continue to benefit a large majority of consumers. Particularly, most consumer stakeholders have responded that they at least ‘slightly’ benefit from five key rights conferred upon them by directives, including the right to a ‘legal guarantee’ under the Consumer Sales Directive, the right not to be bound by aggressive and misleading contract terms, and protection against ambiguous or unclear contractual terms. Notably, some of these rights already existed in national law. For example, prior to the Unfair

15 See https://ec.europa.eu/info/law/law-topic/consumers/review-eu-consumer-law-new-deal-consumers_ en#documents. 16 According to the Commission’s Expert Group register, accessible at http://ec.europa.eu/transparency/regexpert/, the group was formed on 26 July 2016, as a temporary group with the aim to ‘advise on key issues of the Fitness Check on EU consumer and marketing law, in particular in relation to the possible need for further modernisation of the relevant rules, through a balanced and inclusive approach’, and consists of EU stakeholder groups. 17 See https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=620435. 18 SWD (2017) 350 65. 19 SWD (2017) 209 33.

The Fitness Check of EU Consumer Law  97 Contract Terms Directive, especially German law provided extensive protection against unfair terms,20 and Dutch law protected consumers who bought defective goods.21 Nevertheless, EU consumers have benefited, especially after CJEU case law on unfair terms that has considerably reinforced consumer protection.22 After concluding that the measures benefit a large majority of consumers, the fitness check immediately goes on to highlight the findings of a recent study on consumer detriment from 20.3 billion to 58.4 billion in 2016–2017, suggesting further improvements are needed.23 The fitness check24 considers the cost and benefits of the Consumer Sales Directive and the other measures under evaluation, with the exception of the Injunction Directive and the Price Indication Directive. It is not clear how costs of compliance with these directives can be evaluated and estimated separately. The fitness check25 finds that the Injunction Directive has had limited impact, especially for infringements originating in other Member States than the qualified entity, and notes clear room for improvement. The fitness check26 subsequently considers consistency between the selected measures and ‘sectors with a significant level of relevant EU sectoral regulation, where complaints data suggest there are problems in applying both the sector-specific and general consumer protection rules’. Therefore, the fitness check focuses on passenger transport, electronic communications, energy and consumer financial services. The fitness check notes specific requirements on the transparency of clauses in these sectors, which has, per the fitness check, not resulted in inconsistency.27 Rather, the Unfair Contract Terms Directive and the Unfair Commercial Practices Directive act as a ‘safety net’ where specific rules have been drafted as those general rules fail to sufficiently protect consumers. However, this has not prevented widespread breaches of the Unfair Contract Terms Directive in regulated sectors. The fitness check28 further noted an overlap in information obligations between the Consumer Rights Directive and the Unfair Commercial Practices Directive, as well as inconsistencies between

20 See for an early extensive comparative overview EH Hondius, Standaardvoorwaarden: rechtsvergelijkende beschouwingen over standaardisering van kontraktsbedingen en overheidstoezicht daarop (Deventer, Kluwer, 1978). 21 JM Smits, ‘De Richtlijn consumentenkoop en het Nederlandse recht’, in JM Smits (ed), De Richtlijn consumentenkoop in perspectief (The Hague, Boom Juridische Uitgevers, 2003) 1–27. 22 See on the potentially wider effects of CJEU case law on this point H-W Micklitz, N Reich, ‘The Court and Sleeping Beauty: The revival of the Unfair Contract Terms Directive (UCTD)’ (2014) 51 CML Rev 2014 771–808. 23 Civic Consulting, Study on measuring consumer detriment in the European Union, February 2017, available at https://ec.europa.eu/info/publications/study-measuring-consumer-detriment-europeanunion_en. 24 SWD (2017) 209 45–54. 25 SWD (2017) 209 35. 26 SWD (2017) 209 55. 27 SWD (2017) 209 56. 28 SWD (2017) 209 59, 66.

98  Esther van Schagen the Unfair Commercial Practices Directive, the Unfair Terms Directive, the Consumer Rights Directive and the Injunctions Directive. In addition, the evaluation of the Consumer Rights Directive29 identified gaps with regard to transparency obligations for online marketplaces and free service contracts. The fitness check30 identifies three ‘strands of action’: increasing the awareness of EU contract law among stakeholders and state actors; improving enforcement; and simplifying the regulatory landscape. During the fitness check, some initiatives were developed that are likely to contribute to these aims: the revision of the Consumer Protection Cooperation Regulation, as well as the draft Regulation on a single digital gateway,31 a pilot project for training SMEs, and the development of a consumer law database. The fitness check32 concludes by noting that ‘[o]bviously, any possible legislative follow-up will have to undergo a careful impact assessment’.

C.  The Follow-up to the Fitness Check Following the fitness check, the Commission originally announced an initiative to make targeted amendments to four of the six measures under evaluation: the Unfair Contract Terms Directive, the Unfair Commercial Practices Directive, the Price Indication Directive and the Consumer Rights Directive.33 The Consumer Sales Directive was to be revised by the draft Online Sales Directive and the Injunctions Directive was to be revised after the report on the 2013 Recommendation on collective redress. In its April 2018 Communication, the Commission has announced a package of legislative and non-legislative measures to improve the application and enforcement of EU contract law. The non-legislative measures range from awareness-raising and assisting Member States in the implementation of the revised Consumer Protection Cooperation Regulation to international agreements on consumer protection enforcement and discussions with stakeholders. Two legislative measures have been announced: the draft Representative Actions Directive34 drastically revises the Injunctions Directive, introducing an EU representative action that allows representative organisations to claim compensation for breaches of consumer law.35 The draft Better Enforcement

29 SWD (2017) 169 56, 25–26. 30 SWD (2017) 209 65. 31 COM (2017) 256. 32 SWD (2017) 209 87. 33 Inception impact assessment, available at https://ec.europa.eu/newsroom/just/item-detail.cfm? item_id=59332. 34 COM (2018) 184. 35 See further AA Hardy, ‘Het voorstel voor een richtlijn betreffende representatieve vorderingen ter bescherming van de collectieve belangen van consumenten’ (2018) Weekblad voor Privaatrecht, ­Notariaat en Registratie 7205. This chapter will focus on the draft better enforcement Directive.

The Fitness Check of EU Consumer Law  99 Directive36 proposes amendments that seek to strengthen both enforcement and coherence. First, the draft Better Enforcement Directive aims to generally introduce harmonised administrative penalties for breaching consumer rights and individual contractual and non-contractual remedies for consumers faced with unfair commercial practices. However, the draft Better Enforcement Directive only considers better enforcement for the Unfair Contract Terms Directive, the Unfair Commercial Practices Directive, the Consumer Rights Directive and the Price Indication Directive. Despite its more general arguments and wider implications for enforcement, the draft Better Enforcement Directive does not consider introducing harmonised administrative fines and more remedies for measures such as Directive 2015/2302 on package travel, Directive 2008/122 on timeshare, or measures in the area of passenger rights or roaming. Similarly, the draft Better Enforcement Directive does not consider draft measures, such as the draft Online Sales Directive or the draft Digital Content Contracts Directive. This may mean that, while non-compliance has been signalled as an important problem for EU consumer protection, it is not similarly signalled for other, related areas, ranging from consumer sales and contracts for digital content to travel, timeshare and passenger rights. Potentially, consumers and enforcement authorities in these and other areas may continue to face problems. The proposal also suggests some amendments that should strengthen ­coherence. The draft Better Enforcement Directive introduces and revises transparency obligations in the Consumer Rights Directive and the Unfair Commercial Practices Directive, though much less streamlined than suggested by the main report, as supported by behavioural studies.37 The draft Better Enforcement Directive also extends the scope of the Consumer Rights Directive and revises the right of withdrawal in the Consumer Rights Directive, so as to exclude cases where consumers have abused this right. Despite the focus on coherence, the draft Better Enforcement Directive does not clarify its relation to sector-specific measures.38 Remarkably, the draft Better Enforcement Directive does not propose amendments to the Unfair Contract Terms Directive, even though the majority of case studies in the impact assessment39 that demonstrate ineffective redress mechanisms concern the use of unfair terms and unclarity remains regarding the effects of unfair terms.40 Additionally, Loos41 points out that it is not certain that the

36 COM (2018) 185. See further on this proposal C Twigg-Flesner, ‘Bad hand? The “New Deal” for consumers’ (2018) 15 Zeitschrift für das Privatrecht der Europäischen Union 166–75, and MBM Loos, ‘Oude wijn in nieuwe zakken? Modernisering van het Europese consumentenrecht (I)’ (2018) 24 Nederlands Tijdschrift voor Europees Recht 150–56. 37 Main report, part 1 (n 3) 268. 38 Loos (n 3) 233. 39 SWD (2018) 96 24–25. 40 Main report, part 1 (n 3) 234–35. 41 Loos (n 3) 228.

100  Esther van Schagen Unfair Contract Terms Directive also applies to contracts for ‘free’ digital services. The draft Better Enforcement Directive also does not codify CJEU case law on transparency obligations on unfair terms, or the main terms of the contract. Instead, the inception impact assessment42 expects that the CJEU’s case law will ‘provide a harmonising influence as to their interpretation’.

III.  The Fitness Check: Framework and Limitations According to the Better Regulation Guidelines, fitness checks and evaluations in general form part of a ‘policy cycle’ – first, there is an ex ante assessment, in the form of an impact assessment. If, subsequently, a policy is adopted, as supported by the impact assessment, this should be monitored and supervised and, after a specific period of time, evaluated. The chapters of the Better Regulation Guidelines reflect this cycle: planning, impact assessments, implementation, evaluation and fitness checks, and consultations. For EU contract law, the cycle has begun anew: after the fitness check, and subsequent consultations, an impact assessment accompanying two proposals has been published. If these proposals are adopted, implementation by Member States will become necessary, and eventually, measures will have to be evaluated. According to the Guidelines,43 evaluations should inform policy making by assessing existing interventions regularly. The question arises how strict these Guidelines are? Does a ‘fitness check’ mean a critical consideration of the existing body of EU law or is it a more limited exercise?

A.  Fundamentally Rethinking EU Contract Law? One might ask whether a fitness check is aimed at exploring the best way to achieve policy aims – fostering the internal market and consumer protection – reinforced by experiences with current legislation – or whether the aim of the exercise is more limited, revealing, perhaps, an inherent preference for the status quo. The Roadmap gives the impression that the fitness check will not result in rethinking the legal basis used for the development of consumer law. Further, the Roadmap44 states that ‘[t]he completion of the Single Market, be it digital or offline, requires a maximum level of harmonisation regarding consumer laws so as to enable traders and consumers to enjoy legal certainty and a level playing field when operating cross border.’ This makes it unlikely that the need

42 Inception impact assessment, available at https://ec.europa.eu/newsroom/just/item-detail.cfm? item_id=59332 at 4. 43 SWD (2017) 209 51. 44 Available at http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_just_023_evaluation_con sumer_law_en.pdf at 8.

The Fitness Check of EU Consumer Law  101 for harmonisation is going to be critically addressed. This is in line with the questions presented in the Roadmap45 that ask, for example, ‘what progress has been made towards policy aims’ or ‘what has been the EU added value’ – ­presuming that some progress has been made and there is at least some added value. Further, more generally, what is a fitness check supposed to do? Is it sufficient to check whether measures are ‘fit for purpose’, or is there room to explore alternative options? The model questions in the Guidelines46 for fitness checks do not oblige interviewers or drafters to critically ask whether harmonisation has been developed on the best possible basis, or if alternatives should be explored – if a fitness check concludes that changes are necessary, this should be explored by impact assessments. Twigg-Flesner47 points out that the Roadmap preceding the fitness check does not indicate that EU contract law will be reconsidered. Instead, he points out that many debated issues – such as the use of Article 114 TFEU as a legal basis, the use of increasingly detailed directives, and the fragmented approach of those directives – are not considered in the fitness check. Further, the Commission’s view of ‘consumer protection’ and the tension between the internal market and consumer protection are not discussed. Practically, the fitness check was not scheduled as a fundamental consideration. Micklitz48 points out that teams of researchers were given 10 months to answer the question whether five EU measures, as transposed and applied in 28 Member States, have effectively and efficiently fostered the internal market and consumer protection. This is very little time for a lot of research. In addition, measures such as roaming, package travel, and timeshare are mostly relevant to consumers who have the means to travel and purchase timeshares. In contrast, EU measures have not targeted consumers who, for example, have trouble paying their rent, electricity bill or health insurance. Possibly, gaining insight into the problems that these consumers might face might be problematic – for example, because these consumers might be harder to reach, or because they do not have the time or expertise to respond to complicated surveys. However, these questions fall beyond the scope of the fitness check.49 Thus, the aim of the fitness check is not to explore fundamental questions such as questions of whether harmonisation is necessary, which legal basis can best be used, or the use of directives over regulations. Rather, the fitness check, in line with the Guidelines, questions, for example, what progress has been made. This means that fitness checks do not provide room for impact assessments to extensively 45 Available at http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_just_023_evaluation_ consumer_law_en.pdf at 10. 46 SWD (2017) 350 58–59. 47 C Twigg-Flesner, ‘From REFIT to a Rethink: Time for fundamental EU contract law Reform?’ (2017) 6 Journal of European Consumer and Market Law 186–87. 48 H-W Micklitz, ‘Eine merkwürdige Welt – Beobachtungen zur sog. Verbraucherforschung der Europäischen Kommission’ (2016) Verbraucher und Recht 322. See also the contribution of Micklitz and Villanueva in this volume. 49 Similarly and critically, Micklitz and Villanueva (n 48).

102  Esther van Schagen consider fundamental questions. Instead, once an evaluation has concluded that measures ‘are fit for purpose’, there may be less room for impact assessments to explore these questions.

B. Methodology The Guidelines50 prescribe that evaluations should be based on a ‘robust methodology’, which ideally involves multiple methods and sources, while any limitations on methods and sources should be clearly explained and any possible bias should be considered. Notably, key questions in evaluations must focus on how effective and efficient measures have been,51 which does not leave much room for the question whether a measure has been effective. The evaluation questions outlined by the fitness check52 echo these requirements, and note that the fitness check not only sought to reduce ‘red tape’ and inconsistencies, but also whether ‘these instruments capture and reflect the current market trends and, in particular, changes in the markets and consumer behaviour’. The fitness check, however, does not consider evolving market practices, and the evaluation is not aimed at a market analysis, which is also not included in the methodology.53 This methodology does not elaborate on the methodology for the surveys on which the fitness check partially relies, including the phrasing of the interview questions, or the selection of participants. In other words, the methodology section only explains the methodology for part of the fitness check. This is regrettable, because the interview questions posed to stakeholders were extensive and presupposed considerable expertise on EU contract law. The phrasing of the questions54 was also the reason for some relevant and knowledgeable stakeholders to decline to participate. Typically, authorities tasked with the resolution of disputes have to maintain neutrality and might therefore be reluctant to consider, for example, the success, or added value, of rules. The extensive, somewhat repetitive questions, took considerable time to answer, which discouraged some stakeholders from answering all questions extensively. The methodology section gives the impression that the fitness check directly echoes the main report. Neither the fitness check nor the impact assessment

50 SWD (2017) 350 57–58. 51 These questions are prescribed by the Guidelines, SWD (2017) 209 59. The interview guides are available in part 4 of the Report, available at https://ec.europa.eu/newsroom/just/item-detail. cfm?item_id=59332, under Annex IV. 52 SWD (2017) 209 13–14. 53 According to Annex 4 to the Report, the methodology consisted of legal analysis, literature review and costs and benefit analysis. 54 eg, ‘How do you assess the effectiveness of the UCPD … in terms of … the practical benefits for consumers?’, or ‘How does the concept of “average consumer” work in practice? Is it applied rigidly?’ The interview questions can be found in the main report, part 4 (n 3) Annex 4.

The Fitness Check of EU Consumer Law  103 indicate that not all recommendations have been followed, requiring readers interested in discovering divergences for themselves to critically compare 94 pages of the impact assessment, the 155 pages of the fitness check and the 467 pages of the main report. The methodology section does not consider any possible bias in its conclusions. However, political feasibility may well have been a reason not to incorporate all recommendations from the main report. For example, the recommendation to develop one instrument of EU consumer law55 is likely to be problematic in the light of the withdrawal of the Common European Sales Law and the drafting of the Consumer Rights Directive,56 and the recommendation to revise the black list in the Unfair Commercial Practices Directive,57 if possible combined with a mechanism for delegated or implemented law making, met with disagreement among respondents.58 It can be doubted whether the inclusion of commercial practices in a black list is a merely technical issue. Rather, blacklisting particular practices reflects political views on fair practices. This political, normative background should render the black list an unsuitable topic for delegated law making. After all, this form of law making should be limited to ‘non-essential elements’. The impact assessment also does not consider whether the amount of data acquired is well suited to answer the question whether the measures under evaluation have strengthened the internal market or consumer protection. Evaluations should ‘assess the strength of the evidence obtained, and the implications for the robustness of the conclusions reached’. Importantly, evaluations, like impact assessments, remain dependent on how much data can be collected. The Guidelines59 do not require an evaluation to collect all relevant data, but prescribe that the data collected, and the analysis thereof, must be ­‘proportionate’: ‘tailored to the particular intervention, its maturity and the data available’. The fitness check60 acknowledges limitations to the available information (not surprising as such, considering the information needed to answer a very generally phrased question) and notes that ‘specific costs estimates proved to be challenging in the business interview and not every respondent could submit this type of information’. Possibly, this is not only problematic for businesses, but also for authorities tasked with implementation and enforcement. Although the fitness check61 summarises the findings and recommendations of previous evaluations on all five measures, it is not clear whether the evaluations have served as a source of information for the fitness check. The fitness check repeats some findings of

55 Main report, part 1 (n 3) 297–98. 56 See further S Weatherill, ‘The Consumer Rights Directive: How and why a quest for “coherence” has (largely) failed’ (2012) 49 CML Rev 1279–1317. 57 Main report, part 1 (n 3) 268–69. 58 SWD (2017) 209 77. 59 SWD (2017) 209 57. 60 SWD (2017) 209 16. 61 SWD (2017) 209 11–12.

104  Esther van Schagen previous evaluations. For example, the 1999 report on the Unfair Terms Directive62 acknowledged the continuing use of unfair terms and suggested a number of improvements that will sound familiar: the exclusion of the ‘main terms of the contract’ and individually negotiated terms. The introduction of EU-level negotiations on the presentations of unfair terms was previously recommended, with limited success. The fitness check does not appear to be aware of this, nor does it consider experiences with these options, or explain why EU-level negotiations will be successful now, in contrast to previous experiences. Rather than previous evaluations or impact assessments, the fitness check63 notes that it relies on three external studies, as well as the public online consultation on the fitness check, the Consumer Summit, a dedicated stakeholder expert group, discussions with consumer group representatives, and the findings from a study from the European and Economic and Social Committee, requested by the Commission. These findings were combined and compared to Eurobarometer data, and ‘other studies on specific matters’. Remarkably, the fitness check64 finds that there is no baseline scenario available because impact assessments for the measures adopted are missing, which is apparently the reasoning to (also) rely on Eurobarometer data. However, the Unfair Commercial Practices Directive was preceded by an impact assessment,65 and the Consumer Rights Directive, which also attempted to revise the Unfair Terms Directive and the Consumer Sales Directive, was also preceded by an impact assessment.66 This oversight is difficult to reconcile with the Guidelines that specifically recommend including and paying particular attention to previous impact assessments.67 Admittedly, the shortcomings in impact assessments in EU contract law undermine this recommendation.68 This means that the fitness check cannot rely on previous critical analysis of desired cause and effect relationships, and possible other relevant factors for increased consumer trust, which requires a vast amount of empirical material to prove. Fitness checks have to deal with an additional difficulty. Notably, an evaluation of one measure already asks questions on efficiency and effectiveness that not only require a considerable amount of data and questioning, but also a working knowledge of the measures under evaluation. A fitness check considerably expands the scope of research, especially in the absence of a baseline scenario. This means that the Commission should carefully select the measures to be included in fitness checks. For EU contract law, not only the measures under evaluation were relevant. In addition, the report also refers to Regulation 2006/2004 on Consumer



62 COM

(2000) 248 24, 14, 15. (2017) 209 14. 64 SWD (2017) 209 18. 65 SEC (2003) 724. 66 SEC (2008) 2544. 67 SWD (2017) 209 58. 68 See n 10. 63 SWD

The Fitness Check of EU Consumer Law  105 Protection Cooperation, recently revised but still in force, Directive 2003/31 on E-Commerce Directive and Directive 2006/123 on Services, as well as sectorspecific measures. Further, considering the emphasis of the fitness check on better enforcement, Directive 2013/11 on Consumer ADR and Regulation 524/2013 on Consumer ODR are relevant, as well as, possibly, private international law measures such as Regulation 593/2008 and Regulation 1215/2012 that provide rules for cross-border private enforcement. Obviously, encompassing an evaluation of all these measures would render the scope of the fitness check very wide. This difficulty raises the question not only of how many measures can realistically be assessed but also how to determine which measures should be assessed. It is particularly unclear why the Price Indication Directive was included in the fitness check, rather than the Consumer Rights Directive or the Services Directive. The Guidelines are silent on this point and the Commission is not bound to give reasons. To summarise, the Guidelines appear to require a ‘robust methodology’, but prescribe the use of leading questions also used in the fitness check. The methodology section in the fitness check is not only incomplete, but does not consider the amount and quality of data needed to answer the questions in the fitness check. Contrary to the Guidelines, the fitness check does not consider relevant previous impact assessments. The fitness check also does not justify the selection of measures, which is not required by the Guidelines. However, the more measures under evaluation, the wider a fitness check. This may make it more difficult to discover a causal link between measures under evaluation and EU policy aims.

C.  The Causal Link between Harmonisation, Enforcement, Cross-border Trade and Consumer Confidence? According to the Guidelines,69 evaluations ‘look for evidence of causality’. In other words, they ask whether a causal relationship can be discovered between EU contract law and desirable changes, such as more cross-border trade or better consumer protection. In EU contract law, proving a causal relationship between interventions and policy aims is particularly challenging, because the aims of these measures, adopted under Article 114 TFEU, are quite wide, and require a vast amount of empirical material that does not exist. The fitness check70 identifies these aims as ‘increasing consumer trust and empowerment (that is, stronger consumer protection) and … a better functioning internal market’. Notably, however, consumer empowerment need not be equal to protection. Empowerment presumes different measures, such as information obligations, and easier access to



69 SWD 70 SWD

(2017) 350 53. (2017) 209 9.

106  Esther van Schagen dispute resolution. In contrast, consumer protection presumes that a consumer’s position should not only be strengthened by giving that consumer information and encouraging him to exercise his rights; it more generally improves the legal position of consumers in relation to the stronger party, the trader, for example by granting rights that cannot be waived. Building the internal market may not only depend on harmonisation, but also on many external factors, and one may ask how exactly consumer trust and empowerment are to be measured. The fitness check71 breaks this aim down per measure: the Unfair Contract Terms Directive aims to protect consumers against unfair terms, and seeks to ensure that written terms are clear and legible. The Unfair Commercial Practices Directive aims to protect consumers against misleading and aggressive commercial practices, and ensure better information for consumers. The Consumer Sales Directive aims to protect consumers against defective goods. The fitness check does not make expressly clear how harmonisation helps achieve these aims, nor does it critically examine the link between harmonisation, a stronger internal market or more consumer protection and consumer confidence. This can, however, be found in the directives themselves. The preambles to the directives under scrutiny generally find that uniform rules will help suppliers and sellers provide for fairer competition, and protect consumers more effectively. The preamble to the Consumer Sales Directive notes that consumers play a fundamental role in the completion of the internal market and a common set of rules on consumer sales will increase consumer confidence and enable them to make the most of the internal market. Similarly, the preamble to the Unfair Commercial Practices Directive asserts that divergences increase the costs for businesses engaging in cross-border advertising. In other words, the intervention logic as explained by the fitness check overlooks an argument, which, according to impact assessments, and the preambles to the measures, is essential: harmonisation leads to more cross-border trade and consumer confidence. This argument justifies the development of consumer protection rules at the EU rather than the national level. In addition, the fitness check does not sufficiently explore the causal connection between EU contract law and compliance. Instead, the fitness check72 outlines the benefits for businesses of complying with consumer law, confirmed by a behavioural study.73 Since the argument that consumers whose rights are respected generally come back and alert other consumers to particular – compliant – businesses is more generally true, one might wonder what the cause of persistent

71 SWD (2017) 209 10. 72 SWD (2017) 209 39. 73 The impact assessment refers to ‘part 2 of the Lot 3 study’, meaning the country reports of GfK Belgium, Consumer Market Study to support the Fitness Check of EU consumer and marketing law, Final Report, May 2017, available at https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332.

The Fitness Check of EU Consumer Law  107 non-compliance with EU contract law is, as acknowledged repeatedly by the Commission.74 The survey does not answer this question, and a critical analysis, or alternative causes for non-compliance, are not explored further. The fitness check75 also considers the principle-based approach of directives and the lack of differentiation between offline and online protection, and concludes that there is no evidence that these measures are not fit for purpose. With this conclusion, the report seems to gloss over other regulatory characteristics of private law, which might stand in the way of influencing the behaviour of market participants.76 Consequently, the fitness check does not provide a thorough, critical analysis of a possible causal relationship between harmonisation and the internal market or consumer protection. The Guidelines generally caution that causal relationships are difficult to prove.77 The Guidelines78 recognise that because the available data may be limited, absolutely proving such a relationship may not always be possible, and can be replaced by ‘qualitative, reasoned arguments’. However, the lack of data should be reflected in the conclusions of an evaluation. Rather than asserting that harmonisation benefits cross-border trade and consumer confidence, evaluations should consider alternative explanations and external factors that could explain why cross-border trade has or has not increased significantly. Accordingly, the fitness check79 finds that from 2006 to 2016, more consumers agreed that traders generally complied with EU contract law. The fitness check subsequently considers that stakeholders participating in the public online consultation have expressed views that more cross-border purchases and stronger consumer confidence can also be attributed to EU contract law. The fitness check notes that a causal relationship cannot be established unequivocally,80 and subsequently finds that ‘EU contract law has also contributed to a significant increase in B2C cross-border shopping in the last decade, although such development is also strongly influenced by factors outside the legal environment, in particular increasing consumer access to the

74 SWD (2018) 96 35; European Commission, ‘First Report on the application of Directive 2005/29/EC’, COM (2013) 139 27–28; European Commission, ‘A European Consumer Agenda – Boosting confidence and growth’, COM (2012) 225 [3.4], European Commission, ‘Impact assessment accompanying the draft Alternative Dispute Resolution Directive and the draft Online Dispute Resolution Regulation’, SEC (2011) 1408. 75 SWD (2017) 20 76. 76 eg WH van Boom, Efficacious enforcement in contract and tort (The Hague, Boom Juridische Uitgevers, 2006) 12–14, outlines three features of the law on remedies in contract and tort that might decrease efficacious enforcement: i) the focus on addressing a wrong once it has materialised, rather than preventing that wrong; ii) the focus to re-create the original situation, by putting the party that has suffered damages in his or her original position, rather than, for example, punishing the wrongdoer; and iii) the ‘specificity feature’: a decision – either by courts or through ADR – should address the situation between those individual parties rather than, for example, protecting consumers generally. 77 SWD (2017) 209 51. 78 SWD (2017) 350 58. 79 SWD (2017) 209 18. 80 SWD (2017) 209 21–22, 74.

108  Esther van Schagen internet’. The fitness check81 cautiously concludes that harmonisation of unfair terms and unfair practices law possibly has had a beneficial, stabilising effect. Other parts of the fitness check are regrettably less critical in assuming causal relationships between harmonisation and cross-border trade. For example, the fitness check82 finds that traders continue to view regulatory fragmentation in EU consumer law as a significant barrier to entering into more cross-border sales. The fitness check notes that in 2016, fewer traders expressed this opinion, and links these responses to the implementation of the Consumer Rights Directive. The fitness check then goes on to state that with the adoption of the draft Digital Content Contracts Directive and the draft Online Sales Directive, even fewer traders will express this opinion, without looking for alternative explanations for the difference in responses. This conclusion seems difficult to reconcile with the fitness check’s83 earlier findings that the directive under scrutiny in the fitness check ‘scored as the second least burdensome for SMEs among the 32 surveyed areas’, in two comparative studies on EU measures commissioned by the Commission. In conclusion, evaluations and fitness checks are specifically aimed at discovering whether, and if so to what extent, harmonisation has contributed to fostering the internal market and consumer protection. Not only is this difficult because of the ambiguity of Article 114 TFEU, but also by the amount of data needed to ascertain whether a particular measure has effectively and efficiently improved the internal market, and to what extent. To further complicate matters, a clear hierarchy between strengthening the internal market and consumer protection has not been established in measures. Although the fitness check does consider alternative explanations for the growth of cross-border online trade, it does not express these reservations consistently, and generally fails to provide a critical, thorough analysis of a causal relationship between harmonisation, cross-border trade, consumer protection and consumer confidence.

D.  Shortcomings in the Fitness Check and their Significance for Impact Assessments The findings of the fitness check and its follow-up have been published on multiple sites. Although the revised Guidelines provide an entire chapter on evaluations and fitness checks, these rules are not binding, nor do they reflect scientific standards. Thus, the aim of fitness checks should not be overestimated. The Guidelines do not prescribe a fundamental reconsideration of EU measures.



81 SWD

(2017) 209 54. (2017) 209 69. 83 SWD (2017) 209 41. 82 SWD

The Fitness Check of EU Consumer Law  109 Although the Guidelines underline the need for a robust methodology, there is little room to consider alternative possibilities and the Guidelines acknowledge that evaluations, like impact assessments, may have to be conducted in the absence of sufficient data. This leaves room for the drafters of evaluations to provide qualitative arguments and other ways to argue a causal relation does or does not exist. The Guidelines in addition prescribe the use of narrow questions that may discourage relevant actors from reporting their experiences with EU policy, while they also presuppose extensive knowledge of EU measures. Equally, the Guidelines do not require the Commission to justify the selection of measures under evaluation. In the light of the limited requirements of fitness checks, it should not be a surprise that the fitness check of EU consumer law is a limited exercise. It does not pose fundamental questions. The methodology prescribed by the Guidelines falls short of scientific standards and is explained only for part of the fitness check. In addition, the question how much data is needed to answer the questions posed by the fitness check remains unaddressed. Yet collecting sufficient data to convincingly demonstrate a causal link may be especially challenging in EU contract law. Policy aims are broad and it is difficult to pinpoint with certainty whether harmonisation or other circumstances have contributed to more consumer confidence and more cross-border trade, and if so, to what extent harmonisation has been a contributing factor. Remarkably, the fitness check does not clearly set out how harmonisation can help achieve the policy aims of the measures under evaluation, and seems to prioritise consumer protection over the internal market, though generally concludes that harmonisation probably has had a beneficial effect and contributed to cross-border trade. The lack of data has not stood in the way of these conclusions. Ultimately, the question of whether a measure is fit for purpose might narrow the results of a fitness check. After all, if a measure is fit for purpose, is it still necessary for subsequent impact assessments to explore radically different policy options? The fitness check concludes that there is no evidence that measures are not fit for purpose, but does not provide an in-depth analysis of the causal relation between measures and their effect on the internal market, consumer confidence and consumer protection. Despite its limitations, the fitness check contains some interesting findings that could potentially improve the impact assessment accompanying the New Deal. For one, it has highlighted some overlaps and gaps between and in the Unfair Commercial Practices Directive, the Consumer Rights Directive and the Injunctions Directive. It does not blindly champion maximum harmonisation, but advocates better enforcement, and it does not serve as a starting point for a single instrument of EU contract law. Instead, the fitness check recognises that EU contract law, despite minimum harmonisation, is not considered burdensome and the compliance costs resulting from EU contract law are not disproportionate. The fitness check acknowledges that causal links between the Unfair Commercial Practices Directive and the development of the internal market cannot be proven

110  Esther van Schagen unequivocally, although it does contradict itself on this point. It also recognises consumer protection as a policy aim in itself, rather than a means for fostering the internal market.

IV.  The Impact Assessment Accompanying the New Deal One of the main difficulties in strengthening impact assessments in EU contract law is that impact assessments often claim that divergences are barriers to the internal market, and characterise the problem resulting from such divergences as lost opportunities for growth: the impact assessment for digital content contracts and online sale84 considers the ‘untapped potential’ of the internal market, which cannot be ‘unleashed’ without (full) harmonisation. In other words, if the impact of measures depends on a hypothetical situation, it is impossible to absolutely establish a causal connection. At first sight, impact assessments do manage to make policy aims more specific. They clearly, and very specifically indicate the increase in cross-border trade, in line with the recommendations to make policy aims ‘S.M.A.R.T.’ – specific, measurable, achievable, relevant and time-bound.85 Despite these claims, the extent to which the impact assessment has benefited from the fitness check is limited. To start, there are differences between the fitness check, the inception impact assessment, and the impact assessment. If the reasoning and recommendations of the fitness check and the impact assessment do not match, the added value of the fitness check is limited (A). However, the fitness check contains interesting findings that are not typically seen in impact assessments in EU contract law, and that are reflected in the impact assessment accompanying the New Deal. In line with the fitness check,86 but differently from other impact assessments,87 the impact assessment88 accompanying the New Deal expressly aims to increase consumer protection, separately from enhancing consumer confidence in the interest of fostering the internal market. Specifically, the impact assessment89 underlines the need for better enforcement, which should reduce consumer detriment. Has the fitness check strengthened the impact assessment in this respect (B)?

84 SWD (2015) 274 8–9. 85 SWD (2017) 250 20. 86 SWD (2017) 209 9. 87 See previously EAG van Schagen, ‘Better Regulation and the Principle of Consumer Protection in EU Contract Law’ (2017) 13 ERCL 239–54. 88 SWD (2018) 96 36. 89 SWD (2018) 96 18.

The Fitness Check of EU Consumer Law  111 Further, at first sight, the fitness check and the impact assessment are not blindly geared towards full harmonisation.90 The impact assessment91 repeats the findings of the fitness check92 that consumer law was not considered burdensome and compliance costs seemed ‘moderate’ – also in areas with minimum harmonisation. Twigg-Flesner93 further highlights that Article 1(1)(a) draft Better Enforcement Directive permits Member States to protect the legitimate interests of consumers with regard to aggressive or misleading marketing or selling practices in doorstep selling situations, if justified on the basis of public policy or the right to private life. In these cases, the impact assessment94 acknowledges that derogations ‘have no or very limited cross-border implications’. Has the fitness check prompted a more nuanced approach of the impact assessment on the arguments justifying further harmonisation (C)?

A.  The Link between the Fitness Check, the Inception Impact Assessment and the Impact Assessment The link between the fitness check, inception impact assessment and impact assessment is expressly and repeatedly acknowledged, in the fitness check (i), the inception impact assessment (ii) and the impact assessment (iii).

i.  The Fitness Check and the Impact Assessment on Consumer Sales The fitness check already acknowledges a link between its conclusions and future impact assessments. While it does not consider previous impact assessments, it does summarise previous evaluations. The fitness check95 also refers specifically to the impact assessment for the draft Digital Content Contracts Directive and the draft Online Sales Directive, aligning its conclusions with the conclusions from the impact assessment, in the interest of consistency. Consistency also justifies possibly expanding the scope of the draft Online Sales Directive, as noted in the fitness check.96 Twigg-Flesner97 highlights the relation between the Consumer Sales Directive, the draft Online Sales Directive and the fitness check, noting, on the one hand, that the Commission’s commitment to consistency appears ‘­laudable’, while wondering, on the other hand, whether the draft



90 See,

however, my other contribution in this volume on better enforcement. (2018) 96 18. 92 SWD (2017) 209 41. 93 Twigg-Flesner (n 36) 174. 94 SWD (2018) 96 14. 95 SWD (2017) 209 52. 96 SWD (2017) 209 82. 97 Twigg-Flesner (n 51) 187. 91 SWD

112  Esther van Schagen Directive will not act as a model for the fitness check. It seems that the impact assessment has fed into the fitness check. At times, this leaves an interesting contrast to the conclusions on, for example, minimum harmonisation within the fitness check. For example, the fitness check98 finds that that ‘[t]he area of [c]onsumer protection – safe shopping (distance selling, advertising, unfair commercial practices, timeshare of holiday properties …) scored as the second least burdensome for SMEs among the 32 surveyed areas’, and noted a difference with regard to compliance in domestic trade, which was rated ‘easy’, and cross-border trade, where fewer traders (55 per cent rather than 68 per cent) considered compliance ‘easy’. This survey took place in 2012 and did not except consumer sales, but, based on the impact assessment for the draft Digital Content Contracts Directive and the draft Online Sales Directive, the Commission insists that differences in national laws with regard to consumer sales pose ‘a tangible burden on traders selling online cross-border’. In addition, the fitness check does not argue that remaining divergences after minimum harmonisation adopted by the other (partially) minimum harmonisation measures under review, notably the Price Indication Directive, the Unfair Terms Directive, and the Misleading and Comparative Advertising Directive, resulted in similar burdens. Apparently, according to the fitness check,99 minimum harmonisation is only problematic in the area of consumer sales, where minimum harmonisation has resulted in additional costs for online retailers, and refers to ‘Eurobarometer survey data’ that these costs were ‘very important’ or ‘fairly important’ barriers for entering into cross-border trade. It is not clear how and why these costs have been separated from costs of compliance with the Unfair Commercial Practices Directive, the Misleading and Comparative Advertising Directive, the Price Indication Directive and the Unfair Terms Directive, which, at around €278 million per year, was considered ‘proportionate’ compared to the approximate annual turnover of €1,180 billion.100 The impact assessment on the draft Online Sales Directive and the draft Digital Content Contracts Directive, meanwhile, was not timed so as to benefit from these insights from the fitness check. The impact assessment101 notes that the results of the fitness check ‘cannot be prejudged’, but it does not foresee different regimes for online and offline sales, pointing out that the extensive public consultation on both proposals ‘already covers many issues under the Sales and Guarantees Directive that are equally relevant for online and offline sales of goods’. This gives the impression that some of the main conclusions, including the argument for full harmonisation for consumer sales law, were already drawn by the time the fitness check was completed.



98 SWD

(2017) 209 41. (2017) 209 45–46. 100 SWD (2017) 209 54. 101 SWD (2015) 274 6. 99 SWD

The Fitness Check of EU Consumer Law  113

ii.  The Claims to be Investigated According to the Inception Impact Assessment The inception impact assessment announces that the initiative will explore three key claims. First, the inception impact assessment highlights the central role of better enforcement. The inception impact assessment102 announces that the impact assessment will analyse whether harmonising individual remedies is likely to reduce consumer detriment and compliance costs for businesses, and whether introducing such rights will lead to more individual enforcement. The inception impact assessment further identifies a lack of proportionate, effective and deterrent penalties for breaching consumer rights. Therefore, the initiative should explore to what extent strengthening the level of penalties under EU contract law is likely to curb lack of compliance with the rules, reduce consumer harm and lack of a level playing field for traders. Notably, the initiative will not explore whether a deterrent effect can be identified, but to what extent. Indirectly, better enforcement also implies further harmonisation, because, according to the inception impact assessment,103 EU initiatives are better suited to ensure the coherent application of consumer rights, on the basis of a uniform level of protection. Second, the inception impact assessment104 generally defends further legislative action under Article 114 TFEU, and indicates that the initiative will examine to what extent – not whether – introducing harmonised transparency obligations is likely to reduce consumer detriment and compliance costs, and increase consumer confidence, thereby increasing cross-border trade.105 This part of the inception impact assessment106 targets ‘inefficient and diverging national rules’ as a source of consumer detriment, reiterating the negative effect of repeated breaches of consumer rights under the Unfair Commercial Practices Directive on consumer confidence and thereby cross-border trade, as well as administrative burdens on traders caused by withdrawal rights under the Consumer Rights Directive.107 The beneficial impact of revised harmonisation is, according to the inception impact

102 Available at https://ec.europa.eu/info/law/better-regulation/initiatives/ares-2017-3287178_en at 2. 103 See the inception impact assessment, available at https://ec.europa.eu/info/law/better-regulation/ initiatives/ares-2017-3287178_en 4. This is in line with the conclusions of the fitness check, SWD (2017) 209 71, which very expressly starts the evaluation of EU added value with the need for EU-wide enforcement on the basis of a common EU legal framework, which, it argues, is provided by the Directives. However, this general conclusion overlooks the fact that the Price Indication Directive, the Unfair Terms Directive and, partially the Misleading and Comparative Advertising Directive pursue minimum harmonisation. 104 See the inception impact assessment, available at https://ec.europa.eu/info/law/better-regulation/ initiatives/ares-2017-3287178_en at 4. 105 See the inception impact assessment, available at https://ec.europa.eu/info/law/better-regulation/ initiatives/ares-2017-3287178_en at 3. 106 Available at https://ec.europa.eu/info/law/better-regulation/initiatives/ares-2017-3287178_en at 2. 107 See the inception impact assessment, available at https://ec.europa.eu/info/law/better-regulation/ initiatives/ares-2017-3287178_en at 4.

114  Esther van Schagen assessment, based on three factors: lower compliance costs for businesses, less consumer detriment and more consumer confidence, which in turn should boost cross-border trade.

iii.  The Impact Assessment and the Fitness Check The impact assessment108 states that it builds upon the fitness check, the evaluation of the Consumer Rights Directive, and the report on the 2013 Recommendation on collective redress, published in March 2018. The impact assessment109 takes the conclusions of the fitness check as a starting point for its problem definition and notes that it follows all of the fitness check’s recommendations. The fitness check, and also previous evaluations considered in the fitness check, should help to reveal any causal link between enforcement, consumer protection, harmonisation and cross-border trade. However, the fitness check and the impact assessment differ in two crucial respects that limit the extent to which the fitness check can strengthen the impact assessment. First, the impact assessment and the fitness check have a different scope. The impact assessment does not consider the Consumer Sales Directive, and, despite its emphasis on fair competition, the impact assessment also does not consider the Misleading and Comparative Advertising Directive. Thus, the conclusions of the fitness check, insofar as they concern the synergetic impact of the measures under evaluation, should not be copy and pasted to the impact assessment. Second, more problematically, the fitness check does not argue that the measures under evaluation inhibit fair competition. Instead, the fitness check110 finds that the Injunctions Directive, in combination with the Consumer Protection Cooperation Regulation, has contributed to fair competition. The differences between the fitness check and the impact assessment should be a reason to more carefully substantiate claims, especially with regard to fairer competition, but it is not clear how or to what extent the impact assessment considers it necessary to analyse these recurring arguments. The impact assessment briefly notes that ‘[q]uantitative data for the IA’, by which it solely refers to the consultation process, have been complemented by ‘robust data’ from the fitness check, the evaluation of the Consumer Rights Directive and the Recommendation on Collective Redress, as well as ‘other information sources, such as desk research, Eurobarometer data and relevant studies. Furthermore, qualitative assessments have been used as much as possible to supplement quantitative data’. Unfortunately, this completely fails to give an impression of which assessments have been considered – previous impact assessments? – and to what extent, how much



108 SWD

(2018) 96 6. (2018) 96 12–14. 110 SWD (2017) 209 40. 109 SWD

The Fitness Check of EU Consumer Law  115 ‘desk research’ has been conducted, and in what area, and when ‘relevant studies’ have been undertaken on what question. It also does not provide a justification of the methodology followed by the impact assessment – though according to the impact assessment, the data is ‘robust’. One may get the impression that while the wording of the Guidelines appears to have been followed, the application of ‘robust methodology’ is less clear.

iv.  The Fitness Check, Inception Impact Assessment and Impact Assessment Ideally, impact assessments build on not only fitness checks, but also inception impact assessments. In turn, in line with the idea of a policy cycle, fitness check rely upon previous impact assessments. Theoretically, this should strengthen impact assessments. In practice, for EU contract law, the impact assessment for consumer sales law seems to have predetermined the conclusions of the fitness check, which leads to contradictions within the fitness check. The inception impact assessment differs from the impact assessment, as it announces that the Injunctions Directive will be revised separately. The initiatives announced in the inception impact assessment and the impact assessment, particularly better enforcement, favour full harmonisation. While there is a clear link between the conclusions in the fitness check and the impact assessment, their scope differs significantly and necessitates further substantiation of the claims on fairer competition. The impact assessment does not acknowledge these differences, which do, however, entail that the conclusions of the fitness check cannot simply be copied by the impact assessment.

B.  Better Enforcement, More Compliance and Consumer Protection The impact assessment underlines that the directives under review aim to protect ‘the economic interests of consumers’, and note that Articles 114 and 169 TFEU, as well as Article 38 Charter, require a high level of consumer protection.111 The impact assessment generally considers the extent of non-compliance with EU contract law, and also draws on the fitness check in this respect. The impact assessment112 focuses on protecting consumers not by increasing the level of protection afforded to consumers, but by reducing consumer detriment resulting from non-compliance. The impact assessment draws on the study on consumer detriment also considered in the fitness check, which in turn drew on the impact assessment accompanying the draft Online Sales Directive and the draft Digital



111 SWD 112 SWD

(2017) 209 17–18. (2018) 96 17–18.

116  Esther van Schagen Content Contracts Directive. In addition, the impact assessment refers to the impact assessment accompanying the revised Consumer Protection Cooperation Regulation.113 The impact assessment goes on to attempt to provide additional qualitative reasons to convince the reader that more remedies will lead to more enforcement and thereby more compliance. To support the need for harmonised administrative sanctions, the impact assessment114 refers to the same case study – ‘Dieselgate’ – that the fitness check115 uses in a different context, as well as ‘hypothetical case studies’ and responses from stakeholders on the effect of divergent national rules with regard to penalties on compliance and deterrence. Notably, such effect was denied especially by multinationals. The impact assessment then sketches how these differences may hinder coordinated action under the (revised) Consumer Protection Cooperation Regulation. To answer the question of whether the introduction of private remedies will increase private enforcement of consumer rights, the impact assessment116 contrasts the impact of the Consumer Sales Directive with the Unfair Commercial Practices Directive. Arguably, one may doubt whether the results of this comparison provide one with a reliable answer to the question whether private or administrative enforcement is more likely to reduce consumer detriment, as Member States have provided individual remedies to consumers under the Unfair Commercial Practices Directive,117 and Member States have similarly authorised public authorities to impose penalties for breaches of consumer rights under the Consumer Sales Directive.118 The impact assessment,119 however, notes that responses to consultations on the fitness check confirmed that consumers experienced difficulties in enforcing their rights. This indicates that the introduction of private remedies might not necessarily lead to more private enforcement, at least not right away. This possibility seems to be confirmed by Dutch experiences with Article 6:193j(2) Dutch Civil Code that appears to provide a consumer-friendly remedy, both for damages and avoidance of the contract, by placing on the trader the obligation to prove that the information he has provided to the consumer is correct and complete, and that the trader is not

113 SWD (2016) 164. 114 SWD (2018) 96 19–20. 115 SWD (2017) 209 81–82. 116 SWD (2018) 96 21. 117 For example, under Dutch law, Art 6:193j(2) Dutch Civil Code stipulates that if a commercial practice is unfair (in the sense of Arts 6:193a et seq), the trader is liable for damages resulting from his actions, unless he proves those actions cannot be attributed to him. Art 6:193j(3) Dutch Civil Code stipulates that a contract concluded as a result of unfair commercial practices is avoidable. TwiggFlesner (n 36) 167 points out that cases of misleading and aggressive practice might also fall within the scope of duress and misrepresentation. 118 In Dutch law, see Arts 8.4 and 8.4a as well as the Annex to the Wet handhaving consumentenbescherming (Law on the enforcement of consumer protection). 119 SWD (2018) 96 22–23.

The Fitness Check of EU Consumer Law  117 at fault. The impact a­ ssessment120 does not consider the experiences of Member States that have introduced contractual or non-contractual remedies, but finds that the fitness check does not provide examples of case law where consumers have exercised their rights. This is not true; the Dutch country report expressly refers to examples of case law.121 A simple explanation for the lack of case law may be that the fitness check did not, as such, ask researchers to analyse case law. Instead, it enquires after, for example, the ‘overall effectiveness of the principle-based approach under [the Unfair Commercial Practices Directive]’. Even so, the impact assessment directly contradicts, for example, the Dutch country report122 that specifically notes that [i]ndividuals usually pursue claims for damages in tort (and possibly also, as the case may be, avoidance and restitution). Representative associations and foundations may also seek prohibitory and mandatory injunctions in collective action proceedings pursuant to art. 3:305a [Dutch Civil Code]. This is a method commonly employed by such bodies to enforce consumer law.

Accordingly, a two-minute search for ‘oneerlijke handelspraktijken consument’ (‘unfair commercial practices consumer’) in the Dutch search engine ‘rechtspraak.nl’ results in 43 results from 2015 onwards. Yet Dutch case law on contractual remedies for unfair commercial practices is rare. This finding might indicate that the introduction of a private remedy will not necessarily lead to more private enforcement immediately. Accordingly, Pavillon and Tigelaar123 note that Article 6:193j(2) Dutch Civil Code, which has been applied ex officio, has likely not been used often, thereby casting doubt on the impact of private contractual remedies for unfair practices. If the introduction of private remedies does not, in itself, lead to more private enforcement, it hardly follows that introducing these remedies is likely to have a deterrent effect and will result in more compliance. This seems in line with the claim in the impact assessment that ‘[r]eliance on individual private enforcement results in consumer detriment and under-deterrence of infringements’.124 Thus, apparently, the introduction of higher, harmonised fines and representative actions should have a deterrent effect. However, the assumption that sanctions  – both private and administrative fines – have deterrent effect lack convincing empirical support and has even been characterised as outdated.125 The impact assessment126

120 SWD (2018) 96 22. 121 Main report, part 3 (n 3) 849. 122 Main report, part 3 (n 3) 864. 123 CMDS Pavillon, LBA Tigelaar, ‘Vernietiging van de overeenkomst bij een oneerlijke handelspraktijk; een hanteerbare sanctie?’ (2018) 19 Contracteren 71–79. 124 SWD (2018) 96 23. 125 cp the response of C Hodges and S Voet to the public consultation on the Roadmap for the revision of the Injunctions Directive, available at https://ec.europa.eu/info/law/better-regulation/initiatives/ ares-2017-5324969_en. 126 SWD (2018) 96 18.

118  Esther van Schagen identifies three causes for non-compliance: insufficient enforcement of the rules, lack of awareness of consumer rights and limited redress opportunities. The impact assessment127 generally claims that non-compliance with EU contract law can be traced to these three similar causes across the Union.128 The possibility that even the introduction of private remedies, combined with administrative remedies and collective redress, might not lead to more compliance does not stop the impact assessment129 from noting that more available remedies and better enforcement is likely to enhance consumer trust, and possibly, more cross-border purchases, a view disputed by business stakeholders. Thus, the impact assessment does not consider domestic practices and market characteristics that may render markets more or less vulnerable to fraudulent businesses, or the existence of well-developed self-regulation, especially self-regulation well supported by business sectors. In its conclusion, the impact assessment does not consider the possibility that even if EU measures provide consumers with more remedies, consumers may rationally choose not to enforce their rights, because the time and money required for doing so exceed the damages they have suffered.130 Despite the recent study on civil procedure law,131 the impact assessment does not consider the possibility that rules on, for example, prescription or burden of proof may make enforcement more complicated for consumers. A critical analysis of the link between more remedies, more enforcement, deterrent effect and decreased consumer detriment is lacking. In conclusion, the impact assessment does consider consumers’ problems, as reported in the fitness check and supporting studies. The impact assessment cannot rely on the fitness check to make the argument that more remedies will lead to more enforcement, and the deterrent effect of sanctions and more enforcement will lead to more compliance, because the fitness check equally assumes deterrent effect of remedies and penalty, without providing evidence of such deterrent effect. Nevertheless, the impact assessment does build on the reasoning in the fitness check, and tries to provide case studies and qualitative arguments to support the claim that more enforcement and more remedies will lead to

127 SWD (2018) 96 33. 128 Thereby, the impact assessment overlooks a crucial possible reason for non-compliance: Non-compliance may occur if traders and/or consumers disagree with rules, which undermines their willingness to comply. See further my other contribution in this volume. 129 SWD (2018) 96 52, 57. 130 See on the strengths and weaknesses of private enforcement more generally F Weber, The law and economics of enforcing European consumer law: A comparative analysis of package travel and misleading advertising (Farnham, Ashgate, 2014) 46 et seq. Notably, the impact assessment does recognise this possibility, and provides examples, SWD (2018) 96 35. 131 Max Planck Institute Luxembourg for Procedural Law, An evaluation study of national procedural laws and practices in terms of their impact on the free circulation of judgments and on the equivalence and effectiveness of the procedural protection of consumers under EU consumer law, Strand 2 Procedural Protection of Consumers, JUST/2014/RCON/PR/CIVI/0082, June 2017, available at http://ec.europa. eu/newsroom/just/document.cfm?action=display&doc_id=49503.

The Fitness Check of EU Consumer Law  119 more compliance. The impact assessment’s reasoning that more remedies will lead to more enforcement and more compliance is wafer-thin, overlooks national experiences and misrepresents the findings in the reports for the fitness check. In this respect, the impact assessment does not benefit from the fitness check.

C.  Arguments for Further Harmonisation: Compliance Costs, Fair Competition, Consumer Confidence and Cross-border Trade According to the impact assessment,132 EU contract law is ineffective. The impact assessment refers to outdated and overlapping information requirements, gaps, and unnecessary administrative burdens caused by abuse of withdrawal rights.133 These ineffective rules entail unnecessary compliance costs, leading to unfair competition between compliant and non-compliant traders and lower trust, both among traders and consumers, and thereby, fewer cross-border purchases. The claim that divergences lead to compliance costs is not considered a separate consequence in the overview of drivers and problems. The impact assessment134 acknowledges that EU law on this point is not considered burdensome and compliance costs are not disproportionate, referring to the fitness check and materials used in the fitness check. Nevertheless, one of the major problems identified in the impact assessment is a distortion of competition, especially between compliant and non-­compliant traders. The emphasis on competition between compliant and non-compliant traders implies that this argument is at least partially intertwined with lack of compliance. Particularly, the impact assessment135 argues that the Consumer Sales Directive and the Unfair Terms Directive do not require Member States to introduce ‘effective, proportionate and dissuasive penalties’, though many Member States have done so, and finds that the national rules allow for vastly divergent penalties that lack deterrent effect, to the potential benefit especially of large companies located in low-penalty Member States. Interestingly, the impact ­assessment does not refer to the fitness check,136 which notes that few respondents to the business survey indicate that complying with EU consumer law can give them a ­competitive advantage. Additionally, the impact assessment claims that compliance costs, caused by ineffective rules, may distort competition, and harmonisation benefits fair competition. Accordingly, the impact assessment137



132 SWD

(2018) 96 16. critically the contribution of Riefa in this volume. 134 SWD (2018) 96 16. 135 SWD (2018) 96 19–20. 136 SWD (2017) 209 38. 137 SWD (2018) 96 27–28 133 See

120  Esther van Schagen draws attention to potential discrepancy between the draft Digital Content Contracts Directive and the Consumer Rights Directive, and notes a gap in the Consumer Rights Directive with regard to contracts for ‘free’ digital services contracts. The impact assessment seems to draw mainly on the evaluation of the Consumer Rights Directive, as well as the Commission Guidance. Likewise, the impact assessment138 claims that, for online marketplaces, where harmonisation is absent, divergent national laws distort competition, without specifying how this apparent distortion has become apparent. The impact assessment does not signal how high these costs are or what their effect is on either consumer confidence or cross-border trade. The impact assessment similarly does not consider potential alternative reasons for compliance costs, for example because of unclarity on the relation between consumers and online marketplaces.139 Another possible reason for compliance costs not addressed in the impact assessment is the room left in the proposed amendment of the Unfair Commercial Practices Directive. TwiggFlesner140 points out that the draft Better Enforcement Directive leaves room for Member States to determine under what conditions remedies can be successfully used, and for what type of breaches of consumer rights. The impact assessment also does not provide a market analysis, surveys or other supportive arguments to make future distortions plausible. This assertion is, however, in line with the introduction to the impact assessment,141 which starts by claiming that consumer policies contribute to fair competition. Generally, the impact assessment142 defends that the behaviour of traders towards consumers is influential for the functioning of those markets. Therefore, consumer policy, including the proposed measures, can strengthen competition in those markets. Second, the impact assessment considers a lack of trust, but it is not clear whose trust should be increased. In contrast to the overview of problems and consequences in the impact assessment,143 the introduction to the impact a­ ssessment144 reiterates that ‘[t]he success of the internal market ultimately depends on trust’, and goes on to emphasise remedies for consumers. This seems directed at consumers’ trust in online platforms.145 The impact assessment asserts that the lack of protection of consumers in digital service contracts leads to consumer detriment, linking problems that consumers face when engaged in these contracts with a limited scope of the Consumer Rights Directive. The impact assessment does not appear to link consumer confidence with the level of protection

138 SWD (2018) 96 17, 18. 139 Loos (n 3) 228. 140 Twigg-Flesner (n 36) 168–69. 141 SWD (2018) 96 6. 142 SWD (2018) 96 33. 143 SWD (2018) 96 16. 144 SWD (2018) 96 6. 145 SWD (2018) 96 45, supported by stakeholder surveys, and at 64, supported by a behavioural experiment.

The Fitness Check of EU Consumer Law  121 afforded to consumers, even though the fitness check146 found that stakeholders in all Member States link levels of consumer protection with increased consumer trust. More generally, this is a perspective that is not clearly addressed in impact assessments. Interestingly, the impact assessment147 limits itself to concluding that according to the fitness check, the Unfair Commercial Practices Directive and the Consumer Rights Directive have contributed significantly to the functioning of the internal market, without considering other possible factors. In this respect, the impact assessment is considerably less cautious than the fitness check.148 The impact assessment does not critically analyse the general argument that the measure will increase consumer confidence and thereby strengthen the internal market. Instead, the initiative is expected to make consumers more confident, and the overall level of confidence of consumers in purchasing goods and services online, across borders, is one of the monitoring indicators for the impact of the initiative.149 To summarise, the impact assessment does not draw on the fitness check to strengthen its argument that divergences undermine fair competition, which seems partially intertwined with the argument for harmonised penalties for infringements of consumer rights, and partially caused by compliance costs. The impact assessment acknowledges that these costs are moderate, and the harmonisation it proposes leaves room for divergences, but this does not stop the impact assessment from claiming that compliance costs undermine competition. The argument that harmonisation increases trust does not specify whose trust must be increased, and does not critically consider how that can best be done. The arguments in the impact assessment also do not mirror the caution in the fitness check with regard to the impact of the measures amended under the New Deal.

D.  The Fitness Check and the Impact Assessment The extent to which the impact assessment critically considers the causal relationship between the measures under evaluation and developments in the internal market is limited, as the fitness check concludes that the measures are mostly fit for purpose. Likewise, the extent to which the impact assessment can draw on the fitness check is limited, not only because of the weaknesses in the fitness check,

146 SWD (2017) 209 72. 147 SWD (2018) 96 35. 148 SWD (2017) 209 22 finds that Eurobarometer studies and the statistical models do not allow for an unequivocal causal link between the Unfair Commercial Practices Directive and the development of the internal market. The fitness check, at 54, cautiously concludes that harmonisation of unfair terms and unfair practices law possibly has had a beneficial, stabilising effect, and, at 74, that harmonisation has contributed to cross-border shopping, ‘although such development is also strongly influenced by factors outside the legal environment, in particular increasing consumer access to the internet’. 149 SWD (2018) 96 91–92. cf also at 34, where the impact assessment considers that lower consumer trust will have a negative impact on (cross-border) trade.

122  Esther van Schagen but also because of the differences between the fitness check and the impact ­assessment. Nevertheless, the impact assessment draws on the fitness check to identify problems with a lack of compliance, and also uses the empirical materials considered in the fitness check, as well as the public and targeted consultations on and following the fitness check. The focus on reducing consumer detriment caused by non-compliance is expressly considered in light of the protection of the economic interests of consumers. The impact assessment attempts to build on the problems signalled in the fitness check, by adding qualitative arguments, but the reasons to introduce private remedies are not convincing. The arguments for further harmonising the law are superficial and even contradict stakeholders’ responses that they do not consider EU contract law as particularly burdensome. Still, the introduction of these remedies should be welcomed. As such, it is not unlikely that the availability of contractual and non-contractual remedies will improve consumers’ legal position, thereby enhancing consumer protection. Depending on how these remedies are shaped by Member States, the use of representative actions by appointed organisations, and the policy of enforcement authorities with regard to domestic and cross-border breaches of consumer rights, the draft Better Enforcement Directive might well reduce consumer detriment.

V.  Fitness Checks and Impact Assessments in EU Contract Law There is a clear link between the fitness check and the impact assessment accompanying the proposals under the New Deal for EU consumers, as also acknowledged in the impact assessment. However, the extent to which the fitness check strengthens the impact assessment is limited – it does not aim to fundamentally reconsider EU contract law, and its methodology is weak. The fitness check diverges from the main report’s recommendations, and it does not acknowledge a general difficulty that both evaluations and impact assessments in EU contract law have to contend with: the ambiguity of policy aims and the vast amount of empirical materials needed to provide more convincing evidence that measures, either combined or separately, have noticeably contributed to cross-border trade and consumer confidence. The fitness check necessarily limits itself to a superficial analysis of EU contract law and a possible causal link between harmonisation and more cross-border trade. Likewise, the fitness check does not analyse the link between introducing more remedies, more enforcement, and more compliance, and thereby, less consumer detriment and more consumer confidence. Nevertheless, it concludes that there is no evidence that measures are not fit for purpose. Despite these shortcomings, the fitness check appears to mostly comply with the requirements for fitness checks in the Better Regulation Guidelines. The fitness check demonstrates that the Better Regulation Guidelines do not necessarily stand in the way of weak fitness checks. Further, one might ask what the added value is

The Fitness Check of EU Consumer Law  123 of a fitness check over separate evaluations. The Commission does not make clear why the measures under evaluation were selected under the fitness check. Eventually, the fitness check has resulted in various, separate initiatives, but the follow-up to the fitness check includes a revision of the Consumer Rights Directive, even though this measure was revised separately. This is regrettable as the impact assessment takes the conclusions of the fitness check as a starting point, despite the differences in scope between the fitness check and the impact assessment. As the fitness check already concluded that measures are fit for purpose, the analysis of possibilities for future revision is limited. In this manner, a fitness check limits rather than expands impact assessments. Nevertheless, the fitness check contains some interesting findings that could benefit impact assessments in general. Specifically, the fitness check convincingly underlines persistent problems of non-compliance, and acknowledges minimum harmonisation, as pursued by four of the six measures under evaluation, is not problematic. Its conclusions on the effect of measures, specifically the Consumer Rights Directive and the Unfair Commercial Practices Directive, recognise that there is no unequivocal proof that these measures have strengthened the internal market. Only part of these findings have, however, been reflected in the impact assessment. Clearly, the Guidelines do not stop the drafters of inception impact assessments and impact assessments to cherry pick which recommendations are made. The drafters do, however, emphasise that the impact assessment follows all the recommendations of the fitness check. The fitness check seems to also have strengthened the focus on consumer protection. The impact assessment specifically considers Article 169 TFEU and Article 38 Charter. However, it is not clear what exactly is meant by this term. The impact assessment focuses on reducing consumer detriment through better enforcement. Although the impact assessment attempts to provide q ­ ualitative reasons to further support the link between remedies and enforcement, its reasoning is wafer-thin. Similarly, while the impact assessment does not make reducing compliance costs its sole aim, it does argue that compliance costs distort fair competition between compliant and non-compliant traders. Allegedly, noncompliant traders in low-penalty Member States have a competitive advantage over non-compliant traders in high-penalty states, or over compliant traders. The impact assessment fails to provide specific evidence on this point. In addition, its reasons to extend the scope of the Consumer Rights Directive and the Unfair Commercial Practices Directive remain centred on compliance costs, even though the current proposals leave gaps and considerable room for divergences among Member States, and, thereby, compliance costs. Despite the shortcomings in both the fitness check and the impact assessment, the New Deal is likely to improve EU contract law. The introduction of contractual and non-contractual remedies for consumers for unfair practices should be welcomed. As such, it is not unlikely that the availability of contractual and noncontractual remedies will improve consumers’ legal position, thereby enhancing consumer protection.

124

6 The Court as a Jack-in-the-box – An Old Story in a New Context STEPHEN WEATHERILL*

I. Introduction In Vodafone, O2 et al v Secretary of State the Court, asked whether the EU was competent to adopt harmonised rules governing the regulation of ‘roaming’ on mobile communications networks on the basis of (what is now) Article 114 TFEU, concluded that it was.1 Part of its analysis focused on the impact assessments which had been prepared by the Commission in the elaboration of its legislative proposal. The Court noted that this preparatory work had revealed evidence of the likelihood of divergent interventions at national level designed to address the problem of high prices for roaming services in the EU, leading to fragmentation of the EU’s market. This, according to the Court, was sufficient, in conjunction with other relevant evidence, to justify the conclusion that the EU was on constitutionally secure ground in adopting common rules in the field in order to promote a better-functioning internal market.2 One could regard this approach as troublingly self-referential. Looking uncritically at the claims of the EU’s own institutions in order to check the validity of the output of the EU’s legislative process sits uneasily with the foundational Treaty principle that the EU possesses only the competences conferred on it by its Member States, not the competences its own institutions would prefer. The force of that criticism is admittedly softened once one appreciates that Article 114 TFEU is the conferred competence which, more than any other, is written in a constitutionally generous manner, so that it is truly difficult to oppose its invocation in principle once a hint of actual or likely legislative diversity

* Somerville College and Law Faculty, Oxford University. 1 Case C-58/08 Vodafone, O2 et al v Secretary of State EU:C:2010:321. Roaming is now covered by Regulation 2017/920 [2017] OJ L147/1. 2 See paras 32–49, especially para 45. The Court also drew on the impact assessments in rejecting a plea of violation of the principle of proportionality, see paras 55, 58, and 65. cf E van Schagen, ‘The Better Regulation Guidelines and the Regulatory Scrutiny Board as a “Support” for Judicial Review: A Case Study of EU Consumer Law’ (2018) 37 Yearbook of European Law 597.

126  Stephen Weatherill among the Member States is identified.3 And, more positively, one could argue that the Court’s ruling in Vodafone could and should be understood as an astute push towards a procedurally durable understanding of the role of impact assessment in the EU legislative process. The existence of a properly conducted impact assessment is itself a condition of legality attached to EU acts. In this way the Court promotes deliberative administrative and legislative practice, without tipping its own review function over into an investigation of the substantive merits of the chosen act. So pursuit of impact assessment has a connection to judicial review of the validity of EU legislation. In investigating the role of the Court of Justice in the matter of impact assessment and the current ‘fitness check’, I want to take a different perspective. I want to explore a matter which is relatively lightly addressed in the plentiful Commission documentation, but which deserves more attention. It is the Court’s role not in relation to the validity of EU law, but rather in relation to the interpretation of EU law. This is a good deal more significant than is sometimes appreciated. In particular, the Court is frequently adventurous in its interpretative choices, with the consequence that a legislative framework becomes more elaborate and intricate than it appears to be in the pages of the Official Journal. This dynamic process may occur as a result of gaps in the legislative text which the Court is tempted to fill. It may be due to the Court’s own eagerness to promote the effectiveness of the EU’s rules by preferring an expansive interpretation of them. It may be a manifestation of both tendencies.

II.  The Jack-in-the-box The title of this chapter borrows from a paper written over 20 years ago. It is Thomas Wilhemsson’s ‘Jack-in-the-Box Theory of European Community Law’.4 His idea, in adopting the metaphor of the jack-in-the-box, is that EU law in general, and the Court’s interpretation of it in particular, has a tendency to surprise, even to shock. On occasion it pops up unexpectedly. To some extent this tendency to act as jack-in-the-box follows from the very nature of the EU legal order. The EU operates on the basis of the principle of conferral, today stipulated by Article 5 TEU. This means that it possesses only the competences and powers conferred on it by its founding Treaties. It is a system which is constitutionally required to respect its limits. But the Treaty is, in short,

3 See S Weatherill, The Internal Market as a Legal Concept (Oxford, Oxford University Press, 2017), ch 13. 4 T Wilhemsson, ‘Jack-in-the-Box Theory of European Community Law’ in L Krämer, H Micklitz and K Tonner (eds), Law and Diffuse Interests in the European Legal Order (Baden-Baden, Nomos, 1997).

The Court as a Jack-in-the-box  127 deceptive. The principle of conferral promises limits to the scope of EU action, but, though formally correct, this principle is in practice transformed by the remarkable breadth of the Treaty mandate. Limits there are, but those limits are loose and they are broadly set.5 Most of all, the project to complete and maintain an internal market spanning the territory of the EU’s Member States leads to the intersection between EU law and an immense range of national practices that exert an effect on the economy. This brings the Court into contact with many areas of economic activity in circumstances where its mandate is imprecisely drawn, and so it has room to surprise, to shock. So the notion that the EU promotes economic integration while leaving matters of social regulation to the Member States has long been exploded as a false dichotomy. The divide is broken down, and the EU in general and the Court in particular assess the legitimacy of social regulation pursued at national level in so far as it collides with the impetus towards economic integration. The cases which have brought free movement law into contact with national consumer law offer excellent illustrations of this trend. The Court’s landmark ruling in Cassis de Dijon is concerned with competing understandings of how best to protect the consumer.6 Germany sought to defend rules governing the composition of blackcurrant liqueur which had the effect of excluding imported beverages made according to different traditions on the basis that the consumer needed to be protected from unfamiliar products. The Court did not consider the rigid German attitude to be justified. In consequence the German rules had to be set aside in so far as they acted as a barrier to inter-State trade in such goods. In effect the Court prioritised the consumer interest in wider choice and competition in the EU’s internal market over the consumer interest in (over-)protection within a protected German market. Dozens of similar cases, in which trade integration is promoted by treating national measures of market regulation as unjustified and therefore incompatible with EU free movement law, litter the Court’s reports.7 The outcome is on occasion different: in some rulings the Court has concluded that the national intervention designed to protect the consumer is genuine and sincere and that it is of superior weight to the economic claim to release free movement across borders.8 Overall, however, the structural importance of these rulings which pit national (alleged) consumer protection law against EU free movement

5 See S Weatherill, Law and Values in the European Union (Oxford, Oxford University Press, 2016), ch 2. 6 Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein (‘Cassis de Dijon’) EU:C:1979:42. 7 eg Case 261/81 Walter Rau Lebensmittelwerke v De Smedt EU:C:1982:382; Case 286/86 Ministère public v Gérard Deserbais [1988] ECR 4907; Case C-470/93 Verein gegen Unwesen in Handel und Gewerbe Köln eV v Mars EU:C:1995:224. Also for services eg Case C–154/89 Commission v France EU:C:1991:76. 8 Case 382/87 Buet v Ministère Public EU:C:1989:198; Case C–441/04 A-Punkt Schmuckhandels GmbH v Claudia Schmidt EU:C:2006:141. Also for services eg Case C–265/12 Citroën Belux NV EU:C:2013:498.

128  Stephen Weatherill law which drives consumer choice is that they highlight the collapse of any firm divide between market regulation as a national concern and market integration as an EU concern. No such stark dichotomy is plausible in the development of the EU’s internal market. The functional vocation of EU law sometimes makes the EU blind to cherished categories under national law, such as the divide between public and private law, and it therefore tends to subvert them. So, for example, in BKK the Court’s interpretation of the material scope of Directive 2005/29 was driven by its concern to achieve its aim in protecting the consumer from unfair commercial practices, and so the Court found classification under national law of the provider as public or private to be ‘irrelevant’.9 The reach of the Directive turns out to be wider than might have been expected by an orthodox national lawyer – the jack-in-thebox! This trend is even more intriguing, because EU law sometimes reinstates its own, and different, divides between public and private actors. A good example is provided by the Court’s rejection of the horizontal direct effect of Directives.10 This entails a separation between public bodies, which are subject to obligations drawn directly from Directives, and private parties, which are not. The Court, in making that separation, has chosen to take a very broad and functionally driven view of the scope of a public authority for these purposes.11 Much more could be said about these creative but also destabilising phenomena, but it suffices for present purposes simply to make the point that EU law, driven by functional market-making aspirations, has an in-built structural tendency to cause upset to established organisational patterns at national level, and that this is sometimes hard to predict and therefore, like the jack-in-the-box, surprising, even shocking. The legislative acquis touching consumer law offers vivid examples, and it is to this field that attention now turns.

III.  Consumer Law – The Legislative Acquis It was as late as 1993 that consumer protection was added as an explicit legislative competence conferred on the EU. This was a consequence of the amendments made to the system by the Treaty of Maastricht. The relevant provision is now found in Article 169 TFEU, which is entitled Consumer Protection. However, as so often in detailed examination of the practical operation of the principle of conferral in EU law, this is in fact deeply misleading. Article 169 TFEU is 25 years old but it has been little used. The principal source of EU legislative measures affecting 9 Case C-59/12 EU:C:2013:634 para 37. See also Case C-147/16 Karel de Grote v Kuijpers EU:C:2018:320 (Dir 93/13). 10 eg Case C-91/92 Faccini Dori v Recreb EU:C:1994:292; Case C-555/07 Seda Kücükdeveci EU:C:2010:21. 11 Case C-188/89 Foster v British Gas EU:C:1990:313; Case C-413/15 Elaine Farrell EU:C:2017:745.

The Court as a Jack-in-the-box  129 the consumer has always been, and remains, legislative harmonisation – today pursuant to Article 114 TFEU. Article 114 TFEU grants the EU a competence to adopt measures of legislative harmonisation in order to promote the functioning of the internal market. The logic is simple: if national measures diverge and as a result fragment the EU market along national lines, then it is open to the EU to replace those divergent national measures with a common EU rule which acts as a uniform foundation for trade throughout the whole of the EU. Any national measure, whatever its type, aim or form, may be harmonised, provided only that the required contribution to the good functioning of the internal market flows from the act of harmonisation – excepting only fiscal provisions and those relating to the free movement of persons and the rights and interests of employed persons, which are excluded from the scope of Article 114 by its second paragraph. So where national rules concerning consumer protection are divergent and cause blockages or distortions within the internal market, the EU is constitutionally competent to replace them with common EU rules. And, inevitably, those EU rules will not only perform the function of improving the internal market but also they will contain an EU choice about technique and intensity of consumer protection. In this sense harmonisation possesses a dual function: it promotes the integration of markets, by replacing varied standards with a single common standard, but it also achieves regulation of the EU market according to the standard demanded by the EU measure. An association between the fact of harmonisation and the required high quality of the chosen standard is recognised by Articles 114(3) and 169 TFEU and by Article 38 of the Charter, and it is also conscientiously echoed by the Court in its open acceptance that regulatory concerns may play a decisive factor in choosing a harmonised regime, provided only that the threshold of a contribution to the functioning of the internal market is shown.12 This is the constitutional foundation of the relatively well-developed EU consumer law acquis. It derives from the internal market, as required by Article 114, but its aspirations and shape are not at all limited only by a concern to open up markets. It also has a regulatory ambition.13 My principal concern is the Court’s interpretation of the acquis. The Court is far from passive. It exerts a dynamic influence on the elaboration of the legislative acquis, to the point where any assessment of the current status of the law and, all the more so, of paths to reform must take account of not only the rules but also the input of the Court. The Court’s ruling in Simone Leitner provides a perfect illustration of its tendency to act as a jack-in-the-box.14 12 eg Case C-376/98 Germany v Parliament and Council EU:C:2000:544; Cases C-154/04 and C-155/04 Alliance for Natural Health EU:C:2005:449; Case C-380/03 Germany v Parliament and Council EU:C:2006:772; Case C-58/08, n 1 above. 13 S Weatherill, Contract Law of the Internal Market (Cambridge, Intersentia, 2016). 14 Case C-168/00 Simone Leitner EU:C:2002:163.

130  Stephen Weatherill The background lies in the EU’s harmonised rules governing package travel. At the time these were contained in Directive 90/314 on package travel, package holidays and package tours;15 today they are found in Directive 2015/2302 on package travel and linked travel arrangements.16 According to Directive 90/314’s Preamble, national laws in the field ‘show many disparities’, which ‘gives rise to obstacles to the freedom to provide services in respect of packages and distortions of competition amongst operators established in different Member States’. The Directive follows the classic ‘dual function’ model of EU harmonisation: it establishes common rules which are apt both to promote an integrated crossborder market and also to establish a standard of protection by stipulating that the consumer shall receive compensation in defined circumstances. In Simone Leitner the Court was asked questions about the type of damage for which compensation is payable. The Directive’s Preamble states that the organiser and/or the retailer ‘should be liable for the damage resulting for the consumer from failure to perform or improper performance of the contract unless the defects in the performance of the contract are attributable neither to any fault of theirs nor to that of another supplier of services’. But the text of the Directive does not spell out the type of damage for which the consumer is entitled to claim compensation. In particular, it does not address the question whether not only personal injury but also non-material loss, such as the disappointment caused by an unenjoyable holiday, are covered by the Directive. Article 5 is the only provision of the Directive that touches the matter. It states that ‘In the matter of damage other than personal injury resulting from the non-performance or improper performance of the services involved in the package, the Member States may allow compensation to be limited under the contract’. One might assume from this that the Directive requires compensation for personal injury, but that it rests with national law to choose whether non-material loss shall be compensated. This, however, was not the Court’s conclusion. In Simone Leitner the Court ruled that Article 5 is to be interpreted as meaning that the Directive implicitly recognises the existence of a right to compensation for non-material damage. It observed that the Directive’s purpose of eliminating disparities between national laws in the area of package holidays militated in favour of treating rules governing compensation for nonmaterial damage as falling within its scope, for otherwise the distortion caused by legal diversity at national level would persist. The Court added that compensation for non-material damage arising from the loss of enjoyment of a holiday is of particular significance to consumers. It is certainly true that the Court’s chosen interpretation strengthens the scope of the harmonised regime while also enhancing the protection of consumers. This in turn extends the impact of EU law, while curtailing the autonomy permitted to national law. The objection is that the Court has stretched beyond



15 [1990] 16 [2015]

OJ L158/59. OJ L326/1.

The Court as a Jack-in-the-box  131 the proper limits of judicial interpretation and has instead exploited the judicial function to extend the scope of a carefully shaped and materially limited legislative text. The Court’s reasoning plays fast and loose with the limits of the EU legislative text and with the autonomy of national contract law.17 Seen from the perspective of EU law the Court’s approach could count as an exercise in gap-filling. It addresses a matter treated inadequately in the legislative text. But seen from the perspective of national law there was no gap: what the EU’s Directive did not address was dealt with under national law. This is the jackin-the-box. The Court unexpectedly adopts an extended reading of the scope of harmonisation according to a claim to maximise harmonisation and to maximise consumer protection. The objection is twofold. First, where does this logic stop? It is an approach that promises unrestrained interpretative exaggeration. And, second and more focused, has the Court, in asserting the virtues of ‘more EU’ shown a troubling insensitivity to the role played by national law? Jack-in-thebox reasoning risks being unsystematic and subversive of national autonomy. Pursuit of greater coherence in EU law breeds diminished coherence in national legal orders. Admittedly Simone Leitner is a ruling that is unusually bold in its readiness to reach beyond the textual limitations of a piece of EU legislation. Most of the Court’s rulings do not strain the edges of its function in the way that Simone Leitner does. However, it reveals that ambiguity in legislative texts – and in EU law the complex process of negotiation combined with unavoidable oddities in translation between different language texts makes ambiguity relatively common – tempts the Court to draw on the dual function of harmonisation, rooted in both market integration and market (re-)regulation, to pursue an adventurous approach to interpretation. Simone Leitner is unusual but it is no one-off. Directive 93/13 on unfair terms in consumer contracts has been the most high-profile springboard for the Court.18 It was made on the basis of what was Article 100a EC, today in amended form Article 114 TFEU, and it is a classic example of the dual function of harmonisation. It establishes common rules on the regulation of unfair terms in consumer contracts according to a logic which insists that pre-existing diversity in approaches at Member State level undermined the achievement of an internal market, while also making a choice about the precise nature of the harmonised regime of consumer protection – which is to require the suppression of such unfair terms. In consequence of the remarkably eager readiness of national courts to make preliminary references to the Court of Justice this Directive above all others in the consumer field has proved the most fertile source of the Court’s tendency to

17 The revised Directive, Dir 2015/2302, note 16 above, retains a provision similar to that at stake in Leitner (Art 14(4)) but it does not address the matter of non-material damage in its text. However, its Preamble declares in recital 34 that ‘Compensation should also cover non-material damage’. 18 [1993] OJ L95/29.

132  Stephen Weatherill act as a jack-in-the-box. But the Court itself is no passive recipient of i­maginative references – it has itself been energetically engaged in pushing the boundaries of the legislative acquis. Provoked to shock, it is sometimes not slow to seize the opportunity to shock. Article 3(1) Directive 93/13 provides that ‘A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’. And Article 6 directs that unfair terms used in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer. This is the classic model of harmonisation as a means to both integration and regulation – the Directive selects not only a common rule but also its quality. The concept of a term that is not ‘individually negotiated’ is explained more fully in Article 3(2). The test of unfairness is amplified by Article 3(3) and also by the Annex to the Directive, which includes a ‘grey list’ of terms that may be considered unfair, depending on the prevailing circumstances. But ‘the requirement of good faith’ is not elucidated in the Directive. This has not deterred the Court. In Aziz it stated that: With regard to the question of the circumstances in which such an imbalance arises ‘contrary to the requirement of good faith’ … the national court must assess for those purposes whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations.19

The Court in this way chose to move beyond the text of the Directive and to provide a firmer and fuller explanation of what ‘good faith’ entails. Terms found to be ‘unfair’ are not binding on the consumer, according to Article 6(1). Here too the Court has added to the text. Article 6(1) is a mandatory provision which, taking into account the weaker position of one of the parties to the contract, aims to replace the formal balance which the latter establishes between the rights and obligations of the parties with an effective balance which re-establishes equality between them.

The Court first used this form of words in 2006 in Mostaza Claro v Centro Móvil Milenium,20 but it now tends routinely to repeat this formula or something very similar in all its rulings dealing with Directive 93/13. This aligns the purpose of the Directive to understandings of legal intervention aimed at promoting the autonomy of the weaker party and, in this sense, as a means to protect, not to subvert, freedom of contract.21

19 Case C-415/11 Aziz EU:C:2013:164 para 69. 20 Case C-168/05 Mostaza Claro v Centro Móvil Milenium EU:C:2006:675 para 36. 21 See in the EU context N Reich, General Principles of EU Civil Law (Cambridge, Intersentia, 2014) ch 2 and more generally D Kimel, ‘Personal Freedom and the Protection of the Weak through the Lens

The Court as a Jack-in-the-box  133 Some of the Court’s rulings choose to apply the formula in concrete terms. Article 6(1) requires deletion of the offending clause, so it may not be revised by the national court to remove its worst effects.22 However, a national court may delete an unfair term and replace it with a supplementary provision of national law to avoid the contract being annulled where that annulment would prejudice the consumer.23 One could easily absorb the Court’s rulings into a revised text of the Directive. This, however, would be to attempt to chase a moving target. The Court’s approach is dynamic, and can be expected to remain so. The most vivid instances of the Court’s tendency to act like a jack-in-thebox concern its readiness to reach beyond the text of Directive 93/13 into areas of procedure and remedies that one might have thought were the preserve of national legal autonomy. A national court has a duty imposed by EU law to evaluate the fairness of terms of its own motion. Directive 93/13 does not address this matter at all, and one might have supposed that it rests with national law to select between the several possible understandings of the proper role of the judge in the administration of justice. Practice, of course, varies across Europe. But the Court has been bold. It has opened a jack-in-the-box. In Oceano Grupo Editorial SA v Rocio Murciano Quintero it explained that ‘the system of protection introduced by the Directive is based on the idea that the consumer is in a weak position viaa-vis the seller or supplier, as regards both his bargaining power and his level of knowledge’.24 This then led it to state that ‘effective protection of the consumer may be attained only if the national court acknowledges that it has power to evaluate terms of this kind of its own motion’. Subsequently the Court altered the obligation of a national court from a power to a duty. This was first visible in Mostaza Claro v Centro Móvil Milenium,25 although the Court, admitting to inconsistency in its case law, subsequently accepted in Milena Tomášová26 that that it was only in 2009 that it became unarguably clear that in fact a duty not a power is at stake, citing Pannon GSM Zrt as the key case.27 The effective protection of the consumer envisaged by the Directive can in the Court’s view be achieved only by requiring reinforcement in the form of an obligation imposed by EU law on the national judge to intervene. The consequence is the conversion of national autonomy in this particular niche of civil procedure into a matter of mandatory EU law. of Contract: Jurisprudential Overview’, ch 17 in S Vogenauer and S Weatherill (eds), General Principles of Law: European and Comparative Perspectives (Oxford, Bloomsbury, 2017). 22 Case C-488/11 Asbeek Brusse EU:C:2013:341. 23 Case C-26/13 Árpád Kásler EU:C:2014:282; Case C-90/14 Banco Grupo Cajatres v Pinilla EU:C:2015:465. 24 Cases C-240/98 to C-244/98 Oceano Grupo Editorial SA v Rocio Murciano Quintero EU:C:2000:346. 25 Case C-168/05, n 20 above, para 38. 26 Case 168/15 EU:C:2016:602. 27 Case C-243/08 Pannon GSM Zrt EU:C:2009:350. For a comprehensive account of the trajectory of the case law see A Beka, The Active Role of Courts in Consumer Litigation: Applying EU Law of the National Courts’ Own Motion (Cambridge, Intersentia, 2018), esp ch 4.

134  Stephen Weatherill The jack-in-the-box springs into life because of the Court’s concern to promote the effective application of Directive 93/13. In its view, leaving the determination of the role of the judge to national preference would not generate the results envisaged by the Directive. Building an internal market within which the consumer as the weaker party is effectively protected from unfair terms requires that as a matter of EU law the judge shall consider whether terms are fair or not. In Frouke Faber the Court adopted similar reasoning to require that a national court must inquire of its own motion if a buyer is a consumer within the meaning of Directive 99/44 on consumer sales and so entitled to the protection afforded by that Directive.28 Only in this way could the effective application of the Directive as a means to protect the consumer as the weaker party be secured. It is plainly possible to protest that the Court is making promiscuous and illegitimate use of the notion of ‘effectiveness’ in order to intervene in matters which the EU legislature had left to national practice. But such reliance on ‘effectiveness’ is common in the Court’s practice. It is frequently the jack-in-the-box’s spring. The Court has also employed this reasoning to insist that Directive 93/13 entails willingness to open up the finality of arbitration. Here too the text of the Directive does not embrace concern for such matters, but the Court’s concern for effective achievement of the Directive’s aims breaks open such textual limitations. In Mostaza Claro v Centro Móvil Milenium a Spanish court had no doubt that an arbitration agreement contained a contractual term that was unfair within the meaning of Directive 93/13.29 The twist was that under Spanish procedural law Ms Mostaza Claro, a consumer, had failed to plead that the arbitration agreement was invalid during the arbitration proceedings themselves and it was now too late for her to raise the matter in the subsequent action of annulment. So, under Spanish law, the arbitration award against her had to stand, despite its incompatibility with the Directive. Directive 93/13 has nothing at all to say about such procedural questions. The Court accepted that ‘it is in the interest of efficient arbitration proceedings that review of arbitration awards should be limited in scope and that annulment of or refusal to recognise an award should be possible only in exceptional circumstances’.30 But the Court found that the protection of the consumer supplied the ‘exceptional circumstances’ which justified disrespect for finality in arbitration. It ruled that a court dealing with an action for annulment of an arbitration award must be able to determine whether that award is void because the agreement contains an unfair term even where the consumer failed to plead the invalidity of the arbitration agreement in the course of the arbitration proceedings. In reaching this conclusion the Court placed heavy reliance on the Directive as a means to protect the consumer who is in a relatively weak position.31 28 Case C-497/13 Frouke Faber EU:C:2015:357. 29 Case C-168/05, n 20 above. 30 Case C-168/05, n 20 above, para 34. 31 paras 25, 36. See also eg Case C‑137/08, VB Pénzügyi Lízing EU:C:2010:659 para 47; Case C-618/10 Banco Español de Crédito v Joaquín Calderón Camino EU:C:2012:349, paras 40, 63.

The Court as a Jack-in-the-box  135 It added that the Directive’s aim to strengthen consumer protection constitutes ‘a measure which is essential to the accomplishment of the tasks entrusted to the Community’, citing Article 3(1)(t) EC.32 That was 2006: today, as a result of the entry into force of the amending Lisbon Treaty in 2009, the Court would doubtless cite the support provided by Article 12 TFEU and Articles 38 and 47 of the Charter in making the case for upholding the importance of effective access to consumer justice. But this would not satisfy those alarmed by the Court’s eagerness to use relatively broad and imprecise legal principles to subvert national procedural autonomy in general and the preservation of arbitral finality in particular.33 They have been shocked by the jack-in-the-box, which propels EU law disruptively into areas that seem closed to it. The Court in this way gives special force to EU consumer law and, via its application by national courts, it accentuates the contours of consumer law as a distinct category within national legal orders. A clear risk is that national procedural rules will be overthrown as a result of resort to the claim that EU law requires effective protection of the rights it has created and that there will be considerable uncertainty as a result. The anxiety is real: especially when one appreciates that the Court has refused to intervene in some circumstances even where consumers risk being treated in violation of the protective norms mandated by EU law. In Mostaza Claro the consumer had raised the matter of unfairness in proceedings contesting an earlier adverse arbitral finding. In contrast in Asturcom Telecomuncaciones the consumer was even more slow to act.34 She had neglected even to challenge the arbitral award within the time limit stipulated by domestic law. On this occasion the Court of Justice refused to help. It accepted that the importance of res judicata and ensuring the sound administration of justice should prevail over the consumer interest in re-opening the matter. That same sense of restraint has led the Court to refuse to extend its relatively generous treatment of individual consumers to consumer protection associations which have asked it to disturb national rules obstructing their access to courts, noting explicitly that the matter lies beyond the legislative text.35 This reveals that EU law treats the aim of consumer protection which motivates Directive 93/13 as strong enough to require adaptation of national rules of civil procedure in some but not all circumstances. This breeds case-by-case treatment, with (one may suspect) different levels of enthusiasm among different chambers and individual judges at the Court.

32 para 37. 33 See eg G Berman, ‘Navigating EU Law and the Law of International Arbitration’ (2012) 28 ­Arbitration International 397; M Piers, ‘Consumer Arbitration in the EU: a Forced Marriage with Incompatible Expectations’ (2011) 2 Journal of International Dispute Settlement 209; MJ Sørensen, ‘In the name of effective consumer protection and public policy’ (2016) 24 European Review of Private Law 791. 34 Case C-40/08 EU:C:2009:615. 35 Case C-448/17 EOS KSI Slovensko EU:C:2018:745 para 35, building on Case C-470/12 Pohotovost’s EU:C:2014:101.

136  Stephen Weatherill It is hard even for the expert who is sensitive to the Court’s flashes of i­nterpretative audacity to predict with confidence just when the jack-in-the-box will spring open and when instead the Court will defer to national autonomy. Cases in which the Court and its Advocates General have reached completely different conclusions about the impact of Directive 93/13 offer confirmation of the fine margins involved. So, for example, in Banco Español de Crédito v Joaquín Calderón Camino a Spanish rule precluded a court before which an application for repayment of a loan had been made against a consumer from assessing whether a term concerning interest on late payments was unfair where the consumer had not lodged an objection.36 Advocate General Trstenjak proposed that the Court find no breach of the effectiveness principle and that therefore the national practice be left untouched, but the Court disagreed. Precisely the same tension and difference of opinion is visible in Sánchez Morcillo.37 Spanish rules governing the enforcement of mortgages were successfully attacked before the Court on the basis that they failed to provide effective protection of the consumer as required by Directive 93/13 on unfair terms. The ruling draws on the long-standing thematic and principled concern to adopt an interpretation that is apt to protect the consumer as the weaker party.38 But the Opinion in the case delivered by Advocate General Wahl had advised the Court to leave the matter to national autonomy, and expressed anxiety about the legitimacy of intervention in such a matter of procedure under the guise of the slippery notion of effectiveness. Gutiérrez Naranjo, BBVA concerned Spanish judicial practice that placed temporal limits on the restitutionary effects connected with a finding of unfairness by a court.39 Advocate General Mengozzi proposed that the Court should not treat this as objectionable as a matter of EU law, but the Court, concerned to protect the aim of the Directive, found that the Spanish practice was precluded by Article 6(1) Directive 93/13. The divide is significant at more than simply the level of detail. In Gutiérrez Naranjo, BBVA, as in all these decisions, the Court was moving in the direction of ‘the construction of an autonomous European sanction for unfair terms’.40 The several Advocates General are clearly more sceptical about the adventure. And sometimes the Court itself is sceptical: in Bankia SA it refused to transplant the approach to the role of courts in proceedings at national level for the enforcement of mortgages which it has developed under Directive 93/13 to the application of Directive 2005/29 on unfair commercial practices.41 It cited a ‘margin of discretion’ enjoyed by national courts in choosing applicable

36 C-618/10 Banco Español de Crédito v Joaquín Calderón Camino EU:C:2012:349. 37 Case C-169/14 Sánchez Morcillo EU:C:2014:2099. 38 Especially paras 22–23. 39 Joined Cases C-154/15, C-307/15 and C-308/15 Gutiérrez Naranjo, BBVA EU:C:2016:980. 40 C Leskinen and F de Elizalde, ‘The control of terms that define the essential obligations of the parties under the Unfair Contract Terms Directive’ (2018) 55 Common Market Law Review 1595, 1596. 41 Case C-109/17 EU:C:2018:735.

The Court as a Jack-in-the-box  137 enforcement procedures pursuant to Directive 2005/29,42 which is a different tone from its typically more assertive attitude under Directive 93/13. This is far from an exhaustive treatment of the Court’s abundant case law.43 Its purpose is merely to select examples which show how the Court is able and willing, albeit not entirely consistently, to interpret the legislative acquis with a surprising level of ambition, with the result that the areas of law affected by ‘­Europeanisation’ tend to stretch beyond those covered by the legislative text narrowly understood. This may destabilise national law to a surprising extent. And a consequence is that national litigants and judges are induced to involve the Court, in the hope of provoking it to offer assistance that on the face of the text does not appear to be available.44 This tends to generate a further dynamic, as decisions of the Court may prompt further preliminary references made by national courts seeking elaboration.45 So there are plentiful preliminary references on the record, sometimes engaging quite absurdly detailed questions posed by national courts. The Court’s interpretative role is especially significant where the Directive in question is a maximum measure, because, in contrast to a minimum measure, a maximum measure leaves no leeway for stricter national measures, so it is vital to know exactly what is required as a matter of EU law. The steady stream of references asking for interpretation of Directive 2005/29 on unfair commercial practices, a maximum measure, is worthy of note from this perspective, although the example of Directive 93/13, a minimum measure, confirms that any measure of harmonisation is capable of triggering an active dialogue between national judges and the Court in Luxembourg.

IV.  Fitness Check The Commission’s ‘fitness check’ promised a thorough basis for reviewing and, if necessary, reforming the legislative acquis concerning consumer protection.46 42 para 31. 43 See further eg H Micklitz and N Reich, ‘The Court and Sleeping Beauty: The Revival of the Unfair Contract Terms Directive’ (2014) 51 Common Market Law Review 771; O Gerstenberg, ‘Constitutional Reasoning in Private Law: The Role of the CJEU in Adjudicating Unfair Terms in Consumer Contracts’ (2015) 21 European Law Journal 599. 44 On the energy of Spanish courts, see M Józon, ‘Unfair contract terms law in Europe in times of crisis: Substantive justice lost in the paradise of proceduralisation of contract fairness’ (2017) 6 ­Journal of European and Consumer Market Law 157; F Gómez, ‘Spanish courts, the European Court and consumer law: some thoughts on their interaction’ in F Cafaggi and S Law (eds), Judicial Cooperation in European Private Law (Cheltenham, Edward Elgar, 2017); on Hungary and Romania, M Józon, ‘The methodology of judicial cooperation in unfair contract terms law’ in F Cafaggi and S Law (eds), Judicial Cooperation in European Private Law (Cheltenham, Edward Elgar, 2017). See also on national practice Beka, n 27 above. 45 See eg Case C-452/18 XZ v Ibercaja Banco pending, in which questions concerning Joined Cases C-154/15, C-307/15 and C-308/15, n 39 above, are asked. 46 For access to all relevant documentation see http://ec.europa.eu/newsroom/just/item-detail. cfm?item_id=59332.

138  Stephen Weatherill I regard the process as essentially well motivated. Moreover, it does not neglect the place of the Court. My mild anxiety is that not enough attention is paid to the Court’s involvement in the development of the law. In the ‘Roadmap’ published by the Commission in December 2015 the place of the Court of Justice in the development of the legislative acquis is not ignored but its role is not elaborated.47 It is simply mentioned that the case law of the Court should form part of the investigation.48 A similar pattern is to be found in the Reports published in May 2017 to conclude the fitness check. The overall assessment is positive, and no major changes to the legislative acquis are proposed. The work undertaken is serious and thoughtful. However, in relation to the Court, the Fitness Check of Consumer and Marketing Law is limited to mention of the place of its case law en passant and in largely uncritical fashion.49 The Court’s case law on ex officio application of EU law by national courts is touched on, but it is confessed, without deeper inquiry, that it ‘still appears to be opaque in meaning and application to many lawyers and judges throughout the Member States’.50 It is later accepted that it is not always applied by national courts.51 The possibility of codification of this case law is gently raised as a possible way forward.52 Similarly it is admitted that ‘there are variations in the approach of the courts in different Member States’ to the treatment of unfairness of contractual terms, in particular in connection with the demands of transparency,53 but further detail is not provided.54 It is noted that there is a need for better knowledge of rights and duties ‘as robustly interpreted by the CJEU’,55 and that the case law is ‘rich’.56 But the report’s engagement with the Court is evidently cautious. The – separate but thematically connected – report on the application of the Consumer Rights Directive (2011/83) is even thinner.57 It mentions only one decision of the Court, and even then only in a footnote.58 It otherwise ignores the Court, although it is fair to add that the case law under this Directive is any event as yet scarce, so there is not much more to add. 47 http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_just_023_evaluation_consumer_law_ en.pdf. 48 pp 11, 14. 49 SWD (2017) 209. See pp 17, 27–28, 34, 35, 83, 94–95, 97, 105. 50 pp 27–28. Some further information may be collected in the Country Reports, also available at http://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332. 51 p 95. 52 p 129. 53 pp 94–95. 54 Here too some further information may be collected in the Country Reports, n 50 above. 55 p 85. 56 p 86. 57 COM (2017) 259. 58 fn 15: Case C‑568/15 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main eV v comtech GmbH EU:C:2017:154.

The Court as a Jack-in-the-box  139 The treatment of the Court’s case law in these documents is predominantly cautious and descriptive. There is a proper awareness of the Court’s dynamic contribution to the development of the EU’s consumer law acquis, but it is addressed with reticence.

V.  The Need to take the Court Seriously I believe it is a fair criticism that there should be fuller treatment of the place of the Court. It is an important actor in the interpretation of the relevant legislation, and it ensures that there is potential for dynamic development even after a harmonised text is agreed and adopted. True, there are limits to what can be said about the Court’s role. Its relative unpredictability is precisely the point, and so one cannot feasibly foresee just where it will strike. But a higher level of awareness of the Court’s potential role would improve regulatory sensitivity and, to some extent, counsel caution in how confident one should be in checking fitness, because assessment must reach beyond the text also to consider the more unpredictable evolution of the text once it has been adopted through the legislative process. A good supplementary question asks whether the problem is the potential interruption of any court, or of this court, the Court of Justice, in particular. That is, is it empty to say the EU’s fitness check should be more attentive to the Court, given that any piece of legislation anywhere is dependent in part on judicial interpretation and application (albeit of course with sensitivity to the differences between civil and common law traditions)? There are three reasons why the Court of Justice in particular and EU law in general are different, and why they deserve a more elevated concern than would be the case at national level. First, there is a distinct constitutional character to EU consumer law. The Court’s insistence on pursuit of a high level of consumer protection as an interpretative paradigm is supported by provisions of primary law which carry constitutional status. Article 12 TFEU directs that consumer protection requirements ‘shall be taken into account in defining and implementing other Union policies and activities’. Article 169 TFEU refers to Union action ‘in order to promote the interests of consumers and to ensure a high level of consumer protection’. Article 38 of the Charter mandates that ‘Union policies shall ensure a high level of consumer protection’. Most constitutions do not include consumer protection. The EU’s does. One should admit that the existence of these rather open-textured norms does not of itself fully justify the Court’s very concrete incursions into matters such as the role of the national judge in consumer cases and treatment of arbitral finality. But the basis point holds: the EU’s system of consumer protection, and the Court’s development of it, has a more overtly constitutional character than a typical national system. Second, the existence of open-textured norms in measures of harmonisation invites judicial activism. The meaning of unfairness under Directive 93/13

140  Stephen Weatherill on unfair terms and Directive 2005/29 on unfair commercial practices begs for, and has attracted, judicial creativity. For sure, national systems have such flexible concepts too but in the EU the aspiration is typically to create an autonomous single meaning against a background of diversity at national level, and this makes the matter of elucidation of the meaning of broad concepts still more pressing at EU level than at national level. Moreover the multilingual character of EU law adds an extra challenge to the quest for definitional precision. The third – and biggest – difference between the EU context and that which prevails at national level concerns competence. EU law co-exists with national law, and its scope, though broad, is limited to the areas mapped out by its Treaties. There are specific competence questions at stake here which flow from the foundational principle of conferral contained in Article 5 TEU, which directs that the EU may act only in so far it is so authorised by its Treaties. Any extension in the reach of EU law has implications for the autonomy of national law, and moreover it has a distinct constitutional resonance. Cases like Simone Leitner59 and Mostaza Claro60 assert an EU content to matters that might plausibly have been thought to lie within Member State competence, at least pending explicit legislative attention at EU level. Such rulings deepen and widen the impact of the EU in the field of substantive and procedural consumer protection law, but in so doing they disturb both the vertical allocation of competences between the EU and its Member States and the horizontal allocation of powers between the Court and the EU legislative institutions.

VI. Conclusion The Court deserves a prominent place in fitness checks conducted anywhere across the tapestry of EU law. The Court deserves a more prominent place in the ‘fitness check’ of EU consumer law which was concluded in 2017. Its contribution is dynamic and sometimes unpredictable. It could be placed on a tighter leash, for example by writing EU legislative acts with more care and precision, both in defining the nature of the EU rules and in stipulating where EU law ends and national law takes over. That, however, is much easier said than done. Much EU law is the product of compromise, and a degree of textual ambiguity is politically inevitable. In consequence the Court’s role as a jack-in-the-box is in important respects structurally embedded into EU law. It will persist. Any process of legislative review accordingly needs to take full account of the Court’s dynamic contribution.



59 Case 60 Case

C-168/00, n 20 above. C-168/05, n 20 above.

7 ‘Better’ Enforcement of EU Consumer Law: Exploring Responsive Enforcement ESTHER VAN SCHAGEN*

I. Introduction One of the main conclusions of the fitness check on EU consumer law is that consumer rights should be better enforced.1 Following the fitness check, the Commission has adopted the draft Better Enforcement Directive.2 This draft directive forms part of the Commission’s ‘A New Deal for Consumers’, which prioritises enforcement of consumer rights.3 ‘Better enforcement’ is more generally considered as a possible course of action in the Better Regulation Guidelines,4 the revised Commission’s recommendations for developing policy. However, a clear desciption of what ‘better enforcement’ entails is missing. Instead, the fitness check assumes that a lack of enforcement is the main obstacle to increasing consumer confidence, thereby fostering cross-border trade, and decreasing * Assistant Professor, Molengraaff Institute, Utrecht University. This chapter, in Dutch, has been published in the Tijdschrift voor Consumentenrecht. 1 European Commission, ‘Report of the Fitness Check on 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 and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’); Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts; Directive 98/6/EC of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers; 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; Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests; Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising’, SWD (2017) 209. Hereafter, this chapter will refer to ‘SWD (2017) 209’. 2 COM (2018) 185. See further on the New Deal for consumers the contribution on the fitness check and the impact assessment for the New Deal in this volume. 3 COM (2018) 183 2–3. 4 SWD (2017) 350.

142  Esther van Schagen consumer detriment.5 The initiatives under the ‘New Deal’ will supposedly lead to fewer breaches of consumer rights, which should benefit consumer confidence in the internal market. In turn, increased consumer confidence should result in more cross-border trade. Further support for these claims is absent. The fitness check and the New Deal form a reason to question the initiative for ‘better enforcement’.6 This chapter will critically consider the better enforcement iniatives in the light of insights from ‘responsive enforcement’, which should be based on ‘responsive regulation’.7 Responsive enforcement considers the behaviour and the motivation of market participants and emphasises innovative forms of enforcement. In the area of consumer law, regulation and enforcement should be aligned with the behaviour and motivation of consumers and traders. This chapter will particularly consider Directive 93/13 on unfair terms in consumer contracts and Dutch law transposing and applying this directive. This directive is a central measure in the area of EU contract law. In Dutch law, the enforcement of the directive is mainly left to private and collective eenforcement, in contrast to the enforcement of Directive 2005/29 on unfair commercial practices, where administrative enforcement by the Netherlands Authority for Consumers and Markets (hereafter: ‘Autoriteit Consument en Markt’) has developed more prominently. In addition, Dutch law on standard terms is a suitable area to consider responsive enforcement, aligned with the behaviour and motivation of market participants. Notably, the problems arising from the use of unfair terms were expressly acknowledged by the Dutch legislator, prior to the adoption of the directive. Further, Dutch self-regulation on unfair terms, designed to prevent the use of unfair terms, is particularly well developed within the framework of Dutch law implementing the directive. Does Dutch law offer an example of responsive enforcement that the Commission should consider in its proposals for better enforcement? This chapter will focus on the initiatives for better enforcement under the draft Better Enforcement Directive,8 which proposes to clarify relevant factors to

5 SWD (2017) 209 76. 6 This chapter will not provide an exhaustive analysis of possibly relevant factors to enhance enforcement, such as harmonising and revising civil procedural law. See extensively Max Planck Institute, An evaluation study of national procedural laws and practices in terms of their impact on the free circulation of judgments and on the equivalence and effectiveness of the procedural p­rotection of consumers under EU consumer law, Strand 2, Procedural protection of consumers, June 2017, JUST/2014/RCON/PR/CIVI/0082, available at http://ec.europa.eu/newsroom/just/document.cfm? action=display&doc_id=49503, accessed on 5 January 2019. 7 The concept of ‘responsive regulation’ has been based on the unfluentual work of I Ayres and J Braithwaite, Responsive regulation. Transcending the deregulation debate (Oxford, Oxford University Press, 1992). Responsive regulation concerns a form of regulation which provides enforcement authorities with a gradual scale of means to sanction breaches, depending on the seriousness of the breach and the lack of good faith of offenders. 8 An in-depth analysis of the draft Directive on Representative Actions, COM (2018) 184 is beyond the scope of this chapter. It has been discussed separately (‘Regulating consumers and the internal market’, ECPR-conference, 5 July 2018, Lausanne, Switzerland).

‘Better’ Enforcement of EU Consumer Law  143 determine administrative fines for violating consumer rights within the scope of the Unfair Contract Terms Directive (UCTD), the Unfair Commercial Practices Directive, and Directive 2011/83 on consumer rights. The draft directive does not propose amending the material provisions of the UCTD. In addition, the Commission has encouraged the development of self-regulation for the presentation of standard terms.9 This initiative seems to build on the 2000 report on the evaluation of the UCTD, which suggested that EU-level collective negotiations on the fairness of terms could increase clarity on the question of which terms are fair.10 In addition, better awareness for traders, especially SMEs,11 and the development of Guidance for the UCTD has been proposed.12 The draft Better Enforcement Directive does not, as such, adopt a consistent approach towards strengthening enforcement. It is not clear whether this has been a conscious choice. Possibly, a future directive for the civil procedural protection of consumers should further enhance private enforcement of the directive.13 This chapter will first discuss what ‘better enforcement’ is, according to the Commission’s proposals (section II). The definition in the proposals overlooks theories on responsive enforcement, which formed a basis for the OECD14 to adopt recommendations for strengthening enforcement (section III). Two essential elements of responsive enforcement will be considered in particular. First, the willingness to comply among market participants is a crucial part of responsive enforcement. The complexity of the law on the unfairness of terms complicates compliance for private actors. This complexity will be demonstrated by Dutch case law and decisions from the Dutch Foundation for Consumer Complaints Boards (hereafter: ‘de Geschillencommissie’).15 Second, responsive enforcement is based on a range of sanctions, which can be used gradually. Instruments to enforce 9 These negotations are to take place within a group composed by the Commission, the Stakeholder consultation group for the Fitness Check of EU consumer and marketing law, E03423. The composition of the group and notes of the meetings can be found in the Commission’s register for expert groups, see http://ec.europa.eu/transparency/regexpert/. 10 COM (2000) 248 24–26. 11 SWD (2017) 209 85–86. 12 SWD (2017) 209 86. 13 On the basis of the recommdations made in Max Planck Institute, An evaluation study of national procedural laws and practices in terms of their impact on the free circulation of judgments and on the equivalence and effectiveness of the procedural protection of consumers under EU consumer law, Strand 2, Procedural Protection of Consumers, June 2017, JUST/2014/RCON/PR/CIVI/0082, S, available at http:// ec.europa.eu/newsroom/just/item-detail.cfm?item_id=612847 at 18 [36]. 14 OECD, Best practice principles for regulatory principles: Regulatory enforcement and inspections (Paris, OECD, 2014), available at http://www.oecd.org/gov/regulatory-policy/enforcement-­inspections.htm. 15 The Geschillencommissie consists of various committees deciding on consumer contracts in particular sectors, for exmaple travel, energy contracts, etc. In the Dutch legal order, there is considerable experience with dispute resolution, which could be relevant for EU or national policy prioritising better enforcement. For writing this chapter, in March 2018, the author has been given access to the decisions of the Geschillencommissie since 2013. This chapter does not aim to provide a representative selection of the Geschillencommissie’s decision, but rather to critically question what ‘better enforcement’ entails.

144  Esther van Schagen the use of fair terms in consumer contracts are ill-coordinated, as particularly demonstrated by questions that may arise on concurrence of collective redress and private enforcement. The chapter will conclude with recommendations for better enforcement (section IV) and concluding remarks (section V).

II.  ‘Better’ Enforcement in the Commission’s New Deal The New Deal does not provide a clear understanding of what ‘better enforcement’ is, and in what respects this new policy is different from previous initatives.

A.  What is ‘Enforcement’? The New Deal and the Better Regulation Guidelines do not specify what ­‘enforcement’ is. One might ask whether this concerns enforcement through ­adjudication, or a wider understanding of ‘enforcement’.16 The initiatives for collective negotiations at the European level and the development of guidance suggest a wider understanding, including, for example, self-regulation – ranging from the initiative of the Dutch Consumers’ Union (hereafter: ‘Consumentenbond’) and the Association for Homeowners (‘Vereniging Eigen Huis’) to make standard terms more readable,17 to collectively negotiated standard terms between traders’ and consumers’ representatives on the use of fair terms in the framework of the Social and Economic Council (‘Sociaal-Economische Raad’). The latter well-established, widespread practice could arguably be construed as a means to prevent the use of unfair terms. Thus, enforcement seems to include preventing consumers’ rights from being breached. This understanding of enforcement is in line with the definition of enforcement by the OECD,18 which defines ‘enforcement’ as ‘covering all activities of state structures … aimed at

16 EDH Engelhard, ‘Handhaven van en door privaatrecht’, in EDH Engelhard and others (eds), Handhaving van en door privaatrecht (The Hague, Boom Juridische Uitgevers, 2009) 12, finds that enforcement, outside the scope of private law, is defined as ‘promoting compliance with legal rules, especially by monitoring and taking action in cases of an infringement’(‘bevordering van het naleven van rechtsregels, in het bijzonder door uitoefening van toezicht en door optreden in geval van een … overtreding’), without specifically distinguishing between the various available means of enforcement. According to the OECD (n 14) 12, enforcement policies increase compliance. 17 eg for contracts for the supply of energy, see http://www.energienieuws.info/2017/04/nieuwe-­ algemene-voorwaarden.html. 18 OECD (n 14) 11. The OECD stresses initiatives of state actors. Especially considering the nature of consumer law, a definition that does not also include initiatives of consumers and traders is too narrow. Therefore, a wider definition of enforcement than used by the OECD will be used in this chapter. This is in line with the aim and the principles of the OECD to support initiatives that seek to strengthen enforcement.

‘Better’ Enforcement of EU Consumer Law  145 promoting compliance and reaching regulations’ outcomes’. These activities expressly include awareness raising, information campaigns and collecting data. The definition of the OECD might also include implementation, but it is not clear whether the European Commission considers ‘implementation’ as a part of enforcement. Implementation is not considered in the fitness check and the Better Regulation Guidelines19 refer to ‘better implementation and enforcement’.

B.  A ‘New’ Deal? At first sight, the emphasis on ‘enforcement’ rather than further harmonisation is a clear breach with previous proposals.20 Upon closer inspection, the draft Better Enforcement Directive does propose further harmonisation of transparency obligations,21 and the draft Directive on Representative Actions further harmonises collective redress.22 This stress on transparency obligations is in conformity with a more general preference for transparency obligation, for example in the Consumer Rights Directive, Directive 2015/2302 on package travel and Regulation 2015/2120 on roaming. The draft Directive on Representative Actions proposes further harmonisation, and provides the appointed organisations such as the Consumentenbond with an additional possibility to bring collective claims in cross-border cases. However, one may doubt whether the EU representative action will provide an attractive alternative. First, associations and foundations with full legal capacity (­‘volledige rechtsbevoegdheid’) already have the possibility to bring collective claims on the basis of Article 3:305a Dutch Civil Code. In comparison to Article 3:305d Dutch Civil Code, which implements Directive 2009/22 on injunctions, Article 3:305a offers a legal basis for collective claims for more parties, and has been used considerably more frequently than Article 3:305d.23 Second, if the bill to amend

19 SWD (2017) 350 21. 20 eg the draft Directive for Contracts for the Supply of Digital Content, COM (2015) 634, and the amended proposal for the draft Online Sales Directive, which pursues full harmonisation, COM (2017) 637. 21 COM (2018) 185. 22 COM (2018) 184. 23 Only two cases have been published: Court of appeal The Hague 7 April 2009, ECLI:NL:GHSGR: 2009:BK4880 and Court of appeal The Hague 19 January 2010, ECLI:NL:GHSGR:2010:BL0024. In both cases, the claimant was the Autoriteit Consument en Markt. A search on ‘rechtspraak.nl’, using ‘3:305c’, also refers to District court Breda 24 October 2006, Nederlandse Jurisprudentie Feitenrechtspraak 2006, 628. In this case, the Office of Fair Trading filed unsuccessfully for a predecessor of the injunction (implementing Directive 98/27); the injunction should have covered a mailing that misleadingly led English consumers to believe they had won a prize. District court Breda 9 July 2008, ECLI:NL:RBBRE:2008:BD6815, between the same parties, found these practices as unfair and upheld the injunction. According to J Karsten, Study on the application of Directive 2009/22/EC on injunctions for the protection of consumers’ interests (former Directive 98/27/EC), Specific Contract No 17.010403/11/596569, Final Report, December 2011, available at https://ec.europa.eu/info/sites/ info/files/study_on_injunctions_directive_final_report-18_12_2011_en.pdf at 99, last accessed

146  Esther van Schagen Article 3:305a is adopted, a claim for damages will become possible.24 Similarly, the EU representative action allows for compensation. In addition, the draft directives build on previously identified problems of non-compliance and cross-border private enforcement.25 These problems prompted the European Commission to promote easily accessible means of dispute resolution and consumer remedies. Accordingly, the Commission sought to facilitate cross-border enforcement by consumers through alternative dispute resolution.26 In addition, online alternative dispute resolution was facilitated by Regulation 524/2013 on online alternative dispute resolution for consumers, and the ­European Consumer Centres, advising consumers on their rights in cross-border cases, and sometimes contacting traders on their behalf, were established in 2005. For administrative enforcement, the need to more easily exchange information and cooperation resulted in Regulation 2006/2004 on consumer protection cooperation. These initiatives underlined the development of easily accessible dispute resolution that should encourage consumers to exercise their rights v­is-a-vis traders.

C.  ‘Better’ Enforcement? In summary, the New Deal is based on a wide definition of enforcement. The new policy of the European Commission builds on previous policy with its proposal for a European representative action, more predictable administrative fines and the emphasis on transparency obligations and private remedies, as acknowledged in the New Deal.27 Therefore, it is not surprising that the draft Better Enforcement Directive does not lead to drastic changes for Dutch consumer law. This does, however, raise the question why and in what way the proposals under the New Deal will radically impact on the compliance and enforcement of consumer law.

5 January 2019, 14 claims based on Art 3:305d Dutch Civil Code had been brought, all concerning package travel. 24 Kamerstukken II, 2016–2017, 34608, No 2. 25 eg the impact assessment accompanying the revised Consumer Protection Co-operation Regulation, SWD (2016) 164, and the draft Consumer ADR Directive COM (2011) 792. The draft Regulation for a Common European Sales Law, COM (2015) 634 7, refers to a 2016 survey by GfK Belgium that signals problems of non-enforcement. In the Agenda for European Consumers, COM (2012) 225, the Commission also concluded that enforcement should be strengthened. 26 COM (2011) 793. Art 26 draft Directive makes clear that a report on the application of the directive is not expected until July 2019. 27 COM (2018) 183 4.

‘Better’ Enforcement of EU Consumer Law  147

III.  Responsive Enforcement A.  Responsive Regulation and Enforcement Despite the weight that the European Commission appears to attach to ‘evidencebased policy’,28 the New Deal overlooks theories on enforcement, developed on the basis of Ayres and Braithwaite’s29 work on responsive regulation. Responsive regulation is aligned with the market structure, and the motivation and behaviour of market participants, and seeks to develop innovative responses. This form of regulation is developed on the basis of stakeholders’ problems. According to Ayres and Braithwaite,30 responsive enforcement should contain elements of co-operation – such as informing traders and consumers – and coercion – such as fines or receiving orders, to help prevent future breaches of consumer rights. Measures of co-operation should be used first, and, as breaches continue, heavier instruments of coercion should be used. Micklitz31 analyses a transformation of the enforcement of European private law, in which elements of responsive enforcement could be detected. Accordingly, disputes resulting from small breaches are resolved through alternative dispute resolution. Micklitz also signals a tendency towards centralisation: administrative enforcement plays an increasingly important role, CJEU case law becomes more developed and standardisation organisations are established.32 Responsive enforcement prioritises informal enforcement or mild sanctions for small offenders who are generally willing to comply with consumer law. This approach also considers market structures. As centralisation increases, the risk that authorities have less view on the motives and the behaviour of market players increases, which can stand in the way of responsive enforcement. The use of European contract law as an instrument to achieve policy aims is demonstrated in impact assessments33 that extensively but unconcinvingly34 argue that differences between national contract law form an obstacle to the further development of the internal market, which will be eliminated by harmonisation. Directives that form a central part of EU contract law, such as the Consumer Sales Directive and the UCTD, have also been evaluated on this basis: have these

28 See eg https://ec.europa.eu/info/policies/consumers/consumer-protection/evidence-based-consumerpolicy_en. 29 Ayres and Braithwaite (n 7) 4. 30 Ayres and Braithwaite (n 7) 5. 31 H-W Micklitz, ‘The Transformation of Enforcement in European Private Law: Preliminary Considerations’ (2015) 23 European Review of Private Law 491, 519. 32 Micklitz (n 31) 522. 33 See eg the impact assessment accompanying the draft Consumer Rights Directive, SEC (2008) 2544; the impact assessment accompanying the draft Package Travel Directive, SWD (2013) 263; less expressly the impact assessment accompanying the draft Digital Content Contracts Directive, SWD (2015) 274. The impact assessment supports full harmonisation. 34 See below n 36.

148  Esther van Schagen measures been efficient, effective, coherent and relevant, and what is their EU added value?35 Notwithstanding these impact assessments and evaluations, it can be doubted whether EU contract law is truly responsive. In particular, the shift towards full harmonisation does not seem to have been motivated by problems in everyday trade.36 Likewise, it is not self-evident that EU measures are necessarily aligned with legal views in the Dutch – or other national – legal orders, for example, Regulation 2018/302 on geoblocking. This Regulation obliges traders, especially those offering online services, to enter into contracts with consumers, and possibilities to escape this obligation are severely restricted. Remarkably, the Regulation does not create an obligation to deliver goods in Member States where the trader usually does not deliver goods,37 but if consumers agree with delivery in the traders’ Member State, the trader cannot refuse to enter into a contract because of the consumers’ residence. It seems that the obligation to deliver goods is regarded as more burdensome than the obligation to enter into a contract. However, once the trader has had to enter into a contract, there might well be an obligation for the trader to remedy incorrect installation or repair faulty goods. In contrast, at the national level, the obligation to enter into a contract is rightly considered more burdensome that the obligation to deliver a good. For traders of online electronic services, similar possibilities to escape contracts with consumers because those consumers are located in a particular Member State do not exist.38 Therefore, German literature has criticised this obligation as a disproportionate breach of the freedom of contract.39 It can in addition be doubted whether Dutch traders fully agree with the obligation to contract under the Regulation. In its response to the consultation preceding the Regulation, Detailhandel N ­ ederland reiterates possible reasons not to enter into a contract with consumers from specific Member States, for example if traders worry about potential fraud and expensive international payment systems.40

35 SWD (2017) 209. 36 See eg H-W Micklitz, ‘The targeted full harmonisation approach: Looking behind the curtain’, in G Howells and R Schulze (eds), Modernising and harmonising consumer law (Munich, Sellier, 2009) 62: ‘[m]y thesis is that the process of law-making, as characterised by the symbolic participation of stakeholders and a cacophony of viewpoints, facilitates to a large extent the European Commission’s opportunities to get its original ideas realized.’ cf WH van Boom, ‘The draft Directive on consumer rights: choices made and arguments used’ (2009) 5 Journal of Contemporary European Research 452, 455–57, who explains that, even if fragmentation was solely due to minimum harmonisation – quod non – it does not follow that minimum harmonisation is necessarily unsuccessful, as minimum harmonisation is intended to leave room for differentiation, based on socio-economic choices, that are ignored in the impact assessment. 37 See especially Art (1)(a) Geoblocking Regulation. 38 See, however, the exception for services under Art 2(2) and (3) Geoblocking Regulation. 39 See J Basedow, ‘Der Verordnungsentwurf zum Geoblocking – ein Trojanisches Pferd gegen die Vertragsfreiheit‘ (2016) 26 Europäische Zeitschrift für Wirtschaftsrecht 641, K Sein, ‘The draft Geoblocking Regulation and its possible impact on B2C contracts’ (2017) 6 Journal of European Consumer and Market Law 148. 40 Positie Detailhandel Nederland inzake aanpak ontoelaatbare geoblocking, available at https:// ec.europa.eu/digital-single-market/en/news/geo-blocking-public-consultation-contributions-

‘Better’ Enforcement of EU Consumer Law  149 In contrast, in the area of unfair terms, Dutch legal views seem largely in line with the directive. Prior to the adoption of the directive, a separate chapter of the new Dutch Civil Code on unfair terms had been drafted, which was largely in conformity with the UCTD. The then newly drafted rules on unfair terms were based on the idea that, even though the use of standard terms is economically efficient for traders, terms had developed that were detrimental, especially to the legal position of consumers. This was found to be contrary to the de facto autonomy of consumers,41 and, more generally, justice.42 The newly drafted rules were also preceded by an extensive democratic process, supported by a preliminary report and the advice of the Committee for Consumer Affairs (‘Commissie Consumentenaangelegenheden’), which analysed the problems arising from the use of unfair terms.43 This report, together with literature on principles of contract law, formed the basis for extensive debate in Parliament on Articles 6:230 et seq Dutch Civil Code.44 Even though the law on unfair terms has been developed in response to problems arising from the use of unfair terms in practice, it has not been enforced responsively. If the New Deal is any indication, enforcement will in the future also not be designed in a responsive manner. Two of the most conspicuous differences between the European Commission’s initiative and responsive enforcement appear to be, first, fundamental doubts on the deterrent effect of higher fines and more remedies, which is supposed to lead to fewer breaches of consumer rights. Meanwhile, the Commission overlooks stakeholders’ willingness to comply.45 Second, responsive enforcement emphasises the availability of a range of enforcement instruments, to be used gradually. The Commission’s previous emphasis on easily available dispute resolution mechanisms has resulted in a range of ill-coordinated remedies.

B.  Comparing Responsive Enforcement with the New Deal The Commission’s current initiatives for better enforcement presuppose, similar to earlier arguments for further harmonisation, that more remdies, higher fines

received-stakeholders at 2. It should be noted that the Regulation does not oblige traders to use payment systems that they do not already use. 41 cf JH Nieuwenhuis, Drie beginselen van contractenrecht (Deventer, Kluwer, 1979) 142–45. 42 eg J Hijma, Algemene voorwaarden (Deventer, Kluwer, 2016) 1. 43 EH Hondius, ‘Naar een wettelijke regeling van algemene voorwaarden’ (1979) 109 Handelingen der Nederlandse Juristen-Vereniging (Deventer, Tjeenk Willink, 1979) 91, 106 and following, Commissie Consumentenadvies, Advies inzake het vraagstuk van de toepassing van standaardvoorwaarden bij transacties met de consument (The Hague, Sociaal-Economische Raad, 1978). 44 See especially JH Nieuwenhuis, Drie beginselen van contractenrecht (Deventer, Kluwer, 1979) who considers party autonomy. 45 C Parker, ‘The “compliance” trap: the moral message in responsive regulatory enforcement’ (2006) 40 Law & Society Review 591, 602.

150  Esther van Schagen and more information for consumers will increase consumer confidence.46 In turn, consumer confidence should enhance cross-border trade. The absence of clear, deterrent sanctions has been a reason to doubt the suitability of private law as a regulatory instruement.47 However, the reasoning in the New Deal is doubtful. As Parker48 notes, the idea that higher penalties deter individuals from breaching the law is outdated. Hodges49 also finds that the effect of higher penalties on future behaviour is not supported by empirical findings. The claim that more enforcement leads to more compliance in addition overlooks experiences with administrative enforcement. For example, in March 2017, the European Commission requested that Facebook, Twitter and Google+ adapt their standard terms. Although the standard terms have adapted, not all requirments have been followed, the terms have become more complicated, and other parties have continued to use the very same terms that the European Commission objected to.50 The New Deal also does not address other reasons that may decrease enforcement and compliance. For example, consumer disputes are cases with small financial stakes, and it could be a rational and overall beneficial choice not to enforce one’s rights individually.51 Possibly, individuals might decide, in their own interest, not to enforce their consumer rights even if that would benefit society at large. Conversely, theoretically, consumers could choose to enforce their rights even if that is not in the public interest.52 In addition, if a consumer exercises his rights, this only affects the rights and duties of contract parties – the consumer and the trader.53 The claim that better private enforcement will lead to more consumer confidence, even if enforcement may remain invisible for consumers not involved in disputes, needs further support. More generally, the claim that better – or more – enforcement leads to more compliance and thereby more

46 SWD (2017) 209 76. 47 See eg H Collins, Regulating contracts (Oxford, Oxford University Press, 1999) 87, WH van Boom, Efficacious enforcement in contract and tort (The Hague, Boom Juridische Uitgevers, 2006) 17. The use of private law as a regulatory instrument still gives rise to disagreement; see eg J Kortmann, ‘The tort law industry’ (2009) 17 ERPL 789, 805. 48 Parker (n 45) 592. 49 C Hodges, Law and corporate behaviour.Integrating theories of regulation, enforcement, compliance, and ethics (Oxford, Hart Publishing, 2015) 702. 50 Almost a year later, the standard terms of Facebook, available at https://www.facebook.com/legal/ terms, accessed on 5 January 2019, contain a jurisdiction clause, while expressly excluding consumers living in the EU from its scope. The terms still contain an exoneration clause, but the terms also state that this is not an exclusion of limitation of liability insofar as this contradicts mandatory law. In the standard terms of LinkedIn, Instagram, Pinterest and new social media platforms such as Vero, jurisdiction clauses and arbitration clauses have been included. 51 G Wagner, ‘Private law enforcement through ADR: Wonder drug or snake oil?’ (2014) 51 CML Rev 165, 189 argues that consumers’ unwillingness to exercise their rights if they only suffer minor damages is a rational decision. The costs of individual enforcement may well exceed the overall benefits of doing sof or society. 52 F Weber and M Faure, ‘The interplay between public and private enforcement in European private law: Law and economics perspective’ (2015) 23 ERPL 525, 530. 53 CA Hage, Handhaving van privaatrecht door toezichthouders (Deventer, Kluwer, 2017) 31.

‘Better’ Enforcement of EU Consumer Law  151 consumer confidence should also be substantiated better. Notably, it is not clear whether initiatives such as Directive 2013/11 on consumer ADR has resulted in more enforcement54 or more cross-border enforcement.55 Furthermore, although the procedure by the Geschillencommissie is an easily accessible form of dispute resolution, which generally offers sufficient consumer protection, some of its decisions are not necessarily consumer-friendly and even contrary to mandatory law.56 One might ask whether this realistically fosters consumer confidence. Further, it can be doubted whether the initiatives under the New Deal are aligned to, for example, Dutch practice. It is unlikely that developing Guidance on the UCTD will meaningfully strengthen enforcement of the UCTD in the Dutch legal order, as Dutch civil judges hardly ever refer to guidance developed for other directives, such as the Guidance for the Unfair Commercial Practices Directive.57 Further, it is anything but self-evident that higher fines and more remedies will lead to fewer breaches of consumer rights and more consumer confidence, especially if remedies are not well aligned with consumers’ needs.58 This could also be the case in unfair terms law, where there is debate on the effects of the non-binding nature of unfair terms. It is not clear whether the non-binding nature of unfair terms entails that unfair terms are replaced by default provisions of national law.59 These questions have resulted in prejudicial questions to the CJEU.

54 In 2017, the number of cases handled by the Geschillencommissie decreased by 3.9%, see the annual report of the Geschillencommisise Consumentenzaken, available at https://www.samenwerkenaankwaliteit.nl/inhoud/jaarverslag-consumenten/evenveel-eindproducten-sgc-in2017-542/, last accessed on 5 January 2019. 55 According to the annual report of the Geschillencommissie for 2017, https://www.samenwerkenaankwaliteit.nl/inhoud/jaarverslag-consumenten/115-buitenlandse-klachten-behandeld-500, 115 cases were handled involving consumers living in other Member States. That is a slight increase compared to 2016, when 101 such cases were decided. The annual report traces the slight increase of cases to the adoption of Regulation 524/2013 on consumer online dispute resolution (ODR). Although 20 cases were registered via the online platform, the mandatory form to enter ODR was not completed in 16 of the 20 cases. See, for an overview (in Dutch), https://www.samenwerkenaankwaliteit.nl/ backend/wp-content/uploads/2018/05/Jaarrapportage-2017-ODR-dossiers.pdf. 56 Also CMDS Pavillon, ‘Geschillencommissie en dwingend recht’ (2015) 12 Tijdschrift voor Consumentenrecht 244–46. 57 From 2009 onwards, four cases have been published in which EU Guidance on consumer law are mentioned. District court North Holland 6 December 2017, ECLI:NL:RBNHO:2017:9995 expressly considers that the Commission’s Guidance on the interpretation of Regulation 261/2004 will not be weighed in the interpretation of the Regulation, as they are not binding. In previous cases, this court also did not consider guidance, even when invoked by parties, see District court North Holland 15 November 2017, ECLI:NL:RBNHO:2017:9520. District court North Holland 14 November 2017, ECLI:NL:RBNNE:2017:4420, does consider guidance in its decisions. Earlier, district court Utrecht 5 December 2012 ECLI:NL:RBUTR:2012:BY7842 also considered the Commission’s guidance in determining a case on product liability. 58 cf JWA Biemans, ‘Bergen van regelgeving en rechtspraak: kredietverstrekking aan consumenten’, in (2017) 31 Barmhartigheid in het burgerlijk recht, Preadviezen voor de Vereniging van Burgerlijk Recht (The Hague, Boom Juridische Uitgevers, 2017) 13, 82, who points out that a consumer who is overdebted will not gain much from avoiding or terminating the consumer credit contract. 59 cf AS Hartkamp, ‘Oneerlijke contractsbedingen in verband met hypothecaire uitwinning en gezag van gewijsde’ (2017) 10 Ars Aequi 827, 832; MBM Loos, ‘Algemene voorwaarden. Hof Den Haag 8 maart 2016’ (2016) 13 Tijdschrift voor Consumentenrecht 243, 245, who finds that the courts act contrary to

152  Esther van Schagen In Banco de Sabadell,60 the national court asked whether a clause s­ tipulating interest for delayed payment was unfair, and if so, whether this entails that the interest due on the basis of the clause is not owed at all, or whether the default interest rate applies. The draft Better Enforcement Directive does not offer clarity on questions of this sort. Thus, more enforcement does not necessarily lead to more compliance, and the New Deal does not address various reasons for non-enforcement. In some cases, easily accessible forms of dispute resolution might not necessarily foster consumer confidence. In addition, as the New Deal is not aligned with Dutch practice, the added value of the proposal for Dutch law and practice might be limited.

C.  Responsive Enforcement: Willingness to Comply and the Complexity of the Law According to Parker,61 enforcement strategies should be developed and applied in such a manner that they build on and contribute to internalisation of the norm, which should foster willingness to comply. The OECD62 also advises to distinguish between malicious offenders and offenders that are generally willing to comply. The current emphasis on deterrent effect, however, overlooks actors’ willingness to comply, which has also been reiterated by the Autoriteit Consument en Markt.63 However, is the complexity of the law also relevant for willingness to comply? Complexity can make it more difficult for private actors to ensure that their behaviour, or their standard terms, are in conformity with the law, and thereby make signalling and breaches of consumer rights more difficult. This is also true for unfair terms law, where there is uncertainty with regard to the unfairness of terms. In the Dutch legal order, traders can attempt to prevent that the standard terms that they use will be considered unfair by negotiating these clauses with the Consumentenbond, within the framework of the Sociaal-Economische Raad. At first sight, the law on unfair terms seems responsive: in line with the behaviour and motivation of market participants. However, mutually negotiated terms can be held unfair. This is in line with the wording of Article 6:233(a) Dutch Civil Code, which makes clear that the manner

the UCTD by applying Art 7:411 Dutch Civil Code. CMDS Pavillon, ‘Op de blaren zitten?’ (2018) 15 Tijdschrift voor Consumentenrecht 2, 5 doubts whether applying national default law is permitted. 60 Joined cases C-94/17 and C-96/16, Escobedo Cortés v Banco de Sabadell SA, EU:C:2018:643. 61 Parker (n 45) 592. 62 OECD, Best practice principles for regulatory policy: Regulatory enforcement and inspections (Paris, OECD, 2014) 12. 63 Auroteit Consument en Markt, Strategienota, 2014, available at https://www.acm.nl/sites/default/ files/old_publication/publicaties/11991_strategienota-acm-20140801.pdf, last accessed 5 January 2019, 9.

‘Better’ Enforcement of EU Consumer Law  153 in which terms are drafted is relevant in deciding whether terms are unfair, but this circumstance should, as such, not be decisive.64 As a result, it remains difficult to predict which terms will be found unfair. A clear example is Tio Teach/V,65 concerning a cancellation clause that was considered unfair, even though the trader had discussed this clause with the Autoriteit Consument en Markt and the Consumentenbond. A closer look at case law prior to Tio Teach learns that lower courts frequently upheld similar clauses. For example, the Court of appeal ­Amsterdam,66 the Court of appeal Den Bosch,67 and the Subdistrict court The Hague68 upheld a similar cancellation clause. The reasons to uphold these clauses vary. The Subdistrict court The Hague did not consider the argument, brought forward by the user, that the clause had been negotiated collectively, but did refer to Directive 2015/2302 on package travel that does not prohibit cancellation clauses and considered the possibility for consumers to insure themselves against cancellations. The court specifically considered the interest of the user of the clause. However, the District court Amsterdam69 found that a collectively negotiated cancellation clause was unfair, even though the trader had reiterated his interest in using the clause and his loss of income. Courts frequently consider the ‘grey list’ of clauses that are presumed to be unfair under Article 6:237 Dutch Civil Code,70 but some courts do not.71 Courts also rarely consider previous case law.72 The reasoning of the Geschillencommissie also differs. The Geschillencommissie frequently upholds cancellation clauses. The Geschillencommissie frequently considers the interest of users,73 but also the circumstances surrounding the conclusion of

64 See for a legal comparison on this point CMDS Pavillon, ‘Private standards of fairness in European contract law’ (2014) 10 ERCL 85–117. 65 Hoge Raad 27 October 2017, Nederlandse Jurisprudentie 2017, 421. Similarly, on a c­ ollectively negotiated cancellation clause district court Gelderland 1 June 2016, Nederlandse ­Jurisprudentie Feitenrechtspraak 2016, 332, and, on a collectively negotiated exclusion clause, falling within the scope of Art 6:237(f) Dutch Civil Code District court North Holland 20 December 2017, ECLI:NL:RBNHO:2017:10528 that also found a collectively negotiated clause unfair, but did not consider the trader’s argument that the clause was not unfair because it was collectively negotiated. See further on the case law regarding these clauses PTJ Wolters, ‘De toetsing van boetebedingen in de algemene voorwaarden. Consistentie in de lagere rechtspraak?’ (2017) 178 Rechtsgeleerd Magazijn Themis (3) 123–24. 66 Court of appeal Amsterdam 12 April 2016, ECLI:NL:GHAMS:2016:1419. 67 Court of appeal Den Bosch 25 July 2017, ECLI:NL:GHSHE:2017:3334. 68 Subdistrict court The Hague 18 January 2017, ECLI:NL:RBDHA:2017:409. 69 District court Amsterdam 24 October 2017, ECLI:NL:RBAMS:2017:7795. 70 District court Zeeland – West-Brabant 27 January 2016, ECLI:NL:RBZWB:2016:3506. 71 Court of appeal Amsterdam 12 April 2016, ECLI:NL:GHAMS:2016:1419. 72 However, the Court of appeal Den Bosch 25 July 2017, ECLI:NL:GHSHE:2017:3334, followed Court of appeal Den Bosch 13 December 2016, ECLI:NL:GHSHE:2016:5539. The court refers to three unpublished cases: Court of appeal Arnhem-Leeuwarden 3 February 2015, ECLI:NL:GHARL:2015:672, Court of appeal Arnhem-Leeuwarden 25 August 2015, ECLI:NL:GHARL:2015:6249 and Court of appeal The Hague 6 May 2014, ECLI:NL:GHDHA:2014:1487. 73 Geschillencommissie Travel, 6 April 2017, Case 108693, available at https://www.degeschill encommissie.nl/consumenten/uitsprakenoverzicht/108693/op-grond-van-artikel-12-onder-2-sub-ais-bij-eigen-vervoerreizen-naar-wooneenheden-als-een-bungalow.

154  Esther van Schagen the contract.74 The Geschillencommissie generally does not consider ­previous decisions, as not all decisions are published, and does not consider the circumstance that terms have been collectively negotiated.75 Similarly, the Geschillencommissie on occasion neglects to refer to Article 6:237(i) Dutch Civil Code, which stipulates that cancellation clauses are presumed to be unfair unless they do not exceed a reasonable compensation for the trader’s loss of profit.76 Thus, case law and the decisions of the Geschillencommissie demonstrate that it is difficult for traders and consumers to predict which clauses will be unfair, even if they have tried to prevent the use of unfair terms. It is similarly problematic to foresee for what reasons clauses will be held unfair. This makes it more difficult for traders to adjust their standard terms, in order to ensure that these terms comply with the UCTD. In other words, self-regulation decreased complexity only to a limited extent. The collective negotiation of clauses gives the impression that market participants agree that the use of unfair terms should be prevented and actively co-operate in preventing the use of unfair terms. However, there is disagreement on the question when a term is unfair, as evidenced by the failed negotiations on clauses for non-food retail (‘CBW-voorwaarden’, specifically for in-home non-food retail).77 Even if actors co-operate to prevent the use of unfair terms, this does not mean that Dutch self-regulation is not based on negotiations, whereby contract parties pursue their own interests. Consequently, even if parties have agreed on collective clauses, this does not guarantee that those clauses are fair. After all, parties may agree to a clause that is not in consumers’ favour, in return for other clauses or conditions to the benefit of consumers. The complexity of the law may explain the continuing use of unfair terms, insofar as it is difficult to forsee which clauses are unfair. Yet the complexity of the law does not explain the widespread use of clauses that are clearly unfair. For example, exoneration clauses and cancellation clauses have been included in the grey list in Article 6:237 Dutch Civil Code and the blue list in the Annex to the UCTD, but their use remains widespread.78 Self-regulation has also not 74 Geschillencommissie Wedding Fashion 30 August 2017, Case 111296, available at https:// www.degeschillencommissie.nl/consumenten/uitsprakenoverzicht/111296/annuleringsbe paling-algemene-voorwaarden-is-in-dit-geval-onredelijk-bezwarend. 75 Generally, competence of the Geschillencommissie is based on the collectively negotiated clauses. 76 Geschillencommissie Travel, 6 April 2017, case 108693, available at https://www.degeschillen commissie.nl/consumenten/uitsprakenoverzicht/108693/op-grond-van-artikel-12-onder-2-sub-ais-bij-eigen-vervoerreizen-naar-wooneenheden-als-een-bungalow and Geschillencommissie Travel 27 November 2017, case 112291, available at https://www.degeschillencommissie.nl/consumenten/uits prakenoverzicht/112291/verschil-van-mening-omtrent-al-dan-niet-gedane-toezegging-van-eenkosteloze-annulering. 77 See https://www.inretail.nl/vraag-en-antwoord/Consument-en-voorwaarden/12-antwoorden-opvragen-over-de-nieuwe-cbw-erkend-woonvoorwaarden/. 78 Cancellation clauses: for many eductional courses, such clauses are included, see eg Scheidegger Opleidingen, Art 6(3)(d), available at https://www.scheidegger.nl/Scheidegger/media/Scheidegger/ Pagina%20content/Algemene-voorwaarden-Scheidegger_1.pdf, and an identical clause can be found for the NCOI, see https://image.opleidingsgroep.nl/static/media/ncoi/ncoi/algemene-voorwaardenncoi.pdf. Likewise, the LOI has incorporated a cancellation clause in Art 12(1)(d) of its terms and

‘Better’ Enforcement of EU Consumer Law  155 resulted in ‘over-compliance’, in this case clauses that are formulated clearly to strengthen consumers’ legal position. Possibly, despite the use of self-regulation, the norm that clauses should be fair has only been internalised partially. Thus, the development of self-regulation does not necessarily guarantee that actors are willing to fully comply, especially where it concerns open norms, prescribing the use of ‘fair’ clauses. If the rule prohibiting unfair terms has only partially been internalised, it can be doubted whether guidance as proposed by the European Commission, or more active enforcement by the ACM, will result in more compliance. Parker79 points out that if actors find a rule unfair, this undermines compliance in the long term. In addition, such actors may try to influence ‘unreasonable’ rules, for example through lobbying at the national or European level. In the area of unfair terms, this could mean that mutually negotiated terms are negotiated in such a manner that minimises the advantages to consumer protection. Further, if private actors are involved in the development of guidance they may, for example, emphasise the widespread use of terms, suggesting that these terms are widely accepted and not unfair.

D.  Problems for Responsive Enforcement: A Range of Sanctions and Concurrence According to Ayres and Braithwaite,80 enforcement should contain both elements of coercion and co-operation. Measures based on co-operation should be used first, and, if non-compliance continues, more coercive measures should be used. This approach requires that enforcement authorities have a range of available sanctions, which they can use as they choose. Currently, the Autoriteit Consument en Markt

conditions, available at https://www.loi.nl/voorwaarden. Cancellation clauses are also frequently used in other sectors, see for interior architecture eg Art 12 CBW terms and conditions (collectively negotiated), available at www.cbw-erkend.nl, as well as Arts 9.2 and 9.3 ANVR-voorwaarden (travel contracts, collectively negotiated terms), available at https://www.anvr.nl/consumentenvoorwaarden. pdf. Exoneration clauses are also frequently used, see eg for energy contracts Art 17 of Enexis, available at https://www.enexis.nl/Documents/algemene-voorwaarden/Algemene%20voorwaarden%20G%20 en%20E%20consumenten%20Internet.pdf, as well as the limitation clause in Art 17 of Nuon, available at https://www.nuon.nl/media/service/downloads/algemene-voorwaarden/algemene-voorwaarden8-5065.pdf. Art 14.1 of the terms and conditions of KPN for a mobile phone subscription limits liability, as does Art 7 of the terms and conditions, available after filling in a Dutch postcode and house number, see https://www.ziggo.nl/pdf/voorwaarden/1706027%20Algemene%20voorwaarden%20Ziggo%20Services%20BV_%20vanaf%201juli2017.pdf. Art 15 of the terms and conditions of Mediamarkt (electronic supply store) for contracts concluded in the store contains an exclusion of all liability, insofar as this is allowed by mandatory law, see http://www.mediamarkt.nl/static/av/Algemene%20Verkoopvoorwaarden.pdf. Art 74 and 76 of the terms and conditions for a basic account of ING also contain exclude liability, for malfunctioning machines, see https://www.ing.nl/media/ING_­ voorwaarden-en-overige-regelingen_tcm162-38817.pdf. All links last accessed on 5 January 2019. 79 Parker (n 45) 592–93. 80 Ayres and Braithwaite (n 7) 5.

156  Esther van Schagen does have a range of possible actions to choose from if a trader does not comply with consumer law: an informal interview (‘normoverdragend gesprek’), a warning, and information campaigns for consumers. In addition, market participants may choose to negotiate standard terms collectively, representative associations or foundations may bring a collective claim, and consumers can individually enforce their rights. The European Commission has sought to facilitate access to dispute resolution for consumers, and aims to increase such access with its proposal for representative actions. At the national level, the possibility to bring a collective claim already exists. However, not all these instruments are used gradually, epecially not forms of individual enforcement. There is no support for the general claim that consumers, in their choice whether or not to enforce their rights, take into account that the trader is a well-meaning trader with little experience, or whether the trader persistently refuses to comply with consumer law, if they are even aware of the trader’s background. Therefore, not all means of enforcement are used gradually, depending on the nature and seriousness of violations of consumer rights, and the trader’s history of (non-)compliance. The emphasis on enforcement, and easily accessible dispute resolution mechanisms, does not mean that decsions originating from the various possible forms of dispute resolution mechanisms are well coordinated by the European legislator. For example, questions on concurrence between individual and collective claims have arisen. Currently, Article 6:243 Dutch Civil Code, which has to be applied ex officio unless the consumer chooses not to invoke the unfairness of terms, stipulates that clauses that have been prohibited because they are held unfair in collective proceedings, will be found unfair without individual evaluation, if the user against whom the judgment has been given continues to include these terms in his contracts. This provision does not address what happens if individual proceedings are brought before collective claims on the basis of Article 6:240 Dutch Civil Code are decided. Because the abstract evaluation on the basis of Articles 6:240 and 3:305a Dutch Civil Code differs from the individual evaluation of clauses under Article 6:233(a) Dutch Civil Code, it is possible that a clause is upheld after a collective claim has been brought, while the very same clause is held unfair in indivdual cases. Problems may arise if a clause is declared unfair on the basis of Article 6:240 Dutch Civil Code, while the same clause, used by traders who were not part of collective proceedings, is upheld in individual cases.81 Individual proceedings will, as a rule, also not be suspended because a collective procedure is pending. This does not seem contrary to EU law, as the Court found in Sales Sinues82 that a rule suspending individual proceedings in order 81 Similarly CMDS Pavillon, ‘De derdenwerking van collectieve acties tegen onredelijke bedingen in het licht van de Europese rechtspraak’ (2016) 13 Tijdschrift voor Consumentenrecht 160, 164. 82 Joined cases C-381/14 and C-385/14, Sales Sinués v Caixabank SA; Drame Ba v Catalunya Caixa SA (Catalunya Banc SA), EU:C:2016:252.

‘Better’ Enforcement of EU Consumer Law  157 to await the outcome of collective proceedings was contrary to the effective ­protection of consumers. In Sales Sinues83 the Court referred to Banif Bank,84 in which it ruled that consumer protection may also entail that a consumer chooses to not invoke consumer protection. This seems in line with Invitel,85 where the Court decided that a judicial decision could have an erga omnes effect in favour of the consumer – but apparently, this was not mandatory. However, if a European representative action is established, conflicts may become apparent: how much room does a decision following a European representative action on the fairness of cancellation clauses leave for national judges to uphold such cancellation clauses in idividual cases?

E.  A Difficult Transformation towards Responsive Enforcement The New Deal is based on various claims that lack support. The widespread use of collectively negotiated clauses86 seems to indicate that traders are willing to use terms that are not unfair. There is less clarity on traders’ willingness to comply with the obligation to make standard terms available. Traders may well choose to do so electronically, especially if this seems to be permitted. The uncertainty, both with regard to the obligation to make standard terms available and with regard to the possible unfairness of clauses, may increase the chance that ­traders, in good faith, use unfair terms that have not been made sufficiently available to consumers. Even if a cancellation clause is found unfair in individual cases – such as Tio Teach – the nature of the individual evaluation of clauses under Article 6:233(a) Dutch Civil Code entails that the same clause is not necessarily unfair in other cases. For example, the clause in Tio Teach stipulated full payment was due if the contract, for the duration of a year, was cancelled after a specifc date. What if it concerns a contract for education for a shorter duration, or if cancellation depends on other circumstances – is a course fully booked and can a trader easily find another student to follow the course? In these cases, it does not seem likely that increasing fines and more remedies will be an incentive for traders to reconsider the use of cancellation clauses. In contrast, it is possible to explore (further) increasing traders’ willingness to comply. The New Deal, however, does not consider possibilities to do so. The emphasis on more remedies and the assumption that higher fines will have a deterrent effect overlooks insights from responsive enforcement that have 83 Joined cases C-381/14 and C-385/14, Sales Sinués v Caixabank SA; Drame Ba v Catalunya Caixa SA (Catalunya Banc SA), EU:C:2016:252 [25]. 84 Case C‑472/11, Banif Plus Bank Zrt tegen Csaba Csipai en Viktória Csipai, EU:C:2013:88 [35]. 85 Case C-472/10, Fogyasztóvédelmi Hatóság v Invitel Távközlési Zrt, EU:C:2012:242. 86 See for an overview https://www.ser.nl/nl/taken/consumentenvoorwaarden/algemene_­voorwaarden. aspx.

158  Esther van Schagen been acknowledged by the OECD and the Autoriteit Consument en Markt. Dutch ­self-regulation in the area of unfair terms indicates that stakeholders are willing to explore, through negotiations, what terms are fair or unfair.

IV.  Recommendations for Responsive Enforcement Responsive enforcement, in line with the recommendations from the OECD and the Autoriteit Consument en Markt, underlines the importance of stakeholders’ willingness to comply and the availability of a range of sanctions. It reiterates the importance of ensuring that enforcement is aligned with market structures and market participants. In contrast, the New Deal assumes that enforcement leads to more compliance, but overlooks willingness to comply and does not consider the gradual use of means of enforcement. Doing so would arguably be problematic, as private enforcement is generally not used gradually, nor is it used in a manner coordinated with administrative enforcement. Dutch self-regulation, while widespread, has not prevented complexity, which seems to follow from the necessarily ambiguous prohibition on ‘unfair’ terms. Compliance, and attempts to ensure compliance, are made more difficult to foresee which clauses are unfair. Nevertheless, it is likely that Dutch self-regulation has resulted in fewer unfair clauses. Also, private enforcement may prompt traders to adapt their terms.87 If actors are willing to comply, but are not sure of their obligations, exchanging information can be a valuable means to reduce complexity, and increase compliance. Accordingly, the New Deal does propose educating SMEs and courts,88 but the exchange of information between national and EU authorities is not considered. However, it is crucial that the Autoriteit Consument and Markt becomes extremely well-informed on the question of what terms are potentially unfair. After all, the Autoriteit should not mistakenly warn traders or consumers that particular terms are unfair or, to the contrary, assure traders that terms are fair when they are not. The importance of exchange of information between all relevant actors has also been highlighted by Hodges,89 who considers the exchange of information as a necessary phase of decision making. He also notes the importance to comprehend reasons for non-compliance. Accordingly, in the Dutch legal order, co-operation and the exchange of information between the Autoriteit Consument en Markt and the Geschillencommissie has been based on a ‘Co-operation Protocol’ (‘Samenwerkingsprotocol’),90 which could perhaps be extended further.91 87 eg, the fine in Art 5.9 of the terms and conditions of Q-Park has been mitigated from €1,000 to €300, see https://www.q-park.nl/nl-nl/algemene-voorwaarden/parkeren/, last accessed 1 May 2019. 88 SWD (2017) 209 85–86. 89 Hodges (n 49) 704. 90 Staatscourant 38536, 26 July 2016. 91 It is not clear how much information is exchanged, via what channels, or what form this co-­operation will take if and/or when the budget for the Geschillencommissie is cut.

‘Better’ Enforcement of EU Consumer Law  159 The New Deal also does not improve the coordination between mechanisms, even though CJEU case law demonstrates that questions on concurrence remain. Therefore, the New Deal fails to facilitate the gradual use of enforcement mechanisms. However, the gradual use of these instruments is crucial to building, rather than undermining, actors’ willingness to comply. Theoretically, if well-meaning actors mistakenly use an unfair clause in their contracts, they may perceive drastic sanctions and high fines as unfair, and avoid co-operating with enforcement authorities in the future. Rather than asking whether particular terms are unfair, via positive ex ante enforcement, traders may begin to avoid informing authorities on dubious clauses they perceive as fair, in order to avoid sanctions. Nevertheless, the complexity of the law and the lack of coordination between enforcement instruments do not completely explain non-compliance. Thus, unfair clauses continue to be widely used.92 The repeated use of unfair terms in the Dutch legal order, together with failed negotiations, may indicate that private actors do not always agree on the question of what, specifically, is an unfair term. Insofar as the prohibition on the use of unfair terms has not been internalised, policy should target increasing actors’ willingness to comply. However, if the prohibition on unfairness has only partially been internalised, problems for responsive enforcement could develop. Parker93 points out that if actors consider a rule, or its interpretation – such as what exactly is an unfair term in the sense of Article 6:233(a) Dutch Civil Code – unreasonable, this may undermine compliance in the long run. Parker draws attention to the ‘compliance trap’. This trap becomes relevant if authorities develop policy to enhance compliance. They can focus on ‘soft’ instruments – such as exhanging information, which do not, however, necessarily lead to more compliance, if actors do not agree with the information they receive. Farther-reaching policy may, however, undermine the position of authorities, especially if actors find that the obligations imposed on them are unfair. For unfair terms law, this may for example mean that traders find the viewpoint of the Autoriteit Consument en Markt on fair terms ‘too strict’. This may be the case if the Autoriteit Consument en Markt deems collectively negotiated clauses unfair, and urges users of these clauses to stop using some of these clauses. In particular, if clauses have been negotiated collectively, actors might choose to co-operate less with the Autoriteit Consument en Markt. Traders might also consider relying less on the Autoriteit Consument en Markt if they have been informed incorrectly on the fairness of terms. Thus, arguably, enforcement policy that exerts more pressure on traders to use fairer terms may be undermined if the Autoriteit Consument en Markt mistakenly provides incorrect information. Therefore, the complexity of the law may make farther-reaching enforcement intiatives more challenging. Traders could also, for example, try to lobby against the monitoring of collectively negotiated clauses. It is possible that actors might also try to circumvent the



92 See

above (n 78). (n 45) 592–93.

93 Parker

160  Esther van Schagen prohibition on the use of unfair terms, for example by lobbying at the European level, as guidance on the interpretation of the UCTD is developed. Enforcement authorities cannot escape the compliance trap without external, political support. Therefore, prior to developing enforcement policy, such support should be considered. In the Dutch legal order, general political support for easily accessible dispute resolution can be found.94 Clearer support can be found in Dutch case law, especially Tio Teach/V, which makes very clear that collectively negotiated clauses can be held unfair. At the European level, political support can be found in the shape of revised Regulation 2017/2394, entering into force in 2020, which extends enforcement authorities’ competences. Dutch case law in particular and the revised Consumer Protection Co-­operation Regulation could support more active supervision on collectively negotiated clauses – for example, possibilities to periodically screen collectively negotiated clauses for possible unfairness in the light of national or EU case law. Clauses included in the grey and ‘blue’ European list should be critically considered. Further, the relevance of the blue and grey lists could be promoted by more systematic supervision on widespread but problematic clauses such as limitation clauses and cancellation clauses as included in these lists. Signalling the use of such and other potentially unfair terms could be faciliated by the use of algorithms.95 The proposals for better enforcement should pay more attention to actors’ willingness to comply. The use of self-regulation has likely prevented the use of unfair terms in the Dutch legal order, but even if self-regulation is well established, disagreements on the fairness of terms have been detected. Before exerting pressure on actors to develop terms that are more consumer-friendly, enforcement authorities should consider whether sufficient external support exists for doing so, in order to avoid the ‘compliance trap’.

V.  An Integrated Approach Better enforcement will not necessarily be achieved by providing consumers, SMEs and judges with more information, or by providing consumers with more remedies, imposing higher fines on breaches of EU consumer law or by establishing a European representative action. The New Deal does not seem to be well

94 Kabinet, Vertrouwen in de toekomst, Regeerakkoord 2017–2021 VVD, CDA, D66 en ChristenUnie, 10  October 2017, available at https://www.kabinetsformatie2017.nl/documenten/publicaties/ 2017/10/10/regeerakkoord-vertrouwen-in-de-toekomst at 5, last accessed on 5 January 2019, announed ‘innovative legislation that offers room for the judiciary to experiment with simplified procedures that help parties come to an agreement rather than escalate conflicts’, as well as extending the scope of extrajudicial dispute resolution. 95 See further M Lippi and others, ‘Automated Detection of Unfair Clauses in Online Consumer Contracts’ in A Wyner and G Casini (eds), Legal Knowledge and Information Systems (Amsterdam, IoSPress, 2017) 145–52.

‘Better’ Enforcement of EU Consumer Law  161 thought out, and does not seem to be aligned to problems that consumers have faced when attempting to enforce their rights. The initiatives for better enforcement build on existing policy and do not lead to radical changes for Dutch unfair terms law. Consequently, it is not clear why and in what manner the initiatives should drastically enhance enforcement and compliance. The Commission has failed to take into account insghts on responsive enforcement, as acknowledged by enforcement authorities. Specifically, the proposals fail to weigh actors’ willingness to comply, and the gradual use of enforcement instruments. Willingness to comply could, however, be important for the impact of enforcement initiatives. Such a willingness to comply can be detected in Dutch initiatives for self-regulation, and has likely contributed to the use of less unfair terms. However, the law on unfair terms is complex, which may make detecting the use of unfair terms more complicated, as well as positive, ex ante enforcement initiatives in the form of awareness raising and collective negotiations. If actors are willing to comply, but are not sure of the extent of their obligations, the exchange of information, as also proposed under the New Deal, could contribute to more compliance. In addition, it could strengthen positive ex ante enforcement. However, the complexity of the law does not explain the repeated use of clauses that are clearly potentially unfair. So far, the complexity of the law has also not resulted in overcompliance. Insofar as non-compliance can be attributed by disagreement of private actors with their specific obligations, more active supervision and monitoring of potentially unfair terms could be developed. However, external support for such policies should be available, to avoid a compliance trap. Possibly, actors may seek to avoid compliance by co-operating less with the Autoriteit Consument en Markt, or by trying to exempt collectively negotiated clauses from evaluations. A possible ‘compliance trap’ does not seem to be sufficiently addressed by EU initiatives for self-regulation and guidance. Self-regulation developed under supervision of the Commission also does not equal responsive regulation or more compliance. After all, Dutch law and practice on unfair terms makes clear that the development of even well-established self-regulation does not necessarily equal responsive regulation. Especially where it concerns open norms, disagreement on actors’ exact obligations may remain. Further, if actors perceive that the obligations of traders under the revised UCTD are unreasonable, they may seek to circumvent or influence their obligations, for example by demonstrating via cross-border self-regulation that among traders, agreement on the fairness of terms exists. Similarly, private actors may – successfully or unsuccessfully – attempt to influence rules developed through guidance. It is not clear whether the guidance will limit itself to codification or whether more ambitious clarification will be attempted. However, the lack of transparency in the development of guidance makes it difficult to ensure that actors are not overly involved in the drafting of these rules, which, in turn, may make these rules an attractive target for lobbying. More generally, the question arises how a causal relationship between the New Deal and more cross-border trade can be established. How will the Commission

162  Esther van Schagen evaluate the success of measures – if adopted – under the New Deal, and on the basis of what arguments? If the Commission concludes that the development of the internal market stays behind, if compared to domestic markets or the US market, will this be a reason to critically consider the suitability of ADR to increase consumer trust, or to explore alternative ways to strengthen market participants’ willingness to comply with EU law? Or will this form a reason to further centralise the enforcement of EU consumer law?

8 European Standardisation and the Unfair Contract Terms Directive BAREND VAN LEEUWEN*

I. Introduction In May 2017, the Commission published the fitness check of consumer and marketing law.1 One of the instruments that was reviewed was the Unfair Contract Terms Directive (UCTD).2 The UCTD enables courts to review the fairness of contract terms in contracts between businesses and consumers. In general, the fitness check was positive about the functioning of the UCTD, but it also recognised a number of areas of improvement. The aim of this chapter is to analyse whether and to what extent European standardisation could play a role in re-thinking the functioning and enforcement of the UCTD. European standardisation is not new to the EU: it became prominent in the 1980s with the establishment of the New Approach in the field of technical harmonisation and standards.3 Under the New Approach, European standards lay down the specific technical requirements with which goods have to comply, while the legislation only provides for the general safety requirements. The question that this chapter will address is whether European standards could also play a similar role under the UCTD. Could European standards be used to define in more detail what kind of contract terms should be regarded as unfair – or possibly as fair – under the UCTD? Should the model of the New Approach be copied to the UCTD? * Assistant Professor in EU Law, Durham University, United Kingdom. I am grateful to the participants of the ‘Expert Round Table on Impact Assessments in European Contract Law’, organised at the University of Oxford in November 2017, for the comments and discussions. This chapter is based on and develops the arguments in my recent book: B van Leeuwen, European Standardisation of Services and its Impact on Private Law (Oxford, Hart Publishing, 2017). 1 Commission Staff Working Document, ‘Report of the Fitness Check on EU consumer and marketing law’ SWD (2017) 208 final. 2 Directive 93/13/EEC on unfair terms in consumer contracts. 3 Council Resolution on a new approach to technical harmonisation and standards (85/C136/01).

164  Barend van Leeuwen After a comparison of the role of European standardisation under the New Approach and under the UCTD, the chapter will argue that European standardisation is not a suitable regulatory tool to play a supplementary role to the UCTD. The main reason is that the focus of European standardisation is on technical and quality issues, while the focus of the UCTD is on the more legal concept of unfair contract terms. The European standardisation organisations do not have the legal competence to adopt this kind of standard. Moreover, the role of European consumer associations in the European standardisation process should be much more dominant to create a level playing field in the process leading to the adoption of European standards. If this does not happen, the consumer protection dimension would not be sufficiently protected in European standardisation. The argument in this chapter will develop in four steps. First, a general introduction to European standardisation will be provided. How does the standardisation process work, and what is the status of a European standard? Second, it will be shown how the EU has decided to regulate European standardisation and how it has integrated European standardisation in its regulatory approach to goods with the adoption of the New Approach. Third, a link will be made between European standardisation and the UCTD. It will be argued that European standards are not normally made or used as standard contract terms. Nevertheless, in principle, there is nothing that prevents them from being reviewed under the UCTD if they are applied as standard terms. Fourth and finally, a more positive perspective on the interaction between European standardisation and the UCTD will be adopted. This section will analyse to what extent European standardisation could realistically be used to help to define the concept of fairness or unfairness under the UCTD.

II.  A Short Introduction to European Standardisation Standardisation is a term which is regularly used, and which can have different meanings in different contexts. For that reason, it is important first of all to explain what kind of European standardisation this chapter focuses on. Standardisation is about the making of voluntary standards for products and services.4 These standards can be of all different kinds: technical standards, quality standards or quality management system standards. Historically, standardisation was primarily used for products. It enabled manufacturers to agree on a common set of technical product standards which were used in the manufacturing process. The main aim of the standardisation process was to achieve technical compatibility of products.5 At the same time, quality has always been an important focus of standardisation too. However, the initial focus of standardisation was primarily 4 See, for more background, K Blind, The Economics of Standards: Theory, Evidence and Policy (Cheltenham, Edward Elgar, 2004). 5 See H Schepel, The Constitution of Private Governance (Oxford, Hart Publishing, 2005).

European Standardisation and the UCTD  165 on quality management systems – standards which provided for systems which enabled manufacturers or service providers to guarantee that their products or services were of a sufficient quality. These standards were still very technical. More recently, standardisation organisations have started to develop quality standards for products or services.6 These standards lay down a number of quality standards with which goods or services have to comply. They can subsequently be used for certification. Certification bodies can ‘certify’ that manufacturers comply with a particular standard – they might receive a certain ‘label’ or ‘quality mark’.7 This sign of recognition does not necessarily have direct legal consequences for consumers (that is, they cannot directly expect compliance with the standard), but it can be an important marketing tool for manufacturers and service providers.8 Standardisation can take place at different levels: the main levels are the national level, the European level and the international level. National standards are made by national standardisation organisations, such as BSI in the United Kingdom, DIN in Germany and NEN in the Netherlands. These organisations facilitate the making of standards at the national level. Most of them have a much longer history than the international and European standardisation organisations. ISO is the main international standardisation organisation, where standards are made at the international level. After an ISO standard has been adopted, the national standardisation organisations can implement this international standard as a national standard. However, they are under no obligation to do so. The main European standardisation organisation is CEN. CEN is a relatively new organisation – it was established as recently as in 1975. A total of 34 national standardisation organisations are a member of CEN.9 The main aim of its establishment was to assist national standardisation organisations in implementing international standards at the national level. At the same time, it provided an opportunity for national standardisation organisations in the EU to adopt standards which could not realistically be adopted at the international level. Moreover, as will be discussed in detail below, there is a close link to the EU and the functioning of the internal market. With the adoption of the New Approach, CEN became an important player in improving the functioning of the internal market. Standards adopted by CEN are to be implemented at the national level by the national standardisation organisations.10 Furthermore, once CEN has started a standardisation process in a particular field, national standardisation organisations can no longer adopt national standards on that topic. If there are any on-going standardisation processes at the national level, these processes have to be stopped. This is the so-called ‘standstill obligation’.11 6 B van Leeuwen, European Standardisation of Services and its Impact on Private Law (Oxford, Hart Publishing, 2017), ch 3. See also P Delimatsis, ‘Standardisation in Services: European Ambitions and Sectoral Realities’ (2016) 41 EL Rev 513. 7 See J Belson, Certification and Collective Marks: Law and Practice (Cheltenham, Edward Elgar, 2017). 8 H Schepel and J Falke, Legal Aspects of Standardisation of the EC and EFTA, Volume 1: Comparative Report (Luxembourg, Office for Official Publications of the European Communities, 2000). 9 The 34 members of CEN are the standardisation organisations of the 28 Member States of the EU, North Macedonia, Serbia, Turkey, Iceland, Norway and Switzerland. 10 Art 6.3 CEN Internal Regulations Part 2: Common Rules for Standardisation Work, July 2018. 11 Art 11.2 CEN Internal Regulations Part 2: Common Rules for Standardisation Work, July 2018.

166  Barend van Leeuwen The focus of this chapter is on European standards developed by CEN. After the institutional perspective above, the next question is how European standards are made, and by whom. Initiatives for a European standard have to be submitted through one of the national standardisation organisations. After a national standardisation organisation has presented the proposal to CEN, all national standardisation organisations have to vote on whether they are in favour of the adoption of a standard in that field. If a (qualified) majority of the standardisation organisations votes in favour of the proposal, a European standard will be developed by CEN.12 CEN will form a ‘technical committee’ which will work on the development of the standard. This committee consists of representatives of each of the national standardisation organisations. At the national level, the E ­ uropean standardisation process is followed by ‘mirror committees’ of the national standardisation organisations. These mirror committees send representatives to the technical committee at CEN. At such, there is constant interaction between the national and the European level. The membership of the technical committee and the national standardisation committees is open to all parties who are interested in participating in the standardisation process. These parties will have to pay the costs of participating in the process to the national standardisation organisations. As a result, it is easier for large businesses and associations to participate in European standardisation than for SMEs or NGOs.13 Furthermore, it is not automatically possible to define European standardisation as self-regulation or co-regulation. The nature of the European standardisation process very much depends on the parties that are involved in the standardisation process. If there is significant input of public authorities in the standardisation process, it can be defined as ‘co-regulation’. However, there is no requirement for public bodies to be involved in European standardisation. It is also possible for a standard to be developed exclusively by the businesses in a particular sector. For such examples of European standardisation, the label ‘self-regulation’ would be more appropriate. As we will see below when we look at the New Approach, the self-regulatory or co-regulatory dimension of the standardisation process is also directly linked to the intended use of a European standard. If a standard has been developed at the initiative of public bodies, it is likely that these public bodies intend the standard to play a role in the public regulatory framework for goods or services. Standards that are developed at the initiative of private parties are not usually intended to play a role in public legislation or regulation. Such standards are more likely to be used for certification, which is one of the main mechanisms for European standards to be given legal effect by private parties. During the standardisation process, both the technical committee at the ­European level and the national mirror committees meet in private. This is

12 See Resolution BT C75/2009. 13 On the representatives of European standardisation, see also M Egan, Constructing a European Market: Standards, Regulation and Governance (Oxford, Oxford University Press, 2003).

European Standardisation and the UCTD  167 an important characteristic of the standardisation process: it is completely ­confidential.14 There is no public access to the deliberations or to the materials that are being relied on in the standardisation process. Similarly, it is not possible for outsiders to find out which parties are involved in the standardisation process. The fact that public parties – such as national ministries or public authorities – are participating in the standardisation process does not have an impact on the confidential nature of the process. The only moment where the standardisation process is not confidential, and where there is some communication with the public, is when the parties have agreed a first draft of the standard. At this point, the draft standard is made available to the general public, who can make their views on the draft known to the national standardisation organisations. The technical committee has to respond to these comments and has to take them into account, but it is under no obligation to make changes to the standard. In the standardisation process itself, decisions are taken on the basis of consensus. This means that the parties try to reach agreement on the substantive provisions of a standard without having to vote. The objective is to reach unanimous agreement on the provisions of a standard. However, in practice, voting plays an important role in the European standardisation process.15 CEN has developed very elaborate voting requirements. Once the public comments have been processed and the final draft is ready, the technical committee has to vote on the standard. Each national standardisation organisation gets one vote – the number of votes is not dependent on the number of parties involved in the standardisation process. At least 55 per cent of the votes cast have to be in favour of the proposal – it is possible to abstain – and the population of the national standardisation organisations who have voted in favour has to reach 65 per cent of the total population of all national standardisation organisations who voted.16 If these two conditions are fulfilled, the European standard is adopted. Once a European standard has been adopted, it has to be implemented by all national standardisation organisations as a national standard – not too dissimilar from the implementation of a directive in national law. The standard itself becomes a product which can be bought from the national standardisation organisations. It is not freely available and the price is determined on the basis of the number of pages of the standard.17 The copyright in the standards is held by the national standardisation organisations. As a result, it is not possible for the public to get to know the provisions of a European standard without buying the standard. Again, this makes it easier for larger businesses and organisations to acquire and ­implement European standards. The fact that a European standard has been adopted does not directly create a link between standardisation and law. A ­European standard 14 See Van Leeuwen (n 6), 63–64. 15 Van Leeuwen (n 6), 58–60. 16 Art 6.2 CEN Internal Regulations Part 2, July 2018. 17 Art 9 CEN Internal Regulations Part 2, July 2018. See also R van Gestel and H Micklitz, ‘European Integration through Standardisation: How Judicial Review is Breaking Down the Club House of Private Standardisation Bodies’ (2013) 50 CML Rev 145.

168  Barend van Leeuwen is in principle a non-binding ‘soft law’ instrument. As we will see below, it is open to public authorities – and this includes the EU – or private parties to decide to provide binding legal effect to a standard. However, the sole fact that a European standard has been adopted does not automatically have an effect in law.

III.  European Standardisation in EU Law In the 1970s and early 1980s, the EU encountered problems in improving the functioning of the internal market. In particular, the desired development from negative integration – relying on the free movement provisions to remove obstacles to trade created by the Member States – to positive integration through harmonisation proved difficult. It was complicated for the EU legislature to reach agreement on what type and what intensity of harmonisation should be adopted. As a result, the legislative process to improve the internal market was slow and often unsuccessful. With the Single European Act in 1985, the increased possibility of qualified majority voting in the field of the internal market made it easier in theory for the EU to adopt harmonisation. At the same time, the echo of the Luxembourg compromise was still audible. Against this background, the EU turned to European standardisation as a regulatory tool to supplement and in a way to replace the function of European harmonisation of laws. European standardisation became an important component of the so-called ‘New Approach’.18 The New Approach is based on a process of interaction between European harmonisation of laws and European standardisation.19 It has been adopted to improve the free movement of goods, and a similar regulatory approach does not exist in the field of services (or in other sectors of the internal market). The basic idea behind the New Approach is that the European legislature adopts very general directives, which lay down the ‘essential requirements’ with which products have to comply before they can be placed on the internal market. The precise technical standards are then laid down in European standards developed through CEN. As such, it is possible to describe the construction of the New Approach as a process of delegation – the setting of technical standards in the field of goods has been delegated to CEN.20 If the European Commission intends to adopt a directive which provides the safety standards with which the product has to comply, it will issue a ‘mandate’ to CEN. CEN will then develop a European standard which lays down the technical specifications. These technical standards provide substance to the essential requirements in the directive. The Commission is not only the initiator of a

18 For more detailed analysis of the construction of the New Approach, see Schepel (n 5), 63–67. 19 See also Van Leeuwen (n 6), 40–47. 20 M Egan, ‘Regulatory strategies, delegation and European market integration’ (1998) 5 Journal of European Public Policy 485.

European Standardisation and the UCTD  169 European standardisation process under the New Approach – it also funds and supervises the standardisation process. Compliance with these technical standards is not mandatory – it is possible for manufacturers to show through other means that they comply with the essential requirements of a directive. However, in practice, most of the time it will be most convenient for manufacturers to show that they comply with the directive by establishing that they comply with a European standard. For less dangerous products, manufacturers only have to declare that they comply with the European standard – there is no external control of compliance. It is based on a self-assessment by the manufacturer. For more dangerous products, the manufacturer has to go through a conformity assessment procedure. This conformity assessment procedure is carried out by ‘notified bodies’ – certification organisations which have been ‘notified’ by the Member State in which they are established as competent to carry out conformity assessment procedures for a particular group of products.21 Under the New Approach, the role that European standards play in the regulatory framework for goods has been very clearly defined by the EU – if a manufacturer shows that they comply with the European standard, this raises a presumption of compliance with the European legislation. This presumption of compliance can only arise after the Commission has published the reference of the European standard in the OJEU. It is only the reference which is published – the European standard itself remains a product which is copyright-protected and which has to be bought from the national standardisation organisations. It is also possible for the Commission to issue mandates for European standards outside the New Approach. These European standards are often intended to play a supplementary role to legislation which the Commission has adopted or is in the process of adopting.22 However, for these mandated standards outside the New Approach, the role that the standards play in the regulatory framework is not pre-defined by the EU. In other words, mandated standards outside the New Approach are not intended to raise a presumption of compliance with European legislation. As a regulatory model, the New Approach has not been copied in other sectors of the internal market. There is, for example, no New Approach in the field of services. Although CEN has recently adopted several European standards in the services sector, these standards are not intended to play a role in a regulatory framework which has been developed by the EU. The only ­reference to ­European standardisation in the EU’s regulatory framework for services can be found in Article 26(5) Services Directive 2006.23 Article 26(5) provides that ‘Member ­ States, in ­co-operation with the Commission, have to encourage the adoption of EU standards to improve the quality and compatibility of services in the EU’. This provision clearly encourages the Commission and the Member States to take 21 See JP Galland, ‘The Difficulties of Regulating Markets and Risks in Europe through Notified Bodies’ (2013) 3 European Journal of Risk Regulation 365. 22 See Van Leeuwen (n 6), 45–46. 23 Directive 2006/123/EC on services in the internal market.

170  Barend van Leeuwen the initiative for the development of European standards in the services sector. However, it is difficult to see how this obligation can be enforced – it is unlikely that the Commission would bring infringement proceedings if Member States failed to encourage the making of European services standards. Furthermore, the precise meaning of ‘encouraging’ is unclear.24 Should Member States – or the Commission – proactively issue mandates to the standardisation organisations, and should they be responsible for the funding of these standardisation processes, or are they only required to put pressure on the standardisation organisations to develop European services standards?25 Before the adoption of the Standardisation Regulation 2012, which will be discussed below, the Commission considered Article 26(5) to be a legal basis for issuing mandates for European services standards. The Member States do not appear to have attached too much significance to Article 26(5). It does not feature in most of the implementing legislation adopted by the Member States.26 As a result of the vagueness of Article 26(5), it is clear that the EU has not provided a clear role to European services standards in the regulatory framework for services. As such, it remains the responsibility of the stakeholders who have been involved in the European standardisation process to decide how the standard should be implemented. Most of the European services standards which have been adopted by CEN in the last decades were initiated by stakeholders at the national level. The Commission has issued a few mandates, but most of the European services standards have been developed at the request of national standardisation organisations. In 2012, the EU adopted the Standardisation Regulation 2012.27 The aim of this Regulation was twofold. First, European standardisation of services was explicitly integrated in the EU’s regulatory framework for European standardisation. As a result, the Commission has now been given the power to issue mandates for ­European services standards in areas which fall within the competence of the EU.28 The Standardisation Regulation constantly refers to both standardisation of goods and of services. However, it does not create a New Approach in the field of services. Second, the aim of the Standardisation Regulation was to improve the transparency and accessibility of European standardisation. In other words, it recognises that because of the important role that European standards play in the internal market, the European standardisation process should also become more accountable. As will be seen below, these transparency obligations are also important from the perspective of the UCTD. The Standardisation Regulation imposes obligations on CEN to publish its work programme and to circulate draft European standards among national standardisation organisations.29 Furthermore, efforts have to 24 Van Leeuwen (n 6), 48–49. 25 See also European Commission, Handbook on the implementation of the Services Directive (­Luxembourg, Office for Official Publications of the European Communities, 2007). 26 U Stelkens, W Weiss and M Mirschberger (eds), Implementation of the EU Services Directive: Transposition, Problems and Strategies (The Hague, Asser, 2012). 27 Regulation 1025/2012 on European standardisation. 28 Art 10(1) of the Standardisation Regulation. 29 Art 3 of the Standardisation Regulation.

European Standardisation and the UCTD  171 be made to make European standardisation a more inclusive process. The Standardisation Regulation includes an obligation on CEN to encourage and facilitate the participation of a broad range of stakeholders in European standardisation.30 ­Particular reference is made to SMEs and NGOs. As has already been referred to above, in comparison with large businesses, it is difficult for SMEs and NGOs to participate in European standardisation because they might not have the financial means to carry the costs of participation.31 To remedy this, CEN is encouraged to apply special rates to SMEs and NGOs, and to make summaries of European ­standards available for free. There is no obligation on CEN to make participation in the standardisation process free of charge, or to make European standards publicly available. As such, the measures included in the Standardisation Regulation are of a rather soft nature. From the perspective of SMEs and NGOs, no real changes have been made. The Standardisation Regulation is clearer about the role of the EU institutions in ­European standardisation. In addition to the power for the European Commission to issue mandates for European standards in areas which fall within the competences of the EU, the Regulation also makes it possible for the European Parliament to object to European standards adopted under the New Approach.32 This is clearly intended to provide more democratic input to European standards which are adopted under the New Approach. With the New Approach, the Services Directive 2006 and the Standardisation Regulation 2012, from the perspective of EU law, there are essentially three types of European standards that can be adopted by CEN. First, mandated European standards adopted under the New Approach. The function of these standards is clear – they are supposed to specify or to provide substance to the essential requirements in product safety legislation adopted by the EU. Compliance with the European standard raises a presumption of compliance with the relevant legislation. Second, mandated European standards adopted outside the New Approach. These standards can be adopted in the field of goods or services. The initiative for these standards will always be taken by the Commission, which will also fund the standardisation process. However, unlike with the New Approach, these European standards do not have a clear legal status. They are merely used in support of – or as a supplementary tool to – EU legislation. Third, and finally, non-mandated European standards adopted at the initiative of national stakeholders and through the national standardisation organisations. Again, EU law does not provide any legal role to these standards. As a result, the link between European standardisation and law will have to be made by the parties who have taken the initiative for the European standard. The standard could be used in national legislation or regulation, it could be referred to in a contract for the supply of goods or services, or it could be used for certification activities. It should be emphasised that, in all of these instances, the EU is not 30 Arts 5–6 of the Standardisation Regulation. 31 H de Vries et al, SME access to European standardization: Enabling small and medium-sized ­enterprises to achieve greater benefit from standards and from involvement in standardization ­(Rotterdam, School of Management, Erasmus University Rotterdam, August 2009). 32 Art 11(1) Standardisation Regulation.

172  Barend van Leeuwen responsible for making the link between the European standardisation process and the role that European standards play in law. This remains the responsibility of the stakeholders at the national level. Before we analyse the interaction between European standardisation and the UCTD, it is necessary to briefly consider the link between European standards adopted under the New Approach and private law. As was explained above, ­European standards under the New Approach provide the technical specifications which products have to comply with before they can be placed on the EU internal market. It is the responsibility of the manufacturer – sometimes with the assistance of a notified body – to declare that their products comply with the provisions of the European standard. The result is that the manufacturer has a right to place their products on the market. This is essentially an administrative law right, which is enforced against the public authorities which are responsible for the supervision of product markets in the Member States. The New Approach focuses on the moment when products are placed on the market. As such, its focus is on the relationship between the manufacturer – or importer – and the administrative authorities. It does not explicitly deal with the relationship between manufacturers and sellers, or the relationship between manufacturers and consumers. As such, although the New Approach has a clear impact on administrative law, its effect on private law is less clear and direct. The question what impact European standards adopted under the New Approach have on private law was recently addressed by the CJEU in James Elliott.33 James Elliott concerned a dispute between a building company, James Elliott, and a supplier of a particular kind of concrete, Irish Asphalt. This concrete was to be used by James Elliott in building a school in Ireland. After the construction work had been completed, it was discovered that the concrete supplied by Irish Asphalt was of an inferior quality which did not comply with the relevant European standard for concrete products. As a result, James Elliott had to carry out a significant amount of remedial work and they sued Irish Asphalt for breach of contract. The contract for the supply of goods contained an implied term that the product supplied by Irish Asphalt would be of merchantable quality and would be reasonably fit for purpose. At first instance, the Irish High Court held that this term had to be interpreted on the basis of the provisions of the relevant European standard. The non-compliance with the European standard adopted under the New Approach was the basis for establishing a breach of contract. On appeal, the Irish Court of Appeal made a preliminary reference to the CJEU with a number of questions. From an administrative law point of view, the most important question was whether the CJEU had jurisdiction to interpret European standards which had been adopted by CEN under the New Approach in the preliminary reference procedure under Article 267 TFEU.34 The CJEU answered this question in the 33 Case C-613/14 James Elliott Construction Limited v Irish Asphalt Limited, EU:C:2016:821. 34 See M Eliantonio, ‘Judicial Control of the EU Harmonized Standards: Entering a Black Hole?’ (2017) 44 Legal Issues of Economic Integration 395.

European Standardisation and the UCTD  173 affirmative, because of the important legal role that is given to European standards under the New Approach through the creation of a presumption of conformity with the relevant European legislation, and because of the close involvement in and control by the EU institutions in the standardisation process.35 The key private law question was whether the New Approach required or imposed that the ­European standards were used by national courts in determining whether products were fit for purpose. The CJEU answered that question in the negative. The only legal role of European standards under the New Approach is that they provide a presumption of compliance with the relevant European legislation.36 As such, if a manufacturer can establish compliance with the relevant European standard, they have a right to place their products on the EU internal market. However, the role that the European standard plays in private law disputes after the product has been placed on the market is not regulated or controlled by EU law.37 Therefore, there is no obligation on national courts to apply the European standard in a contractual dispute. Although it is possible for the national court to use the European standard to determine whether or not there has been a breach of contract, EU law does not require this. To conclude, in James Elliott, the CJEU made a clear distinction between market access and liability in contract law. Although the European standard was relevant to the question of whether the concrete supplied by Irish Asphalt could be placed on the Irish market, the issue of whether the concrete was fit for purpose remained to be regulated by national law. The New Approach did not require that the European standard was used for this purpose. A similar unwillingness to apply a European standard in a tort case could recently be seen in Schmitt.38 The CJEU is clearly trying to limit the impact of European standards adopted under the New Approach on private law. This will also have an impact on the relationship between European standards and the UCTD, which will be analysed in the next section.

IV.  European Standards and the Unfair Contract Terms Directive Although James Elliott shows that the impact of European standards on private law is not very direct, and that EU law does not require that a link is made between European standardisation under the New Approach and liability in contract law, this does not mean that there is no interaction between European standards and private law. Even if the application of European standards in private law is not 35 James Elliott (n 33), paras 34–47. 36 James Elliott (n 33), para 53. 37 James Elliott (n 33), paras 54–59. 38 Case C-219/15, Elisabeth Schmitt v TÜV Rheinland, ECLI:EU:C:2017:128. For an analysis of this judgment see P Verbruggen and B van Leeuwen, ‘The Liability of Notified Bodies under the EU’s New Approach: The Implications of the PIP Breast Implants Case’ (2018) 43 EL Rev 394.

174  Barend van Leeuwen required as a matter of EU law, it is still possible for businesses or associations to apply European standards in contract law. One way of doing this could be to incorporate European standards in contracts as standard terms. This would be dependent on the willingness of stakeholders in a particular sector to recognise that European standards provided the standards with which all parties in that sector should comply.39 Similarly, it presumes that European standards contain provisions which can easily be construed as imposing rights and obligations. This is an issue to which we will return below. The advantage of the application of European standards as standard terms in contract law is that the effect of the standards would be controlled by the parties which had been involved in the standardisation process. It would then be a voluntary decision – which would not be imposed by EU law – to make the link between the European standard and contracts for goods and services. However, previous research has shown that European standards are not usually made with a view to their being implemented as standard terms in contracts.40 Again, this will be discussed in detail below. If European standards were incorporated in contracts as standard terms, this would open up the possibility of review of the European standards under the UCTD. The UCTD provides for a mechanism to control the fairness of contractual terms which have been incorporated in contracts between businesses and consumers.41 As such, it could be used to review the substance of European standards to assess whether the terms would be fair from the perspective of consumers. Again, all of this is based on the presumption that European standards are applied as standard terms in contracts between businesses and consumers. At the moment, this is not happening very regularly. However, with the increase in the adoption of European standards – particularly in the field of services – it is a realistic possibility that more European standards will be applied in contracts. In essence, there are two ways through which the UCTD could be used to review the provisions of the European standards. The first mechanism would be a more abstract kind of review, which would not be based on the explicit incorporation of the European standard in contracts between businesses and consumers. Article 7 UCTD provides for the possibility of a review of European standards if they were ‘recommended or made for use as standard terms’. In other words, if the intention of European standardisation organisations was that European standards – whether for goods or for services – would be applied as standard terms in contracts, this would open up the possibility of control under Article 7 UCTD. This kind of control would not be based on the actual application of European standards in contracts – it would not be necessary for businesses or associations to expressly incorporate European standards in contracts for the supply of goods and services.42 Although the test to analyse whether a European standard was recommended for 39 Van Leeuwen (n 6), 152–55. 40 For case studies in the healthcare and tourism sectors, see B van Leeuwen (n 6), chs 4 and 5. 41 For a more detailed analysis of the Unfair Terms Directive, see N Reich and others, European Consumer Law (Cambridge, Intersentia, 2014). 42 For a more detailed analysis, see Van Leeuwen (n 6), 172–74.

European Standardisation and the UCTD  175 use as standard terms is objective, the aim and intention of the standardisation process itself is still relevant to the assessment.43 If the European standardisation process through CEN was initiated with a view to adopt standard contract terms, that would still be important for the potential review under Article 7. However, in practice, it is clear that the aim of European standardisation is not usually to adopt a set of contractual terms. Both for goods and services standardisation, the focus of the parties is on technical compatibility and on the required quality of the service. The provisions of European standards are not framed as rights and obligations. As such, it is difficult to construe them as standard terms, or to identify an intention on the part of the parties involved in the standardisation process to adopt or to recommend the European standard as standard terms. This is directly linked to the nature of European standardisation, and to the parties which are involved in European standardisation. European standardisation processes are often driven by a particular industry. The main stakeholders who are involved in the making of the standard have a technical business background.44 Their focus is on technical or quality issues. They do not make a European standard as a legal instrument. ­Moreover, there is very little input of lawyers in European standardisation processes. As a result, it is difficult to say that European standards are made or recommended for use as standard terms. This makes it less likely that Article 7 UCTD can be used as a review mechanism of European standards. A separate question would be who would be making or recommending a­ European standard for use as standard terms. Would this be CEN, the standardisation organisation through which the standard has been adopted? Would the publication of the standard be sufficient to find that CEN recommends the European standard as standard terms? It is difficult to argue that the sole publication is sufficient to conclude that it recommends the standard for use as standard terms. Moreover, European standards adopted by CEN are not actually published by CEN – the national standardisation organisations are responsible for their publication.45 On that basis, it could be argued that the national standardisation organisations are recommending European standards as standard terms. Under the New Approach, European standardisation processes are initiated by and controlled by the EU – more precisely, by the Commission. As such, it could be said that the Commission is recommending European standards adopted under the New Approach as standard terms. However, as has been explained above, the role of European standardisation under the New Approach is to provide the technical specifications which provide substance to the general essential requirements laid down in the relevant European legislation. Therefore, it is difficult to conclude that ­European standards under the New Approach are recommended or made for use as standard terms. Their purpose is to create a presumption of compliance with the European 43 Van Leeuwen (n 6), 173. 44 See, eg, the case studies on European standardisation in the healthcare sector in Van Leeuwen (n 6), 93–100. 45 Art 10.2 CEN Internal Regulations Part 2, July 2018.

176  Barend van Leeuwen legislation, which enables manufacturers to place their products on the market. Finally, it could be argued that the parties involved in the European standardisation process are recommending a European standard for use as standard terms. The focus would then be on the stakeholders in the European standardisation process. Article 7(3) UCTD expressly mentions the possibility of professional associations recommending standard terms. If professional associations recommended European standards adopted by CEN as standard terms, this would open up the possibility of review under Article 7. However, in practice, this has not happened regularly. Again, this is directly linked to the substance of European standards, which is not sufficiently focused on rights and obligations. As a result, it is difficult to apply European standards as standard terms. A second way for the UCTD to be used as a mechanism to review the substance of European standards would be if they were expressly included in consumer contracts for the supply of goods or services. It would be possible for the seller or service provider to expressly incorporate the European standard in the contract, which could refer to the European standard as standard terms. In such cases, the fairness of the provisions of European standards would be reviewed after they had been incorporated in consumer contracts. The review under Article 7 would be a more abstract kind of review, which would be directly based on the provisions of the European standard.46 This second kind of review would be directly based on the application of a European standard in a contract. The adoption of European standards would not be sufficient – the focus would be on the express application or incorporation of the standard in a consumer contract. This review under Article 1 UCTD would only be possible if a number of conditions were fulfilled. First of all, it would have to be shown that European standards did not constitute mandatory statutory or regulatory provisions. Article 1(2) UCTD provides that such mandatory statutory or regulatory provisions are outside the scope of application of the UCTD and that the fairness of these provisions cannot be reviewed. This exemption is based on a presumption that the legislature has already balanced the interests of businesses and consumers in the adoption of the legislation or ­regulation.47 As a result, it is no longer necessary or desirable for courts to review the fairness of these provisions – they have already been the subject of a legislative process. As has been explained above, European standards are not binding and it is difficult to construe them as mandatory regulatory provisions. Nevertheless, under the New Approach, as recognised in James Elliott, European standards play a very important role.48 Although they are not binding or mandatory, establishing compliance with European standards has become the main mechanism for manufacturers to show that they comply with the relevant European legislation. On that basis, and because European standards are de facto mandatory, it could be 46 Van Leeuwen (n 6), 173. 47 See Case C-92/11 RWE Vertrieb AG v Verbraucherzentrale Nordrgein-Westfalen eV, EU:C:2013:180. 48 James Elliott (n 33). See also Case C-171/11 Fra.bo SPA v Deutsche Vereinigung des Gas- und Wasserfaches EV, EU:C:2012:453.

European Standardisation and the UCTD  177 argued that European standards under the New Approach should fall within the exemption of Article 1(2). However, it would still be important to assess whether the balancing exercise between the rights of sellers and consumers had been taken into account in the standardisation process. The answer to that question depends to a significant extent on whether sellers and consumers have been equally represented in the European standardisation process.49 As will be discussed below, consumer associations are struggling to participate in European standardisation in a meaningful and effective way. Therefore, it might be difficult to say that the rights of consumers have been sufficiently taken into account in the standardisation process. The conclusion would then be that European standards would not be exempted from review under the UCTD. Moreover, after the judgment of the CJEU in James Elliott, it is difficult to maintain that European standards adopted under the New Approach are mandatory regulatory terms. The CJEU made it very clear that the application of European standards in contract was not required as a matter of EU law.50 The role of European standards is limited to the market access stage, and the subsequent application of European standards in private law is not required or controlled by EU law. As a result, it cannot be said that European standards adopted under the New Approach are mandatory regulatory provisions from the perspective of contract law. Similarly, for European standards adopted outside the New Approach, it cannot realistically be argued that they constitute mandatory regulatory provisions. They have been adopted outside a clear regulatory framework, and they are not intended to play a role in a pre-defined regulatory framework. This would only be the case if a Member State decided to apply or refer to a European standard in national legislation.51 Even if the Commission has mandated a European standard, it cannot be said that such standards would have the status of mandatory regulatory provisions, since they are only intended to supplement EU legislation. If European standards cannot be exempted under Article 1(2) UCTD, it would still have to be shown that European standards had not been individually negotiated as standard terms between seller and consumer. Because European standards are a set of standards which have been formulated in a separate process, it has been argued – based on the legislative history of the UCTD – that it would have to be shown that consumers had not been able to influence the pre-formulation of the terms.52 This again makes the role of consumer organisations in the European standardisation process important. If they had been able to effectively influence the adoption of European standards, this could be held to constitute individual negotiation. This bargaining process between businesses and consumers could be relied on to argue that European standards had been individually negotiated. The crucial 49 On the concept of equal bargaining power, see the Opinion of A-G Jacobs in Case C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, EU:C:1999:28. 50 James Elliott (n 33), paras 53–59. 51 See, eg, the Knooble case, discussed in R van Gestel and H Micklitz (n 17). 52 N Reich and others (n 41), 135.

178  Barend van Leeuwen question is then to what extent the views of consumers are effectively represented in European standardisation. ANEC is an association which represents the ‘consumer voice’ in European standardisation.53 Furthermore, at the national level, consumer associations often participate in European standardisation. However, in practice, it is difficult for these associations to influence the European standardisation process. Often, they only have an ‘observer status’. This means that they are allowed to participate in the discussions leading to the adoption of the European standard – they sit around the table with the other stakeholders – but that they do not have a vote on whether the standard will be adopted.54 Although ANEC is working hard to influence the standardisation process and to ensure that the views of consumers are taken into account in formulating the provisions of the standard, the inability of consumer associations to vote on the standard indicates a clear imbalance in bargaining power.55 As a result, it cannot be concluded that there has been a bargaining process in which both sides have equal powers. This means that it is not possible to conclude that European standards have been individually negotiated and should be exempted from review under the UCTD. Furthermore, it should be emphasised that consumer associations often lack both the manpower and technical expertise to have an effective input in the European standardisation process. Because the focus of European standardisation is often on technical issues relating to the compatibility or quality of goods and services, it is difficult for consumer associations to negotiate ‘at the same level’ as the industry itself. Again, this has a negative impact on their ability to influence the European standardisation. Finally, if it is accepted that European standards can be reviewed under the UCTD, because they do not constitute mandatory regulatory provisions and they have not been individually negotiated, the focus shifts to the substantive provisions of the European standard. If European standards were applied in consumer contracts, the main question would then be if they contained provisions which would be potentially unfair under the UCTD. The UCTD has established a number of ways through which contractual terms could be held to be unfair. However, at this point, it becomes clear that European standards are not adopted with a view to them being used as contractual terms. As has already been explained above, the provisions of European standards have not been adopted to create or establish mutual rights and obligations between consumer and seller. As a result, it is difficult to make a link between the provisions of European standards and the UCTD. The UCTD contains an Annex with an indicative list of unfair terms.56 It is very difficult to find such terms in European standards. Moreover, because European standards lay down the technical or quality standards for goods or products, it could be argued that they should be exempted from review under Article 4(2) UCTD because they define the subject matter of the contract.57 A potentially more relevant review m ­ echanism 53 ANEC is the European Association for the Co-ordination of Consumer Representation in Standardisation – a non-profit association established in Brussels. It is funded by the Commission. 54 Van Leeuwen (n 6), 68. 55 Van Leeuwen (n 6), 69. 56 Annex to the Unfair Terms Directive. 57 Van Leeuwen (n 6), 180.

European Standardisation and the UCTD  179 under the UCTD is provided by Article 5, which provides that terms ‘must always be drafted in plain, intelligible language’.58 The focus of the review would not only be on whether the contractual terms are drafted in language which can easily be understood by consumers. This could already be a challenging requirement for European standardisation, since European standards are adopted by stakeholders and often contain very technical provisions. The ‘reach’ of the transparency requirement extends to the question of who has adopted the contractual terms. In other words, consumers would have the right to receive information about the standardisation process – thatis, how and by whom the standard has been developed.59 Such a right would have significant implications for European standardisation, which remains an entirely confidential process. There is no transparency about who are participating in European standardisation processes, and there is no access to the deliberations that led to the adoption of the standard. As a consequence, if Article 5 UCTD were applicable to European standards, this could have serious consequences for the model of European standardisation. In addition to the Annex and Article 5 UCTD, the final and more general review mechanism in the UCTD is provided by Article 3(1). Contract terms are also unfair if they cause a significant imbalance in the parties’ rights and obligations. This test cannot be applied in abstracto – a court would have to look at the particular provisions of a European standard in the context of the contractual relationship between seller (or service provider) and consumer.60 Because the parties who adopt European standards do not necessarily do so with the intention to create mutual rights and obligations, it is again difficult to see how the review under Article 3(1) would be applied to European standards. The focus of this section has very much been on the potential review of European standards under the UCTD. This was essentially a negative approach – it has looked at how European standards could potentially be reviewed under the UCTD. In doing so, we have shown the difficulties with regarding European standards as creating mutual rights and obligations between sellers and consumers. In the next and final section, the approach will be more positive. We will look at the potential role of European standardisation in the reform of the UCTD as part of the fitness check. The main question will be whether and to what extent European standardisation could be used as a regulatory tool to supplement or to provide more substance to the general provisions of the UCTD.

V.  European Standardisation and the Fitness Check In May 2017, the Commission concluded the fitness check of consumer and marketing law and the evaluation of the Consumer Rights Directive. The 58 For more precise guidance on the requirements, see Case C-144/99 Commission v Netherlands, EU:C:2001:257. 59 H Micklitz and N Reich, ‘The Court and Sleeping Beauty: The Revival of the Unfair Contract Terms Directive’ (2014) 51 CML Rev 771. 60 Case C-415/11 Mohammed Aziz v Caixa, EU:C:2013:164.

180  Barend van Leeuwen general conclusion of the Commission was that EU consumer law is still fit for purpose, but that improvements can be made in the enforcement of the various EU ­instruments.61 The fitness check of consumer law is linked to a broader programme initiated by the Commission to review the necessity and effectiveness of EU regulation. The start of that programme was announced in July 2017 with the publication of a Commission Staff Working Document on Better Regulation Guidelines.62 The fitness check of consumer law was broadly positive about the UCTD. In short, its conclusions can be summarised as follows. First, the broad test for unfairness in the UCTD allows for the effective review of potentially unfair contract terms. Second, in addition to the indicative list of potentially unfair contract terms, it could be useful to include a so-called ‘grey’ or ‘black’ list with terms that would be presumed to be unfair or that would always be unfair. Black and grey lists were considered to be more effective than merely indicative lists of unfair terms. However, they would have to be regularly updated. Third, the application of the transparency principle in the UCTD is not sufficiently predictable. In particular, the consequences of a breach of the principle are not clear. In general, the fitness check was positive about the use of standardised contract terms from the perspective of efficiency. However, the advantages of standardised terms are primarily for traders and can lead to an information asymmetry. Against this background, the aim of this section is to investigate what the role of European standardisation could be in making the application of the UCTD more effective. European standardisation is not expressly referred to or considered in the fitness check. Nevertheless, it could have an important supplementary role. The fitness check makes it clear that it would be advantageous to have black or grey lists with unfair contract terms.63 However, the main problem with such lists would be that they would have to have a certain amount of flexibility. This flexibility could potentially be provided by European standardisation. It will be recalled that one of the reasons for the use of European standardisation in the New Approach was that European standardisation was considered to be a more flexible process than the EU legislative process.64 Such flexibility is necessary in the field of technical standardisation, because there are constant technological developments which have to be taken into account. The idea behind the New Approach was that European standardisation would be better able to deal with rapid changes in technology than European harmonisation of laws. Although the Commission has on various occasions expressed disappointment with the speed of European standardisation processes – which have become heavily politicised because of their important role in the New Approach65 – it still accepts that European standardisation 61 Commission Staff Working Document, ‘Report of the Fitness Check on EU consumer and marketing law’ SWD (2017) 208 final. 62 Commission Staff Working Document, ‘Better Regulation Guidelines’ SWD (2017) 350. 63 ‘Report of the Fitness Check on EU consumer and marketing law’ (n 61), 94. 64 See also Schepel (n 5). 65 C Frankel and E Hojbjerg, ‘The constitution of a transnational policy field: negotiating the EU internal market for products’ (2007) 14 Journal of European Public Policy 96.

European Standardisation and the UCTD  181 is a necessary supplementary tool in addition to more general product safety legislation. This kind of reasoning could also be applied to the UCTD. European standardisation could be regarded as a more flexible way of adopting black or grey lists with unfair contract terms. Moreover, European standardisation would allow for a more focused approach, since different standards could be adopted for specific sectors. This would potentially improve legal certainty and the effective application of the UCTD. In essence, there are two main potential mechanisms for European standardisation to play a role under the UCTD. The first would be to create a regulatory framework which is very similar to the New Approach in the field of goods. The second would be a more flexible way of using European standardisation as a supplementary tool to the UCTD. First, the EU could decide to copy the concept of the New Approach for the UCTD and the concept of unfairness defined in the UCTD. At the moment, the UCTD contains a very general and broad description of the concept of unfairness in Article 3(1).66 This concept has been developed in more detail in the case law of the CJEU, although it is clear that the assessment will always have to be conducted on a case-by-case basis. Although this broad concept has advantages, it might be more effective to adopt a more precise list with black or grey contract terms, which would always be regarded as unfair or which would be presumed to be unfair. These terms could then be developed through European standardisation. The Commission would have to issue mandates to CEN to develop black and/or grey lists in particular sectors. The technical committees of CEN would then be required to define in a European standard which types of contract terms should be considered unfair. The broad concept of unfairness – similar to the essential requirements in product safety legislation – would then be given more precise expression by European standards. Contract terms which were included in the European standard would then be presumed to be unfair. If the set-up of the New Approach is followed, it would be best if European standardisation were used to develop grey lists in European standards. The terms included in these standards would be presumed to be unfair, but it would be possible for businesses to show that they were still fair in the circumstances of the case. Again, this is similar to the New Approach, where it is possible for manufacturers to decide to use other mechanisms than European standards to establish that they comply with the essential requirements in the product safety legislation. Another more positive approach could be to issue mandates for the development of European standards which would lay down contract terms that would benefit from a ‘presumption of fairness’.67 Second, a ‘softer’ approach would be for the Commission to issue mandates for European standards that could then be used as a supplementary tool to the UCTD 66 Aziz (n 60). 67 If this approach were adopted, CEN could be asked to develop templates for contracts which would benefit from a presumption of fairness. The question is whether it would be easier – or more legitimate – for CEN to develop a list of fair terms rather than a list of unfair terms.

182  Barend van Leeuwen without these European standards having a clear legal role. European standards could be used to provide a list of indicative unfair contract terms. This list would then not automatically be linked to a (rebuttable or irrebuttable) presumption of unfairness, but would provide more specific guidance to businesses and consumers – and potentially also courts – as to which kind of terms would be regarded as unfair under the UCTD. It would be possible for the Commission to issue mandates in areas or sectors where there was a specific or real need for more guidance as to what constitutes unfairness under the UCTD. In 2013, the Commission issued a mandate to CEN for the development of horizontal services standards.68 This mandate explicitly asked CEN to investigate a number of options – pre-defined by the Commission – for the development of horizontal service standards. In 2015, CEN reported back to the Commission,69 and the Commission then asked CEN to develop European services standards in three fields: performance measurement, service contracts and service procurement. The aim of the European standardisation process for service contracts – which started in 2016 and is on-going70 – is to define the information which should be included in contracts for services and to guarantee that the terms in the contract were written in a way which is sufficiently understandable to consumers. As such, there is a clear link to the transparency requirement in Article 7 UCTD. European standardisation could help to define in a more precise way what obligations businesses have to fulfil to comply with the transparency requirement. The fitness check had concluded that this should be one of the aims of improving the enforcement of the UCTD.71 However, it is also clear that the European standardisation process will primarily focus on business-to-business contracts rather than business-to-consumer contracts. This is because CEN believes that the existing legal framework at the European level is more protective of consumers than of businesses.72 In other words, according to CEN, the necessity to adopt European standards to protect consumers in service contracts is less pressing. The crucial question for both potential approaches outlined above – that is, a New Approach under the UCTD or mandated standards as a ‘simple’ supplement to the directive – remains whether the nature of European standardisation and the European standardisation process is suitable to adopt standards on unfair contract terms. As has continuously been emphasised, European standardisation – whether under the New Approach or outside a regulatory framework – has always focused primarily on the technical compatibility or quality of products and services. There 68 M/517 Mandate addressed to CEN, CENELEC and ETSI for the Programming and the Development of Horizontal Service Standards. 69 CEN, Mandate M/517 for the Programming and Development of Horizontal Service Standards: Phase 1, Final Report, February 2015. 70 CEN/TC (Technical Committee) 447 – Horizontal standards for the provision for services. 71 Report on the Fitness Check on EU consumer and marketing law (n 1), 95. 72 CEN (n 69). The European standard on service contracts which is currently being developed, ‘prEN 17371-1 Provision of services – Service Contracts – Guidance of the design and structure of contracts’ explicitly excludes business-to-consumer contracts from its scope. See: https://standards. cen.eu/dyn/www/f?p=204:110:0::::FSP_PROJECT,FSP_LANG_ID:66206,25&cs=1494B53E122A9DF 3D3ACA2EDEDEEE04A9 (last accessed 6 January 2019).

European Standardisation and the UCTD  183 is very little legal input in the European standardisation. The role that is played by lawyers in the standardisation process is minimal.73 If European standardisation were given a more prominent role under the UCTD, the European standardisation process would have to become significantly more legal. This would not only require a different kind of participants in European standardisation, it would also have an impact on the standardisation process itself. The focus would shift from more technical issues to more legal issues. The reasons for relying on ­European standardisation in the New Approach – its speed and flexibility to deal with technological change – do not necessarily provide an equally convincing justification to copy the model of the New Approach for the UCTD. As a result, it is not surprising that European standardisation has not yet been seriously considered as a supplementary tool to the UCTD. Before a more prominent role for European standardisation can be realistically considered, four fundamental questions have to be answered. First, do we want to harmonise the concept of fairness through European standardisation? Is such a legal concept suitable to be defined through standardisation? The answer to that question does not only depend on the ability of European standardisation to deal with legal issues – the lack of legal expertise of European standardisation organisations has already been emphasised. Another important question is who would be defining the concept of unfairness in European standards. European standardisation processes are open to all stakeholders who are interested in participating in the making of European standards and who are willing to pay the costs of participation. Even after the adoption of the Standardisation Regulation 2012, it remains difficult for the standardisation organisations – and for the Commission in mandated standardisation processes – to control and to regulate who can participate in European standardisation.74 This is particularly problematic because the concept of unfairness can only be objectively defined in European standards if a broad range of ­stakeholders – with different backgrounds – is represented in the standardisation process. Second, are the aims of the New Approach and the UCTD not fundamentally different? Does this not mean that it is much more difficult for European standards to play a role under the UCTD? After all, the New Approach is directly linked to and based on the improvement of the internal market for products. The primary aim of the adoption of European standards under the New Approach is to facilitate trade in products and to improve free movement in the internal market.75 Recently, in Schmitt, the CJEU emphasised that the New Approach also aims to ensure the safety of end users by guaranteeing the safety of products.76 Nevertheless, the primary aim remains the improvement of the internal market. Although the UCTD also has a very strong internal market dimension, its primary aim is consu­ mer protection. Again, the question is whether European standardisation  –  with 73 See Van Leeuwen (n 6), 65–67. 74 B van Leeuwen (n 6), 62–63. 75 This is directly linked to the legal basis for the adoption of legislation under the New Approach, which is Art 114 TFEU (the legal basis to adopt measures to improve the functioning of the internal market). 76 Schmitt (n 38), paras 49–53.

184  Barend van Leeuwen its ­technical focus – is the right ­mechanism to adopt measures with the aim of protecting consumers. This is directly linked to the third question: what is the role of consumer organisations in the adoption of European standards? It is clear that, at the moment, consumer organisations play a relatively minor role in European standardisation. More precisely, their ability to have an impact on the substance of European standards is minimal.77 If the aim of European standardisation is to shift from improving the internal market to consumer protection, the position of consumers in European standardisation would have to be more prominent. It would become more important that consumer organisations have a deciding voice in European standardisation, and that their bargaining position vis-à-vis businesses becomes more powerful. This could be the direct consequence of the change of topic matter: if European standardisation focused more on consumer protection rather than technical compatibility, consumer associations would automatically be in a powerful position to make a contribution. This position would then also have to be translated to their voting power. It would not be sufficient for consumer associations to have an observer status only – they should have equal voting rights to the participating businesses. If something like a New Approach were created under the UCTD, it would be the responsibility of the Commission – and the EU more generally – to provide this power to consumer associations. This might mean that they have to force CEN to change its regular business model for standardisation processes.78 This brings us to the fourth and final question: what is and what should be the role of the European institutions in European standardisation under the UCTD? In the New Approach, the Commission formally initiates the process and should also have an important role in the process. However, in practice, the involvement of the Commission is not always very proactive.79 This would have to change if European standardisation was used to define the concept of unfairness under the UCTD. The control of the EU institutions – including the European Parliament – would have to be stricter. Whether this external institutional control would have a positive impact on the effectiveness and speed of the standardisation process is a different question.

VI. Conclusion Although the fitness check of consumer law was broadly positive about the UCTD, it did identify a number of areas for potential improvement. This ­chapter has assessed what the potential role of European standardisation could be in improving the effective application of the UCTD. First, the precise characteristics of 77 A good example of this was the participation of ANEC in the European standardisation process for aesthetic surgery services. See Van Leeuwen (n 6), 69. 78 CEN has consistently been very reluctant to make such changes to its business model. See Van Leeuwen (n 6), 66–67. 79 Although the Commission is both the ‘initiator’ and ‘director’ of European standardisation processes which have been mandated under the New Approach, it does not always play an active role in the development of European standards. See Van Leeuwen (n 6), 69–71.

European Standardisation and the UCTD  185 European standardisation were analysed. European standardisation is a process which is primarily characterised as a form of self-regulation, with stakeholders adopting standards with the intention of applying them in their sector. Second, European standardisation was ‘localised’ in EU law. The EU has decided to use European standardisation as a regulatory tool to facilitate the improvement of the internal market for goods. With the New Approach, European standards were used to specify the essential requirements laid down in European product safety legislation. Compliance with European standards raises a presumption of compliance with the relevant legislation. This New Approach has not been extended to other sectors of the internal market, although a significant number of services standards have been made in the last decades. The Standardisation Regulation 2012 attempted to improve the accessibility and transparency of European standardisation, and at the same time it integrated European standardisation of services in the EU’s regulatory framework for standardisation. Next, the link between European standardisation and the UCTD was made. It was shown that European standards could be reviewed under the UCTD if they are recommended or made for use as standard terms, or if they are expressly incorporated in contracts between businesses and consumers. This is not happening very frequently, and the main reason for this is that European standards are not being adopted with a view to creating legal rights and obligations between businesses and consumers. The focus of ­European standards remains primarily on technical and quality issues. As a result, it is difficult to consider European standards as standard terms and for the UCTD to be applicable. Despite the limited interaction between European standardisation and the UCTD, the fitness check could provide a good opportunity for European standards to play a more important role under the UCTD. This could be either based on the New Approach model, or the Commission could simply issue mandates to CEN to develop standards that could be used as a supplementary tool in interpreting the UCTD. Both scenarios encounter a number of fundamental problems. European standardisation might not be an ideal forum to harmonise the concept of fairness or unfairness at the European level. The European standardisation organisation has historically focused on technical and quality issues. Furthermore, the parties involved in European standardisation processes are not necessarily representative of all stakeholders who should have a role in defining the concept of fairness. In other words, there are legitimacy problems from both a substantive and a representative point of view.80 The role of consumer organisations in European standardisation would have to be improved significantly, and the same applies to the involvement of the EU institutions in standardisation projects that would have an impact on the concept of fairness or unfairness under the UCTD.

80 See also R Werle and E Iversen, ‘Promoting Legitimacy in Technical Standardisation’ (2006) 2 Science, Technology and Innovation Studies 19.

186

9 Good Governance and the Fitness Check of EU Consumer Law AURELIA COLOMBI CIACCHI*

I. Introduction In 2015, the European Commission tendered a study to support the Fitness Check of EU Consumer Law (hereinafter: fitness check).1 This tender was one of the measures taken in order to implement the Commission’s Regulatory Fitness and Performance (REFIT) programme2 in the field of EU consumer and marketing law.3 The tender winner, Civic Consulting, delivered the study in 2017.4 This study and the Commission’s report that followed it5 laid the foundation for the current revision of EU consumer law. In April 2018, the Commission issued the Communication ‘A New Deal for Consumers’6 and published proposals for the amendment or repeal of a number of consumer law directives,7 accompanied by an impact assessment.8

* Professor of Law and Governance at the Law Faculty of the University of Groningen, The Netherlands. 1 European Commission, ‘Tender Specifications attached to the invitation to tender Study to support the Fitness Check of EU Consumer law’ JUST/A4/DS/kl ARES(2015) 5918980. 2 European Commission’s Communication ‘EU Regulatory Fitness’ COM (2012) 746 final. 3 On REFIT and the Commission’s process of revision of EU consumer law, see H-W Micklitz and AA Villanueva, ‘Refit or Rethink – The Politics of EU Research – A Grand Misunderstanding?’, ch 3 in this volume. 4 Civic Consulting, ‘Study for the Fitness Check of EU consumer and marketing law’, May 2017, available at https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332. 5 European Commission, ‘Staff working document Report of the Fitness Check’ SWD (2017) 209 final. See also European Commission, ‘Executive summary of the Consumer REFIT’, SWD (2017) 208 final. Further documents on the results of the Fitness Check are available at the Commission’s website: https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=59332. 6 COM (2018) 183 final. 7 European Commission, ‘Proposal amending Council Directive 93/13/EEC of 5 April 1993, Directive 98/6/EC of the European Parliament and of the Council, Directive 2005/29/EC of the European Parliament and of the Council and Directive 2011/83/EU of the European Parliament and of the Council as regards better enforcement and modernisation of EU consumer protection rules’ COM (2018) 185 final; European Commission, ‘Proposal for a Directive on representative actions for the protection of the collective interest of consumers and repealing Directive 2009/22/EC’ COM (2018) 184 final. 8 SWD (2018) 96 final.

188  Aurelia Colombi Ciacchi The European Parliament and Council have now reached a provisional agreement on the Commission’s proposals.9 It is likely that the revised EU consumer law directives will be formally adopted soon. This chapter addresses the fitness check from a governance perspective. In particular, it discusses the question of whether and to what extent the fitness check can be considered an exercise of good governance. Sections II and III explain the understandings of ‘governance’ and ‘good governance’ chosen for the purposes of this chapter. Section IV comments on the fitness check from the perspective of the chosen concept of good governance outlined in section III. Section V draws some conclusions.

II. Governance10 Different disciplines deal with the concept of governance.11 The first discipline that introduced this concept in the twentieth century’s academic discussion was institutional economics. Williamson used the term ‘governance’ as an overarching notion embracing all modes of regulation and coordination of modern economic relationships.12 His famous essay on the governance of contractual relationships was published in 1979.13 The second discipline that contributed to the spreading of the concept of governance was international relations, with particular regard to development studies. The former Deputy Director and Research Coordinator at the United Nations Research Institute for Social Development (UNRISD), Hewitt de Alcántara, reported that the increasing popularity of the term ‘governance’ in development studies began in the late 1980s.14 Hewitt de Alcántara defined

9 See the European Commission’s press release ‘New Deal for Consumers: European Commission welcomes provisional agreement on strengthening EU consumer protection rules’, 2 April 2019, http:// europa.eu/rapid/press-release_IP-19-1755_en.htm. 10 For an earlier draft of this section see A Colombi Ciacchi, The concept of governance, in A Colombi Ciacchi and D von der Pfordten, ‘Exploring the relationship between law and governance: a proposal’ (2019) (on file with authors). 11 For an overview of the governance theories see K-H Ladeur, ‘Governance, Theory of ’ in R Wolfrum (ed), Max Planck Encyclopedia of Public International Law (Oxford, Oxford University Press, 2012) Vol 4, 541. Moreover, an excellent brief introduction on the emergence of the governance paradigm in  different academic disciplines can be found in C Joerges and M Weimer, ‘A Crisis of Executive ­Managerialism in the EU: No Alternative?’, Maastricht Faculty of Law Working Paper 2012/7 11 et seq. 12 OE Williamson, The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (New York, Free Press/Collier Macmillan, 1985). 13 OE Williamson, ‘Transaction-Cost Economics: The Governance of Contractual Relations’ (1979) 22 Journal of Law and Economics 233. 14 C Hewitt de Alcántara, ‘Uses and abuses of the concept of governance’ (1998) 50 International Social Science Journal (155) (1) 105. cf P Westerman, ‘Governing by Goals: Governance as a Legal Style’ (2007) 1 Legisprudence: International Journal for the Study of Legislation 51–52. A recent article by Westerman recently illustrated the differences between the concept of law and the concept of governance through the metaphor of the differences between houses and ships: P Westerman, ‘From Houses to Ships: Governance as a Form of Law’ (2018) 14 Le Libellio 5.

Good Governance and the Fitness Check  189 governance as the process of obtaining the consent or acquiescence necessary to carry out a programme in an arena where many different interests are in play. She characterised this process as political in nature, although it could take place in many situations where no formal political system can be found, for example within a corporation.15 Beyond the relatively narrow field of development study,16 more general discourses on governance in political science can be found since the 1990s. These discourses focus on the organisation of national, supranational, international and global polities. At the national level, the concept of governance has helped to describe, for example, how policy networks and private actors interact in policy making, implementation and administration.17 At the supranational level, this concept has been used to discuss, in particular, the functioning of the European Union as a sui generis polity. Much attention has been paid in this regard to the ‘new’ modes of governance other than the traditional Community method.18 At the international and global level, the concept of global governance often refers to the interplay of public and private actors in setting regulatory standards that become applicable across the globe.19 The concept of ‘governance’ is increasingly often used in legal studies.20 Governance is not a synonym of regulation, for at least two reasons. First, not

15 Hewitt de Alcántara (n 14) 105. 16 See, among others, K Martens and AP Jakobi, Mechanisms of OECD Governance: International Incentives for National Policy-Making (Oxford, Oxford University Press, 2010). 17 See, among others, J Kooimann (ed), Modern Governance: New Government-Society Interactions (London, Sage, 1993); RAW Rhodes, Understanding Governance: Policy Networks, Governance, Reflexivity, and Accountability (Buckingham, Open University Press, 1997); O Lobel, ‘The Renew Deal: The fall of regulation and the rise of governance in contemporary legal thought’ (2004) 89 Minnesota Law Review 7; O Larsson, ‘A theoretical framework for analysing institutionalized domination in network governance arrangements’ (2017) Critical Policy Studies 1. 18 See, among others, A Stone Sweet and W Sandholtz (eds), European Integration and Supranational Governance (Oxford, Oxford University Press, 1998); KA Armstrong and SJ Bulmer, The Governance of the Single European Market (Manchester, Manchester University Press, 1998); B Kohler-Koch and R Eising (eds), The Transformation of Governance in the European Union (London, Routledge, 1999); C  Joerges, I-J Sand and G Teubner (eds), Transnational Governance and Constitutionalism (Oxford, Hart Publishing, 2004); M Zürn and C Joerges (eds), Law and Governance in Postnational Europe: Compliance Beyond the Nation-State (Cambridge, Cambridge University Press, 2005); CD Scott, ‘Governing without Law or Governing without Government? New-Ish Governance and the Legitimacy of the EU’ (2009) 15 European Law Journal 160; G De Búrca and J Scott (eds), Law and New Governance in the European Union and the United States (Oxford, Hart Publishing, 2006); L Hooghe and G Marks, Multi-Level Governance and European Integration (Oxford, Rowman and Littlefield, 2011); I Bache, ‘Multi-Level Governance in the European Union’ in D Levi-Faur (ed), The Oxford Handbook of Governance (Oxford, Oxford University Press, 2012); M Dawson, ‘New governance and the displacement of Social Europe: the case of the European Semester’ (2018) 14 European Constitutional Law Review 191. 19 See eg A Marx, M Maertens, J Swinnen and J Wouters (eds), Private Standards and Global Governance (Cheltenham, Edward Elgar, 2012). 20 See, among others, M Zürn and C Joerges (eds), Law and Governance in Postnational Europe: Compliance Beyond the Nation-State (Cambridge, Cambridge University Press, 2005); F Cafaggi and H Muir-Watt (eds), Making European Private Law. Governance Design (Cheltenham, Edward Elgar, 2008);

190  Aurelia Colombi Ciacchi all that can be regulated can also be an object of governance. We can regulate things (for example, products or risks21), but arguably we cannot govern things: we assume that only people can be governed.22 The concept of governance thus only applies to societies, societal groups, collective entities and human relationships in general. Second, regulation as rule making constitutes only one of all possible modes of governance. Societal groups can also be governed through other means than regulation, such as politics or more informal deliberative processes.23 Governance is more than organisation and management: it involves policy. Policies are common interests and goals pursued by a group or institution. Policy making entails accommodating a plurality of interests which often conflict with each other. One of the most important goals in governing both private and public institutions (corporations, owners’ associations, religious communities, states, supranational entities … ) is that the interests of all participants are well represented and realised.24 Governance structures are often multi-layered. Governance at the local level coexists and interacts with governance at the state level, and these coexist and interact with governance at the supranational, international and global level. The relationship between the layers of such a multi-level system of governance is often a non-hierarchical one. Thus the concept of governance often refers to non-­ hierarchical relationships between decision makers, and to forms of coordination of societal actors other than command and control.25

A Colombi Ciacchi, MH Heldeweg, B van der Meulen and R Neerhof (eds), Law and ­Governance: Beyond the Public-Private Law Divide (The Hague, Eleven International Publishing, 2013), U ­Belavusau, Law and Memory. Towards Legal Governance of History (Cambridge, Cambridge University Press, 2017); A Estella, Legal Foundations of EU Economic Governance (Cambridge, Cambridge University Press, 2018). 21 On this see, eg, BM Hutter (ed), Anticipating Risks and Organising Risk Regulation (Cambridge, Cambridge University Press, 2011). 22 The concept of governance seems to have been extended to encompass the behaviour of robots: R  Akin, Governing Lethal Behaviour in Autonomous Robots (Boca Raton, Chapman & Hall/CRC, 2009).  However, we assume that in this case, what is governed is the human action programming the behaviour of robots. 23 cf Colombi Ciacchi, ‘European Fundamental Rights, Private Law and Judicial Governance’ in H-W Micklitz (ed), The Constitutionalization of European Private Law (Oxford, Oxford University Press, 2014) 102 at 124. One of these more informal deliberative processes is the ‘deliberative poliarchy’: see J Cohen and C Sabel, ‘Directly-Deliberative Poliarchy’ (1997) 3 European Law Journal 313; O Gerstenberg and C Sabel, ‘Directly-Deliberative Poliarchy: An Institutional Ideal for Europe?’ in C  Joerges and  R Dehousse (eds), Good Governance in Europe’s Integrated Market (Oxford, Oxford University Press, 2002), 289 et seq, with further references. 24 cf Colombi Ciacchi (n 23) 124–25, with further references. 25 See M Zürn and C Joerges (eds), Law and Governance in Postnational Europe: Compliance Beyond the Nation-State (Cambridge, Cambridge University Press, 2005); P Kjaer, Between Governing and Governance: On the Emergence, Function and Form of Europe’s Post-National Constellation (Oxford, Hart Publishing, 2010), both with further references. See also F Cafaggi and H Muir-Watt, Making European Private Law. Governance Design (Cheltenham, Edward Elgar, 2008); C Joerges, ‘Integration through de-legalisation?’ (2008) European Law Review 291. cf Colombi Ciacchi (n 23).

Good Governance and the Fitness Check  191 Despite the variety of meanings the concept of governance has acquired in the different academic disciplines, one can identify a minimum content, a common core: governance may be understood as decision and policy making within a group of persons or within an institution, or within a system of institutions.26 It is, so to speak, governing with or without a government; policy making with or without politics.27 The chosen definition of governance as decision and policy making within a group of persons or within an institution, or within a system of institutions, fits with public and public-private governance arrangements as well as purely private ones. It is thus suitable to be applied to the context of EU contract law and consumer law, where private parties play a major role not only at the levels of selfregulation and co-regulation, but also in the drafting of model laws such as the DCFR and the CESL.

III.  Good Governance A.  The World Bank Definition The modern academic discourse on good governance28 arguably arose from World Bank and IMF policy documents at the end of the 1980s. The first World Bank report mentioning the term ‘good governance’ was published in 1989.29 The World Bank and the IMF acknowledged that their structural adjustment programmes adopted in the 1980s in developing countries had failed because of institutional weakness, especially in Africa. As a result, good governance requirements were introduced as borrowing conditions.30

26 cf Colombi Ciacchi (n 23) 124. 27 JN Rosenau and E-O Czempiel (eds), Governance without Government: Order and Change in World Politics (Cambridge, Cambridge University Press, 1992); RAW Rhodes, ‘The New Governance: Governing without Government’ (1996) 44 Political Studies 652; A Kazancigil, ‘Governance and science: market-like modes of managing society and producing knowledge’ (1998) 50 International Social Science Journal 69. cf Westerman, ‘Governing by Goals’ (n 14) 52. 28 For an interdisciplinary overview of the concept of good governance see J Hazenberg, The Good Governance of Private Transnational Relationships: Towards the Realisation of Social Sustainability (Groningen thesis, University of Groningen, 2018) 41 et seq, with further references. 29 The World Bank, ‘Sub-Saharan Africa: From Crisis to Sustainable Growth’ (Washington DC, World Bank, 1989) xii: ‘Private sector initiative and market mechanisms are important, but they must go hand-in-hand with good governance – a public service that is efficient, a judicial system that is reliable, and an administration that is accountable to its public.’ 30 J Wouter and C Ryngaert, ‘Good Governance: Lessons from International Organisations’ in D Curtin and R Wessel (eds), Good Governance and the European Union (Antwerp, Intersentia, 2005) 69 et seq, with further references.

192  Aurelia Colombi Ciacchi The World Bank defines governance as ‘the manner in which power is exercised in the management of a country’s economic and social resources for development’.31 This definition is much narrower than the governance definitions discussed in the previous section. First, the World Bank’s definition only concerns the governance of a nation state (‘a country’), and second, it only considers one specific aspect: the management of its economic and social resources for development. In this context, the World Bank also defines ‘good governance’. It does so by means of six indicators: (1) voice and accountability; (2) political stability and absence of violence; (3) government effectiveness; (4) regulatory quality; (5) rule of law; and (6) control of corruption.32 (1) ‘Voice and accountability’ means the extent to which citizens are able to participate in selecting their government. (2) ‘Political stability and absence of violence’ concerns the political structure of a country and the likelihood of government being destabilised or overthrown by unconstitutional or violent means. (3) ‘Government effectiveness’ refers to the quality of public services and their independence of political bargaining; the quality of policy formulation and implementation; the credibility of government commitment to such policies. (4) ‘Regulatory quality’ concerns the consistency in formulation and implementation of policies that promote private sector development. (5) ‘Rule of law’ refers to the extent to which agents have confidence in and abide by the rules of society, with a focus on contract enforcement, property rights, police and the courts. (6) ‘Control of corruption’ measures the extent to which public power is exercised for private gain.33 A major criticism has been raised against the World Bank’s use of its own definitions and criteria for good governance: while the Bank requires compliance with these criteria from countries wishing to receive funding from it, in practice sometimes it neglects to consider the standards as being applicable to its own operations, particularly in the context of international human rights.34 Another possible criticism of the World Bank’s approach concerns the methods it uses to assess the countries’ compliance with its indicators. Since 2004, the World Bank annually publishes ‘Doing Business’ reports, measuring the business friendliness of regulations in more than 100 countries. These measurements

31 The World Bank, ‘Governance and Development’ (Washington DC, World Bank, 1992) 1. 32 See the texts of D Kaufmann and A Kraay on the World Bank’s website ‘Worldwide Governance Indicators’: http://info.worldbank.org/governance/wgi/index.aspx#doc. 33 This overview follows Hazenberg (n 28) 47, with references to Kaufmann and Kraay (n 32). 34 CL Lane, The Horizontal Effect of International Human Rights Law: Towards a Multi-Level Governance Approach (Groningen, University of Groningen, 2018), 399 et seq, with further references.

Good Governance and the Fitness Check  193 follow a methodology developed by US economists35 to comparatively assess the business friendliness of national regulatory instruments through indicators.36 The standards for this assessment are arguably heavily biased in favour of a neoliberal understanding of capitalism, and in favour of the US system in particular. Thus arguably, following these indicators, in practice a country performs well or badly according to how close its regulatory system comes to the US model.37 The same problem arises with regard to the World Bank’s good governance indicators. One may question to what extent the World Bank’s understanding of good governance is biased in favour of the US model. Does the Bank measure the goodness of a country’s governance according to how close it comes to the US interpretations of accountability, government’s effectiveness, regulatory quality, rule of law, etc.? The question concerns in particular the interpretation of the fourth indicator: regulatory quality. The explicit focus of this indicator on the ‘consistency in formulation and implementation of policies that promote private sector development’ strongly resembles the focus of the ‘Doing Business’ indicators on the business-friendliness of regulation. This would mean that also for what concerns good governance, the quality of a regulatory regime according to the World Bank would mainly depend on how close it comes to the US neo-liberal model.38

B.  The UN Definitions Unlike the World Bank, the UN institutions do not speak of ‘indicators’ but of ‘principles’, ‘attributes’ or ‘characteristics’ of good governance. There is no central, unitary UN definition of good governance: different UN institutions seem to refer to partly different sets of principles. The former Commission on Human Rights, in its Resolution 2000/64, mentioned five attributes of good governance: (1) transparency; (2) responsibility; (3) accountability; (4) participation; and (5) responsiveness to the needs of the people. This resolution linked good governance to sustainable human development. It emphasised not only the five principles above, but also the enjoyment of

35 R La Porta and others, ‘Law and Finance’ (1998) 106 Journal of Political Economy 1113. 36 The comparison of national laws and regulatory arrangement by means of numerical indicators (of which the World Bank’s Doing Business reports is just one example) has been called ‘numerical comparative law’. See M Siems, ‘Numerical Comparative Law: Do We Need Statistical Evidence in Law in Order to Reduce Complexity?’ (2005) 13 Cardozo Journal of International and Comparative Law 521. 37 On the criticism moved towards the approach of La Porta et al see R Michaels, ‘Comparative Law by Numbers? Legal Origin Thesis, Doing Business Reports, and the Silence of Traditional Comparative Law’ (2009) 57 American Journal of Comparative Law 765, with further references. 38 For an excellent critique of the evaluation of the quality of regulatory regimes according to the Doing Business indicators see G McCormak, ‘Why ‘Doing Business’ with the World Bank May be Bad for You’ (2018) 19 European Business Organization Law Review 649, with further references.

194  Aurelia Colombi Ciacchi human rights. It expressly linked good governance to an enabling environment conducive to the enjoyment of human rights and prompting growth and sustainable human development.39 Hazenberg’s analysis of the understanding of good governance of the UN institutions identified seven principles: (1) equity; (2) participation; (3) pluralism; (4) transparency; (5) accountability; (6) rule of law; and (7) effective and efficient public administration.40 A slightly different picture arises from a publication of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), according to which good governance has eight characteristics: (1) participation; (2) rule of law; (3) transparency; (4) responsiveness; (5) consensus orientation; (6) equity and inclusiveness; (7) effectiveness and efficiency; (8) accountability.41 The same publication also explains the content of these eight principles: (1) ‘Participation by both men and women is a key cornerstone of good governance. Participation could be either direct or through legitimate intermediate institutions or representatives. It is important to point out that representative democracy does not necessarily mean that the concerns of the most vulnerable in society would be taken into consideration in decision making. Participation needs to be informed and organised. This means freedom of association and expression on the one hand and an organised civil society on the other hand.’ (2) For what concerns the rule of law, ‘(g)ood governance requires fair legal frameworks that are enforced impartially. It also requires full protection of human rights, particularly those of minorities. Impartial enforcement of laws requires an independent judiciary and an impartial and incorruptible police force.’ (3) ‘Transparency means that decisions taken and their enforcement are done in a manner that follows rules and regulations. It also means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. It also means that enough information is provided and that it is provided in easily understandable forms and media.’ (4) As to responsiveness, ‘(g)ood governance requires that institutions and processes try to serve all stakeholders within a reasonable timeframe understandable forms and media.’ (5) Consensus orientation presupposes that ‘(t)here are several actors and as many viewpoints in a given society. Good governance requires mediation of the different interests in society to reach a broad consensus in society on what 39 United Nations, Office of the Higher Commissioner for Human Rights, ‘Good Governance and Human Rights’, https://www.ohchr.org/EN/Issues/Development/GoodGovernance/Pages/GoodGover nanceIndex.aspx. 40 Hazenberg (n 28) 48, with further references. 41 United Nations Economic and Social Commission for Asia and the Pacific, ‘What is Good ­Governance?’  , https://www.unescap.org/sites/default/files/good-governance.pdf.

Good Governance and the Fitness Check  195 is in the best interest of the whole community and how this can be achieved. It also requires a broad and long-term perspective on what is needed for sustainable human development and how to achieve the goals of such development. This can only result from an understanding of the historical, cultural and social contexts of a given society or community.’ (6) Equity and inclusiveness mean that a ‘society’s well being depends on ensuring that all its members feel that they have a stake in it and do not feel excluded from the mainstream of society. This requires all groups, but particularly the most vulnerable, to have opportunities to improve or maintain their well being.’ (7) Effectiveness and efficiency require ‘that processes and institutions produce results that meet the needs of society while making the best use of resources at their disposal. The concept of efficiency in the context of good governance also covers the sustainable use of natural resources and the protection of the environment.’ (8) Accountability ‘is a key requirement of good governance. Not only governmental institutions but also the private sector and civil society organizations must be accountable to the public and to their institutional stakeholders. Who is accountable to whom varies depending on whether decisions or actions taken are internal or external to an organization or institution. In general an organization or an institution is accountable to those who will be affected by its decisions or actions. Accountability cannot be enforced without transparency and the rule of law.’42 In all three above-mentioned definitions, the UN principles of good governance look substantially different from the World Bank’s good governance indicators. In particular, the UN principles do not include any criterion that could resemble the World Bank’s indicator of regulatory quality defined as ‘consistency in formulation and implementation of policies that promote private sector development’.43 The neo-liberal, US-oriented approach of the World Bank does not seem to be shared by the UN understanding of good governance. This is apparently confirmed by the presence in the UN catalogues of principles of good governance such as ‘equity’ and ‘pluralism’, which could easily accommodate also varieties of capitalism that are much more socially oriented than the US model, or even non-capitalistic models of regulation of economic relationships.

C.  The EU Definition The first use of the concept of good governance in EU documents goes back to 1991. According to the Council Resolution on human rights, democracy and development of 28 November 1991, ‘human rights and democracy form part of a larger set of requirements in order to achieve balanced and sustainable

42 United 43 See

Nations Economic and Social Commission for Asia and the Pacific (n 41). above, section III.A(4).

196  Aurelia Colombi Ciacchi development … In this context, account should be taken of the issue of good governance’.44 These and other statements have led commentators to maintain that for the EU, good governance belongs to the same political category as human rights, democratic principles and the rule of law.45 In the famous White Paper of 2001 on EU governance,46 the European Commission defined good governance by formulating five principles: (1) openness; (2) participation; (3) accountability; (4) effectiveness; and (5) coherence. (1) Openness requires the EU institutions to ‘work in a more open manner’, to ‘actively communicate about what the EU does and the decisions it takes’, and to ‘use language that is accessible and understandable for the general public’.47 (2) As to participation, ‘(t)he quality, relevance and effectiveness of EU policies depend on ensuring wide participation throughout the policy chain – from conception to implementation … Participation crucially depends on central governments following an inclusive approach when developing and implementing EU policies’.48 (3) Accountability entails that ‘(r)oles in the legislative and executive processes need to be clearer. Each of the EU Institutions must explain and take responsibility for what it does in Europe’.49 (4) Effectiveness implies that ‘(p)olicies must be effective and timely, delivering what is needed on the basis of clear objectives, an evaluation of future impact and, where available, of past experience. Effectiveness also depends on implementing EU policies in a proportionate manner and on taking decisions at the most appropriate level’.50 (5) Coherence means that ‘(p)olicies and action must be coherent and easily understood. The need for coherence in the Union is increasing: the range of tasks has grown; enlargement will increase diversity; challenges such as climate and demographic change cross the boundaries of the sectoral policies on which the Union has been built; regional and local authorities are increasingly involved in EU policies. Coherence requires political leadership and a strong responsibility on the part of the Institutions to ensure a consistent approach within a complex system’.51 This EU definition of good governance differs in several regards from both the World Bank and the UN ones. Unlike the UN principles, the EU principles of 44 Resolution on Human Rights, Democracy and Development (Council and Member States, meeting within the Council, 28 November 1991), http://archive.idea.int/lome/bgr_docs/resolution.html. 45 Wouter and Ryngaert (n 31) 69 et seq, with further references. 46 European Commission, ‘European governance. A White Paper’, COM (2001) 428 final. 47 European Commission (n 46) 10. 48 European Commission (n 46). 49 European Commission (n 46). 50 European Commission (n 46). 51 European Commission (n 46).

Good Governance and the Fitness Check  197 good governance do not include equity, pluralism and the rule of law. This is easily understandable, since the rule of law, equality, justice, solidarity and pluralism already enjoy the rank of EU values according to Article 2 Treaty on European Union (TEU). Moreover, unlike the World Bank’s indicators of good governance, the EU principles are formulated in a neutral way from a political economy viewpoint: they do not seem to endorse any specific variety of capitalism or model of regulation of economic relationships. The EU principles of good governance are also neutral for what concerns their field of application. They are formulated in a way that makes them relevant for all possible areas of EU governance and regulation, thus including EU consumer law.

IV.  The Fitness Check: Good or Bad Governance? A.  Preliminary Remarks One may ask to what extent the fitness check of EU consumer law complies with good governance standards. It seems logical to take the EU principles of good governance referred to in the previous section, as standards for the assessment of the quality of the governance process concerning the fitness check of EU consumer law. However, the definitions of the good governance principles given by the Commission in the 2001 White Paper are arguably not sufficient. The EU does not operate in a vacuum: it should comply with the best international standards. Therefore, this chapter submits that the EU principles of good governance should be interpreted in accordance with the UN understanding of good governance. In particular, the detailed definition of the elements of good governance provided by the UNESCAP (see III.B above) seem very useful. The circumstance that the UNESCAP definition is meant to apply to Asia and the Pacific region cannot be seen as an obstacle. It would not make any sense to require higher good governance standards for Asia and the Pacific region than for the EU. The UNESCAP principles of good governance should be considered as a minimum standard, whereby the EU could choose to apply a higher standard. Therefore, the following paragraphs will discuss some problems concerning the fitness check in the framework of the EU principles of good governance, interpreted in the light of the UNESCAP requirements.

B.  Effectiveness, Efficiency and Coherence According to the 2001 White Paper, policies must be effective and timely, ‘delivering what is needed’ (see III.C(4) above). Moreover, according to the UNESCAP,

198  Aurelia Colombi Ciacchi effectiveness and efficiency require that processes and institutions produce results that ‘meet the needs of society while making the best use of resources at their disposal’. Arguably, the fitness check does not comply with these requirements. This chapter fully agrees with all points of criticism raised against the fitness check by the position paper arising from the Round Table that took place at the University of Oxford in November 2017.52 First and foremost, the formulation of the questions included in the Commission’s tender53 predetermined the research results. The scope of inquiry was too narrow and the instructions too directional.54 Second, the methodology of the inquiry was not suitable to determine the extent to which the EU consumer law directives under scrutiny were effective, efficient, coherent and relevant. The interview questions posed to the national reporters ‘reduced the complex plethora in 28 legal systems to a set of standardized issues which in no way reflect their deeper doctrinal and cultural differences’.55 Third, the researchers were not given sufficient time to carry out an in-depth investigation. Time-consuming empirical and sociological studies would have been necessary to draw any substantiated conclusions with regard to the effectiveness, efficiency, relevance and added value of the directives.56 Arguably, the scientifically questionable results of the tendered study57 do not justify the enormous expenditure of resources needed to produce them. As  ­Micklitz and Villanueva ironically observe, ‘(t)alking to taxi drivers, interviewing them might have told more about consumer problems in the European societies and it would have been much less costly’.58

C.  Openness, Participation and Accountability Immediately after the delivery of the Study to support the Fitness Check of EU Consumer law by Civic Consulting in May 2017, the Commission organised a public consultation on the targeted revision of the relevant EU consumer law ­directives.59 The consultation took place between June and October 2017.

52 ALB Colombi Ciacchi and others, ‘Position Paper on the Fitness Check of EU Consumer Law’ (2018) 26 European Review of Private Law 703, with further references. 53 See section I and nn 1, 4 and 5 above. 54 Colombi Ciacchi (n 52) 703. 55 Colombi Ciacchi (n 52) 704. 56 Colombi Ciacchi (n 52) 703–04. See also Micklitz and Villanueva (n 3). 57 For a detailed critique see Micklitz and Villanueva (n 3), sections II, III, and IV. They note that even the European Commission refrains from calling the results of the tendered study ‘research’ (ibid, section IV). 58 Micklitz and Villanueva (n 3), section II.D. 59 The documents concerning this consultation are available at the Commission’s website: https:// ec.europa.eu/info/consultations/public-consultation-targeted-revision-eu-consumer-law-directives_en.

Good Governance and the Fitness Check  199 The results of this consultation were taken into account by the Commission in its proposals for the revision of the directives in question. The Commission’s Communication ‘A New Deal for Consumers’60 and the proposals for the amendment or repeal of the concerned consumer law directives61 were followed by a series of ‘consumer dialogues’ organised by the Commission between May and November 2018 in the Member States. It seems that with these procedures the Commission complied with the good governance standards concerning openness, participation and accountability. However, the period of time given to the public to take a position on the results of the tendered fitness check study (June–October 2017) was arguably far too short to enable the allegation of substantiated evidence against a study that was 2,189  pages  long. Moreover, as highlighted by Micklitz and Villanueva, the proposals published by the Commission in April 2018 ‘are in line with the evaluation questions formulated in the tender and the answers in the Civic Consulting and Commission REFIT reports. Overall, the Commission proposals fit into its self-set agenda and illustrate the path dependency of the EU consumer policy’.62 Thus one may argue that the good governance requirements of openness, participation, and accountability were respected from a merely formal viewpoint.

V. Conclusion The definition of good governance formulated by the European Commission in the White Paper of 2001 on EU governance is a valuable starting point for the assessment of the quality of the governance process concerning the fitness check of EU consumer law. The EU should use standards of good governance that fit the broad variety of forms of capitalism and social welfare models of its Member States. It should resist to the temptation to adopt the numerical indicators of good governance employed by the World Bank, which mirror a neoliberal, US-oriented understanding of capitalism and economic development. However, the EU should also learn from the UN experience in the global discourse on good governance. Particularly useful in this regard are the eight elements of good governance described by the UNESCAP: participation, rule of law, transparency, responsiveness, consensus orientation, equity and inclusiveness, effectiveness and efficiency, and accountability. This chapter proposes to interpret the five principles of good EU governance laid down in the White Paper in the light of the eight elements of good governance described by the UNESCAP. The UNESCAP definition is meant to apply to Asia and the Pacific region, but it would



60 COM

(2018) 183 final. n 7 above. 62 Micklitz and Villanueva (n 3), section II.D. 61 See

200  Aurelia Colombi Ciacchi not make any sense to require higher good governance standards for these regions than for the EU. Therefore, the UNESCAP principles of good governance should be considered as a minimum standard, whereby the EU could – and perhaps should – choose to apply a higher standard. Observed in the light of the principles of good governance outlined in the White Paper and in UNESCAP documents, the quality of the governance process concerning the fitness check of EU consumer law does not seem to meet the high standards that would be expected at the EU level. The public consultations and consumer dialogues organised by the Commission are certainly very important and valuable from a good governance viewpoint. However, the very little time allocated was arguably too short to enable the allegation of substantiated evidence against a study that was 2,189 pages long. Moreover, as convincingly demonstrated by Micklitz and Villanueva, the fitness check consisted more in policy-driven research than in evidence-based policy making.63 The scientifically questionable results of the tendered study arguably do not justify the enormous expenditure of resources needed to produce them.



63 Micklitz

and Villanueva (n 3).

INDEX Introductory Note References such as ‘178–79’ indicate (not necessarily continuous) discussion of a topic across a range of pages. Wherever possible in the case of topics with many references, these have either been divided into sub-topics or only the most significant discussions of the topic are listed. Because the entire work is about ‘better regulation’, the use of this term (and certain others which occur constantly throughout the book) as an entry point has been minimised. Information will be found under the corresponding detailed topics. abuse  3, 34, 83, 119 accessible dispute resolution mechanisms  146, 156, 160 accountability  12, 88, 192–96, 198–99 acquis  6 consumer law  128–37 and fitness checks  137–39 activism, judicial  9, 139 actors  4–6, 10–11, 30, 152, 154–55, 158–61 private  143, 152, 155, 159, 161, 189 state  98 administrative agencies  65–66, 79 administrative burdens  14–15, 20–21, 24–25, 113, 119 administrative enforcement  77–79, 116, 142, 146–47, 150, 158 administrative fines  99, 117, 143, 146 administrative law  65–67, 172 administrative remedies  118 administrative sanctions  75–76, 78, 116 ADR (Alternative Dispute Resolution)  41, 67, 76, 78–79, 146–47, 162 advertising  49, 53–54, 56, 89, 112 advice, financial  83–84, 86–87 agencies, administrative  65–66, 79 algorithms  11, 160 Alternative Dispute Resolution, see ADR alternative finance markets  73–74, 81, 88–91 ambiguity  8, 12, 108, 122, 131, 140 amendments  5, 47, 55–56, 98–99, 120, 128 minor  29 substantial  5, 28–29 applied methodology  44–46, 54

arbitral finality  134–35, 139 arbitration  134 associations  144–45, 166, 174, 178, 190, 194 consumer  23, 26, 30, 32–33, 177–78, 184 national business  32 professional  176 representative  117, 156 audiovisual media services  38, 41, 49–58 findings and applied methodology  54–56 political action, political agenda  56–57 tender, methodology and tasks of evaluation  50–54 authorities  79, 102–3, 147, 158–59 administrative  76, 172 enforcement  10, 22, 26, 99, 155, 159–61 local  196 national  17, 23 autonomy  130–32, 140, 149 national  131, 133, 135–36 Autoriteit Consument en Markt  142, 152–53, 155, 158–59, 161 Ayres, I.  147, 155 balance  21, 29, 31, 35, 65, 70 banks  72–73, 192 bargaining power  133, 178 bargaining process  177–78 behaviour  71, 74, 80, 87–88, 142, 147, 150, 152 behavioural studies  99, 106 benefits  13, 15–17, 21–24, 28, 30, 41–45, 47–48, 96–97 and costs  22, 24, 41–43, 97 non-monetary  86

202  Index better enforcement  3–4, 7, 10, 47, 95–96, 98–99, 109–10, 113, 115, 141–61 draft directive  3, 99–100, 120, 122, 141–43, 145–46, 152 integrated approach  160–62 meaning  146 in New Deal  144–46 better regulation, see Introductory Note Better Regulation Agenda  1, 12, 14–15, 17–20, 26, 29 Better Regulation Guidelines  6, 8–11, 13, 15–16, 94–95, 100, 122, 144–45 black list  103, 180 board members  83, 87 borrowers, consumer  77, 89–90 Braithwaite, J.  147, 155 broadcasting  38, 49 burdens  17–21, 33–34, 38, 112 disproportionate  31–33 business associations  23, 25, 43 business friendliness  192–93 business interests  23, 30 business interviews  43, 103 businesses  13–15, 17–21, 25–26, 31–35, 44, 106, 113–14, 174, 181–82 favoured by Better Regulation Agenda and REFIT  17–20 large  32, 166–67, 171 cancellation clauses  153–55, 157, 160 capital  16, 73 structure  72–73 Capital Markets Union  82, 85 capitalism  193, 195, 197, 199 case studies  14, 25, 27, 31, 116, 118 causal links between harmonisation, enforcement, cross-border trade and consumer confidence  105–8 causality  24, 105 CEN (European Committee for Standardisation)  11, 165–72, 175–76, 181–82, 185 certification  165–66, 169, 171 choices  5, 16–17, 22, 24, 126, 129, 131 citizens  13–14, 18–20, 23, 27, 49, 96 Civic Consulting  5, 43–48, 58, 187, 198–99 civil courts  67, 77–79 civil procedure  7, 118, 133, 135, 143 civil society  30, 194–95 CJEU (Court of Justice for the European Union)  4, 9, 19, 21, 67, 172–73, 177, 181 as jack-in-the-box  125–40 need to take Court seriously  139–40

claims  4, 110, 113–15, 117–20, 131, 146, 150 collective  4, 10, 145, 156 economic  127 clients  66, 75, 79, 84–86 CoCos (contingent convertible bonds)  61, 72–73, 85 codification  10, 100, 138, 161 coercion  147, 155 coherence  6–8, 41–42, 44–47, 52–55, 58–59, 99, 196–97 and efficiency  52, 197 regulatory  63, 80, 91 coherent policy agenda  68, 74 collective claims  4, 10, 145, 156 collective clauses  154 collective enforcement  142 collective negotiations  143–44, 154, 161 collective redress  18, 24, 76, 114, 118, 144–45 Commission  1–3, 17–22, 24–28, 33–34, 38–41, 46–59, 78–82, 168–71, 179–85, 196–200 proposals  28–29, 48, 53, 56, 143, 188 REFIT reports  48, 199 common rules  125, 130–32 compatibility  169, 178 technical  164, 175, 182, 184 compensation  63, 79, 85, 130, 146, 154 competences  39, 43, 125–26, 128–29, 140, 160, 170–71 competition  119–21, 127, 130 distortions of  119, 130 fair  114, 119–21, 123 fairer  106, 114–15 competitiveness  14, 18, 21, 31, 35, 56 complementarity  78–79 complexity  10, 64, 67, 143, 152, 154, 158–59, 161 compliance  10, 112–13, 116–19, 122–23, 145–46, 150, 155–56, 158–59, 161, 169 lack of  113, 119, 122 presumption of  169, 171, 173, 175, 185 complicity  39, 59 concurrence  144, 155–56, 159 conduct of business rules  66, 75, 77–78, 83, 86 conflicts of interest  85–87 conformity  145, 149, 152, 173 assessment procedures  169 consensus  167, 194 orientation  194, 199 consent  83, 189 consistency  27, 72, 97, 111, 192–93, 195 consultancy firms  39, 58–59

Index  203 consultations  1–2, 4, 12, 25–26, 30–31, 53–54, 100, 198–99 public, see public consultation stakeholder  30, 38 Consumentenbond  10, 144–45, 152–53 consumer associations  23, 26, 30, 32–33, 177–78, 184 consumer behaviour  42, 47, 85, 102 consumer borrowers  77, 89–90 consumer confidence  8, 105–10, 113–14, 119–22, 141–42, 150–52 consumer contracts  39, 41, 131, 142, 144, 176, 178 consumer detriment  8, 12, 84, 110, 113–18, 120, 122–23 consumer dialogues  199–200 consumer finance  61–63, 65–68, 71, 74, 79–81, 84, 90–91 legal matrix for  66–67, 91 consumer interest  14–15, 20, 35, 127, 135, 139 consumer law  4–10, 12–14, 18–19, 40–41, 43–46, 93–95, 97–101, 105–9, 139– 43, 145–47 acquis  128–37 findings and applied methodology  44–47 and good governance  12, 187–200 and politics of EU research  39–49 REFIT  39–50, 52–53, 55, 57–59 tender, methodology and tasks of evaluation  41–44 consumer lenders  89–90 consumer organisations  25, 43, 177, 184–85 consumer policy  20, 39–40, 48, 120, 199 consumer problems  23, 45–49, 198 consumer protection  8–9, 14–17, 19–21, 33–36, 68–71, 99–101, 106–10, 114–15, 128–31, 139 as byproduct of Better Regulation Agenda and REFIT  14–17 enhancing  122–23 high level of  23, 31, 73, 115, 139 and internal market  100–101, 108 REFIT process  13–35 consumer representation  29–31 consumer rights  2–3, 9–10, 24–26, 40–41, 97–99, 103–5, 113–14, 120–23, 141–43, 149–52 consumers financial  7, 68, 75–77, 83–84, 86–87 individual  7, 61, 83, 135 vulnerable  28, 61, 70, 89 contingent convertible bonds, see CoCos contract design  61, 71–72, 74, 88

contract law  62–68, 74–82, 84–85, 87–88, 90–91, 100–102, 104–7, 109–10, 122–23, 173–74 and financial regulation  66–90 and fitness checks  122–23 impact assessments  1–12 national  62, 66, 68, 131, 147 potential of better regulation for  12 sustainable consumer financial contracts  81–84 contract practice  63, 68, 71, 74, 87, 90–91 insufficient attention to  71–74 contract terms, see terms contracts  65–67, 83, 99–100, 130, 132–33, 148, 154–57, 171–74, 176–78, 182 consumer  39, 41, 131, 142, 144, 176, 178 financial  65–71, 78, 80–84, 88, 90–91 freedom of contract  66, 132, 148 service  65–66, 98, 182 contractual relationships  76, 85, 179, 188 contractual remedies  8, 117 contractual terms, see terms control  58, 173–74, 183–84, 190, 192 external  169, 184 co-regulation  166, 191 cost–benefit analysis  6, 21–23, 42, 44–46, 53, 55–56 costs  19, 21–24, 26, 33–35, 41–42, 44–47, 112, 120–21 and benefits  22, 24, 41–43, 97 compliance  16, 97, 109, 111–14, 119–21, 123 Council  5, 13–14, 27–29, 51–52, 188 country of origin  49, 52, 54, 56 country reports  44–45, 47, 53 Court of Justice for the European Union, see CJEU credit  41, 70, 89 analysis  89 institutions  70, 87 creditors  7, 70 critical analysis  104, 107, 118 cross-border cases  4, 145–46 cross-border enforcement  105, 146, 151 cross-border trade  4–5, 45–46, 105–10, 112–14, 119–20, 122, 141–42 crowdfunding  61, 69, 73, 89 cultural diversity  52, 57 culture, organisational  65, 81, 87–88, 91 damages  116, 118, 130 data amount of  26, 103–4, 108 Eurobarometer  104, 112

204  Index lack of  107, 109 qualitative  25, 32 quality  23–26 quantitative  24, 55, 114 robust  24, 114 underlying  23–24, 33 Dawson, M.  20 defective goods  97, 106 defects  9, 83, 130 democracy  195 representative  194 democratic procedure  30, 149 deregulation  13, 15 design  10, 56 contract  61, 71–72, 74, 88 of impact assessments  10 regulatory  12 desk research  24, 53, 114–15 deterrence  78–79, 113, 116–18, 149–50, 152, 157 deterrent effect  8, 113, 117–18, 149, 152, 157 of sanctions  10, 118 detriment  20, 132 consumer  8, 12, 84, 110, 113–18, 120, 122–23 dialogues, consumer  199–200 Dieselgate  116 digital content  3, 8, 99, 108, 110–12, 120 Digital Content Contracts Directive, draft  8, 99, 108, 111–12, 120 digital environment  90 digital goods  36 digital services  100, 120 digitalisation  8, 61, 89 diminished value  23, 31, 33–35 discretion  5, 29, 75, 94, 136 disproportionate burden  31–33 dispute resolution  10, 67, 146, 151–52, 156, 160; see also ADR distortions of competition  119, 130 distribution  49, 52, 62, 66, 84–86 process  65, 81, 84–87, 91 divergences  103, 106, 110, 112, 116, 119–21, 123 diversity  70, 131, 140, 196 cultural  52, 57 legal  125, 130 draft Better Enforcement Directive  3, 99–100, 120, 122, 141–43, 145–46, 152 draft Digital Content Contracts Directive  8, 99, 108, 111–12, 120 draft Online Sales Directive  8–9, 98–99, 108, 111–12, 115

drafters  2, 5, 8, 10–11, 101, 123 dual function model  129–31 duties  75, 83, 86, 133, 138, 150 to act  75, 86 of care  83 EAO (European Audiovisual Observatory)  54–55 EBP, see evidence-based policy ECB, see European Central Bank ECCs (European Consumer Centres)  146 e-commerce  46, 105 economic activities  62, 82, 127 economic governance  27, 190 economic interests  18, 29, 115, 122 economic relationships  188, 195, 197 effective enforcement strategy  68, 79, 90 absence  74–79 effective protection  18, 133, 135–36, 157 effectiveness  42–47, 52–53, 55, 62–63, 79–80, 87–88, 90–91, 134, 192–93, 196–98 and efficiency  194–95, 198–99 efficiency  42, 44–47, 52–53, 55, 59, 194–95, 197–99 and coherence  52, 197 and effectiveness  194–95, 198–99 test  57 electronic platforms  69, 89 electronic services  148 empirical materials  104–5, 122 empowerment  105–6 energy  41, 56, 97, 155 enforcement  9–11, 66–67, 98–99, 118–19, 122–23, 141–47, 149–52, 155–56, 158, 161–63 absence of coherent and effective strategy  74–79 administrative  77–79, 116, 142, 146–47, 150, 158 authorities  10, 22, 26, 99, 155, 159–61 better, see better enforcement collective  142 definition  144–46 of EU consumer law  141–62 instruments  149, 159, 161 integrated approach  160–62 mechanisms  67, 78–79, 159 private, see private enforcement public  35, 66, 75–76 responsive, see responsive enforcement strategies  75–76, 152 enjoyment  130, 193–94 environment  20, 83–84, 194–95 digital  90

Index  205 environmental protection  29, 83 equality  132, 197 equity  72, 194–95, 197, 199 and inclusiveness  194–95, 199 ESAs (European Supervisory Authorities)  70–71 ESMA (European Securities and Markets Authority)  73 essential requirements  168–69, 171, 181, 185 Eurobarometer data  2, 24, 46, 104, 112, 114 European Audiovisual Observatory (EAO)  54–55 European Central Bank (ECB)  70, 87–88 European Commission, see Commission European Committee for Standardisation, see CEN European Consumer Centres (ECCs)  146 European Parliament  5, 26, 28–29, 51–53, 184, 188 European representative action  146, 157, 160 European Securities and Markets Authority, see ESMA European standardisation  163–85 in EU law  168–73 and fitness checks  179–84 integrated  164, 185 organisations  164–65, 174, 183 processes  164, 166–67, 169–70, 172, 175–80, 182–83, 185 European standards  163–64, 166–79, 181–83, 185 adoption  164, 174, 176–77, 183–84 application  173–74, 177 and Unfair Contract Terms Directive  173–79 European Supervisory Authorities, see ESAs evaluation questions  22, 48, 52, 56–57, 102, 199 evaluations  6–8, 22–24, 50–52, 54–58, 94–95, 97–98, 102–5, 107–9, 114, 120–23 ex-post  1, 12, 14, 50 and fitness checks  1, 8, 16, 94, 100, 108 previous  54, 103–4, 111, 114 evidence  2, 17–18, 25–27, 34, 43, 51–54, 59, 122–23 collection  45, 47, 51, 53 policy-based  38, 58 production  38–39, 46, 50, 54, 57–59 substantiated  199–200 evidence-based policy (EBP)  37–38, 58, 147, 200 exchange of information  158, 161 exclusion  82, 104, 155 exoneration clauses  154–55

expertise  28, 30, 101–2, 178, 183 experts  11, 25, 30, 43, 136 ex-post evaluations  1, 12, 14, 50 fair competition  114, 119–21, 123 fair terms  10, 144, 159 fairer competition  106, 114–15 fairness  11, 157, 163–64, 174, 176, 183, 185 presumption of  181 of terms  133, 143, 159–61, 163 fault  117, 130 FCA (Financial Conduct Authority)  73, 79 fees  16, 86 finality, arbitral  134–35, 139 finance markets, alternative  73–74, 81, 88, 90–91 financial advice  83–84, 86–87 Financial Conduct Authority, see FCA financial consumers  7, 68, 75–77, 83–84, 86–87 protection  62, 68, 83–84 financial contracting  65–67, 80, 83, 86 financial contracts  65–71, 78, 80–84, 88, 90–91 financial crisis  61–62, 72, 87 financial institutions  7, 62, 65–66, 71, 73, 75–76, 83–85, 87–88 organisational culture  81, 87–88, 91 financial instruments  67, 72–76, 85 financial markets  61, 63–64, 66, 68, 74–76, 80, 85–86, 90–91 retail  68–71 financial products  61–62, 66, 70, 74, 76, 83–86, 88 life-cycle  62, 65, 81, 84–85 financial regulation  61–91 and contract law  66–90 contract-related  66, 75 financial regulators  64, 67, 71–73, 76, 84, 88 financial sector  62, 64, 67, 75–76, 83 traditional  61, 88, 90 financial services  7–8, 77, 79, 83, 87, 97 financial stability  68–73, 83–84 Financial Stability Board (FSB)  88 financial supervisory authorities  66, 78–79, 87–88 fines  147 administrative  99, 117, 143, 146 higher  149, 151, 157, 160 fitness checks  1–9, 12, 16, 27, 31, 140 and acquis  137–39 causal links between harmonisation, enforcement, cross-border trade and consumer confidence  105–8

206  Index in consumer law  2–5, 93–123 and contract law  122–23 and European standardisation  179–84 and evaluations  1, 8, 16, 94, 100, 108 framework and limitations  100–110 good or bad governance  197–99 and impact assessments  4–5, 12, 111–15 methodology  102–5 publication, conclusions and follow-up  95–100 shortcomings and significance for impact assessments  108–10 suitability  6–8 fitness for purpose  38, 44, 46–47, 107, 109, 121–23, 172–73 fragmentation  49, 56, 65, 68, 80, 125 regulatory  23, 108 fraud  83, 148 free movement  18, 127, 129, 168, 183 freedom of contract  66, 132, 148 FSB (Financial Stability Board)  88 fundraising  59, 69 geoblocking  3, 148 Germany  45, 77, 127, 165 Geschillencommissie  143, 151, 153–54, 158 good faith  9, 132, 157 good governance  12, 187–200 definition  12, 193, 196, 199 EU definition  195–97 indicators  193, 195, 197 principles  12, 195, 197, 200 standards  197, 199–200 UN definition  193–95 World Bank definition  191–93 goods  14, 16, 31–35, 148, 163–66, 168–72, 174–76, 178 defective  97, 106 returned  31–34 unduly tested  31–34 governance  12, 66–67, 82, 187–92, 196–97, 199 definition  191 economic  27, 190 good, see good governance multi-level system  66–67, 190 processes  197, 199–200 product  76, 84–85 grey lists  132, 153–54, 160, 180–81 growth  9, 73, 108, 110, 194 guidance/guidelines  8–12, 15–16, 100–101, 103–5, 107–9, 151, 160–61, 182 development  10, 143–44, 155, 161

harmonisation  17, 35–36, 94, 100–101, 105–15, 119–22, 129–32, 145, 147–49, 168 maximum  23, 25, 40, 100, 109 minimum  9, 12, 41, 46–47, 109, 111–12 harmonised penalties  99, 121 harmonised rules  47, 125, 130 Hewitt de Alcántara, C.  188 high level of consumer protection  23, 31, 73, 115, 139 Hodges, C.  150, 158 horizontal direct effect  128 horizontal directives  44 human rights  192–96 hybridisation  79 imbalances  19, 23, 132, 178–79 impact assessments  1–12, 15–24, 26–29, 31–36, 56, 94–95, 98–104, 108–23, 125–26, 147–48 accompanying New Deal  110–22 better enforcement, more compliance and consumer protection  115–19 compliance costs, fair competition, consumer confidence and cross-border trade  119–21 and contract law  1–12, 122–23 and fitness checks  4–5, 12, 111–15 as hurdles to quality  26–29 inception  95–96, 100, 110–11, 113, 115, 123 previous  9, 104, 111, 114–15 implementation  41–42, 44–45, 51, 58–59, 100, 145, 192–93, 195–96 better  11, 145 costs  21 improper performance  130 incentives  8, 86, 88, 157 inception impact assessments  95–96, 100, 110–11, 113, 115, 123 inclusiveness  171, 194–95, 199 inconsistencies  2, 6–7, 42, 94, 97, 102 incumbents, state  38, 51 independence  53–56, 86–87, 192 indicative lists of unfair terms  178, 180, 182 individual consumers  7, 61, 83, 135 inducements  86–87 industrial policies  27, 49, 56 information  28, 30, 51, 96, 103, 159–60, 179, 194 available  96, 103 exchange  146, 158–59, 161 online  36, 96 in-house research  6, 50–51, 53, 57

Index  207 injunctions  3–4, 40, 43–45, 48, 94, 96–98, 114–15, 117 innovation  46, 61, 71–72, 74, 76, 90 inspection  4, 9, 24–26, 145 institutions  14, 125, 171, 173, 184–85, 190–91, 193–96, 198 instruments  4–5, 7, 42, 72–73, 102–3, 147, 156, 159 enforcement  149, 159, 161 financial  67, 72–76, 85 legal  42, 48, 51, 175 soft law  65, 168 integrated approach to financial regulation and contract law  65, 79–81, 84, 91 integration  68, 81, 129, 132, 168 intentions  174–75, 179, 185 interest(s) conflicts of  85–87 consumer  14–15, 20, 35, 127, 135, 139 economic  18, 29, 115, 122 public  8, 20, 64, 150 internal market  8–9, 16–17, 56–57, 59, 94–95, 106–10, 120–21, 127–29, 168–70, 183–85 and consumer protection  100–101, 108 international standards  12, 165, 197 interpretation  19, 25, 126, 128–31, 136–37, 139, 159–60 interventions  58, 62, 100, 103, 105, 125, 127 regulatory  74, 80, 86, 91 interviews  2, 24–25, 30, 42–45, 102, 198 intrusive regulation  62, 71, 76 investment firms  68, 70, 75–78 investor protection, consumer/retail  64, 69–70, 72–73, 75, 85 investors  72–73 retail  68, 73, 85–86 irresponsible lending  70 jack-in-the-box  125–40 judges  78, 133–35, 137–39, 151, 157, 160 judicial activism  9, 139 knowledge  23, 37, 50–51, 104, 133 better  47, 138 labels  83, 165–66 lack of data  107, 109 legal bases  6, 100–101, 145, 170 legal frameworks  45, 49, 51, 57, 63, 65 legal instruments  42, 48, 51, 175 legal matrix for consumer finance  66–67, 91 legal orders  4, 44, 66, 126, 131, 135

legal scholarship  62–63, 67, 74, 80, 90 legal systems  41, 43–44, 86, 198 legislation  13–15, 21–22, 27, 31–32, 34–35, 37–39, 139, 169–71, 176–77 legislative discourse  4–5, 8, 12, 94 legislative process  26, 28–30, 35, 125–26, 176, 180 legislative proposals  26–28, 34, 54, 56–57, 125 legitimacy  30, 56, 59, 127, 136, 185 lenders consumer  89–90 traditional  73, 90 lending  23, 89 irresponsible  70 peer-to-peer  83 responsible  70 lending-based crowdfunding  89 level playing field  100, 113, 164 liability  72, 76–78, 155, 173 liberalisation  38, 49 limitation clauses  155, 160 literature review  24, 42, 53 loans, payday  61, 70 manufacturers  85, 164–65, 169, 172–73, 176, 181 market analysis  102, 120 market integration  64, 68, 128, 131 market participants  4, 8, 10, 154, 156, 158 behaviour  107, 147 motivation  142, 152 market structures  147, 158 marketing law  22, 40–41, 46, 163, 179, 187 markets  17–18, 66–67, 74–75, 87, 89, 120, 129, 172–73 alternative finance  73–74, 81, 88–91 financial  61, 63–64, 66, 68, 74–76, 80, 85–86, 90–91 material scope  55, 128 maximum harmonisation  23, 25, 40, 100, 109 media  38, 194 audiovisual  38, 41, 49–58 freedom  54, 56 law  38, 51, 58 pluralism  52, 55 policy  39, 51, 59 social  24 methodology  5–6, 14–15, 39, 41–43, 45–46, 50, 57, 102–3 applied  44–46, 54 robust  102, 105, 109, 115

208  Index micro-businesses  20, 27, 32 minimum harmonisation  9, 12, 41, 46–47, 109, 111–12 minors, protection  49, 53, 55 modernisation  3, 24 mortgages  22, 68–70, 72, 136 motivation  5, 18, 142, 147, 152 mutual rights  178–79 national administrative law  65–66 national autonomy  131, 133, 135–36 national competent authorities (NCAs)  87 national contract law  62, 66, 68, 131, 147 national courts  9, 76, 131–39, 152, 157, 173 national law  128, 130–31, 133, 137, 140, 151–52, 167 national practices  2, 127, 134, 136 national private law  2, 65, 76, 80, 85, 87, 90 national rules  64, 113, 116, 119, 135 national standardisation organisations  165–67, 169–71, 175 natural resources  81, 195 NCAs (national competent authorities)  87 negotiated clauses  157, 159–61 negotiated terms  104, 152, 155 negotiations  27, 131, 154, 158 collective  143–44, 154, 161 EU-level  10, 104 failed  154, 159 individual  132, 177 Netherlands  45, 61, 77, 86, 165, 187 Consumentenbond  10, 144–45, 152–53 Geschillencommissie  143, 151, 153–54, 158 law  10, 97, 142, 152 legal order  151–52, 158–60 self-regulation  10, 142, 154, 158, 161 New Approach  11, 163–66, 168–73, 175–77, 180–85 New Deal  3–4, 7–10, 14, 17, 21–23, 31, 35, 95–96, 109–10, 157–62 impact assessments accompanying  110–22 meaning  145–46 and responsive enforcement compared  149–52 withdrawal case study  31–35 NGOs  166, 171 non-compliance  8, 10, 107, 115, 118, 122–23, 158–59, 161 non-compliant traders  119, 123 non-contractual remedies  99, 117, 122–23 non-economic goals  55, 57

non-food retail  154 non-legislative measures  96, 98 non-material damage  130 non-monetary benefits  86 notified bodies  169, 172 objectives  42, 47, 52–55, 59, 74, 76, 79–80 public interest  52, 56 regulatory  68, 83 obligations  31–34, 51–52, 56, 132–33, 148, 157–59, 161, 170–71, 173–76, 178–79 information  15, 97, 105 of traders  10, 161 transparency  2, 98–100, 113, 145–46, 170 observer status  178, 184 ODR (online dispute resolution)  41 OECD  21, 143–45, 152, 158 on-demand services  49, 54, 56 online alternative financial markets  65, 81, 88–90 online dispute resolution (ODR)  41 online information  36, 96 online marketplaces  98, 120 online platforms  3, 50, 55, 96, 120 online questionnaires  45, 47 online retailers  112 online sales  33, 110 Online Sales Directive, draft  8–9, 98–99, 108, 111–12, 115 open public consultation  43–45, 47 openness  196, 198–99 open-textured norms  9, 139 organisational culture  65, 81, 87–88, 91 out-of-court redress  17 package travel  41, 99, 101, 130, 145–46, 153 Parker, C.  150, 152, 155, 159 parties  65, 68, 71, 132, 154, 166–67, 174–76, 179 private  62, 65–66, 128, 166, 168, 191 weaker  19, 132, 134, 136 paternalistic approach  70–71, 78 path dependency  48, 199 payday loans  61, 70 peer-to-peer finance  69, 83, 89 penalties  113, 116, 118–19, 150 harmonised  99, 121 performance improper  130 indicators  52 measurement  182

Index  209 platforms electronic  69, 89 online  3, 50, 55, 96, 120 video-sharing  56 pluralism  54, 56, 194–95, 197 media  52, 55 policy agenda  6, 54, 57, 68, 71, 74, 90 policy cycle  28, 100, 115 policy discourse  62, 67, 74, 80, 90–91 policy options  5, 8–12, 109 business-friendly  22–23 policy-based evidence  38, 58 political agenda  20, 37, 39, 48, 50, 56–57 politics  190–91 of EU research  37–59 Popper, Karl  37–38, 59 positive ex ante enforcement  159, 161 post-crisis era  62, 65, 68, 70, 72–75, 87–88, 90–91 practice  30–31, 66–67, 74, 76, 85, 87, 175–76, 192–93 contract  63, 68, 71, 74, 87, 90–91 preambles  81, 106, 130 preliminary references  131, 137, 172 prices  15–17, 20, 72–73, 94, 97–99, 105, 112 private actors  143, 152, 155, 159, 161, 189 private enforcement  76, 78–79, 116–17, 143–44, 150, 158 cross-border  105, 146 private interests  8, 65, 90 private law  63–64, 66, 77–78, 88, 93, 172–73, 177 national  2, 65, 76, 80, 85, 87, 90 private parties  62, 65–66, 128, 166, 168, 191 private remedies  116–18, 122, 146 private sector  192–93, 195 product governance  76, 84–85 product safety  11, 171, 181, 183, 185 products  74, 85, 164–65, 167–69, 172–73, 176, 178, 182–83 proposals, legislative  26–28, 34, 54, 56–57, 125 protection  35, 38, 44–45, 83–84, 113, 115, 133–34, 194–95 civil procedural  7, 143 effective  18, 133, 135–36, 157 financial consumers  62, 68, 83–84 levels  29, 35, 44–45, 115, 120 of minors  49, 53, 55 prudential regulation  64–65, 70, 74, 88 public authorities  16, 23, 32–34, 78, 166–68, 172

public consultation  32, 48, 54, 112, 198, 200 open  43–45, 47 public enforcement  35, 66, 75–76 public interest  8, 20, 64, 150 objectives  52, 56 public online consultation  104, 107 public policy  37, 111 public services  38, 192 public supervision  66, 75, 77, 79 qualified entities  43–44, 97 qualified majority voting  39, 168 qualitative arguments  109, 118, 122 qualitative assessments  24, 114 qualitative data  25, 32 quality  4–5, 164–65, 169, 178, 192–93, 196–97, 199–200 data  23–26 impact assessments as hurdles to  26–29 issues  164, 175, 185 management systems  164–65 regulatory  192–93, 195 standards  164–65, 178 questionnaires  44–46, 53 online  45, 47 quota rules  52, 57 reasoning  5–6, 8, 118–19, 131, 134, 150, 153 red tape  13, 18, 102 redress  63, 78, 85, 99 collective  18, 24, 76, 114, 118, 144–45 out-of-court  17 REFIT audiovisual media services  38, 41, 49–58 consumer law  39–50, 52–53, 55, 57–59 consumer protection  13–35 distorted data quality  23–26 ex ante and ex-post evaluation methodology  20–31 favouring businesses  17–20 findings and applied methodology  44–47, 54–56 introduction  13–14 platform  1, 6, 30 political action, political agenda  48–49, 56–57 politics of EU research  37–59 Scoreboard  13–14 stakeholder groups  30, 96 tender, methodology and tasks of evaluation  41–44, 50–54 withdrawal case study  31–35

210  Index reforms  2, 4, 14–17, 21, 31, 129 refunds  33, 35, 77 regulation  14–16, 19–21, 59, 64, 104–5, 131–32, 145–49, 170–71, 188–90, 192–95 financial, see financial regulation intrusive  62, 71, 76 market  127–28 responsive  10, 142, 147–49, 161 smart  12 regulators  1, 4, 7, 50, 53–56, 74 financial  64, 67, 71–73, 76, 84, 88 regulatory authorities  53, 55–56 regulatory burdens  2, 4, 6, 16, 19–20, 29 regulatory coherence  63, 80, 91 regulatory framework  42, 166, 169–70, 177, 181–82, 185 regulatory interventions  74, 80, 86, 91 regulatory measures  39, 71–72, 74, 80, 86, 91 regulatory quality  192–93, 195 Regulatory Scrutiny Board (RSB)  27–28, 96 regulatory standards  59, 63, 87, 90–91, 189 regulatory tools  83, 164, 168, 179, 185 relationships  59, 65–66, 68–70, 80, 84, 172–73 economic  188, 195, 197 relevance  42, 44–47, 52, 55, 59, 196, 198 remedies administrative  118 civil  85 contractual  8, 117 non-contractual  99, 117, 122–23 private  116–18, 122, 146 remuneration  86–87 structures  62, 65, 81, 85–87 reports  24, 32, 44, 51–55, 57, 95–96, 104, 138 country  44–45, 47, 53 national  52 representative actions  96, 98, 117, 122, 145–46, 156–57, 160 research  37–39, 45, 58–59, 95, 101, 104 desk  24, 114–15 fundamental  38, 58–59 responsibility  73, 75, 170, 172, 193, 196 responsive enforcement  141–43, 147, 158 difficult transformation  157–58 and New Deal compared  149–52 problems  155–57 recommendations  158–60 willingness to comply and complexity of law  152–55 responsive regulation  10, 142, 147–49, 161 responsiveness  193–94, 199

retail  61, 63, 66, 80, 82–83, 85–86, 90–91 financial markets  68–71 investors  68, 73, 85–86 non-food  154 returned goods  31–34 review  2, 43, 48, 112, 115, 174–80 mechanisms  175, 178–79 rights  18, 106, 116–18, 144, 146, 150, 156, 177 consumer  2–3, 9–10, 24–26, 40–41, 97–99, 103–5, 113–14, 120–23, 141–43, 149–52 human  192–96 mutual  178–79 withdrawal, see withdrawal risks  31, 38, 70–74, 78, 80, 86–89 robust data  24, 114 RSB, see Regulatory Scrutiny Board rules  39–40, 49–50, 53–56, 58, 65, 77, 85–87, 129–30, 155–56, 192–97 common  125, 130–32 conduct of business  66, 75, 77–78, 83, 86 harmonised  47, 125, 130 national  64, 113, 116, 119, 135 safeguards  4, 20, 55, 65, 85 safety  18, 64, 183 food  15 product  11, 171, 181, 183, 185 sanctions  8, 10, 75, 143, 147, 155, 158–59 administrative  75–76, 78, 116 SCM (Standard Cost Model)  21 scrutiny  36, 39, 44, 52, 59, 106, 108 supervisory  62, 87 self-regulation  4, 10–11, 118, 154–55, 160–61, 166, 185 development  143, 155 Netherlands  10, 142, 154, 158, 161 sellers  106, 132–33, 172, 176–79 distance  24 service contracts  65–66, 98, 182 service providers  77, 165, 176, 179 services  49, 51, 86, 130, 163–66, 168–71, 174–76, 182 digital  100, 120 electronic  148 new  56–57 public  38, 192 Single Supervisory Mechanism (SSM)  87 smart regulation  12 SMEs  18, 20, 23, 31–33, 158, 160, 171 social media  24 social partners  27, 30 Spain  134

Index  211 specifications, technical  168, 172, 175 SSM (Single Supervisory Mechanism)  87 stability, financial  68–73, 83–84 stakeholder consultation  30, 38 stakeholder groups  16–19, 26, 29–30, 104 stakeholders  24, 30–31, 42, 98, 102, 121–22, 170–72, 178–79, 183, 185 Standard Cost Model, see SCM standard terms  9–11, 142–44, 149–50, 152, 154, 156–57, 174–77, 185 standardisation  11, 164–65, 167, 170, 183, 185 European, see European standardisation organisations European  164–65, 174, 183 national  165–67, 169–71, 175 process  164–67, 169–71, 173–75, 177–79, 183–84 standards  58–59, 163–67, 169, 171, 174, 177, 181–82, 185, 192–93 good governance  197, 199–200 international  12, 165, 197 quality  164–65, 178 regulatory  59, 63, 87, 90–91, 189 technical  164, 168–69 state incumbents  38, 51 status quo  9, 11, 33, 45, 100 suitability  31, 150, 162 collective  88 supervision  161, 172 active  160–61 public  66, 75, 77, 79 supervisory authorities, financial  66, 78–79, 87–88 supervisory scrutiny  62, 87 suppliers  106, 130, 132–33, 172 supranational entities  189–90 sustainability  14, 81–83, 88, 90–91 sustainable development  80–84, 193–95 strategy  63, 65, 80, 82, 91 taxi drivers  48–49, 198 taxpayers  49, 59, 72 technical committees  166–67, 181 technical compatibility  164, 175, 182, 184 technical specifications  168, 172, 175 technical standards  164, 168–69 technological developments  11, 52, 180 telecommunications  41, 56 terms  74–75, 80–81, 89–91, 132–34, 149–50, 152–56, 158–61, 163–64, 174–75, 177–82 negotiated  104, 152, 155

standard  9–11, 142–44, 149–50, 152, 154, 156–57, 174–77, 185 unfair  8–11, 97–100, 104, 112, 131–34, 136, 142–44, 149, 151–52, 154–61 third parties  28, 62, 71, 86–87 thoroughness  55–56 timeshares  22, 94, 99, 101, 112 toolbox  13–14, 16, 23 trade  9, 72, 74, 83, 129, 168 traders  31–34, 106–8, 112–13, 116, 119–20, 142–44, 146, 148–50, 152–54, 156–59 non-compliant  119, 123 transparency  5, 82, 86, 96–97, 179–80, 193–95, 199 obligations  2, 98–100, 113, 145–46, 170 requirement  179, 182 travel, package  41, 99, 101, 130, 145–46, 153 trust  17, 23, 47, 104–6, 118, 120–21 unduly tested goods  31–34 UNESCAP (United Nations Economic and Social Commission for Asia and the Pacific)  194, 197, 199–200 unfair commercial practices  10, 44–46, 97–99, 103–4, 106, 108–9, 116–17, 120–21, 123, 142–43 unfair terms  8–11, 97–100, 104, 112, 131–34, 136, 142–44, 149, 151–52, 154–61 and European standardisation  163–85 introduction  164–68 indicative lists of  178, 180, 182 unfairness  132, 135–36, 138–39, 159, 164, 180–85 possible  157, 160 United Nations Economic and Social Commission for Asia and the Pacific, see UNESCAP value  6–8, 33–34, 42, 44–47, 52–59, 94–95, 101–2, 197–98 diminished  23, 31, 33–35 Van den Abeele, E.  20–21, 27, 30 voting  166–68, 178 vulnerable consumers  28, 61, 70, 89 weaker parties  19, 132, 134, 136 willingness to comply  10, 143, 149, 152, 157–62 withdrawal  3, 6, 31–34, 99, 103, 113, 119 case study  31–35 World Bank  12, 191–93, 195–97, 199

212